Working Toward the Mobility Society of the Future

Message from the President The Source of Our Value Creation: What Makes Us Toyota Value Creation Story: Working toward the Mobility Society of the Future Business Foundations for Value Creation Corporate Data Message from the CSO > Roundtable Discussion with the Outside Directors > Dialogue with Institutional Investors on Corporate Governance > Corporate Governance Message from the CFO > Capital Strategy > The Environment > Vehicle Safety > Quality and Information Security > Intellectual Property and Privacy >Value Chain Collaboration Human Rights Diversity and Inclusion > Human Resource Development >Health and Safety and Social Contribution Activities > Risk Management and Compliance Dialogue with Institutional Investors on Corporate Governance On April 21, 2022, Toyota Outside Director Ikuro Sugawara, Operating Officer and Executive Vice President Masanori Kuwata, and Operating Officer Yumi Otsuka held a dialogue about corpo- rate governance with institutional investors. The following is a summary of their discussion. Toyota's Communications Question 1 It seems like Toyota's external com- munications have begun to change since the briefing on battery electric vehicle (BEV) strategy last December. Have you been making enhancing communications a significant management issue? Sugawara came to Toyota as an Outside Director in 2018. Listening to Board of Directors discussions and various briefings, I noticed that Toyota's people had a strong tendency to speak in jargon and con- cepts specific to Toyota, even in external communi- cations. For example, if you ask about specific initiatives, you find that Toyota is doing a wide range of things to address environmental problems and the Sustainable Development Goals, but when these efforts are explained in jargon, they don't get across to outsiders. Effective communication requires not just putting information out, but making sure it gets across. So, I began by asking for changes in the way we communicate within Toyota, and there has been great progress over these past four years. In the last year, especially, as we have more actively discussed governance, I think Toyota has made leaps forward. At the BEV strategy briefing or at Japan Automobile Manufacturers Association press confer- ences, President Toyoda speaks directly to stake- holders and answers questions in detail. At the Company-wide level, however, there is still some way to go toward more effective communication. The Board of Directors and we Outside Directors will con- tinue discussions in this area while encouraging executives to make improvements. Kuwata Multiple and diverse forms of communica- tion are key. While the one-way publishing of information through Toyota Times is necessary, I think that we should also consider opportunities for interaction with stakeholders, such as this dialogue. The Effectiveness of the Board of Directors Question 2 The degree of independence and diversity (particularly the percentage of women) of the Board of Directors seems low by interna- tional standards. What are your thoughts on this as an Outside Director? Sugawara Yes, as you say, the percentage of female Directors is lower than that at many compa- nies overseas. During my time as director-general of the Economic and Industrial Policy Bureau at the Ministry of Economy, Trade and Industry, I worked to advance corporate governance reforms in Japan. From my perspective, focusing our efforts on real, substantive discussion is more important than expending our energy on adjusting the Board's form. That is not to say, however, that the Board should remain as it is forever, but that the Board must approach changes in social expectations flexibly, from a longer-term perspective. I do see expanding the role of independent Outside Directors and advancing diversity as important issues. Otsuka Diversity comes in many forms, too. Dr. James Kuffner, as an internal Director, brings a back- ground in the IT industry and a non-Japanese per- spective. Working with him, we are gaining new insights and learning about specific differences in ways of ways of looking at information and managing organizations. The scope and methods of our hiring I have also been changing considerably, with growing numbers of women and mid-career hires joining Toyota. We are also revising our hiring methods and ratios, aiming to reinforce the hiring of software talent going forward. I think that these efforts will bear fruit over the longer term, leading to increased diversity in decision making. Held April 21, 2022 Question 3 What are your thoughts on the independence of the current Outside Directors? Kuwata Toyota's transactions with Sumitomo Mitsui Banking Corporation, where Outside Director Teiko Kudo has spent most of her career, are of a scale that does not hamper her independence. All three Outside Directors Mr. Sugawara, Ms. Kudo, and Sir Craven- offer input at the Board of Directors meetings and in regular communications with executives, which has led to enormous changes over the past year or two. Sugawara I feel that Ms. Kudo is effective in her posi- tion in terms of speaking up as an independent board member should, regardless of her background. Sir Craven, meanwhile, comes from a different background from the rest of us, and he brings unique opinions to discussions of such matters as human resource devel- opment and communications. In that way, they very much fulfill the role of independent Outside Director. Question 4 Toyota has only three Outside Directors. Does that make monitoring the CEO difficult? Sugawara At Toyota, the Outside Audit & Supervisory Board Members also take part in Board of Directors meetings. Final decisions are rendered by the nine Members of the Board of Directors, but they incorporate the views of the three Outside Audit & Supervisory Board Members, who bring diverse backgrounds. Also, the Outside Directors and Outside Audit & Supervisory Board Members often hold study meetings, where the six of us discuss medium- and long-term issues. In particular, we spent a considerable amount of time discussing issues related to carbon neutrality in the run-up to the BEV strategy briefing. Working alongside the Outside Audit & Supervisory Board Members, we are monitoring business execution and expressing the views of outside stakeholders on medium- and long- term issues. Strategic Shareholdings and Other Concerns Question 5 How do you regard the problems posed by strategic shareholdings in terms of asset efficiency and governance? Sugawara When I came to Toyota, the number of companies whose shares Toyota strategically held was about double what it is now, and I was con- cerned about just those issues. We discussed the purpose of these cross-shareholdings, and have since reduced them by about half. We have to be considerate of the issuers, so these reductions take time, but we are making progress. Please understand that we see the problem just as you do, and we are in the process of making revisions. Question 6 In light of the news about falsified vehicle inspections at Toyota dealerships last year, what do you think Toyota should do to avoid the kind of organizational problems that often show up in big companies? Sugawara In my work at the Ministry of Economy, Trade and Industry, I witnessed the trajectories of many companies. When a company is on the brink, the decid- ing factor is whether or not it still has sufficient younger talent to support it. Leveraging that talent is the way to survive. In that sense, I think that Toyota's greatest investment to avoid the ills of large companies is the investment it makes in its younger human resources. Kuwata As Toyota transforms from an automaker to a mobility company, the partners it works with will also change considerably. We are very aware that our values will have to evolve if we are to move for- ward. We will need to value individuality more and discard conventional ideas of the background that top-class talent should have. Efforts to promote the advancement of women and personnel system reforms will be gradual, but I hope to work to create opportunities for diverse talent to thrive. TOYOTA MOTOR CORPORATION 34 INTEGRATED REPORT