伊藤園（2593） – [Delayed]Corporate Governance Report (December 1, 2021)

Corporate Governance Report Last Update: December 1, 2021 ITO EN, LTD. Daisuke Honjo, President Contact: Administration Headquarters ( https://www.itoen.co.jp/inquiry_form_global/form.html ) Securities Code: 2593 https://www.itoen-global.com/ The corporate governance of ITO EN, LTD. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views [Updated] The management principle of the ITO EN Group (the “Group”) is “Always Putting the Customer First.” The Group states in the ITO EN Group Founding Charter that its management priority is to exist for all its workers and their families and for society as a whole, and to fulfill its corporate social responsibility by cooperating with the government, local communities, consumers, shareholders, retailers, suppliers, financial institutions and other stakeholders. This group management principle is a basic concept in the Group’s business ethics and the unwavering truth that supports corporate governance. Every officer and employee of the Group is active in making concerted efforts to achieve a sustainable society in line with the interests of all stakeholders and strives to repay their trust. Under this management principle, the Group aims to be a “Health Creation Company” and fulfil our long-term vision of becoming a “Global Tea Company”. Further, the Group aims to translate its contribution to the health of customers around the world into sustainable growth and medium-to-long-term improvement in its corporate value and is committed to further strengthening corporate governance. ITO EN, LTD. (the “Company”) is a company with an audit & supervisory board. Its Audit & Supervisory Board Members shall conduct audits by seeking confirmation with Representative Directors, Directors, Executive Officers or employees regarding the status of business operations, decision-making processes and other matters to achieve appropriate corporate governance. Audit & Supervisory Board Members attend every meeting of the Board of Directors, offering fair and impartial advice and audit opinions on overall corporate affairs and each item of business, and audit business execution by the Directors in accordance with the audit policy stipulated by the Audit & Supervisory Board. [Reasons not to implement each Principle of the Corporate Governance Code] [Updated] The reason is presented based on the Code revised in June 2021. Principle 4-11 Preconditions for Effectiveness of Board of Directors and Audit & Supervisory Board The Company’s basic policy is that the composition of the Board of Directors must be well balanced as a whole taking knowledge, experience and skills into consideration and that the Board of Directors must consist of the necessary and appropriate number of members to ensure effective decision-making and substantive discussions. The Company determines the composition giving due consideration to ensuring diversity in terms of gender, internationality, career history, age and other characteristics. The Company currently has no female Directors but will continue giving much consideration to ensuring diversity in terms of gender. – 1 – (Article 6 Composition of the Board of Directors of the ITO EN, LTD. Corporate Governance Guidelines) [Disclosure Based on the Principles of the Corporate Governance Code] [Updated] Disclosure Based on the Principles of the Corporate Governance Code The Company has established the ITO EN, LTD. Corporate Governance Guidelines (the “ITO EN Guidelines”) based on the resolution of the Board of Directors as an indication of the Company’s basic views and guidelines on corporate governance. Refer to the ITO EN Guidelines on the Company’s corporate website. https://www.itoen-global.com/management/csr_csv/governance.php Principle 1-4 Cross-Shareholdings The Company maintains the policy of not conducting cross-shareholding, in principle. Provided, however, the Company conducts cross-shareholding in cases where it can be judged that cross-shareholding would facilitate transactions, procurement or financing. In addition, the Company maintains the policy of reducing cross-shareholding by stages in cases where cross-shareholding is not judged to contribute to the enhancement of the Group’s corporate value over the medium- to long-term. With regard to listed shares held by the Company in accordance with the proviso above (“shares held in cross holding”), the Company validates at the Board of Directors’ meetings every year that the return on invested capital exceeds capital cost for each stock. In addition, from the perspective of maintaining and strengthening relationships with the issuers over the medium to long term, the Company has confirmed at the Board of Directors’ meeting that the significance of cross shareholdings shall be reviewed and that any stock with reduced economic rationality and reduced significance of cross holding shall be subject to sale or reduction in holding following dialogue with the issuing entity. Regarding the exercise of voting rights of shares held in cross holding, the Company shall appropriately address the matter by closely examining each agenda and comprehensively judging if the proposed matter will contribute to the enhancement of corporate value of the Company and the issuer. (Article 14 Policy on cross-shareholding of the ITO EN Guidelines) Principle 1-7 Related Party Transactions When the Company conducts a transaction with its officers, major shareholders and others, it shall submit the matter to the Board of Directors in advance and obtain the board’s approval in order to ensure that the transaction will not adversely affect the common interests of the Company and shareholders, excluding cases in which the terms and conditions of the transaction are clearly the same as those for general transactions. (Article 13 Management system for transactions among related parties of the ITO EN Guidelines) Supplementary Principle 2-4 (1) Ensuring Diversity in the Promotion of Core Human Resources, etc. Policies for ensuring diversity in promotion to core human resources, etc. Since its foundation, the Group has aimed to achieve unparalleled greatness as set out in the ITO EN Group Founding Charter. Given this aim, the Group’s basic principle for promoting human resources is to promote based on merit, in other worlds, to promote truly competent individuals regardless of mere seniority, academic background or other characteristics. Based on this principle, the Group aims to develop an environment in which diverse human resources can thrive according to their individual abilities and aptitudes, without characteristics such as their gender, nationality or age or whether they are mid-career hires or persons with disabilities negatively affect their career opportunities. By fostering a corporate culture based on this policy of promotion based on merit, the Group aims to realize its vision of becoming a “Global Tea Company”. (Article 18 Policy on diversity of the ITO EN Guidelines) Voluntary and measurable goals for ensuring diversity in the promotion to core human resources (1) Appointment of women employees to managerial positions The Company appoints officers and managers in accordance with its policy of promoting individuals based on merit, regardless of gender. The Company recognizes that promoting women’s active participation and advancement in the workplace is an important management issue from the viewpoint of ensuring diversity and is working to improve the retention rate of women employees, to increase – 2 – support for women employees balancing their family and work lives, and to train female managers. In FY2020, the ratio of female managers was 2.3% and the ratio of female next-generation management candidates (section managers or equivalent) was 5.0%. The Company has set itself the goal of increasing the ratio of female managers and the ratio of female next-generation management candidates (section managers or equivalent) to 150% and 130% of the 2020 levels respectively by FY2023, and is aiming for even greater development and promotion in its long-term goals (2030). (2) Appointment of mid-career hires to managerial positions The ratio of mid-career hires among managers at the Company is the same as the ratio of mid-career hires among employees (around 20%), and human resources with diverse experience and knowledge are appointed as managers on a merit-basis. Currently, the Company has not set any voluntary and measurable targets for mid-career hires but it aims to develop an environment in which diverse human resources can thrive through promotion and development based on a merit-based approach. (3) Appointment of foreign nationals to managerial positions The Company currently employs 16 foreign nationals, four of whom are managers. On a consolidated group basis, around 10% of the total number of employees are foreign nationals and they are promoted according to merit at group companies around the world. The ratio of foreign nationals among managers at the Company is greater than the ratio of foreign nationals hires among employees, and employees with diverse backgrounds are playing active roles. Currently, the Company has not set any voluntary and measurable targets for foreign nationals but will encourage the appointment of foreign nationals across the Group as whole based on a merit-based approach, in line with its aim of becoming a “Global Tea Company”. Policies for human resource development and internal environment development to ensure diversity, as well as the status of their implementation (1) Policy for human resource development The Company is focusing on human resource development in line with a basic policy that career advancement should be based on merit, every single employee should have equal opportunities, and evaluations should be fair. With the management principle of “Always Putting the Customer First” at the root of all its business operations, the Company is committed to implementing health management so that every single employee is healthy and can work energetically, including developing human resources and implementing workstyle reforms. (i) Compliance training In accordance with the ITO EN Group Compliance Code of Conduct, the Company provides all employees with training to prevent discrimination because of gender, age, ethnicity, race, nationality, religion, beliefs, social status, family origin, disability or other characteristic and to ensure respect for human rights and fair treatment according to the aptitudes and abilities of individuals. (ii) Management training The Company provides training to managers to deepen their understanding of the importance of ensuring diversity as well as training on the purposes and details of systems which have been developed to enable active participation by diverse human resources. (iii) Training to promote the advancement of women in the workplace The Company provides female employees with opportunities to reach their full potential and to reconsider and shape their career/life plan to advance further in the workplace. The Company is translating the provision of rank-based training for women into improvement in the motivation and the retention rate of female employees, stronger support to help them maintain a work-life balance, and increased management training. (iv) Overseas human resource development The Company provides training to develop human resources who will support overseas business in the future, with emphasis on understanding different cultures and facilitating communication. More specifically, the Company puts out calls for employees wanting to work overseas in the near future and provides them with career development support and seeks to increase their understanding of – 3 – different cultures through a pre-entry program of training prior to overseas assignment and an overseas trainee program undertaken later after actually being assigned overseas. (2) Policy for internal environment development The Company promotes a work-life balance and develops a comfortable workplace environment for everyone by ensuring that diverse human resources can flexibly choose work styles according to their specific circumstances. (i) ITO EN Family Support System The Company has developed the ITO EN Family Support System to provide comprehensive support for ITO EN employees and their families during major life events (getting married, giving birth, raising a child, providing long-term nursing care, etc.). (ii) Workplace Environment Improvement Promotion Committee The Company has established the Workplace Environment Improvement Promotion Committee (convened twice a year, in principle) to comprehensively consider workplace environment issues and improvement measures and create a more positive workplace environment. District committees (convened 28 times in FY2020) made up of representatives of each office have been established under the Committee to exchange opinions on issues such as working hours, workplace safety and hygiene management and review future work styles. (iii) Support for persons with disabilities HR departments regularly visit employees with disabilities working at each workplace, hold meetings with the employees and their families and liaise with public support groups to ensure that employees with disabilities can play an active role and continue working long term. (iv) Voice System (internal proposal system) The Company has an employee voice scheme (Voice System for internal proposals), in which all employees regardless of the type of job they do can suggest new products, sales promotions and other ideas. This scheme keeps the spirit of “Still Now”, i.e. finding things that customers are still dissatisfied with, in the forefront of all employees’ minds and also helps improve employee motivation as internal awards are presented for excellent suggestions. For further details of human resource development and development of the internal environment, refer to the Company’s corporate website. https://www.itoen-global.com/management/csr_csv/labor_practice.php Principle 2-6 Roles of Corporate Pension Funds as Asset Owners The Company does not have a corporate pension fund plan. Principle 3-1 Full Disclosure (1) Basic views and guidelines on management principle and corporate governance Refer to “1. Basic Views” above and Article 1 (Basic concept underlying the management principle and corporate governance) of the ITO EN Guidelines. (2) Management strategy and business results Refer to the Company’s corporate website. Management strategy: https://www.itoen-global.com/about_us/message.php Most recent business results: https://www.itoen-global.com/ir/financial/financial_highlights.php (3) Board policies and procedures in determining the remuneration of the senior management and Directors Remuneration, etc. of Directors is deliberated by the Nomination & Remuneration Committee, which consists of a majority of Independent Outside Directors, to ensure objectivity and transparency in accordance with the Company’s basic views on corporate governance and basic views on remuneration. The Board of Directors determines the remuneration, etc. of directors, giving due respect to the report by the Nomination & Remuneration Committee. The Nomination & Remuneration Committee deliberates the individual remuneration, etc. of Directors, – 4 – including whether it is consistent with the policy for determining remuneration and whether it has been evaluated based on the remuneration standards, and the Board of Directors determines the individual remuneration, etc. of Directors giving due respect to the report by the Nomination & Remuneration Committee. For details, refer to “Disclosure of policies for determining the amount of remuneration and methods for its calculation” in this report. (Article 9 Policy and procedures for determining Directors’ remuneration of the ITO EN Guidelines) The remuneration of Audit & Supervisory Board Members is deliberated by the Nomination & Remuneration Committee and determined by the Board of Directors. The amount of remuneration shall be within the total amount of remuneration approved by resolution of the general shareholders meeting and shall only be monthly fixed remuneration. The individual remuneration of Audit & Supervisory Board Members shall be determined upon discussions with each Audit & Supervisory Board Member at a meeting of the Audit & Supervisory Board. (Article 10 Policy and procedures for determining Audit & Supervisory Board Members’ remuneration of the ITO EN Guidelines) (4) Board policies and procedures in the appointment/dismissal of the senior management and the nomination of directors and Audit & Supervisory Board candidates Refer to Article 7 (Policy on nomination and procedures for nomination and removal of Directors) and Article 8 (Policy and procedures for nomination of Audit & Supervisory Board Members) of the ITO EN Guidelines (5) For explanations with respect to the individual appointments/dismissals and nominations based on (4) above, refer to “Notice of Annual General Meeting of Shareholders” published on the Company’s corporate website. https://www.itoen-global.com/ir/pdf/2021/notice/20210628.pdf Supplementary Principle 3-1 (3) Initiatives for sustainability, etc. Initiatives for sustainability Based on the management principle, of “Always Putting the Customer First,” the Group is working to realize its medium-to-long term vision of becoming a Global Tea Company by aiming to both solve environmental and social problems and improve corporate value at the same time through the practice of CSV management and the pursuit of ESG goals. To this end, the Group set the core subjects of the ISO26000 international standard: organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development as themes to be pursued in accordance with the ITO EN Group CSR Charter, and identified three of these themes in particular as material issues for Group: consumer issues, community involvement and development, and the environment. Regarding environmental issues, the Company formulated the ITO EN Group Medium- to Long-term Environmental Goals under the ITO EN Group Environmental Policy and is working to minimize its environmental impact. In the context of the issue of waste plastics in relation to the containers and packaging of the Company’s products, the Company formulated the ITO EN Group Policy on Plastics in September 2020 and is working on resource recycling to increase the ratio of recycled materials used for PET bottles to 100% by 2030. Refer to the “CSR/ESG (Environment, Society, Governance)” page of the Company’s corporate website. https://www.itoen-global.com/management/esg.php Initiatives for human capital The Company aims to develop employees who are always ready to take on new challenges, based on the view that “people” are its most important assets. By accounting for employees as “human assets” and shifting from human resource expenditure (= management) to human capital investment (= value creation), the Company will realize initiatives for human capital linked to management strategies. (1) Internal training programs ITO EN Business College & ITO EN Graduate School The Company offers ITO EN Business College & ITO EN Graduate School internal training programs every year as part of its support for employees, to encourage their personal growth and help them realize their dreams. The Company actively supports the self-improvement of employees by offering them – 5 – training opportunities to acquire the specialist knowledge they need for business and management. (2) ITO EN TEA TASTER System ITO EN TEA TASTER System is an in-house tea taster qualification system that has been in operation since 1994, with the objectives of awarding qualifications to employees with high levels of tea-related knowledge and skills, improving tea-related knowledge and skills, and promoting tea culture both inside and outside the company (The in-house business skill test has been certified by the Ministry of Health, Labour and Welfare (MHLW) since March 2017). The Company is involved in the system with Group companies in Japan and overseas as part of efforts to strengthen the development of employees for realization of the Group vision of being a “Global Tea Company”. (3) Health and productivity management The Company formulated the ITO EN Group Health Management Declaration in May 2021. Through the implementation of health and productivity management, the Company aims to be a company where every single employee is in good health and can work energetically and contribute to society through a positive attitude and challenging spirit. More specifically, the Company aims to achieve enhancement of its corporate value in the medium and long term through the energization of organizations, including improvements in employees’ vitality and productivity, by getting employees to lead regular lifestyles hinging on eating a well balanced diet, maintaining a healthy weight, exercising moderately, and sleeping well. (4) Increase in mandatory retirement age The Company had previously established a system of reemployment allowing employees to continue working for up to five years after reaching mandatory retirement age of 60 but it has decided to raise the mandatory retirement age to 65 from May 2022 to develop an environment in which employees can work with peace of mind and enthusiasm. The Company will develop an environment in which employees can demonstrate the experience, knowledge and knowhow they have accumulated to date in various work places and encourage the creation of systems which allow employees to work in good health and with enthusiasm until the age of 70. Initiatives for intellectual property (1) Utilization and protection of intellectual property The Company considers intellectual property (IP) activities to be essential for business continuation and expansion, and will create an IP landscape based on IP information to support management strategies, the growth of the Company’s business, the encouragement of innovation and promote the utilization of IP rights in relation to brands, existing and new businesses and overseas operations, etc. which are central to medium-to-long-term plans. The Company provides IP information to R&D divisions, marketing divisions and new business divisions to support future R&D strategies and brand strategies. It also ensures competitive advantage in the marketplace by acquiring IP rights for products, technologies, designs, names, etc. which underpin the Company’s businesses. Especially in the Company’s core tea-related business, the Company also helps tackle environmental and social issues through its business activities by protecting IP rights in the supply chain from tea plantations through to tea products and used tea leaves recycling. (2) Investment in the development of human resources The Company has in-house patent attorneys and lawyers and also has an Intellectual Property Department dedicated to IP matters, as well as consulting outside experts. By continuously honing the knowledge and skills of employees in R&D divisions and other divisions involved in IP creation, the Company is working to develop employees who are capable of designing research with an eye on rights acquisition, utilizing IP rights and proposing IP strategies. (3) Research into IP rights of other companies The Company respects the IP rights of other companies and researches and gathers information on the patents of other companies to avoid the risk of infringement. Especially as part of its support for overseas expansion on the road to becoming a “Global Tea Company”, the Company aims to acquire IP rights and avoid IP infringement risks around the world and, to this end, will gather data on disputes and examinations around the world and acquire rights in an appropriate and effective manner. – 6 – Response to the TCFD recommendations Regarding the Company’s response to climate change, in accordance with the TCFD’s recommendations, the Company selected the four scenarios RCP2.6, RCP4.5, RCP6.0, and RCP8.5 which are the IPCC’s Representative Concentration Pathways. The Company conducted an analysis of the impact on harvests and quality of domestically produced tea leaves, which is the Company’s main raw material, and disclosed the results in the ITO EN Integrated Report 2020. Moreover, the Company has set medium-to-long-term CO2 emissions reduction targets and KPIs and is implementing environmental management based on the ISO 14001 framework, with all divisions having obtained ISO 14001 certification. Going forward, the Company will continue conducting scenario analysis based on frameworks such as the TCFD recommendations and improve the quality and quantity of its disclosures. Supplementary Principle 4-1 (1) Board’s Decisions and Scope of the Matters Delegated to the Management The Company’s Board of Directors has the role of overseeing management to secure the fairness and transparency of management and to make prompt and resolute decisions on the execution of important operations and other matters as required by laws and regulations to facilitate sustained growth and the enhancement of corporate value over the medium- to long-term and to improve earning capacity, capital efficiency and so forth. The execution of operations, other than important operations stipulated above, and relevant decision making shall be delegated to the Executive Board and other lower-level meetings, officers in charge of the operations, Executive Officers and others. The Board of Directors shall supervise the status of the meetings and the execution of duties of the officers and others. (Article 5 Role of the Board of Directors of the ITO EN Guidelines) Supplementary Principle 4-1 (3) Succession Plan for the CEO and Other Top Executives The Company is working on human resources development programs including the cultivation of business managers, including the president. The Company has established the Nomination & Remuneration Committee, which is an advisory body to the Board of Directors. Principle 4-9 Independence Standards for Independent Audit & Supervisory Board Members Refer to the Annex, “Standards for the independence of independent Outside Directors and Outside Audit & Supervisory Board Members of the Company,” in the ITO EN Guidelines. Supplementary principle 4-10 (1) Composition and mandates of committees The Company has established the Nomination & Remuneration Committee to enhance the independence and objectivity of the functions of the Board of Directors and its accountability through the appropriate involvement and consultation of Independent Outside Directors on particularly important matters such as the nomination and remuneration of Directors and others. For details, refer to Supplementary Explanation in “II.1. [Directors] Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee” of this Report. (Article 4 Nomination & Remuneration Committee of the ITO EN Guidelines) Supplementary Principle 4-11 (1) Views on the Balance, Diversity and Size of the Board of Directors For details of the Company’s views on the balance of knowledge, experience and skills of the Board of Directors as a whole and its composition, refer to Article 6 Composition of Board of Directors of the ITO EN Guidelines. The Company’s Board of Directors is currently composed of 14 Directors (including four Outside Directors) and it is composed of Directors with the knowledge, experience and skills considered necessary for sustainable growth and enhancement of corporate value in the medium and long term and in light of the medium-to-long term vision of becoming a Global Tea Company. One of the Independent Outside Directors has management experience at other companies. The Company has attached a skills matrix showing the combination of skills, etc. possessed by Directors as an appendix to this report. For details of policies and procedures for the election of Directors, refer to Article 7 Nomination Policy and Nomination and Dismissal Procedures for Directors of the ITO EN Guidelines. – 7 – Supplementary Principle 4-11 (2) Status of Concurrent Serving of Directors and Audit & Supervisory Board Members as Directors, Audit & Supervisory Board Members or the Management at Other Listed Companies Refer to annual securities reports posted on the Company’s corporate website. https://www.itoen.co.jp/files/user/pdf/ir/securities/202104.pdf (Japanese only) Supplementary Principle 4-11 (3) Evaluation of Effectiveness of the Board of Directors The Company has been analyzing and evaluating the effectiveness of the Board of Directors since fiscal 2015, in an effort to improve its functioning. In particular, the Company examines Directors and Audit & Supervisory Board Members regarding overall matters related to the Board of Directors, such as the structure, roles, responsibilities, operation status and deliberation methods of the Board of Directors, and then the Board of Directors evaluates the results of the analysis. The Company has decided that the effectiveness of the Board of Directors is fully ensured based on the results of the evaluation. As a future issue, the necessity of further discussions about the medium- to long-term management plan has been recognized. In addition, matters such as the strengthening of the information support system and the full enforcement of regular reports on its execution status as well as the improvement of accuracy of information sharing have also been cited as issues. Going forward, the Company will seek to improve the functions of the Board of Directors by solving the issues, and continue striving for further improvement. Supplementary Principle 4-14 (2) Training Policy for Directors and Audit & Supervisory Board Members The Company shall support the execution of duties of the Directors and Audit & Supervisory Board Members by collecting and providing information necessary for them to perform their roles and functions. It shall also provide necessary training and so forth. In order to perform their roles and functions, Outside Directors and Outside Audit & Supervisory Board Members of the Company shall endeavor to obtain a sufficient understanding of the Group’s management strategies and plans, the status of each business, management issues and so forth by such means as receiving explanations from respective divisions in charge of each business at the time of assuming office and on other appropriate occasions after assuming office. (Article 11 Policy on training for Directors and Audit & Supervisory Board Members of the ITO EN Guidelines) Principle 5-1 Policy for Constructive Dialogue with Shareholders The Company shall accurately understand its capital cost, listen to the comments of shareholders through constructive dialogues between its management team and shareholders and pay due attention to shareholders’ interests and concerns. In addition, it shall provide clear and simple explanations about the review of its business portfolio and its management policy, including capital expenditure and investment in research and development and human capital, in an effort to obtain shareholders’ understanding. In addition, at the meeting of the Board of Directors held after the announcement of the settlement of accounts, the opinions of shareholders and analysts shall be shared in order to be actively utilized for reviewing management strategies, and other purposes. (Article 16 Policy on constructive dialogue with shareholders of the ITO EN Guidelines) For details, refer to “IR Activities” in this report. 2. Capital Structure Foreign Shareholding Ratio From 20% to less than 30% [Status of Major Shareholders] [Updated] Name / Company Name Green Core Co., Ltd. The Master Trust Bank of Japan, Ltd. (Trust account) State Street Bank and Trust Company 505223 Honjo International Scholarship Foundation Hachiro Honjo – 8 – Number of Shares Owned Percentage (%) 17,603,400 8,173,400 6,438,989 5,200,000 2,446,230 19.73 9.16 7.22 5.83 2.74 Toyo Seikan Group Holdings, Ltd. Resona Bank, Limited ITO EN Employees’ Shareholding Association Custody Bank of Japan, Ltd. (Trust account) The Bank of New York Mellon (International) Limited 131800 1,955,200 1,933,100 1,910,106 1,838,800 1,631,300 2.19 2.17 2.14 2.06 1.83 Controlling Shareholder (except for Parent Company) Parent Company ――― None Supplementary Explanation ――― 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 April Foods More than 1000 From ¥100 billion to less than ¥1 trillion From 10 to less than 50 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder ――― Not applicable. 5. Other Special Circumstances which may have Material Impact on Corporate Governance – 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 Organization Form Company with Audit & Supervisory Board [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated Incorporation in Articles of 35 2 years Chairperson of the Board Number of Directors Appointment of Outside Directors Number of Outside Directors Number of Independent Directors Company Chairperson (Except where the Chairperson concurrently serves as the President) 14 Appointed 4 4 Outside Directors’ Relationship with the Company (1) Name Attribute Morikazu Taguchi Yuichi Usui Yutaka Tanaka Hideo Takano * Categories for “Relationship with the Company” * Academic Other Tax Accountant Other Relationship with the Company* a ▲ b c d e f g h i j k ○ ○ ○ “○” when the director presently falls or has recently fallen under the category; “△” when the director fell under the category in the past “●” when a close relative of the director presently falls or has recently fallen under the category; “▲”when a close relative of the director fell under the category in the past * a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/ Audit & Supervisory Board Members g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/ Audit & Supervisory Board Members are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) – 10 – Name Reasons of Appointment Designation as Independent Director Supplementary Explanation of the Relationship Mr. Morikazu Taguchi is an Outside Director who is independent from the Company. He is qualified as Outside Director because he has engaged in the study of legal affairs as a professor at a university and graduate school for many years and offers appropriate advice from a professional viewpoint. While Mr. Taguchi is a brother of Mr. Hiroshi Taguchi, a former Managing Director of the Company, the Company has decided that there is no issue in the independence of Mr. Taguchi, because Mr. Hiroshi Taguchi left office in July 2012. In addition, because the appointment of Mr. Taguchi does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. Mr. Yuichi Usui has considerable experience and a wide range of insight as a police officer for many years and also has experience in being directly involved in company management in a logistics company. The Company has appointed him as Outside Director because of his diverse experience and insight as well as his experience in supervising and overseeing the management of the Company. Because the appointment of Mr. Usui does not fall under the matters which the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. Mr. Yutaka Tanaka has expertise as well as extensive knowledge and experience as a certified tax accountant and also has an experience as an outside Audit & Supervisory Board Member. The Company has appointed him as Outside Director because of his diverse experience and knowledge as well as his experience in supervising the management of the Company. Because the appointment of Mr. Tanaka does not fall under the matters which the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. Mr. Hideo Takano has deeply participated in business support for a variety of companies at the Tokyo Chamber of Commerce and Industry for many years. The Company has appointed him as Outside Director because of his considerable experience and extensive insight to objectively supervise the management of the Company. Because the appointment of Mr. Takano does not fall under the matters which the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. Morikazu Taguchi ○ ――― Yuichi Usui ○ ――― Yutaka Tanaka ○ ――― Hideo Takano ○ ――― – 11 – Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson [Updated] Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson 0 2 3 0 0 Supplementary Explanation[Updated] Committee Corresponding to Nomination Committee Nomination & Remuneration Committee 5 Committee Corresponding to Remuneration Committee Nomination & Remuneration Committee 5 0 2 3 0 0 Outside Directors Outside Directors The Company has established the Nomination & Remuneration Committee to enhance the independence and objectivity of the functions of the Board of Directors and its accountability through the appropriate involvement and consultation of Outside Directors on particularly important matters such as the nomination and remuneration of Directors and others (the Company changed aspects such as the composition in September 2021). (Views on independence in the composition of the committee) The Nomination & Remuneration Committee shall be composed of three or more Directors including Outside Directors as members and shall consist of a majority of Independent Outside Directors. Members shall be elected by resolution of the Board of Directors, and the chairperson shall be elected from among the members who are Independent Outside Directors by resolution of the Nomination & Remuneration Committee. (Mandate and role of the committee) The Nomination & Remuneration Committee shall deliberate on the following matters as an advisory body to Directors and submit a report to the Board of Directors. (1)Policy concerning composition of the Board of Directors (2)Matters relating to the election and dismissal of Directors, executive officers, and audit & supervisory board members, and the proposal of candidates for Directors, executive officers, audit & supervisory board members (3)Matters Relating to proposals for the election or dismissal of Representative Directors and executive officers with special titles (4)Matters relating to president succession planning (5)Matters relating to the remuneration limit, remuneration system and remuneration amount for Directors and executive officers and the remuneration limit for audit & supervisory board members (6)Matters relating to the personnel affairs and remuneration of officers of major subsidiaries and affiliated companies (7)Other matters relating to corporate governance (Composition of the committee) Chairperson: Outside Director Member: President Yutaka Tanaka Daisuke Honjo – 12 – Member: Vice-President Shusuke Honjo Member: Outside Director Member: Outside Director Morikazu Taguchi Yuichi Usui [Audit & Supervisory Board Members] [Updated] Establishment of Audit & Supervisory Board Maximum Number of Audit & Supervisory Board Stipulated in Articles of Incorporation Number of Audit & Supervisory Board Members 5 4 Established Cooperation among Audit & Supervisory Board Members, Accounting Auditors and Internal Audit Departments Audit & Supervisory Board Members witness regular meetings and visiting audits throughout the fiscal year, beginning with the formulation of an annual plan with the accounting auditor, and receive explanations about audit procedures, schedule and implementation status and the results of audits, and exchange opinions. In addition, the Internal Auditing Department of the Company is established as a department under the direct control of the Representative Directors independent from other departments and conducts an audit of overall operations and the development and operation status of the internal control system. Audit & Supervisory Board Members cooperate with the Internal Auditing Department in such a manner as exchanging information and opinions by accompanying audits conducted by the Internal Auditing Department and inspecting internal audit reports. Appointment of Outside Audit & Supervisory Board Members Number of Outside Audit & Supervisory Board Members Number of Independent Audit & Supervisory Board Members 3 2 Appointed Outside Audit & Supervisory Board Members’ Relationship with the Company (1) Name Attribute Lawyer Yoshiaki Takasawa From another company Takashi Miyajima Hitoshi Yokokura Lawyer * Categories for “Relationship with the Company” * Relationship with the Company* a b c d e g f △ h i j k l m ○ ○ “○” when the director presently falls or has recently fallen under the category; “△” when the director fell under the category in the past “●” when a close relative of the director presently falls or has recently fallen under the category; “▲”when a close relative of the director fell under the category in the past * a. Executive of the Company or its subsidiary b. Non-executive director or accounting advisor of the Company or its subsidiaries c. Non-executive director or executive of a parent company of the Company d. Audit & Supervisory Board Members of a parent company of the Company e. Executive of a fellow subsidiary company of the Company f. A party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof – 13 – h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as Audit & Supervisory Board Members i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity) j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h) (the Audit & Supervisory Board Members himself/herself only) k. Executive of a company, between which and the Company outside directors/Audit & Supervisory Board Members are mutually appointed (the Audit & Supervisory Board Members himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the Audit & Supervisory Board Members himself/herself only) m. Others Outside Audit & Supervisory Board Members’ Relationship with the Company (2) Name Reasons of Appointment Designation as Independent Audit & Supervisory Board Member Supplementary Explanation of the Relationship Yoshiaki Takasawa ○ ――― The Company has appointed Mr. Yoshiaki Takasawa with an emphasis on his expertise. Mr. Takasawa is an Outside Audit & Supervisory Board Member independent from the Company and is qualified as an independent officer to strengthen the auditing system from a legal perspective as an attorney at law. The Company has appointed Mr. Takashi Miyajima with an emphasis on his expertise. Mr. Miyajima has many years of experience at a financial institution and in being involved in a company management as well as extensive knowledge and financial and insight on monetary affairs. The Company has appointed Mr. Hitoshi Yokokura with an emphasis on his expertise. Mr. Hitoshi Yokokura has expert insights and extensive knowledge and experience as a certified public accountant and an attorney, and the Company has appointed him as an Outside Audit & Supervisory Board Member based on its judgment that he will be able to utilize his advanced expertise and insight in accounting and legal affairs for monitoring and auditing the Company’s management. the appointment of Mr. Yokokura does not fall under the matters which the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. Because Takashi Miyajima ――― Hitoshi Yokokura ○ ――― [Independent Directors/ Audit & Supervisory Board Members] Number of Independent Directors/ Audit & Supervisory Board Members 6 – 14 – Matters relating to Independent Directors/ Audit & Supervisory Board Members The Company has appointed all those who are qualified to be an independent officer as an independent officer. Incentive Policies for Directors Performance-linked Remuneration / Stock Options [Incentives] Supplementary Explanation 1. Stock option based on the resolution of the annual general meeting of shareholders held on July 28, 2004 (Second series of share acquisition rights of ITO EN, LTD.) (1) Class and the number of shares underlying the share acquisition rights at the time of issuance Common stock of the Company: 146,000 shares (2) Reason for issuing share acquisition rights with particularly favorable conditions The Company and its subsidiaries ceased the new accumulation of retirement allowances for Directors and other officers in August 2002 and abolished the retirement benefit program for Directors and other officers in September 2004. Associated with this, the unsettled portion of accumulated retirement benefits in the past was not paid in money, but share acquisition rights were issued without consideration by setting the exercise price at 1 yen per share on the condition that the Directors and other officers of the Company and its subsidiaries are unable to exercise the rights until they retire from the company. 2. Stock option based on the resolution of the annual general meeting of shareholders held on July 26, 2011 (11th series of share acquisition rights of ITO EN, LTD.) (1) Class and the number of shares underlying the share acquisition rights at the time of issuance Common stock of the Company: 21,700 shares (2) Reason for issuing share acquisition rights For the purpose of further increasing the motivation and morale of Directors for higher share prices and the better business performance of the Company by raising the degree of their interest in the share price and business performance of the Company through stronger linkage between part of their remuneration and the Company’s share price and their placement in a position of sharing the impact of share price fluctuations with the shareholders, the Company issued share acquisition rights without consideration as a performance-linked stock compensation-type stock option by setting the value of the property to be contributed upon the exercise of share acquisition rights at 1 yen per share. 3. Stock option based on the resolution of the annual general meeting of shareholders held on July 26, 2011 (12th series of share acquisition rights of ITO EN, LTD.) (1) Class and the number of shares underlying the share acquisition rights at the time of issuance Common stock of the Company: 19,500 shares (2) Reason for issuing share acquisition rights For the purpose of further increasing the motivation and morale of Directors for higher share prices and the better business performance of the Company by raising the degree of their interest in the share price and business performance of the Company through stronger linkage between part of their remuneration and the Company’s share price and their placement in a position of sharing the impact of share price fluctuations with the shareholders, the Company issued share acquisition rights without consideration as a performance-linked stock compensation-type stock option by setting the value of the property to be contributed upon the exercise of share acquisition rights at 1 yen per share. 4. Stock option based on the resolution of the annual general meeting of shareholders held on July 26, 2011 (13th series of share acquisition rights of ITO EN, LTD.) (1) Class and the number of shares underlying the share acquisition rights at the time of issuance Common stock of the Company: 15,100 shares (2) Reason for issuing share acquisition rights For the purpose of further increasing the motivation and morale of Directors for higher share prices and the better business performance of the Company by raising the degree of their interest in the share price and business performance of the Company through stronger linkage between part of their remuneration – 15 – and the Company’s share price and their placement in a position of sharing the impact of share price fluctuations with the shareholders, the Company issued share acquisition rights without consideration as a performance-linked stock compensation-type stock option by setting the value of the property to be contributed upon the exercise of share acquisition rights at 1 yen per share. 5. Stock option based on the resolution of the annual general meeting of shareholders held on July 26, 2011 (14th series of share acquisition rights of ITO EN, LTD.) (1) Class and the number of shares underlying the share acquisition rights at the time of issuance Common stock of the Company: 17,900 shares (2) Reason for issuing share acquisition rights For the purpose of further increasing the motivation and morale of Directors for higher share prices and the better business performance of the Company by raising the degree of their interest in the share price and business performance of the Company through stronger linkage between part of their remuneration and the Company’s share price and their placement in a position of sharing the impact of share price fluctuations with the shareholders, the Company issued share acquisition rights without consideration as a performance-linked stock compensation-type stock option by setting the value of the property to be contributed upon the exercise of share acquisition rights at 1 yen per share. (*) Only stock options the exercise period of which have not yet expired are stated. Recipients of Stock Options Inside Directors / Inside Audit & Supervisory Board Members / Outside Audit & Supervisory Board Members / Subsidiaries’ Directors Supplementary Explanation [Updated] Number of shares underlying the share acquisition rights (1) Second series of share acquisition rights of ITO EN, LTD. (2) 11th series of share acquisition rights of ITO EN, LTD. (3) 12th series of share acquisition rights of ITO EN, LTD. (4) 13th series of share acquisition rights of ITO EN, LTD. (5) 14th series of share acquisition rights of ITO EN, LTD. As of the date of issuance 146,000 shares 21,700 shares 19,500 shares 15,100 shares 17,900 shares People eligible for share acquisition rights 25 people 14 people 12 people 8 people 8 people [Director Remuneration] Disclosure of Individual Directors’ Remuneration No Individual Disclosure Supplementary Explanation Details of remuneration of Directors and other officers of the Company for the fiscal year ended April 30, 2021 are as follows. 10 Directors (excluding Outside Directors) 617 million yen 1 Audit & Supervisory Board Members (excluding Outside Audit & Supervisory Board Members) 13 million yen 4 Outside Directors 39 million yen 3 Outside Audit & Supervisory Board Members 31 million yen Policy on Determining Remuneration Amounts and Calculation Methods Established Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods [Updated] Remuneration, etc. of Directors is deliberated by the Nomination & Remuneration Committee, which consists of a majority of Independent Outside Directors, to ensure objectivity and transparency in accordance with the Company’s basic views on corporate governance and basic views on remuneration. The Board of Directors – 16 – determines the remuneration, etc. of Directors, giving due respect to the report by the Nomination & Remuneration Committee. The Nomination & Remuneration Committee also deliberates the individual remuneration, etc. of Directors, including whether it is consistent with the policy for determining remuneration and whether it has been evaluated based on the remuneration standards, and the Board of Directors determines the individual remuneration, etc. of Directors giving due respect to the report by the Nomination & Remuneration Committee. (a) Basic policy 1. Remuneration shall be such that it is in compliance with the management principle of the ITO EN Group, “Always Putting the Customer First,” and will contribute to sustained corporate growth and development and the enhancement of corporate value. 2. Remuneration shall be determined in proportion to the significance of Directors’ roles and responsibilities and their contribution to the Company’s business performance. 3. Remuneration shall be closely linked to the share price of the Company’s stock, so that Directors share the impact of share price fluctuations with the Company’s shareholders and the remuneration serves as an incentive for management. 4. Remuneration shall be determined based on objective and fair deliberations and with references to external data (b) Composition of remuneration Remuneration, etc. of Directors (excluding Outside Directors) of the Company comprises fixed remuneration and performance-linked remuneration, and fixed remuneration accounts for about 70% and performance-linked remuneration accounts for about 30%. Remuneration, etc. of Outside Directors comprises only fixed remuneration. (i) Fixed remuneration (basic remuneration) Fixed remuneration shall be monetary remuneration of not more than the maximum amount of remuneration resolved at a general meeting of shareholders, and shall be paid monthly, in principle. The amount of remuneration of Directors is determined taking into consideration the business performance and the degree to which the Company has achieved its plan. (ii) Performance-linked remuneration Performance-linked remuneration shall be composed of performance-based remuneration and share-based remuneration, which makes part of the remuneration closely linked to the Company’s share price and puts Directors in a position where they share the impact of share price fluctuations with the Company’s shareholders, to enhance Directors’ interest in its share price and business performance and further raise their motivation and morale for achieving higher share prices and better business performance of the Company. Performance-based remuneration shall be monetary remuneration based on performance, and shall be paid monthly, in principle. Share-based remuneration shall consist of share acquisition rights granted as performance-linked share remuneration-type stock options and the share acquisition rights to be granted to each Director shall be determined each year based on a strict assessment of performance. (ii)-1 Determination of the performance-linked remuneration The Company shall perform a comprehensive performance assessment in which, in order to link the business performance and remuneration, the Company designates management indicators as measures of performance, sets the standard ratio of consolidated performance to non-consolidated performance for each position, considers each Director’s responsibilities, and awards points to each Director with respect to each management indicator. (ii)-2 Management indicators used to measure performance The Company’s management indicators used to measure performance shall include “net sales (growth),” “operating income (profitability),” “cash flows from operating activities (stability),” “earnings per share (profitability),” “return on equity (efficiency)” and “dividend on equity ratio (shareholder return).” The remuneration of audit & supervisory board members shall consist of fixed remuneration only. – 17 – (*) The maximum amount of fixed remuneration for Directors shall be 100 million yen per month, and the maximum remuneration amount and maximum number of shares issued as remuneration in relation to performance-linked remuneration shall be 100 million yen and 32,000 shares of ordinary stock per year respectively. The maximum amount of fixed remuneration for audit & supervisory board members shall be 6 million yen per month. [Supporting System for Outside Directors and/or Audit & Supervisory Board Members] Information and materials are provided and sent to the Outside Directors and Outside Audit & Supervisory Board Members when appropriate, and explanations are given to them as needed. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) Major management organs of the Company include the Board of Directors and the Audit & Supervisory Board. The Board of Directors holds a meeting once a month, in principle, to supervise the execution of operations by Directors, in addition to discussing and determining important matters such as the basic management policy and management strategies. In addition, four of 14 Directors are Outside Directors, and they take on functions to supervise and check the execution of duties from an independent standpoint. The Audit & Supervisory Board consists of one standing Audit & Supervisory Board Member and three non-standing Audit & Supervisory Board Members (all of whom are Outside Audit & Supervisory Board Members). The Audit & Supervisory Board Members mainly conduct audits of the legality of the Directors’ business execution by attending important meetings such as those of the Board of Directors, inspecting important documents, conducting visiting audits of departments executing business, and expressing opinions as necessary. Meetings of the Audit & Supervisory Board are held monthly, in principle, to deliberate on and determine important matters concerning audits as well as share information and exchange opinions on the status of audits conducted and the recognition of issues, among other tasks. The Company files six officers with the Tokyo Stock Exchange as an independent officer, and they contribute to the formation of sound corporate governance by demonstrating auditing and supervisory functions from an objective and impartial perspective. The Internal Auditing Department under the direct control of the Representative Directors conducts operational audits and internal control audits of departments in the Company and the Group subsidiaries in accordance with the annual plan and policy and reports the outline of the audits to the Executive Board as needed. The Representative Directors and Audit & Supervisory Board Members, etc. inspect audit reports by department, including improvements in findings, which are prepared by the Internal Auditing Department. Audit & Supervisory Board Members make efforts to build an effective audit system for the Group by sharing information and exchanging opinions through accompanying audits conducted by the Internal Auditing Department and inspecting internal audit reports. The Company has appointed KPMG AZSA LLC as accounting auditors. The accounting auditor conducts accounting audits based on highly specialized knowledge as an expert in accounting from an independent and impartial perspective in accordance with predetermined audit plans and audit standards. The appropriateness of audits by the accounting auditor is verified by the Audit & Supervisory Board Members. 3. Reasons for Adoption of Current Corporate Governance System The Company is a company with an Audit & Supervisory Board and reasons for adopting the current corporat