大和（8601） – [Delayed] Corporate Governance Report

This document has been translated from the Japanese original (as submitted to the Tokyo Stock Exchange) for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Daiwa Securities Group Inc. assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation. Corporate Governance Report Last Update: December 24, 2021 Daiwa Securities Group Inc. President and CEO Seiji Nakata Contact: 03-5555-1111 Securities Code: 8601 http://www.daiwa-grp.jp/english/index.html The corporate governance of Daiwa Securities Group Inc. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The Company will respect the rights and interests of the shareholders, consider the position of all stakeholders and strive for sustainable growth and improvement of medium to long term corporate value through realization of our corporate principles “Building trust”, “Placing importance on personnel”, “Contributing to society” and “Maintaining healthy earnings results”. For that purpose, the Company practices group management based on a holding company structure, establishes a highly transparent and objective governance structure that conforms to international standards, realizes highly efficient oversight of group companies and builds a unified group management system that elicits synergies among group companies. To achieve that, the Company has established “Daiwa Securities Group Inc. Corporate Governance Guidelines” to define the basic framework and policies of the Daiwa Securities Group’s corporate governance. For the contents of the guideline, please check the website below. (https://www.daiwa-grp.jp/english/about/governance/pdf/corporate_governance_guideline.pdf) The Company has adopted a company with Three Committees System (a company with nominating committee, etc.) as an institutional design in order to supervise management through the following (1) and (2). (1) Making swift and decisive decisions by having the Board of Directors assign wide-ranging authority to Corporate Executive Officers and clarifying the division of duties among Corporate Executive Officers. (2) Improving transparency and fairness of the management by establishing three committees: the Nominating Committee, Audit Committee and Compensation Committee with highly independent Outside Directors as a majority of their members. Furthermore, the Company positively addresses corporate social responsibility activities in order to obtain trust from all of the stakeholders. There are indeed various aspects to corporate social responsibility, such as providing superior products, services, and sincere responses to customers; returning profits appropriately and disclosing information to shareholders; measures for labor environment and evaluation of the employees; establishing legal compliance and corporate ethics; environmental management; as well as social contribution. 1 The Company believes that these approaches, together with a strengthened corporate governance system which emphasizes transparency, mobility and efficiency will lead to the sustainable improvement of the corporate value. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated The Company complies with all principles of the Corporate Governance Code (including the sections related to the Prime Market), which was revised in June, 2021. [Disclosure Based on the Principles of the Corporate Governance Code] Updated 【Principle 1-4】 Strategic Shareholding Shares ・ The Company and Daiwa Securities Co. Ltd. hold the strategic shareholding shares only when they determine that such shareholding serves their strategic interests. Furthermore, the Company regularly verifies the significance of such shareholding and will sell shares which are determined to be insignificant considering the impact on the market and other matters which should be taken into consideration. Total amount (book value) of the strategic shareholding shares* sold from the end of March 2016 to the end of FY2020: 6.6 billion yen (▲11%). * Excluding shares held for the purpose of alliance. ・ In the verification of the significance of the shareholding, the Company checks whether such shareholding contributes to the enhancement of medium to long term corporate value of the Company group from the viewpoint of economic rationality (i.e. whether the returns from the shares such as revenues related to client companies or dividend income, etc., exceed the standard capital cost) and objectives for the shareholding (e.g. potential for growth and enhancement of business relationships, etc.). Moreover, the Board of Directors regularly verifies the significance of each strategic shareholding shares. *The result of the verification at the end of March 2021 is as follows: Excluding shares held for the purpose of alliance, around 80% of the client companies exceed the target value. For the other approximately 20% of the client companies which are below the target value, the Company will verify qualitative aspects of the shareholding such as maintenance and enhancement of future business relationships with these companies and aim to improve the profitability of the shareholding. However, if the profitability of the shareholding does not improve in a certain period, the Company will consider selling such shares. ・ With regard to the exercise of the voting rights of strategic shareholding shares, the Company integrally determines whether or not each proposal should be approved taking into account the need to enhance medium to long term corporate value of both the strategic shareholding company and the Company group. Especially for the important proposals of the following proposals that could significantly affect the corporate value or shareholder interests, the Company will exercise the voting rights through dialogue with the client company if necessary. – Election of directors or audit & supervisory board members – Anti-Takeover measure – Organizational restructure – Distribution of Dividends of surplus, etc. ・ In addition, if there is a possibility of a conflict of interest in exercising the voting rights, the 2 Company will take appropriate measures in accordance with the Management Policy for Conflict of Interest of the Company. 【Principle 1-7】 Transactions between Related Parties ・ In order to avoid any prejudice to the Company and the common interests of its shareholders, the Company has established Regulations of the Board of Directors that a prior approval of the Board of Directors is necessary in cases where the Company conducts transactions with the Directors or Corporate Executive Officers (Shikkoyaku) of the Company or major shareholders, etc., unless the terms and conditions of the transactions are the same as those of general transactions. 【Supplemental Principle 2-4①】 Ensuring Diversity in the Appointment, etc. of Core Personnel ＜Our Approach to Ensuring Diversity＞ ・ To ensure, the Company continues to be a key part of society for the next ten years, the Company has formulated Vision 2030, a vision for the future and a shared set of action policy for all officers and employees to follow. Through Vision 2030, and with “From savings to SDGs” as the keyword, the Company will work to realize the SDGs by creating a sustainable capital cycle. To achieve the “From savings to SDGs”, the Company has set “Diversity & Inclusion” as a priority area, and is working to “Foster human resources who can provide added value”, and “Building an organization where everyone can play an active role by acknowledging diverse personalities”. ・ “Passion for the Best” 2023—the Company’s Medium-Term Management Plan—serves as a specific set of initiatives to achieve the goals and tackle the priority areas of Vision 2030. Through this plan, the Company will accelerate efforts to increase job satisfaction, improve engagement and productivity, eliminate gender gaps, and more. ＜Voluntary and Measurable Goals for Ensuring Diversity and its Progress＞ ・ Promotion of Women To develop and produce women who can play a leading role in Japanese financial industries, the Company group is actively promoting female employees. The number of women in management positions is increasing year on year, and as of the end of March 2021, the percentage of women in management positions in Japan*1 increased from 2.2% (at the end of FY2004) to 13.7%. To drive the promotion of female employees to management positions, Daiwa Securities Co., Ltd. is working to increase the percentage of women in management positions to 25% or higher by 2025, setting this target as a key management indicator. As of the end of March 2021, Daiwa Securities Co. Ltd. has increased the percentage of women in management positions from 2.3% (at the end of FY2004) to 16.3%. An increasing number of role models has made it easier for female employees to plan their careers, and in recent years, there has been a huge rise in the number of female employees seeking to advance their careers through the Company’s career-track, broad regional career-track, and regional career-track job shift systems. To date, more than 1,500 female employees have made use of these systems. More details can be found in the “Other” section of “III. 3. Measures to Ensure Due Respect for Stakeholders” in this report. ・ Promotion of Foreign Nationals The Company group boasts global operating hubs in 25 different countries and regions, and actively hires local employees in these areas. The number of overseas hires*2 is increasing year on year, and as of the end of March 2021, overseas hires make up 11.9% of the Company group’s total number of employees. Moreover, overseas hires account for 13.2% of those in management positions in both Japan and overseas. The Company group will continue to actively promote local 3 employees for overseas business expansion, such as by building a global M&A advisory network. ・ Promotion of Mid-career Hires The Company group is currently expanding its range of new businesses that have little correlation with securities, and is thus moving forward with the hiring of external, specialist personnel who can be immediately effective in the creation, extension, and development of these new segments. To respond to the diverse needs of its customers (investors and companies), Daiwa Securities Co., Ltd. is also hiring external, highly skilled personnel who can help to direct capital to businesses that contribute to the resolution of social challenges. As of the end of March 2021, mid-career hires account for more than 10% of those in management positions at Daiwa Securities Co. Ltd and subsidiaries of the Company engaged in hybrid businesses (Daiwa Next Bank, Ltd., Daiwa Energy & Infrastructure Co., Ltd., and Fintertech Co., Ltd., etc.). The Company will continue to secure the necessary personnel through the hiring of mid-career professionals. *1: In domestic consolidated subsidiaries. *2: In domestic and overseas consolidates subsidiaries. ＜Policies for and Progress in the Creation of In-house Environments for Diversity＞ ・ One of the Company’s basic policies with regard to its personnel strategy is “The development of professionals”. ・ Further, while creating a workplace environment in which all employees feel a sense of job satisfaction, the Company is aiming to develop personnel of the Quality No.1 professionals. ・ The Company’s main initiatives are as below: – Establishment of a new Expert Course for employees in roles requiring advanced expertise – Development of digital IT professional – Implementation of career training programs for women, and establishment of a career and workstyle consulting desk – Enhancement of personnel systems to support the success of veteran employees 【Principle 2-6】 Roles of Corporate Pension Funds as Asset Owners ・ Each company of the Company group, including the Company, adopted a Defined Contribution Pension Plan to allow each employee to freely build his/her assets according to his/her life plan. ・ The Company has selected Daiwa Securities Co. Ltd., a subsidiary of the Company, as the DC provider and encourages employees of each company adopting the Defined Contribution Pension Plan to provide education for the subscribers and use a matching contribution plan. 【Principle 3-1】 Enhancement of Information Disclosure (1) The Company enacts and discloses the Corporate Principles. The Company also has developed and disclosed Medium-Term Management Plan on its website. Corporate Principles （https://www.daiwa-grp.jp/english/about/management/philosophy.html） Medium-Term Management Plan （https://www.daiwa-grp.jp/english/about/story.html） (2) The basic views on Corporate Governance of the Company group are described in “I. 1. Basic Views” of this report. (3) The Company decides on the policy regarding the compensation of the Directors and Corporate Executive Officers (Shikkoyaku) in the Compensation Committee and has disclosed the policy on the Notice of Convocation of the Ordinary General Meeting of Shareholders, securities reports, and “II. 1. Organizational Composition and Operation, etc.” of this report. 4 (4) With regard to the election of Directors, the Nominating Committee, which is made up of a majority of Outside Directors, determines the candidates for the Directors. An overview of the procedure is disclosed in securities reports and “II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)” of this report. Based on the Regulations of Board of Directors, appointment and dismissal of the CEO and other Corporate Executive Officers (Shikkoyaku) are determined by the Board of Directors. The Board of Directors will appoint or dismiss based on the discussions of the Nominating Committee. The Board of Directors resolves the appointment and dismissal of the CEO based on the discussions at the Nominating Committee. The Board of Directors will dismiss the CEO and other Corporate Executive Officers (Shikkoyaku), if the Board of Directors judges that the CEO or a Corporate Executive Officer (Shikkoyaku) cannot dully fulfill his/her duties and considers it appropriate to dismiss such CEO or Corporate Executive Officers (Shikkoyaku). (5) The reasons for the election of Directors, including the Director holding concurrent post of representative Corporate Executive Officer (Shikkoyaku), are explained in the Appendix 1 of this report. With regard to the Outside Directors, the reasons for election are described on “Reasons for Appointment” of “Outside Directors’ Relationship with the Company (2)” of [Outside Directors] of “II. 1. Organizational Composition and Operation, etc.” of this report. 【Supplemental Principle 3-1③】 Sustainability Initiatives ・ The Company group has formulated Vision 2030 to coincide with the target year of the SDGs. At the same time, the Company group has put together a Medium-Term Management Plan “Passion for the Best” 2023 to map out specific strategies for the first three years, which are essential to achieving the goals of Vision 2030. As part of this Medium-Term Management Plan, the Company group has established a set of non-financial KPIs related to human resources and sustainability. ・ Initiatives for sustainability through these management strategies, including investment in human capital and intellectual property, as well as initiatives in line with TCFD recommendations, are disclosed through the Company group’s Integrated Report and its SDGs website. 【Supplemental Principle 4-1①】 Scope of Delegation to the Managers ・ In order to promote swift decision-making and efficient group management, the Board of Directors of the Company, in principle, delegates the decision-making authority regarding the execution of operations to the Corporate Executive Officer (Shikkoyaku) or the Executive Management Committee, which is comprised of the Corporate Executive Officers (Shikkoyaku), except for the matters that, according to the laws and regulations, have to be decided by the Board of Directors. 【Supplemental Principle 4-1③】 Succession plan for the CEO ・ The CEO establishes a succession plan for the CEO based on management strategy, business strategy and etc., and reports to the Nominating Committee. The Nominating Committee supervise its content properly. ・ In case of unexpected situations for the CEO, COO will act for the CEO. The CEO will also establish a succession plan in case of unforeseen situations. 【Principle 4-9】 Independence Criteria and Qualities of the Independent Outside Directors ・ The Company formulates evaluation criteria on the independence for becoming an Independent 5 Outside Director at the Nominating Committee. Such criteria are disclosed in securities reports and “2. Auditing and Oversight (1) Nominating Committee” of “II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)” of this report. 【Supplemental Principle 4-10①】 Authority and Roles, etc. of the Nominating Committee and Compensation Committee ・ The Company’s Nominating Committee, Audit Committee, and Compensation Committee shall each comprise at least three Directors appointed by the Board of Directors. Further, the majority of these committees shall be made up of independent Outside Directors. ・ The Chairman for each of these committees shall be selected by the committee from among the Outside Directors, who are themselves committee members. ・ For more information on the composition, authority, and roles, etc. of each committee, please refer to “Committees” of “II. 1. Organizational Composition and Operation, etc.” and “II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions, etc.” of this report. 【Supplemental Principle 4-11①】 Our Approach to Board of Director Diversity ・ Regarding the personnel composition of the Board of Directors, the Company strives to ensure a balance of knowledge, experience, and ability, as well as diversity with regard to gender and internationality, etc. ・ For Outside Directors, the Company appoints Outside Directors who have management experience at other companies. ・ The skills matrix of Outside Directors outlining their knowledge, experience, ability, and other relevant information is disclosed in the Company’s Integrated Reports, etc. ・ The Company’s appointment policy for Director candidates is disclosed in “2. Auditing and Oversight (1): Nominating Committee” of “II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions, etc. (Overview of Current Corporate Governance System)” of this report. 【Supplemental Principle 4-11②】 Status of Directors’ Concurrent Posts ・ Status of holding concurrent posts of the Outside Directors is disclosed on the Notice of Convocation of the Ordinary General Meeting of Shareholders and “II. 1. Organizational Composition and Operation, etc.” of this report. ・ The status of other Directors is described in the Appendix 2 of this report. 【Supplemental Principle 4-11③】 Evaluation of the Effectiveness of the Board of Directors ・ The Company implements the effectiveness evaluation of the Board of Directors annually. ・ The Company takes a survey for all of the Directors. Based on the results of the survey, the Company implements the interview for them, and analyzes and evaluates the results of those interviews. The results of the evaluation are reported to the Board of Directors and discussed by the directors in order to implement PDCA cycle. The Company endeavors to maintain and enhance the effectiveness of the Board of Directors using such PDCA cycle. ＜Measures in response to the results of the evaluation of the effectiveness of the Board of Directors in FY2019＞ ・ Based on the issues pointed out in the evaluation of the effectiveness of the Board of Directors in FY2019, the Company reconfirmed the role of the Outside Directors and clarified it in Corporate 6 Governance Guidelines. Also, the Company has strengthened its support for the Outside Directors by actively utilizing the Outside Directors’ meetings and promoting information sharing, etc. Furthermore, the Company actively discussed strengthening group governance, “Customer First” operations, further promotion of SDGs/ESGs initiatives, DX (digital transformation), and potential risks related to the spread of coronavirus (COVID-19), etc. ＜Overview of the results of the evaluation of the effectiveness of the Board of Directors in FY2020＞ ・ Regarding the evaluation of the effectiveness of the Board of Directors in FY2020, the Company evaluated the following items with reference to the advice of an external third-party organization and confirmed that the effectiveness is ensured. Evaluation Items 1. Strategy and its execution, 2. Risk and crisis management, 3. Corporate culture, 4. Performance monitoring, 5. Investment and business alliance, etc. 6. Engagement with stakeholders, and 7. Composition and operation of the Board of Directors. ・ Directors pointed out that it is necessary to strengthen monitoring of the new Medium-term Management Plan and risks, and to discuss DX and SDGs/ESG. Furthermore, there was an opinion that it is necessary to deepen the common understanding of the functions and roles of the Board of Directors and to further streamline the operation of the Board of Directors. ・ The Company will continuously endeavor to enhance the effectiveness of the Board of the Directors to earn trust from various stakeholders and improve the corporate value sustainably. 【Supplemental Principle 4-14②】 Policy on Training for the Directors ・ The Company provides training and explanations to newly appointed Directors when they take office so that they can effectively fulfill their roles and duties, and continues to support for them to acquire information and knowledge to fulfill their roles even after taking office. ・ For Outside Directors, the Company shares sufficient internal information and bears the expenses for the Outside Directors to fulfill their roles (use of outside experts, etc.) ・ The Company provides a wide range of training content, including description of business of the Company, laws, regulations and compliance, corporate governance, and the roles and duties, etc. of officers, etc. and supports directors to fully fulfill their functions. ＜Training implementation status in FY2020＞ ・ Training for newly appointed officers (April) Participants: newly appointed officers of the Company group Contents: Management policy, Authority and responsibility of officers, Governance system of the Group, Legal position of officers, Labor administration and social trends, etc. ・ Training for officers (July) Participants: officers of the Company and Daiwa Securities Co., Ltd. Contents: Change of society based on the technology and management, Recent trends in compliance, Basics and practices of harassment prevention, etc. ・ Training for newly appointed Outside Directors ・ Training for Outside Directors (October) Participants: Outside Directors of the Company Contents: Global risks, Issues of securities business and the direction to aim for ・ Compliance Training for officers (December) Participants: officers of the Company group Contents: Prevention of insider trading, Elimination of antisocial forces, Strengthening of measures against money laundering and financing of terrorism and Information security ・ Domestic branch visit 7 Participants: Outside Directors of the Company Contents: Understanding of business through inspects the branch of Daiwa Securities Co. Ltd., and exchange of opinions with employees. 【Principle 5-1】 Policy on Constructive Communication with Shareholders ・ The Company has established the “IR Office”, a fully specialized dedicated section in charge of IR activities of the Company group that tries to promote constructive communication with shareholders cooperating with each company of the Company group. ・ The Company has determined the “Disclosure Policy” which summarizes the general considerations with regard to the information disclosure. The Company is committed to disclosing the information in a fair, timely and adequate manner pursuant to the Disclosure Policy. ・ Furthermore, the Company has adopted internal rules, Disclosure Rules, and has also established the Disclosure Committee which, as the subcommittee of the Executive Management Committee, decides on information disclosure in order to embody the spirits of the policy. ・ The Disclosure Policy is available at the Company’s website: https://www.daiwa-grp.jp/english/ir/disclosurepolicy.html ・ For more details on the IR activities, please see “III. 2. IR Activities” of this report. 2. Capital Structure Percentage of Foreign Shareholders From 20% to less than 30% [Status of Major Shareholders] Name / Company Name The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) Taiyo Life Insurance Company Barclays Securities Japan limited Nippon Life Insurance Company Northern Trust Co. (AVFC) Re Silchester International Investors International Value Equity Trust JAPAN POST HOLDINGS Co., Ltd. Daiwa’s Employee Stock Ownership Association Custody Bank of Japan, Ltd. (Trust Account 5) STATE STREET BANK WEST CLIENT – TREATY 505234 Number of Shares Owned 129,328,700 Percentage (%) 61,931,800 41,140,000 34,390,900 31,164,237 30,973,100 30,000,000 23,389,036 22,649,600 22,299,852 8.48 4.06 2.69 2.25 2.04 2.03 1.96 1.53 1.48 1.46 Controlling Shareholder (except for Parent Company) Parent Company ― Nil Supplementary Explanation ― 8 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year Tokyo Stock Exchange First Section and Nagoya Stock Exchange First Section March Securities & Commodity Futures Transactions Equal to or more than 1,000 From ¥100 billion to less than ¥1 trillion 100 or more to less than 300 companies 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling 5. Other Special Circumstances which may have Material Impact on Corporate Governance ・ No particular matters to be described. Shareholder ― 9 II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation, etc. Organization Form Company with Three Committees [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation 20 1 year Chairman of the Board of Directors Number of Directors Chairperson of the Board (except holding concurrent post of president) 14 [Outside Directors] Number of Outside Directors Number of Independent Directors designated among Outside Directors 7 7 Outside Directors’ Relationship with the Company (1) Name Attribute Michiaki Ogasawara Other Hirotaka Takeuchi Academic Ikuo Nishikawa Certified Public Accountant Eriko Kawai Academic Katsuyuki Nishikawa Attorney at law Toshio Iwamoto From another company Yumiko Murakami From another company Relationship with the Company* a b c d e f g h i j k * Categories for “Relationship with the Company” * ”○” when the Director presently falls or recently fell under the category; * ” when the Director fell under the category in the past ““●” when a close relative of the Director presently falls or recently fell under the category; △“▲”when a close relative of the Director fell under the category in the past a. Executive of the listed company or its subsidiaries b. Non-Executive Director or executive of a parent company of the listed company c. Executive of a fellow subsidiary company of the listed company d. A party whose major client or supplier is the listed company or an executive thereof e. Major client or supplier of the listed company or an executive thereof 10 f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the listed company besides compensation as a Director/Audit & Supervisory Board Member g. Major shareholder of the listed company (or an executive of the said major shareholder if the shareholder is a legal entity) h. Executive of a client or supplier company of the listed company (which does not correspond to any of d, e, or f) (the Director himself/herself only) i. Executive of a company, between which and the Company outside Directors/Audit & Supervisory Board Member are mutually appointed (the Director himself/herself only) j. Executive of a company or organization that receives a donation from the listed company (the Director himself/herself only) k. Others Committees Name Outside Directors’ Relationship with the Company (2) Nominating Committee Compensation Committee Audit Committee Designation as Independent Director Supplementary Explanation of the Relationship Michiaki Ogasawara ○ ○ ○ Reasons for Appointment ＜Reasons for Appointment as Outside Director＞ He served successively as the Director-General of Global ICT Strategy Bureaus and the Vice-Minister of Ministry of Internal Affairs and Communication etc. The Company believes that he is qualified for the Outside Director because he has specialized experience and knowledge accumulated through his career. ＜Reasons for Appointment as Independent Director＞ He fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because it is believed that there is no conflict of interest between general shareholders and him, the Company designates him as an Independent Director. Advisor of Sumitomo Corporation; Outside Director of Tokyu Fudosan Holdings Corporation; Chairman of Foundation for MultiMedia Communications; Advisor of Fujitsu Future Studies Center Ltd.; and Outside Director of KOEI TECMO HOLDING CO., LTD. He has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, 11whichever is higher. Professor of Harvard Business School; Outside Director of Integral Corporation; Senior Advisor of P&E Directions, Inc; Outside Director of BrightPath Biotherapeutics Co., Ltd.; Director of t-lab; Principal of Global Academy K.K.; Co-founder and Special Advisor to the Board of GlobalTreehouse Inc.; and Chair of the Board of Trustees of International Christian University. He has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, whichever is higher. Outside Director of MEGMILK SNOW BRAND Co., Ltd.; Guest Professor of ＜Reasons for Appointment as Outside Director＞ He served successively as the Professor of Hitotsubashi University, Faculty of Commerce and Management and Professor of Harvard Business School, etc. The Company believes that he is qualified for the Outside Director because he has specialized experience and knowledge accumulated through his career. ＜Reasons for Appointment as Independent Director＞ He fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because it is believed that there is no conflict of interest between general shareholders and him, the Company designates him as an Independent Director. ＜Reasons for Appointment as Outside Director＞ He served successively as the Representative Partner of Century Audit Hirotaka Takeuchi ○ ○ ○ Ikuo Nishikawa ○ ○ ○ 12Graduate School of Keio University, Faculty of Business & Commerce; and Outiside Audit & Supervisory Board Member of Tokio Marine & Nichido Fire Insurance Co., Ltd. He has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, whichever is higher. Outside Director of CMIC HOLDINGS Co., Ltd.; Outside Audit & Supervisory Board Member of Yamaha Motor Co., Ltd.; Professor of Graduate School of Advanced Integrated Studies in Human Survivability, Social Innovation Center, Kyoto University; Senior Advisor of International Management Forum Co., Ltd.; Corporation and Chairman of Accounting Standards Board of Japan, etc. The Company believes that he is qualified for the Outside Director because he has specialized experience and knowledge accumulated through his career. ＜Reasons for Appointment as Independent Director＞ He fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because it is believed that there is no conflict of interest between general shareholders and him, the Company designates him as an Independent Director. ＜Reasons for Appointment as Outside Director＞ She held positions such as the Pension Funds Administrator of BIS and OECD, etc. The Company believes that she is qualified for the Outside Director because she has ample experience and knowledge about corporate management accumulated through her career. ＜Reasons for Appointment as Independent Director＞ She fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because the Company believes that there is no 13Eriko Kawai ○ ○ ○ Outside Director of Mitsui Fudosan Co., Ltd. She has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, whichever is higher. Attorney at Nishikawa Katsuyuki Law Office; and Outside Audit & Supervisory Board Member of Aeon Hokkaido Corporation. He has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, whichever is higher. conflict of interest between general shareholders and her, the Company designates her as an Independent Director. ＜Reasons for Appointment as Outside Director＞ He served successively as the Vice-Minister of Justice, the Superintending Prosecutor of the Tokyo High Public Prosecutors Office and the Prosecutor General and is currently an attorney at law. The Company believes that he is qualified for the Outside Director because he has ample experience and professional knowledge about law and compliance accumulated through his career. ＜Reasons for Appointment as Independent Director＞ He fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because it is believed that there is no conflict of interest between general shareholders and him, the Company designates him as 14Katsuyuki Nishikawa ○ ○ ○ Advisor of NTT DATA Corporation; and Outside Audit& Supervisory Board Member of IHI Corporation. He has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, whichever is higher. General Partner of MPower. She has executed an agreement, which sets forth that the maximum amount of liability under the said agreement shall be 10 million yen or the minimum liability amount in Article 425 of the Companies Act, whichever is higher. an Independent Director. ＜Reasons for Appointment as Outside Director＞ He held positions such as the President of NTT DATA Corporation, etc. and currently is the Advisor of NTT DATA Corporation. The Company believes that he is qualified for the Outside Director because he has significant accumulated experience in management of global companies and experience and extensive knowledge about IT through his career. ＜Reasons for Appointment as Independent Director＞ He fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because it is believed that there is no conflict of interest between general shareholders and him, the Company designates him as an Independent Director. ＜Reasons for Appointment as Outside Director＞ She worked for the United Nations, Goldman Sachs Japan Co., Ltd. and Credit Suisse Securities (Japan) Limited, and Head of Organization for Economic Cooperation and Development (OECD) Tokyo Centre. The Company believes that she is qualified for the Outside Director because she has significant global experience and experience about corporate management and Toshio Iwamoto ○ ○ ○ Yumiko Murakami ○ ○ ○ 15 understanding of the securities business through her career. ＜Reasons for Appointment as Independent Director＞ She fulfills the requirements for Independent Directors as defined by the Company and the stock exchanges. Because the Company believes that there is no conflict of interest between general shareholders and her, the Company designates her as an Independent Director. [Committees] Committee’s Composition and Attributes of Chairman Nomination Committee Compensation Committee Audit Committee All Committee Members Full-time Members Internal Directors Outside Directors Chairman 7 6 7 0 0 2 2 2 2 5 4 5 Outside Director Outside Director Outside Director [Corporate Executive Officers (Shikkoyaku)] Number of Corporate Executive Officers (Shikkoyaku) 16 Status of Additional Duties Name RepresentativeAuthority Additional Duties as Director Nomination Committee Member Compensation Committee Member Additional Duties as Employee Seiji Nakata Toshihiro Matsui Keiko Tashiro Kazuo Takahashi Mikita Komatsu Koichi Matsushita Yes Yes No No No No Masahisa Nakagawa No Yes No No No No No No Yes Yes Yes No No No No 16Yes No No No No No No No No No No No No No Akihiko Ogino Shinsuke Niizuma Atsushi Mochizuki No Junichi Arihara Yoshifumi Otsuka Kana Shirakawa Tomoyuki Murase Eiji Sato Takashi Hibino No No No No No No No No Yes No No No No No No No Yes No No No No No No No No Yes No No No No No No No No Yes [Auditing Structure] Appointment of Directors and/or Employees to Support Audit Committee Appointed No No No No No No No No No Matters Related to the Independence of Such Directors and/or Employees from Corporate Executive Officers (Shikkoyaku) ・ The Company has established Audit Committee’s Office as a full-time post to support the duties of Audit Committee. ・ Personnel affairs, change of organization, etc. of the Audit Committee’s Office require consent of Audit Committee or Audit Committee member selected by Audit Committee. Cooperation among Audit Committee, Accounting Auditors and Internal Audit Division ・ In FY2020, Audit Committee held periodic meetings three times with KPMG AZSA LLC, Accounting Auditors. Audit Committee has received reports on audit plan, circumstances and result of the audit, etc. from Accounting Auditors, and has evaluated independence and the quality control system of Accounting Auditors. ・ Furthermore, a member of Audit Committee, selected by Audit Committee, has been conducting hearings with Accounting Auditors as necessary. ・ Audit Committee has provided “Policy of Determination of Dismissal or Non-Reappointment to Accounting Auditors” and receives explanations about the audit Remuneration of the Accounting Auditors from the section in charge and consents to it. ・ In FY2020, Audit Committee received reports eight times from the Internal Audit Department on the circumstances of internal audit of the Company and the group companies. ・ Furthermore, a member of Audit Committee, selected by Audit Committee, makes inquiries to the Internal Audit Department on progress and results of internal audits as necessary, and attends the Group Internal Audit meetings and makes remarks as necessary. ・ Audit Committee or a member of Audit Committee selected by Audit Committee consents to important issues on the internal audit, such as Audit Policy of Internal Audit or formulation of internal audit plan etc. ・ Audit Committee is able to put forward inquiries to the Internal Audit Department as necessary. [Independent Directors] 17 Number of Independent Directors 7 Matters relating to Independent Directors ― [Incentives] Incentive Policies for Directors and/or Corporate Executive Officers (Shikkoyaku) Introduction of Performance-linked Remuneration and others Supplementary Explanation Performance-linked Remuneration ・ Determined depending on the level of individual contribution, mainly on the basis of consolidated ROE and consolidated ordinary income, which are set as Performance KPIs of the Medium-Term Management Plan, while also comprehensively taking into account achievement status of the managerial goals set in the Medium-Term Management Plan and the other relevant factors and provided at a certain time every year. ・ A certain limit is set on Performance-linked remuneration to be paid in cash based on business performance. If Performance-linked remuneration exceeds the limit, the exceeded amount will be paid in restricted stock instead of cash. ・ It does not apply to Directors who do not serve as Corporate Executive Officers. Stock-linked Remuneration ・ To increase the link between remuneration and shareholders’ value, the Company grants, as Stock-linked remuneration, restricted stock, etc. the value of which corresponds to a certain percentage of base remuneration as non-monetary remuneration at a certain time every year. ・ It does not apply to Outside Directors. ※Please refer to Appendix 3 for ratio of Performance-linked Remuneration and remuneration other than Performance-linked remuneration, indicators for Performance-linked Remuneration, reasons for choosing the indicators, and how to determine Performance-linked Remuneration. ※Regarding the Stock Options, the Company issued Series 17 Stock Acquisition Rights in August 2020 as stock options to employees of the Company and its subsidiaries, and directors and executive officers of the Company’s subsidiaries as an incentive to contribute towards increasing consolidated performance and to enable the recruitment of talented personnel. Recipients of Stock Options Supplementary Explanation ― [Compensation for Directors and Corporate Executive Officers (Shikkoyaku)] Disclosure of Individual Directors’ Remuneration Selected Directors Disclosure of Individual Corporate Executive Selected Corporate Executive Officers (Shikkoyaku) 18 Officers’ (Shikkoyaku) Remuneration Supplementary Explanation ・ In FY2020, Amounts of Remunerations, etc. paid based on Resolution of the Compensation Committee for 9 Directors were 194 million yen, and for 16 Corporate Executive Officers (Shikkoyaku) were 1,307 million yen, totaling 1,501 million yen for 25 members. ※ Performance-linked Remuneration is included. ※ The above paid amounts include Restricted Stock alotted to the Directors and Corporate Executive Officers (Shikkoyaku) valued at 215 million yen in total. ※ The total Remuneration, etc. paid to the 7 Outside Directors was 126 million yen. ※ The Remunerations to the 5 Directors who also serve as Corporate Executive Officers (Shikkoyaku) are stated in the amount paid to the Corporate Executive Officers (Shikkoyaku). Disclosure Status of Remuneration for Directors and Corporate Executive Officers (Shikkoyaku) is as follows: ・ Takashi Hibino: amount of consolidated Remuneration 225 million yen （ Base Remuneration 115 million yen, Restricted Stock 23 million yen, Performance-linked Remuneration 85 million yen） ・ Seiji Nakata: amount of consolidated Remuneration 264 million yen （ Base Remuneration 115 million yen, Restricted Stock 23 million yen, Performance-linked Remuneration 124 million yen） ・ Toshihiro Matsui: amount of consolidated Remuneration 181 million yen （ Base Remuneration 86 million yen, Restricted Stock 17 million yen, Performance-linked Remuneration 77 million yen） ・ Keiko Tashiro: amount of consolidated Remuneration 133 million yen （ Base Remuneration 66 million yen, Restricted Stock 13 million yen, Performance-linked Remuneration 53 million yen） ・ Kazuo Takahashi: amount of consolidated Remuneration 131 million yen （ Base Remuneration 65 million yen, Restricted Stock 13 million yen, Performance-linked Remuneration 52 million yen） ・ Mikita Komatsu: amount of consolidated Remuneration 131 million yen （ Base Remuneration 65 million yen, Restricted Stock 13 million yen, Performance-linked Remuneration 52 million yen） ・ Akihiko Ogino: amount of consolidated Remuneration 109 million yen （ Base Remuneration 55 million yen, Restricted Stock 10 million yen, Performance-linked Remuneration 42 million yen） ・ Shinsuke Niizuma: amount of consolidated Remuneration 107 million yen （ Base Remuneration 53 million yen, Restricted Stock 10 million yen, Performance-linked Remuneration 41 million yen） ・ Atsushi Mochizuki: amount of consolidated Remuneration 107 million yen （ Base Remuneration 53 million yen, Restricted Stock 10 million yen, Performance-linked Remuneration 41 million yen） ※ The Director or Corporate Executive Officer (Shikkoyaku) whose total Remuneration, etc. paid is equal to or more than 100 million yen are listed above. ※ Performance-linked Remuneration does not include the amount granted as Restricted Stock. 19 Policy on Determining Remuneration Amounts Established and Calculation Methods Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods As stipulated by the Companies Act, the Compensation Committee has determined “Policies for Determination of Remuneration of Directors and Corporate Executive Officers”. Compensation for Directors and Corporate Executive Officers (Shikkoyaku) is determined based on the following fundamental policies. ・ To create effective incentives, which contribute to the increase of shareholders’ value through sound business development and also lead to the improvement of business performance in the short-term and in the medium/long-term. ・ To maintain a remuneration level which is competitive enough to recruit and retain people not only in Japan but also in the world as a global securities company group. ・ To ensure the execution and supervision functions operated effectively as a company with a nominating committee, etc. Remuneration for Directors and Corporate Executive Officers (Shikkoyaku) that the Compensation Committee has determined is comprised of Base Remuneration, Performance-linked Remuneration and Stock-linked Remuneration, which are described as below. ○ Base Remuneration ・ Base Remuneration is a fixed amount calculated based on his/her position, duties and role, and paid in cash monthly. ○ Performance-linked Remuneration ・ Determined depending on the level of individual contribution, mainly on the basis of consolidated ROE and consolidated ordinary income, which are set as Performance KPIs of the Medium-Term Management Plan, while also comprehensively taking into account achievement status of the managerial goals set in the Medium-Term Management Plan and the other relevant factors and provided at a certain time every year. ・ A certain limit is set on Performance-linked remuneration to be paid in cash based on business performance. If Performance-linked remuneration exceeds the limit, the exceeded amount will be paid in restricted stock instead of cash. ・ It does not apply to Directors who do not serve as Corporate Executive Officers. ○ Stock-linked Remuneration ・ To increase the link between remuneration and shareholders’ value, the Company grants, as Stock-linked remuneration, restricted stock, etc. the value of which corresponds to a certain percentage of base remuneration as non-monetary remuneration at a certain time every year. ・ It does not apply to Outside Directors. [Supporting System for Outside Directors] The Company shares sufficient internal information with Outside Directors, including following measures. ・ Corporate Secretariat and Corporate Planning Section which act as a joint secretariat of the Board of Directors and drafting department provide explanation of planned agenda and distribute reference materials to Outside Directors at least one day before the meeting of the Board of Directors. ・ Secretariat of each Committee supports Outside Directors who are chosen to be members of 20 Nominating Committee, Compensation Committee, and/or Audit Committee. [Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)] Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Name Responsibilities Job title/ position Shigeharu Suzuki Honorary Advisor Yoshinari Honorary Hara Advisor Motoo Esaka Honorary Advisor Masahiro Honorary Douzen Advisor Activities contributing to the financial world, etc. Activities contributing to the financial world, etc. Activities contributing to the financial world, etc. Activities contributing to the financial world, etc. Employment terms (Full/part time, with/without compensation, etc.) Part-time, with compensation Part-time, no compensation Part-time, no compensation Part-time, no compensation Date when former role as president/ CEO ended Term 2017/06/28 2023/03/31 2008/06/21 Indefinite 1997/09/30 Indefinite 1997/09/30 Indefinite Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) 4 Others ・ Former CEOs, etc. of the Company may engage in external activities such as their activities in contributing to the financial world, etc. as an Honorary Advisor. ・ The Honorary Advisor is not involve in business execution and oversight of it. ・ As for the Honorary Advisor, the term of office is indefinite. However, in case where compensation is paid to the Honorary Advisor, the term of office of such Honorary Advisor is fixed for a certain period of time after retirement (up to two years in total). ・ The Company believes that advisor system has certain value for improvement of corporate value and will retain the present system. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions, etc. (Overview of Current Corporate Governance System) The corporate governance system of the Company consists of (i) the Board of Directors and the Three Committees (Nominating Committee, Audit Committee, and Compensation Committee) as a supervising body, (ii) Executive Management Committee and its subcommittees (Group Risk Management Committee, Group Compliance Committee, Disclosure Committee, Group IT Strategy Committee, and Overseas Management Committee) as an executing body, and (iii) Group Internal Audit Committee, which is in direct control of the CEO as an internal audit body. In order to have a variety of views in a group management, the Company has assigned five females as its Director and Corporate Executive Officer (Shikkoyaku). The Company group has also assigned twelve females as its Directors, Corporate Executive Officers (Shikkoyaku), Executive Officers 21 (Shikkoyakuin) and Audit & Supervisory Board Member. 1. Business Execution ・ The Company established the “Executive Management Committee” as a decision-making body regarding business execution to deliberate and determine important business matters and the Company group’s business strategy and the basic policy on the structural problems between the group companies. ・ Executive Management Committee consists of all of the Corporate Executive Officers and is held once or more than once every three months. In FY2020, there were eighteen meetings in total. ・ In order to make the management decisions promptly, the Board of Directors delegated decision-making powers to the Executive Management Committee as much as possible. Furthermore, to have more expert deliberation, the Company established five subcommittees (Group Risk Management Committee, Group Compliance Committee, Disclosure Committee, Group IT Strategy Committee, and Overseas Management Committee) each of which consists of certain Corporate Executive Officers (Shikkoyaku), etc. ・ The Corporate Executive Officers (Shikkoyaku) of the Company hold main posts of Directors in group companies to have unity among group management and enable efficient and effective implementation of the divisional strategies based on the Company groups’ strategy. 2. Auditing and Oversight ・ As the auditing section of the management, the Company has established the Board of Directors, in which a Board Chairman served as a chairman and “Nominating Committee”, “Audit Committee” and “Compensation Committee” in each of which Outside Directors hold the majority and serve as Chairman. ・ The Board of Directors determine core management matters such as basic management policy, matters related to appointment and dismissal of Corporate Executive Officers (Shikkoyaku), division of duties, command system, etc., internal control systems and risk management systems. In order to make management decisions promptly and to enhance efficient group management, the Board of Directors delegates decision-making powers to the Corporate Executive Officers (Shikkoyaku) as much as possible. In addition, by supervising the execution of duties of the Directors and the Corporate Executive Officers (Shikkoyaku), the Company aims to ensure the fairness and transparency of the Group management and to achieve sustainable growth and maximization of corporate value over the medium to long term based on the corporate philosophy. ・ The Board of Directors, in which a Board Chairman served as a chairman, is held once or more than once every three months. In FY2020, there were twelve meetings in total. As of the date of submission, the Board of Directors consists of fourteen members, seven of whom are Outside Directors, nine of whom do not serve as the Corporate Executive Officers (Shikkoyaku) and four of whom are females. ・ The members of the Board of Directors and their status of attendance in FY2020 is as follows. Takashi Hibino (Chair) 12/12 (100%) Seiji Nakata 12/12 (100%) Toshihiro Matsui 12/12 (100%) Keiko Tashiro 12/12 (100%) Akihiko Ogino 9/9 (100%) (Note 2) Sachiko Hanaoka 12/12 (100%) Hiromasa Kawashima 9/9 (100%) (Note 2) Michiaki Ogasawara 12/12 (100%) (Note 1) 22 Hirotaka Takeuchi 12/12 (100%) (Note 1) Ikuo Nishikawa 12/12 (100%) (Note 1) Eriko Kawai 12/12 (100%) (Note 1) Katsuyuki Nishikawa 12/12 (100%) (Note 1) Toshio Iwamoto 9/9 (100%) (Note 1) (Note 2) Yumiko Murakami (New Appointment) (Note 1) (Note 1) Outside Directors. (Note 2) Attendance Rate at the Board of Directors’ meeting held since their appointment in June, 2020. 2. Auditing and Oversight (1): Nominating Committee ・ The Nominating Committee examines the composition of the Board of Directors and the basic idea of candidates for Director in consideration of corporate governance, and selection of candidates for Director, the succession plan of the CEO, etc. ・ The meetings of the Nominating Committee are held once or more a year. In FY2020, there were six meetings in total. Directors. ・ Nominating Committee consists of five Outside Directors, including a chairman, and two Internal ・ The members of the Nominating Committee and their status of attendance in FY2020 is as follows. Michiaki Ogasawara (Chair) 6/6 (100%) (Note 1) Takashi Hibino 6/6 (100%) Seiji Nakata 6/6 (100%) Hirotaka Takeuchi 6/6 (100%) (Note 1) Eriko Kawai 6/6 (100%) (Note 1) Katsuyuki Nishikawa 6/6 (100%) (Note 1) Toshio Iwamoto 5/5 (100%) (Note 1) (Note 2) (Note 1) Outside Directors. (Note 2) Attendance Rate at the meetings of the Nominating Committee held since their appointment in June 2020. ・ In order to nominate Directors from multiple points of view, the specialized expertise of the Outside Directors is taken into consideration. ＜Policies for selection of candidates to serve as the Directors＞ Policies for selection of candidates to the position of Directors are described below: ・ Able to exert maximum effort to actualize the Company group’s Corporate Principles. ・ Have a high sense of ethics and morals and take the initiative to set a good example. ・ Have experience in the course of business or have expert knowledge in law, accounting, or management, etc. Outside Directors must also fulfill the requirements for independence listed below, in addition to the requirements above: ・ Should have no work experience as an Executive Director, Corporate Executive Officer (Shikkoyaku), Executive Officer (Shikkoyakuin), or any other person equivalent to these or an employee of the Company group. ・ Should not be a Director, Corporate Executive Officer (Shikkoyaku), manager or employee of a company whose major shareholder is the Company group or which is the main business partner of the Company group. ・ Have no matter which impairs the independence in order to perform the duty as the Director. 23 ＜Composition of the Board of Directors＞ Composition of the Board of Directors is described below: ・ In principle, two or more and one-third or more of the members of Directors shall be elected as Independent Outside Directors and the majority of the Directors shall not concurrently serve as Corporate Executive Officers (Shikkoyaku). ・ The Company endeavors to ensure a balance of knowledge, experience and ability, and diversity including gender, internationality, etc. The Company aims to increase the ratio of female Directors to 30% or more by 2030. 2. Auditing and Oversight (2): Audit Committee ・ The Audit Committee is in charge of auditing the execution of duties by the Directors and Corporate Executive Officers (Shikkoyaku), auditing business reports and financial statements, etc., preparing audit reports, and determining the content of proposals to be submitted at shareholders meetings regarding the election or dismissal and non-reappointment of the Accounting Auditor. ・ In principle, meetings of Audit Committee are held once a month. In FY2020, there were fifteen meetings in total. ・ Audit Committee consists of seven Directors who do not serve as Corporate Executive Officers (Shikkoyaku). Five members, including the chairman, are Outside Directors and other two members are full-time Internal Director. Ikuo Nishikawa, the chairman of the Audit Committee, is a certified public accountant and served as Chairman of Accounting Standards Board of Japan, etc., and has considerable knowledge of finance and accounting. Katsuyuki Nishikawa, the member of the Audit Committee, served as the prosecutor general, etc. and is a qualified attorney at law, and has considerable knowledge of law. ・ The members of the Audit Committee and their status of attendance in FY2020 is as follows. Ikuo Nishikawa (Chair) 15/15 (100%) (Note 1) Sachiko Hanaoka 15/15 (100%) Hiromasa Kawashima 12/12 (100%) (Note 2) Michiaki Ogasawara 15/15 (100%) (Note 1) Eriko Kawai 15/15 (100%) (Note 1) Katsuyuki Nishikawa 15/15 (100%) (Note 1) Yumiko Murakami (New appointment) (Note 1) (Note 1) Outside Directors. (Note 2) Attendance Rate at the meetings of the Audit Committee held since their appointment in June 2020. ・ Audit Committee members attend meetings of the Board of Directors, and Audit Committee members selected by Audit Committee attend the Executive Management Committee as well as other important meetings and have report hearings from Directors and employees to share the information with other Audit Committee members, in order for the Company to create a