伊藤忠エネクス（8133） – [Delayed] Corporate Governance Report

[Translation for Reference and Convenience Purposes Only] (Delayed) Corporate Governance Report Please note that the following is an unofficial English translation of the Japanese original text of the Corporate Governance Report of ITOCHU ENEX Co., Ltd., which has been reported to the Tokyo Stock Exchange. ITOCHU ENEX Co., Ltd. provides this translation for reference and convenience purposes only and without any warranty as to its accuracy or otherwise. In the event of any discrepancy between this translation and the Japanese original, the latter shall prevail. Last Updated: December 23, 2021 ITOCHU ENEX Co., Ltd. Representative: Kenji Okada, Representative Director,President and CEO Contact: Yukari Imaizumi Manager, Investor Relations Office, Finance & General Accounting Department Tel: +81-3-4233-8025 Stock Code: 8133 https://www.itcenex.com/en/ The corporate governance of ITOCHU ENEX Co., Ltd. (the Company) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views Updated In accordance with the Corporate Philosophy, the Employee Code of Conduct (Be Ethical: Reliability and sincerity, creativity and ingenuity, transparency and integrity) and the Declaration of the Group Code of Conduct, the Company is continuously strengthening corporate governance in response to the changing business environment by always concentrating on persistently pursuing compliance as people in the business world, focusing on shareholders returns, ensuring managerial transparency and making decisions more quickly. Specifically, as a company with Audit & Supervisory Board Members (or an Audit & Supervisory Board), the Company ensures that its Audit & Supervisory Board Members will fully implement managerial monitoring to enhance their monitoring and oversight function and transparency in decision-making. The Company publishes its Corporate Philosophy, the Employee Code of Conduct, and the Declaration of the Group Code of Conduct on its website. Please refer to: https://www.itcenex.com/en/corporate/mission/ [Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated This report is based on the revised version of Japan’s Corporate Governance Code effective in June 2021. (This includes principles for companies listed on the Prime Market applicable from April 4, 2022 but excludes principles for companies listed on the Prime Market described in Supplementary Principle 3-1(3)). The Company complies with all principles set forth in the Corporate Governance Code. – 1 – [Disclosure Based on the Principles of the Corporate Governance Code] Updated (Principle 1.4) – Cross-shareholdings 〈Policy on cross-shareholdings〉 The Company has a policy of holding shares of any customer or business partner solely on the condition that holding such shares is deemed to have commercial potential in the future and is strategic. The policy is limited to holdings in which the chances of achieving an investment return are high and the holdings contribute to increasing the Company’s corporate value. With regard to such shares we already hold, the Board of Directors examines the reasonability of the holding of individual shares every year and the continuation or reduction of cross-shareholdings will be properly determined from the perspective of the chances of achieving the expected investment purpose or whether or not they are creating economic added-value that may lead to enhancing the Company’s corporate value. Examination results as of the Board of Directors held on June 9, 2021 are as follows: The Company specifically examined the cross-holding shares the Company holds (all 6 issues), to determine whether or not the purpose of the crossholding is appropriate on an individual issue basis, and whether or not benefits or risks associated with the cross-shareholdings are commensurate with the Company’s capital cost. As a result, while it was confirmed that there were issues the holdings of which are appropriate, it was also confirmed that there were some issues the Company is to consider in reducing the holding after examining the significance of the holding them going forward. 〈Standard for exercising voting rights as to cross-shareholdings〉 In exercising voting rights concerning the cross-shareholdings, the Company makes it a rule not to abstain from voting, so as not to give another party carte blanche in principle. Moreover, the Company makes a decision for and against each proposal tabled after examining individual proposals, not using uniform standards such as short-term operating results/share prices, but taking the perspective of whether or not it will help increase the medium- or long-term corporate value of the Company and the companies in which shares are held, in view of non-financial information such as the business policies, strategies and suchlike of the company in which shares are held. (Principle 1.7) – Related party transactions When the Company engages in transactions involving conflict of interest as defined in the Companies Act with any of its Directors, the Company is required to obtain a resolution of the Board of Directors approving the transaction in accordance with the Companies Act and the Board of Directors Regulations. In addition, the Company ensures the appropriateness of transactions through deliberation and examination of material transactions or actions with a controlling shareholder and material transactions or actions with a related party which is not a controlling shareholder by a Special Committee comprising independent persons including Independent Outside Directors and by the Governance Committee which consists of a majority of Independent Outside Directors respectively prior to approval by resolution at a Board of Directors’ meeting attended by Outside Directors and Outside Audit & Supervisory Board Members. (Supplementary principle 2.4(1)) – Ensuring diversity The Company recognizes that respecting the individuality and the diversity and values of employees and harnessing these as strengths is important for achieving sustainable growth. The Company will, therefore, implement initiatives such as the following. ①Seek to enhance methods used to hire new graduates, and attract and retain diverse human resources, including mid-career hires. ②Incorporate work styles according to specific life plans, and develop respective systems and the internal environment. ③Ensure diversity in promotion to core human resources who will drive the Company’s growth, including promoting women, foreign nationals and midcareer hires, and focus on developing human resources from a medium-to-long-term perspective. By implementing these initiatives, the Company will encourage diversity, especially the active participation of female employees, and will work to foster a corporate climate in which all employees can play an active part. – 2 – [Targets] Percentage of female managers and supervisors 2021: 3% 2030: 10％ 2035: 30％ In regard to foreign nationals and mid-career hires, the Company will hire and promote individuals in light of the job description and their skills regardless of whether they are new graduate or midcareer hires. – Policies for human resource development and internal environment development to ensure diversity Since its foundation in 1961, the Company has considered people to be its most important asset, believing that it is human resources who are central to value creation within the Group and drive sustainable corporate growth and enhancement of corporate value. The Company publishes its policies for human resource development and internal environment development in its Medium-Term Business Plan and Integrated Report and on its website. Please refer to: Medium-Term Business Plan, SHIFT! 2022 https://www.itcenex.com/en/ir/policy/plan/ Integrated Report (ENEX REPORT) https://www.itcenex.com/en/ir/doc/annual_report/ Sustainability Initiatives https://www.itcenex.com/en/csr/ (Principle 2.6) – Fulfill function as a Corporate Pension Asset Owner Although the Company does not participate in a specific corporate pension fund, it has introduced a defined contribution pension plan to enable employees to build assets. The Company regularly confirms investment products with the cooperation of the asset management institution. In addition, the Company has been continuously providing employees with opportunities to understand the status of their investments and receive education on asset management from the time they join the Company. (Principle 3.1 (i)) – Corporate philosophy, business strategies and business plans The Company publishes its corporate philosophy on its website. Please refer to: https://www.itcenex.com/en/corporate/mission/ In addition, on April 30, 2021, the Group announced Shift! 2022, its medium-term business plan for FY2021 and FY2022. In its previous medium-term business plan, the Group established the theme, Moving, and worked to develop new business areas and drastically change the ways it conventionally did business. Following up on Moving, the Group will Shift! into a higher gear to further accelerate the development of its business. For the details, please refer to: https://www.itcenex.com/en/ir/policy/plan/ (Principle 3.1 (ii)) – Basic views and guidelines on corporate governance For the Company’s basic views on corporate governance, refer to I-1. Basic Views above. In accordance with these basic views mentioned above, the Company adopts a basic policy on corporate governance as stated below. 1. Ensuring shareholders’ rights and equality The Company will take the appropriate action to effectively ensure shareholders’ voting rights at the General Meetings of Shareholders and other rights. 2. Appropriate collaboration with non-shareholding stakeholders In accordance with the Corporate Philosophy, the Employee Code of Conduct and the Declaration of the Group Code of Conduct, the Company will aim to develop itself constantly for a long time and to continuously boost its corporate value as a company that is attractive to customers, business partners, employees, national and other public authorities, local communities and all other stakeholders that the Company regards as important. 3. Appropriate information disclosure and ensuring transparency In addition to proper disclosure in accordance with the statute, the Company will proactively undertake information disclosure as required in the principles of the Corporate Governance Code for the purposes of ensuring the transparency and fairness of the Company’s decision-making and of achieving effective corporate governance. 4. Duties of the Board of Directors and other bodies The Board of Directors has the duties of determining the basic management policy and supervising the management. It also makes decisions on business execution of great quantitative and qualitative significance – 3 – in addition to prerogatives as specified in laws and ordinances. Meanwhile, in view of the importance of prompt decision-making, the authority to make decisions on ordinary business execution is increasingly delegated to Directors and Executive Officers, and the board will supervise their execution status. As personnel elected by shareholders to undertake business management, Directors have the obligation of loyalty and diligence in fulfilling their duties to contribute to the Company’s continuous growth and to medium- and long-term increases in corporate value. 5. Dialogues with shareholders The Company endeavors to facilitate dialogues with a view to building good relationships with investors, including shareholders, in accordance with its IR Basic Policy. Taking the requests and interests of shareholders into consideration, to the extent reasonable, the senior management, Directors, including Outside Directors, and Audit & Supervisory Board Members endeavor to engage in dialogue (management meetings) with shareholders. IR Basic Policy https://www.itcenex.com/en/ir/policy/basicpolicy/ (Principle 3.1 (iii)) – Policies and procedures in determining remuneration For details about policies and procedures for determining the remuneration of Directors, please refer to Director Remuneration in II-1. of this report. (Principle 3.1 (iv)) – Policies and procedures in the nomination of Director and Audit & Supervisory Board Member candidates For details about policies and procedures in the nomination of Director and Audit & Supervisory Board Member candidates, please refer to Policies and Procedures in the Nomination of Director and Audit & Supervisory Board Member Candidates in II-2 of this report. (Principle 3.1 (v)) – Explanations with respect to individual appointments and nominations of Director and Audit & Supervisory Board Member candidates The Company discloses reasons for individual nominations with respect to all Director candidates and Audit & Supervisory Board Member candidates in the Notice of the Ordinary General Meeting of Shareholders. Please refer to the following URL for the disclosure for the current fiscal year. https://www.itcenex.com/en/ir/stockholder/general_meeting (Supplementary Principle 3.1(3)) – Sustainability Initiatives The Company publishes its approach to the implementation of sustainability management in its Integrated Report and on its website. For details, please refer to: Integrated Report (ENEX REPORT) https://www.itcenex.com/en/ir/doc/annual_report/ Sustainability Initiatives https://www.itcenex.com/en/csr/ (Supplementary Principle 4.1(1)) – Scope of matters delegated to the management The Company is pressing ahead with the delegation of decision-making on ordinary business execution to the management (Executive Directors and Executive Officers) to the extent permitted by laws and ordinances. The Board of Directors not only supervises business execution by the management and makes decisions on corporate governance, but also makes decisions on the business execution of major quantitative and qualitative significance. The Company’s Board of Directors Regulations specify the matters to be referred to the board. (Principle 4.9) – Criteria for determining the independence of Outside Directors In regard to criteria for determining the independence of Outside Directors, the Company determines such independence after confirming the absence of conditions (1) through (6) below in accordance with the Companies Act and the requirements for independence set forth by the Tokyo Stock Exchange, Inc. and other financial exchanges in Japan. (1)Is currently, or has ever been within the past ten (10) years, an Executive* of the Company or of a subsidiary of the Company (for Outside Audit & Supervisory Board Members, this includes Directors who are not – 4 – Executives). However, for those who were Directors or Audit & Supervisory Board Members who did not execute business operations, the fact that they were Executives of the Company or its subsidiaries during the 10 years prior to assuming office shall be included. (2)Is currently, or has been within the past ten (10) years, an Executive or Non-executive Director (including Audit & Supervisory Board Member for Outside Audit & Supervisory Board Member) of the parent company of the Company or an Executive of another company owned by the Company’s parent company. (3)Is currently, or has been within the past year, a major shareholder owning a stake of 10% or more, either directly or indirectly, of the Company’s shares, or an Executive of such shareholder. (4)In the most recent financial reporting period, has been a major customer or an Executive of a major customer that accounted for more than 2% of the total transaction volume (sales or purchases) with the Company. (5)Within the past year, has served as a consultant, accounting specialist, legal profession, or tax practitioner receiving annual compensation of 10 million yen or more from the Company in addition to Director’s compensation (if the person receiving such compensation is an organization, such as a corporation or association, a person who belongs to such organization). (6)A person who was a spouse or a relative within the second degree of kinship of a person stated in either of the following (a) or (b) (excluding immaterial persons) (a)Currently or in the past year, a person who is an Executive of the Company or a subsidiary of the Company (including a Director who does not execute business for an Outside Audit & Supervisory Board Member). However, this includes Directors who are not Executives of the Company. (b)Any person who falls under (2) through (5) above. * “Executive” refers to Directors, Executive Officers, and other such employees. (Supplementary Principle 4.10(1)) ‐ Establishment of Governance Committee The Company has established a Governance Committee which consists of a majority of Independent Outside Directors. The Governance Committee deliberates and examines matters related to the nomination and remuneration of Directors and Executive Officers and gives advice and recommendations to the Board of Directors as a voluntary consultative body of the Board of Directors. (Supplementary Principle 4.11(1)) – Constitution of the Board of Directors The Company considers that the appropriate range of the number of Directors for effective deliberations of the Board of Directors is roughly eight to twelve. It nominates inside and outside human resources with distinguished character and knowledge as Director candidates. Particularly with regard to Outside Directors and Outside Audit & Supervisory Board Members, the Company nominates those with knowledge in specialized areas such as business administration, law and accounting. The Company aspires to have them involved in the supervision of its management and business execution from different perspectives so that it will result in the enhancement of the Company’s corporate value. For a skills matrix showing the knowledge, experience, skills and other qualities of each director, please refer to the last page (Reference Material 2) of this report. As stated in Directors in II-1 of this report, the Company’s Independent Outside Directors include persons with management experience in other companies. (Supplementary Principle 4.11(2)) – Directors and Audit & Supervisory Board Members serving as Directors, Audit & Supervisory Board Members or management at other companies Important concurrent positions of its Directors and Audit & Supervisory Board Members have been disclosed in the Notice of the Ordinary General Meeting of Shareholders. For the disclosure for the current fiscal year, please refer to: https://www.itcenex.com/en/ir/stockholder/general_meeting/ (Supplementary Principle 4.11(3)) – Evaluation as to the effectiveness of the Board of Directors The Company asked all Directors and Audit & Supervisory Board Members to give their opinions based on their own evaluation of the effectiveness of the Board of Directors as a whole in FY2020, including the composition, operation status and support structure of the board. By referring to these opinions as well as evaluation and analysis by third-party evaluation organizations and after deliberation and examination by the Governance Committee, the Board of Directors conducted the analysis and evaluation regarding the effectiveness of the Board of Directors. – 5 – The evaluation of FY2020, as in the previous fiscal year, indicated that the Company has generally maintained a high level in each evaluation item, and that the operation of the Board of Directors of the Company was appropriate overall, securing its effectiveness. On the other hand, opinions and advice were provided on matters such as further enhancement of discussion on medium- to long-term strategy. The Company will draw on these evaluation results to seek to further improve the monitoring and decision-making functions of the Board of Directors. (Supplementary Principle 4.14(2)) – Training policy For the purpose of ensuring that the Directors and Audit & Supervisory Board Members fully perform their functions, the Company organizes a prior briefing for Outside Directors and Outside Audit & Supervisory Board Members concerning matters to be referred to the Board of Directors through the administrative office of the board, business briefings in individual segments at the time of appointment, inspection tours of operations in Japan and overseas, regular lunch gatherings with the management and other events in an effort to ensure that they will properly recognize the Company’s business details and managerial issues. In addition, the Company provides Directors and Audit & Supervisory Board Members with training sessions held by third party organizations and different workshops and briefings on matters they have requested as appropriate in order to offer them training opportunities according to their respective backgrounds and assigned duties. (Principle 5.1) – Policy for dialogue with shareholders Taking the requests and interests of shareholders into consideration, to the extent reasonable, the senior management, Directors, including Outside Directors, and Audit & Supervisory Board Members endeavor to engage in actual dialogue (management meetings) with shareholders. The Company sets out its policy on constructive dialogue with shareholders in its IR Basic Policy. Please refer to: https://www.itcenex.com/en/ir/policy/basicpolicy/ 2. Capital Structure Foreign Shareholding Ratio From 10% to less than 20% [Status of Major Shareholders] Updated Name / Company Name ITOCHU Corporation The Master Trust Bank of Japan, Ltd. (trust account) Custody Bank of Japan, Ltd. (trust account) Enex Fund Nippon Life Insurance Company Itochu Enex Employee Shareholding Association MAEDA ROAD CONSTRUCTION Co., Ltd. STATE STREET BANK AND TRUST COMPANY Sumitomo Mitsui Trust Bank, Limited DFA INTL SMALL CAP VALUE PORTFOLIO Controlling Shareholder (except for Parent Company) N/A Number of Shares Owned 60,977,809 6,158,100 4,815,201 3,300,089 1,542,284 1,324,287 956,600 821,043 800,000 735,000 Percentage (%) 53.97 5.45 4.26 2.92 1.37 1.17 0.85 0.73 0.71 0.65 Parent Company ITOCHU Corporation (Shares listed in Tokyo; Code: 8001) Supplementary Explanation Updated Status of Major Shareholders mentioned above is as of the ends of September, 2021. Stock ownership percentage described in the Status of Major Shareholders is calculated excluding treasury stock of 3,894,598shares. – 6 – 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 March Wholesale Trade More than 1,000 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 Updated As is the case with the conditions for general transactions, the Company determines the conditions for transactions or actions with ITOCHU Corporation, which is its parent company and controlling shareholder, in consideration of market prices. For material transactions for which it is impossible to refer to market prices, the Company ensures the appropriateness of transactions through deliberation and examination by a Special Committee composed of independent persons including Independent Outside Directors prior to approval by resolution at a Board of Directors’ meeting attended by Outside Directors and Outside Audit & Supervisory Board Members. 5. Other Special Circumstances which may have Material Impact on Corporate Governance As the parent company, ITOCHU Corporation owns 53.97% of the voting rights of the Company. The Company is a consolidated subsidiary of ITOCHU Corporation and a core company in domestic sales of petroleum products and in the business of imports to and exports from Japan in the ITOCHU Group. As a significant business partner, the Company exchanges information and personnel concerning transactions of petroleum and other products and domestic and international crude oil and petroleum product market trends, and pushes ahead with business activities concerning electric power, environmental business and global projects. The degree of dependence of the Company’s business transactions on the parent company is low, and most of them are transactions with ordinary companies and consumers. The Company understands that its business is not constrained by the parent company and that it is capable of making independent managerial decisions while retaining its own initiative and autonomy. Some of the Company’s Directors hold additional posts at ITOCHU Corporation and in its corporate group, and the Company accepts human resources dispatched from them, and vice versa. However, they do not hinder the Company in making independent managerial decisions, and the Company maintains its independence, given that three Outside Directors are designated as Independent Directors and diverse opinions can be reflected on deliberations at the Board of Directors. 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 – 7 – [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Election of Outside Directors Number of Outside Directors Number of Independent Directors 12 1 year President 8 Yes 3 3 Outside Directors’ Relationship with the Company (1) Name Attribute Ichiro Saeki Motoyo Yamane Hiroshi Endo Attorney From another company From another company a b Relationship with the Company* i f c h g d e j k * * * Categories for “Relationship with the Company” ”○” 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 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 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, i. j. or f) (the Director himself/herself only) Executive of a company, between which and the listed company Outside Directors/Audit & Supervisory Board Members are mutually appointed (the Director himself/herself only) Executive of a company or organization that receives a donation from the listed company (the Director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) Name Designation as Independent Director Supplementary Explanation of the Relationship Ichiro Saeki Yes Reasons for Appointment Attorney from another company, and University faculty April 1975: Joined The Nippon Credit Bank Ichiro Saeki has specialized knowledge in his capacity as an attorney and a professor of university, and extensive experience with corporate legal affairs. He also acquired broad knowledge of banking and finance during his tenure at Nippon Credit Bank Ltd. (currently, Aozora Bank, Ltd.). He has – 8 – (currently, Aozora Bank, Ltd.) April 1995: Registered as an attorney-at-law (Daini Tokyo Bar Association) March 2004: Founded the Shi-Go-Roku Law Office and became its representative attorney (incumbent) June 2005: Became an auditor of The Shinkumi Federation Bank (incumbent) June 2016: Appointed as an Outside Director and an Independent Director of the Company (incumbent) April 2020: Became a professor emeritus at Aoyama Gakuin University (incumbent) From another company April 1971: Joined Japan Broadcasting Corporation November 2011: Became a board member of the Characters Culture Promotion Organization (incumbent) April 2017: Became a director of Junshin Hiroo Gakuen (incumbent) April 2017: Became a director of the Picture Book Culture Promotion Association (incumbent) June 2016: Appointed as an Outside Director and an Independent Director of the Company (incumbent) January 2021: Became a member of the Japan Art Academy’s review committee, a part of the Agency for Cultural Affairs (incumbent) From another company April 1975:Joined Tokio Marine & Fire Insurance Co., Ltd. (currently, Tokio Marine & Nichido Fire Insurance Co., Ltd.) July 2016: Became a council of the Japan – 9 – been nominated to another term as a candidate for Outside Director because the Company believes that his deep knowledge of banking and finance will enable him to contribute to the proper oversight of the Company’s business conduct and offer advice from an objective and expert point of view. The Company believes that he meets the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company. Motoyo Yamane worked in the broadcasting industry for many years, where she was involved in organizational operations and the development of human resources. She also has sat on various expert committees related to social contribution and cultural activities and has extensive knowledge of society and culture. She has been nominated as a candidate for Outside Director because the Company believes that she is able to suitably provide advice for the management of the Company and able to contribute to the proper oversight of the execution of the Company’s business while continuing to use her knowledge based on her insight and diverse perspective developed throughout her career. The Company believes that she meets the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company. Hiroshi Endo has been involved in the insurance industry for many years, in wide ranging roles such as accounting, automobile insurance planning, corporate management, and overseas business. He also has extensive insight into corporate management, having served as Managing Director at Tokio Marine Holdings, Motoyo Yamane Yes Hiroshi Endo Yes Police Support Association (incumbent) January 2017: Became a counsel to Kamimura Ohira & Mizuno (incumbent) January 2019: Became an outside director of Generation Pass Co., Ltd. (incumbent) June 2020: Appointed as an Outside Director and an Independent Director of the Company Inc., and President of the General Insurance Institute of Japan. He has been newly nominated as a candidate for Outside Director because the Company believes that, he will suitably provide advice to the Company management and contribute to the proper oversight of the execution of the Company’s business. The Company believes that he meets the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company. Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Updated Committee Corresponding to Nomination Committee Committee Corresponding to Remuneration Committee Committee’s Name Governance Committee Governance Committee All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson 5 0 2 3 0 0 5 0 2 3 0 0 Outside Director Outside Director Supplementary Explanation Updated The Company’s Governance Committee fulfils the role of voluntarily established independent Nomination Committee and Remuneration Committee. The Governance Committee is chaired by an Outside Director and composed of three Outside Directors and two internally promoted Directors, making a total of five members. Members are elected based on nominations of the Board of Directors. In FY2020, the Governance Committee met 12 times to deliberate on and examine matters such as the nomination and remuneration of Directors and Executive Officers and the assessment of the effectiveness of the Board of Directors, with the attendance of all the Committee members. [Audit & Supervisory Board Members] Establishment of Audit & Supervisory Board Maximum Number of Audit & Supervisory Board Members Stipulated in Articles of Incorporation Number of Audit & Supervisory Board Members Established 5 4 – 10 – Cooperation among Audit & Supervisory Board Members, Accounting Auditors and Internal Audit Departments Cooperation among Audit & Supervisory Board Members, Accounting Auditors and internal audit departments (the Audit Department) is stated in 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions. Appointment of Outside Audit & Supervisory Board Members Number of Outside Audit & Supervisory Board Members Number of Independent Audit & Supervisory Board Members 4 2 Appointed Outside Audit & Supervisory Board Members’ Relationship with the Company (1) Name Attribute Toyohiro Sunayama From another company Isao Kubo From another company Relationship with the Company* g j a f e d △ c b △ △ △ i h △ △ k l m * * * Shozo Tokuda Masako Iwamoto CPA Attorney Categories for “Relationship with the Company” ”○” when the Audit & Supervisory Board Member presently falls or has recently fallen under the category; “△” when the Audit & Supervisory Board Member fell under the category in the past “●” when a close relative of the Audit & Supervisory Board Member presently falls or has recently fallen under the category; “▲”when a close relative of the Audit & Supervisory Board Member fell under the category in the past Executive of the listed company or its subsidiary Executive of a fellow subsidiary company of the listed company a. b. Non-Executive Director or accounting advisor of the listed company or its subsidiaries c. Non-Executive Director or Executive of a parent company of the listed company d. Audit & Supervisory Board Member of a parent company of the listed company e. f. A party whose major client or supplier is the listed company or an executive thereof g. Major client or supplier of the listed company or an executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the listed company besides compensation as an Audit & Supervisory Board Member i. Major shareholder of the listed company (or an Executive of the said major shareholder if the shareholder is a legal entity) Executive of a client or supplier company of the listed company (which does not correspond to any of f, g, or h) (the Audit & Supervisory Board Member himself/herself only) k. Executive of a company, between which and the listed company Outside Directors/Audit & Supervisory Board Members are mutually appointed (the Audit & Supervisory Board Member himself/herself only) Executive of a company or organization that receives a donation from the listed company (the Audit & Supervisory Board Member himself/herself only) j. l. m. Others – 11 – Outside Audit & supervisory board members’ Relationship with the Company (2) Updated Name Reasons for Appointment Designation as Independent Audit & supervisory Board Members Supplementary Explanation of the Relationship Toyohiro Sunayama No Isao Kubo No Shozo Tokuda Yes Toyohiro Sunayama has many years of experience at ITOCHU Corporation, primarily in textile-related business, and corporate planning operations overseas, etc. He has been nominated as an Audit & Supervisory Board Member because the Company deemed that he can provide management advisory and appropriate supervision of the execution of operations based on his broad knowledge regarding global business management and administrative business gained through abundant experience. Because he does not meet the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company, he is not designated as an Independent Audit & Supervisory Board Member. Isao Kubo has many years of experience in management planning and operations related to auditing at ITOCHU Corporation. After working as a Managing Executive Officer and General Manager of Internal Audit Division, he became a Director, Senior Managing Executive Officer, CSO, and General Manager of Corporate Planning Division at FamilyMart Co., Ltd. He has extensive knowledge of business management and has been nominated as a candidate for Outside Audit & Supervisory Board Member because the Company believes that he is able to suitably provide advice for the management of the Company and able to contribute to the proper oversight of the execution of the Company’s business. Because he does not meet the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company, he is not designated an Independent Audit & Supervisory Board Member. Shozo Tokuda has specialized knowledge in his capacity as a certified public accountant. He also acquired broad knowledge of corporate accounting. He has been nominated as an Outside Audit & Supervisory Board Member because the Company believes that his deep knowledge of corporate accounting will enable him to contribute to the proper From another company April 1983: Joined C. Itoh & Co. Ltd. (Currently, ITOCHU corporation) June 2018: Appointed as a Standing Audit & Supervisory Board Member of the Company From another company April 1982: Joined C. Itoh & Co. Ltd. (Currently, ITOCHU corporation) September 2020: Became an outside director of Pan Pacific International Holdings Corporation (incumbent) April 2021: Became an advisor to FamilyMart Co., Ltd. June 2021: Appointed as an Audit & Supervisory Board Member of the Company (incumbent) CPA April 1981: Joined Asahi & Co. (Currently, KPMG AZSA LLC) August 1985: Registered as a certified public accountant – 12 – June 2017: Appointed as an outside corporate auditor of Mitsui Chemicals, Inc. (incumbent) June 2017: Appointed as a Audit & Supervisory Board member of the Company Attorney April 1998: Registered as an attorney-at-law and joined the then Tokyo Aoyama Aoki Law Office (Currently, Baker & McKenzie) June 2002: Founded Iwamoto Law Office and became Managing Partner (incumbent) 2020: Appointed as an outside director of Achilles Corporation (incumbent) June 2021 Became Audit & Supervisory Board Member of the Company (elected as Independent officer (incumbent) oversight of the Company’s business conduct and offer advice from an objective and expert point of view. The Company believes that he meets the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company. As an attorney, Masako Iwamoto has specialized knowledge and extensive experience with corporate legal affairs. She has also acquired broad knowledge during her tenure as an outside director of Achilles Corporation. She has been nominated as a candidate for Outside Audit & Supervisory Board Member because the Company believes that she will properly fulfill her duties as an Outside Audit & Supervisory Board Member of the Company from an objective and expert perspective. The Company believes that she meets the Standards for Independence stipulated by the Financial Instruments Exchange and by the Company. Masako Iwamoto Yes [Independent Directors/Audit & Supervisory Board Members] Number of Independent Directors/Audit & Supervisory Board Members 5 Matters relating to Independent Directors/Audit & Supervisory Board Members As mentioned in Disclosure Based on the Principles of the Corporate Governance Code in Ⅰ-1 of this report, the Company has the standards for the independence of Outside Directors and Audit & Supervisory Board Members formulated by its Board of Directors. The Company designates all Outside Directors who have satisfied the Independent Director’s requirement as Independent Directors based on the criteria for determining the independence of Outside Directors set forth by the Tokyo Stock Exchange, Inc. and other financial exchanges in Japan in addition to the Company’s criteria as above. Incentive Policies for Directors plan Introduction of a performance-linked stock remuneration [Incentives] Supplementary Explanation As medium- to long-term performance-linked remuneration, the Company provides its Executive Directors with points according to net profit under the Medium-Term Business Plan, the titles of the Directors, and the number of months in their term of office. At the time of their retirement, they acquire a number of the – 13 – Company’s common shares commensurate with the total number of points granted. The number of shares provided is the product of multiplying the number of points given by the above program by 1.0. This remuneration program is adopted to motivate program participants to contribute to the improvement of the Company’s medium- to long-term performance and the increase of its corporate value. Recipients of Stock Options Supplementary Explanation None [Director Remuneration] Disclosure of Individual Directors’ Remuneration No Individual Disclosure Supplementary Explanation Updated Director/Audit & Supervisory Board Member remuneration for the fiscal year ended March 31, 2021(Unit: million yen) Base remuneration Bonus Stock-based remuneration Total remuneration, etc. 304 (32) 65 (61) 369 (93) 185 (32) 65 (61) 250 (93) Director (Outside Director) Audit & Supervisory Board Member (Outside Audit & Supervisory Board Member) Total (Outside Director and Outside Audit & Supervisory Board Member) 99 (-) – (-) 99 (-) 20 (-) – (-) 20 (-) Number of persons 10 (4) 4 (3) 14 (7) – Directors’ remuneration is structured differently depending on whether Directors are executive or non-executive. The remuneration for Executive Directors is composed of base remuneration, which is fixed remuneration, and bonuses and stock remuneration, which are performance-linked remuneration. Remuneration for Non-Executive Directors comprises only base remuneration, with no bonuses or stock remuneration provided, from the perspective of their roles and independence. Regarding the total amount of base remuneration and bonuses, the 52nd Ordinary General Meeting of Shareholders held on June 21, 2012 passed a resolution setting a cash remuneration limit of no more than 500 million yen per year. As for stock remuneration, the 57th Ordinary General Meeting of Shareholders held on June 21, 2017 passed a resolution setting the maximum amount of the Company’s contribution to the trust formed by the Company during the trust period (two years: from October 2021 to September 2023) as funds for acquiring the Company’s shares at 120 million yen and the total number of points given by the Company to its Directors at up to 82,000. – 14 – – The remuneration for Audit & Supervisory Board Members is determined through consultation among Audit & Supervisory Board members and comprises only base remuneration, with no bonuses or stock remuneration provided. As for the maximum amount of remuneration, the 47th Ordinary General Meeting of Shareholders held on June 22, 2007 passed a resolution setting the maximum amount at 70 million yen per year; however, a resolution setting the annual amount at no more than 100 million yen was passed at the 61st Ordinary General Meeting of Shareholders held on June 16, 2021. – The total remuneration, etc. of Kenji Okada, the Representative Director of the Company, is 105 million yen (including, by type of remuneration, etc., base remuneration of 54 million yen, bonuses of 43 million yen, and stock remuneration of 8 million yen). Policy on Determining Remuneration Amounts and Calculation Methods Updated Established Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods The Governance Committee has been consulted about the policy on determining remuneration for each individual Director. On receiving the response from the Committee, the Board of Directors passed a resolution on said policy at a meeting held on February 25, 2021. （１）Basic policy Remuneration for Directors of the Company is designed to attract talented human resources with the ability to implement the Company’s Corporate Philosophy and to motivate them to contribute to the sustained improvement of its corporate value. It is the Company’s basic policy to determine remuneration paid to each Director at an appropriate level based on his/her position and duties. （２）Remuneration system for Directors – Remuneration for Executive Directors comprises fixed basic remuneration (monthly remuneration) and performance-linked remuneration that fluctuates according to performance. -Remuneration for Non-Executive Directors comprises only fixed basic remuneration (monthly remuneration) from the perspective of their roles and independence. [Breakdown of remuneration of Executive Directors] – – – The composition ratio for the remuneration of Executive Directors is 63% fixed basic remuneration (cash), 32% bonuses as performance-linked remuneration (cash), and 5% stock as performance-linked remuneration (non-cash). The above ratio represents remuneration when 100% of all targets for performance-linked remuneration are reached. [Details of remuneration] – Details of base remuneration are as follows. – The Company determines the fixed monthly amount according to the position and responsibilities of each Director, taking into account the standards of other companies based on the research of specialized external institutions. – Details of bonuses are as follows. – The Company pays performance-linked bonuses to Executive Directors at certain times of each year as a short-term performance pay based on a performance indicator and the level of goal achievement in the year. The performance indicator that is the basis for bonuses is the level of achievement of the target profit attributable to the Company’s shareholders (consolidated) each year. The Company determines the amounts of bonuses by multiplying the base remuneration by a certain coefficient according to the levels of achievement of company-wide performance, division performance, and section performance and a qualitative assessment. * The comprehensive qualitative assessment is performed by the Representative Director and President, taking into account the level of the goal achievement of each Executive Director (progress in addressing issues in the areas of their responsibility, development of management executives, thoroughness of legal compliance, etc.). – 15 – – Details of stock remuneration are as follows. – As medium- to long-term performance-linked remuneration, Executive Directors are provided with points according to net profit under the Medium-Term Business Plan, the titles of the Directors, and the number of months in their term of office. At the time of their retirement, they acquire a number of the Company’s common shares commensurate with the total number of points granted. The number of shares provided is the product of multiplying the number of points given by 1.0. – This remuneration program is adopted to motivate Directors to contribute to the improvement of the Company’s medium- to long-term performance and the increase of its corporate value. *Stock remuneration is adopted to motivate Directors to contribute to the improvement of the Company’s medium- to long-term performance and the increase of its corporate value. – Of the above remuneration, the bonuses and stock remuneration are linked to the Company’s business performance, and net profit (consolidated) attributable to the Company’s shareholders has been adopted as the indicator for evaluating the overall business performance of the Company. It was adopted to ensure the simplicity of the indicator, consistency with the numerical targets related to the Company’s business management (or with the quantitative targets set in the medium-term business plan, which apply to the performance-linked stock remuneration), and in light of the trends of other companies. The consolidated net profit attributable to the Company’s shareholders for FY2020 is 12,168 million yen. （３）Policy, etc. for determining the remuneration of individuals – To flexibly determine the amount of remuneration for individuals, Kenji Okada, the Representative Director President of the Company, is delegated to determine specifics based on standards established in advance. – Changes made to the above composition of remuneration, base remuneration, and bonuses require prior reporting to the Board of Directors after consultation with the Governance Committee. Changes in the stock remuneration require approval at a Board of Directors’ meeting or a General Meeting of Shareholders. – The Company has established a system in which the Governance Committee receives one or more reports a year on the overall distribution of remuneration for individual Directors, ensures that such activities are conducted appropriately in line with this policy, and guarantees their objectivity, fairness, and transparency. – The Board of Directors receives the results of deliberations and examinations, and reports on the appropriate remuneration of individual Directors in line with this policy from the Governance Committee, and the Company believes that the activities of the Board of Directors are also in line with this policy. [Supporting System for Outside Directors and/or Audit & Supervisory Board Members] The Company provides its Outside Directors and Outside Audit & Supervisory Board Members with various forms of support necessary for the performance of their duties. They include materials distributed to them by the administrative office for the Board of Directors regarding the proposals to be discussed by the board, and the administrative office provides them with explanations prior to deliberations as necessary. Administrative departments such as the Corporate Planning Department, the Human Resources & General Affairs Department, the Finance & General Accounting Department, and the Legal & Credit Control Department provide them with necessary corporate information as appropriate. Outside Audit & Supervisory Board Members are also provided with the necessary support for the fulfillment of their duties through assistants to Audit & Supervisory Board Members who concurrently hold positions in the Audit Department. On the aforementioned occasions of reporting and reviews, the Outside Directors and Outside Audit & Supervisory Board Members undertake collaboration by making appropriate comments and exchanging opinions. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) Updated [Current Structure（As of December17 , 2021）] The Company has a Board of Directors and an Audit & Supervisory Board. 1. Board of Directors – The Board of Directors consists of a total of 8 members(1 female Director, and the ratio of Outside Directors 37.5%), 5 of whom are Internal Directors and 3 of whom are Outside Directors. In accordance with laws and ordinances and the Company’s Articles of Incorporation, regulations for Directors and other internal rules, the board makes decisions on important matters and oversight the Directors’ business execution. – In FY2020, a total of 10meetings of the Board of Directors were held. Major matters discussed included the medium-term business plan, investment projects of high importance, internal control, and corporate – 16 – governance. Each Director’s attendance at Board of Directors is disclosed in the Notice of the 61th Ordinary General Meeting of Shareholders (including the attached Business Report). – The Directors execute the duties assigned to them in accordance with the roles determined by the Board of Directors and with laws, ordinances, the Articles of Incorporation and internal rules. 2. Executive Officer System – For strengthening the Board of Directors’ decision-making function and oversight function and for increasing efficiency in business execution, the Company adopts the Executive Officer system. Following decisions made by the board, Executive Officers perform their respective duties as delegated by the board and the Representative Director. As of December17, 2021, the Company had a total of 14 Executive Officers, including those additionally serving as Directors. 3. Special Committee, Governance Committee – For the purposes of strengthening the Board of Directors’ oversight function and increasing the transparency of the decision-making process, the Governance Committee was established as a voluntary consultative body of the Board of Directors. In addition, a Special Committee composed of independent persons including Independent Outside Directors was established on October 29, 2021 as a new voluntary consultative body of the Board of Directors. The functions and composition of each committee are as follows (as of December 17, 2021). – Special Committee (Functions) Deliberation and examination of material transactions or actions involving conflicts of interest with a controlling shareholder or a minority shareholder (Composition) A total of 5 members: 5 Independent Directors/Auditors (3 Outside Directors, 2 Outside Audit & Supervisory Board Members) – Governance Committee [Functions] Deliberation and examination of the nomination and remuneration of Directors and Executive Officers, material transactions or actions with a related party (excluding a controlling shareholder) and other matters relating to corporate governance. [Composition] A total of 5 members: 3 Independent Directors (3 Outside Directors), and 2 Internal Directors – In FY2020, the Governance Committee met 12 times to deliberate on and examine matters such as the nomination and remuneration of Directors and Executive Officers and the assessment of the effectiveness of the Board of Directors, with the attendance of all the Committee members. 4. Management Advisory Conference and various committees – The Company has established the Management Advisory Conference and several committees: the Risk Management Committee, the Internal Control Committee and the Disclosure Committee and the Sustainability Committee. They are aimed at helping the President and the Board of Directors to make appropriate and swift decisions on business execution. As an advisory body for the President, the Management Advisory Conference discusses significant matters related to the Company’s overall management policy and its business administration. – Different internal committees carry out careful inspections and deliberations on managerial issues in their respective domains. These activities are helpful to the President and the Board of Directors in terms of decision-making. The principal internal committees and their roles are as follows: – Risk Management Committee: Deliberations on matters in connection with risk management, such as the identification and analysis of risks that could have a material impact on the management, measures against such risks, the prevention of their occurrence and actualization, and the announcement thereof. – Internal Control Committee: Deliberations on matters in connection with the construction and operation of the internal control system – Disclosure Committee: Comprehensive and prompt collection of important company information in the Group, deliberations on whether to disclose information, accuracy, clarity, sufficiency, fairness, and positivity, and disclosure of necessary information – Sustainability Committee: Deliberations on and monitoring of sustainability policy, issues, measures, etc. from a long-term perspective and implementation and direction of the sustainability management strategies across the entire Group 5. Audit & Supervisory Board Member, Audit & Supervisory Board – The Audit & Supervisory Board is composed of 4 Audit & Supervisory Board Members (4 Outside Audit & Supervisory Board Members), 2 of whom are Standing Audit & Supervisory Board Members and the other 2 are Non-Standing Audit & Supervisory Board Members. In accordance with the regulations for the Audit & – 17 – Supervisory Board Members and the standards for audits by Audit & Supervisory Board Members, it performs audits to examine the appropriateness of the Directors’ business execution of duties. In addition, it provides support to the Audit & Supervisory Board Members in the execution of duties by appointing 2 employees assisting the Audit & Supervisory Board Members (concurrently serving at the Audit Department). – In FY2020, a total of 12 meetings of the Audit & Supervisory Board were held, and each Audit & Supervisory Board Member’s attendance at the meetings of the Audit & Supervisory Board is disclosed in the Notice of the 61th Ordinary General Meeting of Shareholders (including the attached Business Report). – The Audit & Supervisory Board passes a resolution of, reports, deliberates and discusses the following matters as the main matters to be considered. Audit policies, audit plans, the allocation of duties, appointment and remuneration of Audit & Supervisory Board Members, annual review of activities of the Audit & Supervisory Board Members, report of audit results, reports of monthly activities of the Standing Audit & Supervisory Board Members, the exchange of opinions with the Representative Director, the evaluation, reappointment, and remuneration of Accounting Auditors, and communication with Accounting Auditors (audit plans, audit reports, and responses to major audit issues to discuss) – The Audit & Supervisory Board implements audits by setting the following key audit items for FY2020 and makes necessary suggestions to the management. ① Appropriateness of the decision-making process of the Board of Directors and the rationality of its decisions ② Progress of work-style reforms considering experiences during the COVID-19 pandemic ③ Enhancement and maintenance of the revenue base and the status of efforts to develop business overseas and in peripheral fields ④ The status of efforts to strengthen Group management – Individual Audit & Supervisory Board Members conduct activities in accordance with the Audit & Supervisory Board Member auditing standards, the audit policy, and the allocation of duties determined by the Audit & Supervisory Board while also using tools such as the Internet. The Audit & Supervisory Board Members worked on communication and information gathering by exchanging opinions with the Representative Director about management policies, audit plans and audit results three times a year, exchanging opinions with all the Directors, the Executive Officers and the General Managers throughout the year, holding monthly liaison meetings with the Audit Department and the Corporate Administration Division and cooperating with Outside Directors. The Audit & Supervisory Board Members attend important meetings such as the Board of Directors, the Management Advisory Conference, the Governance Committee, the Risk Management Committee and the Internal Control Committee and receive reports from Directors and employees on the status of their execution of duties, ask them for explanations if necessary and express opinions. The Audit & Supervisory Board Members also inspect significant decision-making documents, investigate operational and asset conditions at the head office, other major branches and subsidiaries, and monitor and verify the state of the internal control systems to audit the execution of duties of the Directors. In addition, the Audit & Supervisory Board Members meet with the Accounting Auditor several times in each quarter to monitor and verify whether the Accounting Auditor conducts audits appropriately, and receive reports from the Accounting Auditor on the status of its execution of duties and request explanations if necessary. – The Standing Audit & Supervisory Board Members share information with the Non-Standing Audit & Supervisory Board Members through the Audit & Supervisory Board by monitoring and verifying the improvement of the audit environment, the collection of internal information, and the status of construction and operation of the internal control system on a routine basis. The Non-Standing Audit & Supervisory Board Members attend the Board of Directors, regular meetings with the Accounting Auditor and other important meetings after collecting necessary information at remote site inspection and a prior briefing for Outside Directors and Outside Audit & Supervisory Board Members and express necessary opinions, taking advantage of their expert knowledge and background. 6. Internal Audits – As an internal auditing body, the Company has established the Audit Department under the direct control of the President. It had 12 staff members as of December17, 2021. The Audit Department conducts audits of the Company and its domestic and overseas conso