いちよし証券（8624） – Corporate Governance Report

CORPORATE GOVERNANCE REPORT (English translation for reference purposes only) Representative Executive Officer, President & Director: Mr. Hirofumi Tamada Ichiyoshi Securities Co., Ltd. Last updated: April 1, 2022 Enquiry to: Public Relations Office (Tel: 03-4346-4512) Securities code: 8624 (Tokyo Stock Exchange) https://www.ichiyoshi.co.jp The status of the corporate governance of Ichiyoshi Securities Co., Ltd. (the “Company”) is as described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic views The Company holds a motto of “Building a securities house like no other in Japan” and aims to be a “Name-brand boutique house in the finance and securities industry.” In its efforts for realization, the Company intends to heighten the fairness and transparency of management along its below-mentioned “Ichiyoshi Credo” (corporate philosophy) and to promote flexible and relevant decision-making, thereby maximizing earnings and corporate value while bolstering its corporate governance. The Company has also adopted a company with three committees system to tighten its surveillance capability over business executions and has in place an operating officer system to enhance the promptitude and effectiveness of business executions. [Ichiyoshi Credo (corporate philosophy)] Management philosophy: To remain a company of customers’ trust and choice. Management objective: Name-brand boutique house in the finance and securities industry. Action guidelines: Gratitude, Integrity, Courage, Responsiveness, Continuity and Long-Term Good Relation. Based on the Ichiyoshi Credo, the Company has its raison-d’etre vis-à-vis each of its stakeholders: Vis-à-vis employees: Respecting employees’ individuality and striving for human resource cultivation. “The Ichiyoshi Spirit” — Fighting on with passion and sincerity. “Job Satisfaction” — Building a free and invigorated corporate climate that Vis-à-vis customers: Aiming to be every customer’s first choice. “Customer Prioritization” — Always providing advice with sincerity from the optimizes employees’ abilities and creativity by prioritizing teamwork. “Quality Services” — Responding to social and market changes and providing high- Vis-à-vis shareholders: Striving for continuous improvement in performance and corporate value. customer’s standpoint. quality products and services. 1 “Return to Shareholders” — Raising business profitability and strengthening financial health, then returning profits to shareholders. “Information Disclosure” – Ensuring business management transparency through appropriate disclosure and investor relation activities. Vis-à-vis society: Contributing to the development of society as a participant in the financial and “Social Responsibility” — Complying with laws and regulations and behaving with securities markets. high ethical standards. “Social Contribution” — Contributing to the development of regional communities and securities markets through corporate activities. [Reasons for Non-Compliance with the Principles of the Corporate Governance Code] The Company complies with all principles contained in Corporate Governance Code. This report is written based on Corporate Governance Code (covering the prime market as well) revised in June 2021. [Disclosures Based on the Principles of the Corporate Governance Code] [Principle 1-4 — Policy-based holdings of stocks] As of June, 2021, the Company’ policy-based holdings of stocks amounted to 39 million yen, or 0.14% of its net assets. The purpose of policy-based holdings of stocks is limited to the case of apparently enhancing relationships with companies with which the Company has business relations. Other than in such exceptional cases, the Company has a policy not to do policy-based holdings of stocks. It is the Company’s policy to limit the sum of the holdings of investment securities and policy-based holdings of stocks to 10% or less of the Company’s net assets in accordance with the Board of Directors’ resolution. The Company does not have any cross-held stocks. The Board of Directors reviews and verifies, based on proposals made by the Investment Committee, each of potential and executed investments of policy-based holdings of stocks and scrutinizes their rationality, purpose and benefit as needed. The Company’s voting rights on policy-based holdings of stocks is exercised after analyzing the condition of subject companies, and having a dialogue with subject companies and seriously judging whether proposed resolutions are conducive to the sustainable growth of subject companies and to the growth of the Company’s business. [Principle 1-7 — Matters Regarding Related-Party Transactions] The Rules concerning the Board of Directors stipulate that related-party transactions require the Board of Directors’ resolutions in order not to jeopardize the interests of the Company and its shareholders. The directors and officers of the Company are obliged to answer to “Business Execution Confirmation” and “Questionnaire on Related-Party Transactions” every year. 2 [Supplementary Principle 2-4-1] The Company prioritizes the development of human resources with high individual personality and teamwork spirit and builds its free and open corporate culture enriched by employees’ talent and creativity as stated in its “Ichiyoshi Credo.” In line with its “Ichiyoshi Credo,” the Company intends to make mid-career recruitments in the same number as new-graduate recruitments every year. The Company has fairly evaluated personal ability and insight of new recruits without regard to gender and nationality, made job and position assignments on the basis of the right person for the right job and appointed manager-level staff according to their roles. With respect to mid-career recruitments, the Company has actively proceeded, resulting in about 46% of employees being mid-career recruits currently. The appointment of mid-career recruits to manager-level has been made on a fair and active basis. With respect to female managers, the Company has formulated an action plan based on Act on Women’s Participation and Advancement in the Workplace, thereby improving employment environments for female employees’ promotion, making better environments for the reduction of the gap between male and female employees as to their number of years of continuous service and taking measures to raise the ratio of female staff in the managerial level. End of March 2015: 49.0% End of March 2015: 5.8% End of March 2016: 49.2% End of March 2016: 8.5% End of March 2017: 51.2% End of March 2017: 8.7% End of March 2018: 51.2% End of March 2018: 9.4% End of March 2019: 53.7% End of March 2019: 9.8% End of March 2020: 52.0% End of March 2020: 11.6% End of March 2021: 47.5% End of March 2021: 15.3% [Principle 2-6 —Role as Asset Owner of Corporate Pension Plan] The Company has in place a hybrid pension plan combining a defined benefit pension plan and a defined contribution pension plan. The Pension Meeting of the Company receives from the department in charge a quarterly report on the defined benefit pension management and an annual-account settlement report on the defined contribution plan (the both reports are originally presented by the pension plan manager) and annually decides on the basic rate of defined benefit pension plan for the coming year. In addition to the Pension Meeting, the Pension Management Meeting is organized to formulate and review basic pension management policy, verify and review invested products and investment methods and monitor the pension plan manager. 3 [Principle 3-1 — Enhanced Disclosure] 3-1-(1) The Company has in place the “Ichiyoshi Credo” which contains management philosophy, management objective and action guidelines, and has formulated its 3-year medium-term management plan every three years since 1996, which have been published on its website. 3-1-(2) the Company. The purpose of the Company’s corporate governance is to ensure that the management of the Company is performed in fairness in accordance with rules and regulations, and the Company’s corporate governance, along with its Internal Control System and Timely Disclosure System, forms the core body of As part of its corporate governance efforts, the Company adopted its company with three committees system in June 2003, among many others. The Company believes that the company with three committees system is the most effective system for corporate governance. The following are reasons why the Company moved to the company with three committees system: ● To separate the function of the Board of Directors (which include decision on basic management policy and material business matters and supervision on duty performances of directors and officers) and the function of executive officers (which includes execution of business decisions), thereby speeding up management decision-making and enhancing the flexibility of business execution. ● To ensure the wholesome growth of the Company, enhance the transparency of corporate management, operate the Company’s business from the standpoint of shareholders and further strengthen the corporate governance. ● To employ outside directors well experienced in laws, accounting and corporate management whose expert views and opinions will benefit the management of the Company. 3-1-(3) The individual remunerations of the Company’s directors and executive officers are decided by the Remuneration Committee. The Remuneration Committee consists of 3 directors of whom 2 are outside directors. The following is an outline of the policy of the Remuneration Committee for the determination of individual remunerations and related procedures: ● Basic policy: To lift the desire and will of directors and executive officers for company management and derive their utmost management capability, so that they will contribute to the achievement of desired business result. ● Contents of remunerations: Remunerations of directors and executive officers shall consist of “Monthly Basic Remuneration,” “Remuneration Linked to Business Result,” “Stock-Related Remuneration” and “Non-monetary 4 Remuneration (such as a residential subsidy for living apart from family).” ● Procedures: The Remuneration Committee meets each director and executive officer twice every year to rate his/her performance and decide his/her remuneration. The policy and procedures for determination of individual remunerations of directors and executive officers are disclosed in the notice of shareholders’ meeting and the annual securities report. 3-1-(4) 3-1-(5) The Company is a company with three committees system. A proposed resolution for nominees for directors or dismissal of incumbent directors to be submitted every year to the shareholders’ meeting is decided at the Nominating Committee which consists of independent outside directors as majority members and is chaired by an independent outside director. The nomination and/or dismissal of executive officers is made by the Board of Directors. The specific policy and procedures for nomination and/or dismissal are disclosed in the notice of the shareholders’ meeting and the annual securities report. The selection of nominees for directors and dismissal of incumbent directors to be submitted to the shareholders’ meeting shall be decided by the Nominating Committee in accordance with the criteria established by the Nominating Committee. The following are the selection criteria for nominees as established by the Nominating Committee and included in the Notice of 79th Annual Meeting of Shareholders: For inside directors; ● Superb management sense ● Superb leadership, foresightedness and planning ability ● High law-abiding nature ● Personal magnetism in and out of the Company ● Healthiness physically and mentally For outside directors; ● High personality and insight ● Plentiful experience and expertise in business operations ● High law-abiding nature ● Unwavering independency as outside director ● Healthiness physically and mentally In addition, the nominees for outside directors are required to be qualified as the Outside Directors under the provisions of the Ordinance of the Company Law of Japan and to have no conflict of interest with shareholders as the Independent Directors under the regulations of the Tokyo Stock Exchange.) 5 The reasons for the selection of nominees for directors at the last shareholders’ meeting are disclosed in the attachment hereto. With respect to the appointment or dismissal of executive officers, they should be qualified to make business executions entrusted by the Board of Directors. [Supplementary Principle 3-1-3] “Ichiyoshi Credo” is a basis for the Company’ sustainable growth. In order to build a “Name-brand Boutique House” which is a management goal under “Ichiyoshi Credo” and realize the management philosophy for “Remaining as a Company of Customers’ Trust and Choice,” the Company regards the expansion of “customers’ assets in custody” as an overriding item of its management strategy and its most important management index. “Customers’ assets in custody” is a barometer for customers’ trust and represents the Company’s basic corporate strength. wrap account fees. By expanding “customers’ assets in custody,” the Company aims to make a fundamental shift of its business model from “flow-type” mainly based on brokerage commissions to “stock-type (asset-accumulation type) chiefly based on trailer and management fees on investment trust funds and fund-Hence, the Company will concentrate its personnel, assets and capital on the following areas: 1. Staff training to enhance the quality of advisors and headquarter staff. 2. Expansion of store network in around Tokyo. 3. Hybrid customer approach and advice using digital devices and face-to-face meeting. 4. Setting up of Ichiyoshi Financial Advisors to utilize its channels. 5. Pursuance of belief in “Not selling products simply because they are popular.” 6. “Triangle Pyramid Management” based on the comprehensive strength of the Ichiyoshi group consisting of Ichiyoshi Securities, Ichiyoshi Research Institute, Ichiyoshi Asset Management, Ichiyoshi Business Service and Ichiyoshi Financial Advisers. 7. High-level legal compliance with customers’ interests in focus. 8. High-level corporate governance. 9. Creation of worker-friendly and worthwhile workplace. The Company has adopted, for the past 20 years, “cost coverage ratio” to measure the progress of its shift to “stock-type (asset-accumulation type) business model.” The cost coverage ratio represents the ratio at which operating cost and expenses are covered by the sum of retailer fees and management fees on investment trust funds and fund-wrap account fees. The cost coverage ratio in fiscal 2000, the first fiscal year of its application, was approximately 7%, that in fiscal 2001 was approximately 30% and that fin the first half of fiscal 2021 was approximately 52%. This steady rise in the ratio indicates how the shift to “stock-type (asset-accumulation type) business 6 model” has progressed. earnings. The following is how the climate change will risk and affect the Company’s business activities and In order to effect appropriate asset valuation and proper asset allocation in the management of customers’ accounts on a medium- to long-term basis, the Company needs a consistent and appropriate disclosure of information regarding climate change-related risks to investment target companies and their earnings. The lack of such disclosure would cause troubles to the management of customers’ financial assets, such as the loss of stability of customers’ asset management and the lowering of medium-to long-term investment performance. If that should happen, customers’ trading opportunities with the Company might decrease, resulting in the lowering of the Company’s earnings. Conversely, if investment target companies make consistent and appropriate disclosure of information, it will contribute to the stability of the Company’s customers’ asset management and to the raising of medium- to long-term performances of their investments. Such condition may help the Company increase its earnings. Hence, Ichiyoshi Research Institute (IRI), which has long specialized in research on small- and medium-cap growth companies, has now adopted ESG achievement (including the handling of climate change) as one of its important criteria for the selection of research target companies. The result of IRI’s research is applied to the management of the Company’s customers’ assets. Ichiyoshi Asset Management (IAM), a subsidiary of the Company, also applies IRI’s research result on ESG to its management of investment trust funds. Furthermore, IAM manages an investment trust fund, “Ichiyoshi ESGs Small- and Medium-Cap Stock Fund,” which has now an asset balance of about 30 billion yen. Thus, the Company believes that the asset balance of IAM’s publicly-offered investment trust funds are one of useful indicators of how climate change and its risk have affected the Company’s business activities and earnings. End of March 2018 : 284.7 billion yen End of March 2019 : 283.5 billion yen End of March 2020 : 204.2 billion yen End of March 2021 : 298.2 billion yen End of September 2021 : 342.0 billion yen In the course of its business, the Company is actively involved in the contribution to the lowering of environmental burden and realization of non-carbon society. Specifically, the company cars have been switched to ecologically-friendly cars, is severely controlling the temperature of air conditioners, using 7 recycled paper and vegetable oil ink and promoting online meetings in and out of the Company and online seminars for customers to reduce CO2 emissions in connection with the movement of people. The Company is also changing various procedures with customers into online-based ones, resulting in less In addition to these activities, in areas where the Company cannot make contributions through it mainline financial services, the Company has made donations in line with the spirit of “Ichiyoshi Credo” for more than 20 years, one of such donations being “Ichiyoshi Mangrove Project” which copes with use of paper. climate change. (For further information on policy and details on sustainability, please log on to https://www.ichiyoshi.co.jp/esg) [Supplementary Principle 4-1-1] The power and role of the Board of Directors are stipulated in the Regulations of the Board of Directors (the “Board”). The basic function of the Board is “to resolve on legally-required matters, decide or approve basic management policies and material matters on business executions and supervise business executions by directors and executive officers”. Executive officers are appointed by resolution of the Board of Directors. The scope and contents of their business executions are stipulated by the Regulations of Executive Officers. Their term of office is 1 year. Executive Chairman, Executive President, Executive Deputy President, Senior Managing Executive Officer, Managing Executive Officer and Representative Executive Officer are appointed by resolution of the Board of Directors. [Principle 4-8—Effective use of independent and outside directors] [Supplementary Principle 4-8-1] [Supplementary Principle 4-8-2] In order for independent and outside directors to perform their role and responsibility for the sustainable growth of the Company and the medium- to long-term enhancement of its corporate value, the Company has in place the “Meeting of Directors without Executive Power” and the “Meeting of Independent and Outside Directors.” The Meeting of Independent and Outside Directors has its head independent and outside director who officiates for liaison with the management team and for relationship enhancement among independent and outside directors. [Principle 4-9 — Judging criteria and quality for independent outside directors] Outside directors of the Company are required to meet with conditions set out in the Company Law, to be independent as defined under the Regulations of the Tokyo Stock Exchange and satisfy the selection criterion for outside directors laid out by the Nominating Committee of the Company. The outside directors of the Company provide the Company with fair and objective views and opinions for the benefit of the Company based on their respective experiences as attorney at law, certified public 8 accountant, business executive, and labor and social security attorney. [Supplementary Principle 4-11-1] The Board of Directors of the Company is basically constituted to contain inside directors who are experienced professionals with a long career in securities business and outside directors who are a lawyer, certified public accountant, business executive or labor and social security attorney each experienced in his/her professional category. The Board of Directors of the Company is so diversified and balanced in terms of knowledge, experience and capability. The number of directors is limited to 10. With respect to the experience and professional knowledge, please refer to the skill matrix attached to this report. [Supplementary Principle 4-11-2] [Supplementary Principle 4-11-3] The Company’s notice of annual shareholders’ meeting and annual securities report disclose whether the directors have the position of director on another listed companies or not. Since before the installation of the corporate governance code, the Company has had in place the company-with-three-committees system separating decision-making and execution with outside directors consulting fully with executing officers. Currently, as before, free and open discussions are being made at meetings of the Board of Directors, with executing officers listening to comments by outside directors. When there arise matters requiring more data in the eyes of outside directors, such matters will be treated as items of continued deliberation, thereby ensuring transparency. In order to further ensure the effectiveness of the Board of Directors, the following measures are being taken: (1) Meeting of non-executive directors The meeting of directors without executive power is held with the Chairman of the Board of Directors acting as chairman for the purpose of supervising the Company’s management from the independent and objective points of view. At the meeting, exchanges of views on securities industry, economy, social matters, in addition to those on the management of the Company, are made freely and openly, thereby ensuring the effectiveness of the Board of Directors. Such meetings were held 19 times for the fiscal year ended March 31, 2021. (2) Meeting of independent and outside directors The meeting of independent and outside directors is held with the full-time outside director acting as chairman for the purpose of exchanging and sharing views and information from the independent and objective points of view. Additionally, ad-hoc meetings between independent and outside directors and executive group of officers are held for exchange and sharing of information and views, thereby ensuring the effectiveness of the Board of Directors. (3) Conducting of questionnaire on effectiveness of Board of Directors 9 Since 2017, questionnaire to all directors has been conducted for the purpose of surveying the performance and effectiveness of the Board of Directors. 33 items in the questionnaire are intended to test whether the Board of Directors is properly functioning. The results are used to improve on problem areas and strengthen the Company’s advantages, thereby continuously ensuring the effectiveness of the Board of Directors. With respect to the effectiveness of the Board of Directors as a whole for the fiscal year ended March 31, 2021, the Company believes that the running of the Board of Directors was made in a proper manner, that deliberations at the Board of Directors’ meetings were actively made by taking advantage of each director’s knowledge and experience and that the Board of Directors’ ability to supervise business executions functioned effectively. For reference, Japan Corporate Governance Research Institute (JCGR) has been conducting research on corporate governance status with stress on the effectiveness of the board of directors through its questionnaires sent to companies listed on the 1st Section of the Tokyo Stock Exchange. JCGR revised the contents of the questionnaire with the substantial reallocation of score points among items in 2019.. Based on the revised format, Ichiyoshi was ranked 8th in the JCG Index in 2019 and 2020. [Supplementary Principle 4-14-2] The Company believes that directors need training to keep up quality and ability as director, and along this belief, provides the following courses to inside directors: occasional lectures by in-house advisers versed in financial and capital markets, bureaucracy, political circles and journalism; participations in meetings of the “Experts Committee” whose consists of experts in various fields; attendances at seminars outside the Company; and legal training by the Company’s legal counsel. [Principle 5-1 — Policy for constructive dialogue with shareholders] ● System for shareholders’ inquiry: The officer in charge of the Public Relations Office and/or the officer in charge of the Administrative Department are primary officers in charge of shareholders’ inquiry. With respect to individual shareholder’s inquiry by telephone or his/her request for individual meeting, the Public Relations Office and/or the Administrative Department act as service window for their inquiry or request. With respect to inquiry from institutional investors investing on their stewardship guidelines or their request relating to an IR meeting, the Public Relations Office acts as service window, and the officer in charge of the Public Relations Office and/or the President, as occasion warrants, may respond. ● Direct IR activities vis-à-vis individual shareholders: At the shareholders’ meeting, the President gives an IR-colored report on business activities, spending enough time on the question-and-answer session. Then, there is held a social gathering after the shareholders’ meeting where shareholders and the Company’s directors and officers mix and communicate. In addition, the Company participates in an information meeting designed for individual investors and issues a semi-annual business report (describing business results and topics) to 10 shareholders. ● Direct IR activities vis-à-vis institutional investors: The Company organizes a semi-annual “Business-Result Reporting Meeting for Institutional Investors”. As occasion arises, an officer in charge of finance visits and talks with institutional investors. With respect to overseas institutional investors, the Company organizes once a year an overseas IR program where the President faces overseas institutional investors and exchange views with them. In addition, the Company occasionally holds telephone conferences with overseas institutional investors, receives institutional investors’ visits from inside and outside Japan. The Company annually publishes “Investors Guide” both in Japanese and English for distribution to institutional investors inside and outside Japan and for use in IR meetings. As regards information disclosure, the Company has in place “Information Disclosure Meeting” which pre-checks and approves press releases and other timely disclosures in accordance with its information disclosure rules. The internal information disclosure rules are designed to enhance the timeliness and transparency of disclosure. ● Setting up Information Disclosure Meeting: For the purpose of handling the above-mentioned information, the Company put in place the Information Disclosure Meeting. Ahead of making a press release or timely disclosure, information included in the press release or timely disclosure is reviewed by the Information Disclosure Meeting for approval. Timeliness and transparency are secured under the rules of the Information Disclosure Meeting. 2. Capital Structure Shareholding ratio by foreign shareholders Between 10% and 20% (as of March 31, 2021) Name of shareholder No. of shares held % of total (in thousands) ————————————————————————————————————————————————– The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd (Trust Account) Nomura Research Institute, Inc. Ichiyoshi Securities Employee Shareownership Association SSBTC CLlENT OMNIBUS ACCOUNT Custody Bank of Japan, Ltd. (Trust Account 5) Custody Bank of Japan, Ltd. (Trust Account 6) Custody Bank of Japan, Ltd. (Trust Account 1) 11 2,556 1,478 879 851 662 606 523 436 7.08 4.09 2.43 2.35 1.83 1.67 1.44 1.20 Custody Bank of Japan, Ltd. (Trust Account 2) JP Morgan Chase Bank 385781 401 364 1.11 1.01 ————————————————————————————————————————————————— Controlling shareholder Parent company ——– None ● Supplementary Explanation: Major shareholders’ holdings are as of March 31, 2021. The Company had 6,327,000 treasury shares as of March 31, 2021. 3. Corporate Attributes Fiscal Year-End Type of Business Fiscal Year Listed Stock Market and Market Section Tokyo Stock Exchange, 1st Section Number of Employees (consolidated) as of the End of the Last Securities and Commodities Futures March Over 1000 Revenue (consolidated) for the Last Fiscal Year Between 10 billion yen and 100 billion yen Number of Consolidated subsidiaries as of the End of the Less than 10 Last Fiscal Year 4. Guidelines Regarding Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder —————— ——————— 5. Other Special Conditions with Potentially Significant Effects on Corporate Governance II. Business Management Organization and Other Corporate Governance Systems Regarding Decision-Making, Execution of Business, and Oversight in Management 1. Organizational Structure and Operation Organizational structure Company with three committees (Nominating, Audit and Remuneration) 12 Maximum number of seats on the Board of Directors pursuant to the Company’s Articles of Incorporation Term of office of directors pursuant to the Articles of Incorporation 1 year Chairman of the Board of Directors (except when concurrently serving as president) 10 9 5 5 Chairman of the meetings of the Board of Directors Number of directors currently in office Number of outside directors currently in office Number of outside directors qualifying as independent (1) Outside directors’ Relationship with the Company: Name Attributes Akira Gokita Attorney at law Kenro Kakeya Takashi Ishikawa Kota Sakurai Yoko Mashimo External External CPA Other ＊Choices concerning the relationship with the Company. Relationship with the Company* a b c d e f g h i j k ○ ○ ○ ○ ○ If the director currently falls or has recently fallen under any item from item a to item k, ○ is printed under the applicable item If the director fell under any item in the past, △ is printed under the applicable item. ＊If any close relative of the director falls under any item currently or as of a recent date, ● is printed under the applicable item. If any close relative of the director fell under any item in the past, ▲ is printed under the applicable item. a= An Executive of the Company or its subsidiaries b=An Executive or non-executive director of the parent company of the Company c=An Executive of a brother company of the Company. d=A person whose major client or supplier is the Company or an executive thereof. e=A major client or supplier of the Company or an executive thereof. f=A consultant, accountant or attorney at law who receives a large amount of monetary consideration or other assets from the Company other than remuneration as director or officer. g=A major shareholder the Company (if such major shareholder is a legal entity, an executive of such legal entity). h=An executive of a client or supplier of the Company (who does not fall under items d, e and f above) (applicable to the director i =An executive of a company which employs the same outside director as the Company (applicable to the director himself/herself j=An executive of an institution that receives a donation from the Company (Applicable to the director himself/herself only). himself/herself only). only). k=Others. 13 (2)Outside directors’ relationship with the Company: Name Independent Reasons for appointment Committees* (a) (b) (c) Supplementary description Akira Gokita ○ ○ ○ ○ and outside Attorney at law with Gokita & Miura Law Office director of Sanwa Holdings Corporation The Nominating Committee believes that he is qualified for outside directorship selection criteria and that he is equipped with expertise and profound knowledge and experience as former public prosecutor and attorney-at-law. Therefore, the Nominating Committee has judged that he can contribute to the management of the Company by providing his deep insight and advice based on such experience and enhance the Company’ governance capability. He or his close relative is neither an executive of the Company’s affiliated companies nor an executive of a major client or supplier of the Company, nor the Company’s major shareholder or executive of it, and does not receive any monetary consideration other than remuneration as the Company’s director. He is therefore defined as independent director having no conflict of interest with shareholders. The Nominating Committee believes that he is qualified for outside Kenro Kakeya ○ ○ ○ President of knowledge and experience as former Representative directorship selection criteria and Director & that he is equipped with profound Kakeya Komuten Nippon Keizai Shimbun (Japan Co. , Ltd. Economic Journal) reporter and current business owner. Therefore, the Nominating Committee has 14 Name Independent Reasons for appointment Committees* (a) (b) (c) Supplementary description judged that he can contribute to the management of the Company by providing his deep insight and advice based on such experience and enhance the Company’ governance capability. He or his close relative is neither an executive of the Company’s affiliated companies nor an executive of a major client or supplier of the Company, nor the Company’s major shareholder or executive of it, and does not receive any monetary consideration other than remuneration as the Company’s director. He is therefore defined as independent director having no conflict of interest with shareholders. The Nominating Committee believes that he is qualified for outside directorship selection criteria and that he is equipped with profound knowledge and experience as former president of a securities firm. Therefore, the Nominating experience and enhance the Company’ governance capability. He or his close relative is neither an executive of the Company’s affiliated companies nor an executive of a major client or supplier of the Company, nor the Company’s major Takashi Ishikawa ○ ○ Representative Committee has judged that he can Director & contribute to the management of the President of SR Company by providing his deep Holdings Inc. insight and advice based on such 15 Name Independent Reasons for appointment Committees* (a) (b) (c) Supplementary description shareholder or executive of it, and does not receive any monetary consideration other than remuneration as the Company’s director. He is therefore defined as independent director having no conflict of Interest with shareholders. The Nominating Committee believes that he is qualified for outside directorship selection criteria and Certified Public that he is equipped with expertise Accountant & Tax and profound knowledge and Accountant with experience as certified public Sakurai Kota accountant and tax accountant. Accounting & Tax Therefore, the Nominating Office. Committee has judged that he can He was with contribute to the management of the Century Company by providing his deep Accounting Firm insight and advice based on such (which later experience and enhance the merged with EY Company’ governance capability. from October 1991 Firm (which later merged with EY to March 2000. ShinNihon LLC) from October 1991 He was an to March 2000. executive director Century Accounting Firm merged of Digital Garage, with Ota Showa Accounting Firm in Inc., which had April 2000, with the name of the business relations combined firm changed to Ota Showa with the Company, Century Accounting Firm. Ota from September Showa Century Accounting Firm 2002 to September changed its name to EY ShinNihon 2010. Accounting Firm (current legal name: EY ShinNihon Accounting Firm LLC) in July 2001. While the Company’s Accounting firm is Kota Sakurai ○ ○ ShinNihon LLC) He was with Century Accounting 16 Name Independent Reasons for appointment Committees* (a) (b) (c) Supplementary description currently EY ShinNihon Accounting Firm LLC, he has now no conflict of interest with EY ShinNihon Accounting Firm LLC. He was an executive director of Digital Garage, Inc. from September 2002 to September 2010, and the Company acted as lead manager in December 2000 and as manager in July 2011 for Digital Garage, Inc., receiving lead manager’s fee and manager’s fee, respectively. However, he has no conflict of interest with Digital Garage, Inc. He or his close relative is neither an executive of the Company’s affiliated companies nor an executive of a major client or supplier of the Company, nor the Company’s major shareholder or executive of it, and does not receive any monetary consideration other than remuneration as the Company’s director. He is therefore defined as independent director having no conflict of interest with shareholders. She is the head of The Nominating Committee believes Specified Labor & that she is qualified for outside Social Security directorship selection criteria and Personnel that she is equipped with expertise Management and profound knowledge and Office. experience as labor and social She has been a security attorney. Therefore, the consultant for the Nominating Committee has judged Company as labor that she can contribute to the and social security management of the Company by Yoko Mashimo ○ 17 Name Independent Reasons for appointment Committees* (a) (b) (c) Supplementary description attorney since providing her deep insight and 2006. Effective as experience from the female point of of the end of May view and enhance the Company’s 2021, she retired governance capability. from the She has been a consultant for the consultancy. Company as labor and social security attorney. Effective as of the end of May 2021, she retired from the consultancy. She or her close relative is neither an executive of the Company’s affiliated companies nor an executive of a major client or supplier of the Company, nor the Company’s major shareholder or executive of it, and does not receive any monetary consideration other than remuneration as the Company’s director. She is therefore defined as independent director having no conflict of interest with shareholders. ＊ (a) = Nominating Committee (b) = Remuneration Committee (c) = Audit Committee Composition of each committee and attributes of committee chairman: Number of Members Number of Number of Number of full-time inside outside Members directors directors Attributes of chairman Nominating Committee Remuneration Committee Audit Committee 3 3 3 1 1 0 2 Outside director 2 Outside director 3 Outside director 1 1 1 18 Update Number of Executive Officers 3 Concurrent positions; Update Authority to Concurrently Member of Member of Concurrent Name Represent the serving as Nominating Remuneration status as Company director Committee Committee employee Hirofumi Tamada Toshiyuki Fuwa Shoichi Yamazaki Yes Yes No Yes Yes Yes No No No No No No No No No Appointment of directors and/or employees to support the Audit Committee Appointed Matters relating to the independence of directors and/or employees from executive officers: The Company has in place the Office of Audit Committee to support the Audit Committee. The Office of the Audit Committee is staffed with employees who provide support the members of the Audit Committee in the performance of their duties and administrative tasks of the Audit Committee. In order to secure the independence of such employees from executive officers, their transfer, and valuation and disciplinary actions against them shall require approval by the Audit Committee or any member of the Audit Committee so assigned. Cooperation among the Audit Committee, accountants and the Internal Audit Division: The Audit Committee receives an annual accounting plan from the accountants and hears accounting work schedule and material auditing items from them. Further, the Audit Committee regularly hears results of accounting work and the status of the internal control system from accountants and exchange views and opinions with accountants. The Audit Committee hears policies and plan for internal audit and inspection from the Internal Audit Department and the Inspection Department (the both department hereinafter referred to as the “Internal Audit Division”). Further, the Audit Committee at its meeting held once or more a month in principle receives a report on internal audit result and inspection and hears a detailed description thereon, and, as need be, holds an ad-hoc meeting with the Internal Audit Division, thereby sharing concurrent information and ensuring the effectiveness and efficiency of the auditing function. Number of independent directors 5 19 Matters relating to independent directors: Outside directors who are qualified as independent are all appointed as independent directors of the Company. Supplementary explanation: Incentive policies for Directors and/or executive officers Business result-linked remuneration, stock options Monthly Remuneration Linked to Business Result shall be individually determined by the Remuneration Committee through interview and hearing with each of directors and executive on his contribution to business result and degree of performance of role/duty while the aggregate amount of remunerations for directors and executive officers are fixed based on current income and net income. Stock-related Remuneration shall be determined individually by taking account of potential effect of payment of this remuneration on management. Supplementary explanation: personnel. Recipients of Stock options Inside directors, executive officers and employees of the Company, directors and employees of subsidiaries and others Stock options are offered to enhance the recipients’ incentives for higher business result and secure capable Disclosure of individual director’s remuneration Not disclosed Disclosure of individual executive officer’s remuneration Not disclosed Supplementary information: For the fiscal year ended March 31, 2021, the Company paid the total remunerations of 243 million yen to 7 Directors (of which the total remuneration of 79 million was paid to 4 outside directors) and the remunerations of 52 million There was no one who received remuneration of 100 million yen or more on a consolidated basis. Thus, there is no yen to 2 executive officers. disclosure of individual remuneration. The aggregate amount of remunerations for directors and executive officers are disclosed in the Company’s securities report and business result report. (Business result is also described on page 38 of the Notice of 79th Annual Shareholders’ Meeting on the Company’s website: https://www.ichiyoshi.co.jp/stockholder/presentation). Policy on determining remuneration amounts and calculation methods Established Disclosure of policy on determining remuneration amounts and calculation methods: (i) Basic policy: To lift the desire and will of directors and executive officers for company management and derive their 20 utmost management capability, so that they will contribute to the achievement of desired business result. (ii) Contents of remunerations: Remunerations of directors and executive officers of the Company shall consist of “Monthly Basic Remuneration,” “Monthly Remuneration Linked to Business Result,” “Stock-related Remuneration” and “Non-monetary Remuneration” (such as housing allowance for persons living independently of their families for business reasons). (iii) Policy for determining each of the above-mentioned remunerations by the Remuneration Committee: (a) Monthly Basic Remuneration shall be individually determined by the Remuneration Committee through interview and hearing with each of directors and executive officers on his degree of execution of management strategies, degree of management contribution and performance result while the basic standard remuneration of each director and executive officer is fixed based on the contents of role/charge of his position as director or executive officer. (b) Monthly Remuneration Linked to Business Result shall be individually determined by the Remuneration Committee through interview and hearing with each of directors and executive on his contribution to business result and degree of performance of role/duty while the aggregate amount of remunerations for directors and executive officers are fixed based on current income and net income. (c) Stock-related Remuneration shall be determined individually by taking account of potential effect of payment of this remuneration on management. (d) Non-monetary Remuneration, such as for rent allowance for persons living apart from his family, shall be provided appropriately as required by business activities of each director and executive officer in the light of social norms. Notice and report to outside directors are made based in the following manner: Notice of, and report on, the respective meetings of the Board of Directors, the Remuneration Committee and the Nominating Committee are undertaken by the Secretariat Department. Notice of, and report on, the meeting of the Audit Committee is undertaken by the Office of Audit Committee. Outside directors are systematically entitled to attend various relevant meetings. In the event that any outside director is unable to attend the relevant meeting, the minutes of the meeting is sent to him/her from the related department or office for information sharing. Name and etc. of Counselors, Advisors and etc., who have formerly served as Representative Director and President, Total number of Counselors, Advisors and etc., who have formerly served as Representative Director etc., of the Company : None. and President, etc., of the Company : None. Other Matters : None. 21 2. Matters Concerning Functions of Business Execution, Auditing, Supervision, Nomination and Remuneration Decision (Outline of Current Corporate Governance System) Update To raise the efficiency of management and strengthen governance functions, the Company has in place a company with three committees system which clearly separates business execution and management supervision functions. Business execution is performed by executive officers elected by the directors. The Company also has in place the system of the Operating Officers who execute business operations under the directions of the Executive Officers , thereby enabling prompt business decisions by a limited number of executive officers and enhancing the capability The supervising function of management is performed by the Board of Directors of which outside directors account The Company has in place the Internal Control Committee to act as a centralized control unit for the Company of business executions.. for the half. and its subsidiaries. a. Board of Directors: The Board of Directors currently consists of 4 inside directors and 5 outside directors. The Board of Directors as a decision-making organ resolves on items stipulated by laws and the Articles of Incorporation, decides or approves basic management policies and important matters concerning management and supervise the performance of duties by directors and executive officers. The meeting of the Board of Directors is held once a month in principle. b. The Committee of Executive Officers: The Committee of Executive Officers consists of 3 executive officers. The Committee of Executive Officers resolves on matters entrusted by the Board of Directors and coordinates activities among them for their smooth execution. The meeting of the Committee of Executive Officers is held twice a month in principle. The Company has in place the company with three committees system under which the majority of members of each of the three statutory committees are outside directors. a. The Nominating Committee The Nominating Committee consists of the Chairman of the Board of Directors and two outside directors, all appointed by the Board of Directors. The Nominating Committee decides on the nominees for directors or directors to be dismissed and submit them to the shareholders’ meeting for approval in accordance with the Rules of the Nominating Committee. The meeting of the Nominating Committee is held twice a year in principle. b. The Audit Committee The Audit Committee consists of three outside directors appointed by the Board of Directors. The Audit Committee audits the performance of duties by the directors and the executive officers, prepares an audit report and a draft resolution to appoint or dismiss accountants to be submitted to the shareholders’ meeting for approval. In the event of rejection of reappointment of accountants, the Audit Committee describes the 22 reason therefor. The Audit Committee audits the legality and appropriateness of decision-making by directors and executive officers and the status of development of the Internal Control System in accordance with the auditing policy and the role-division set by the Audit Committee. The meeting of the Audit Committee is held once or more a month in principle. c. The Remuneration Committee The Remuneration Committee consists of the Chairman of the Board of Directors and two outside directors. The Remuneration Committee reviews and decides on the individual remunerations of directors and executive officers in accordance with the Rules of the Remuneration Committee. The meeting of the Remuneration Committee is held twice or more a year in principle. a. The Management Committee The Management Committee consists of such directors and executive officers as the Chairman of the Board of Directors nominates. The Management Committee is an advisory body to the Board of Directors and, as such, reviews important and/or urgent matters for the smooth management of business and reports the result of such reviews to the Board of Directors. b. The Internal Control Committee The Internal Control Committee consists of 4 inside directors and 1 outside director. The Internal Control Committee, aiming at assuring centralized internal control system over the Company and its subsidiaries, sets the internal control policy and reviews individual important matters concerning internal control. The meeting of the Internal Control Committee is held once a month in principle. c. The Meeting of Non-executive Directors The meeting consists of Chairman of the Board of Directors and 5 other outside Directors who exchange views and information on the Ichiyoshi group, the securities industry and economic system and conditions. d. The Meeting of Independent Outside Directors Independent and outside directors actively contribute to discussions at meetings of the Board of Directors by exchanging and sharing their views and insights from independent standpoints, thereby enhancing the effectiveness of the of the Board of Directors. e. The Committee of Outside Experts The Committee of Outside Experts consists of 6 members, appointed by the Board of Directors, who have outstanding personality and insight and are independent of the Company. The Committee of Outside Experts deliberates on important management matters, as requested by the Board of Directors, independently, fairly and from the neutral standpoint, and provides the Board of Directors with their advice and recommendation based on such deliberation. The meeting of the Committee of Outside Experts is held once every 3 months in principle. 23 The Company has in place the Risk Management Meeting (to consult on and cope with company-wide risk management), the Unified Compliance Meeting (to advise and follow up on review items at individual compliance meetings), and the Individual Compliance Meeting (to seek out risk items at individual sections for understanding and review), all as sub-bodies to the Internal Control Committee. In addition, the Company has in place the Information Disclosure Meeting (to make proper, comprehensive and timely disclosure of any material event as it ever happens), and the IT Meeting (to review matters on IT investment and management and information security), both as decision-making organs of the Committee of Executive Officers. The outside directors of the Company are charged with the responsibility of supervising the management of the Company and reflecting their expertise and experience on the management of the Company as a whole from the independent and neutral standpoint with no conflict of interests with shareholders. The Company has in place a company with three committees system under which each of the three statutory committees consists of three members. The two out of three members in each committee are outside directors, forming a majority. The outside directors receives reports on each business execution division at meetings of the Board of Directors and the Management Committee and exchange views with the Internal Audit division, the Internal Control Division and accountants, thereby enhancing their management supervision function. The certified public accountants who performed the audit of the financial statements of the Company for the fiscal year ended March 31, 2021, were Ms. Mayumi Ikai (who has audited the Company for the consecutive seven years) and Mr. Hiroshi Fukumura (who has audited the Company for the consecutive four years). They belong to EY ShinNihon LLC. The number of certified public accountants who worked with them in the audit was 4, and in addition, there were 10 assistants for them. 3. Reasons for Adoption of Current Corporate Governance System The Company believes that the company with three committees system is the most suitable system which further enhances the transparency and flexibility of management decision-making, the promptitude and effectiveness of business execution and the surveillance over business execution, and decided to adopt the company with three committees system in June 2003. 24 III. Implementation of Measures for Shareholders and Other Stakeholders 1. Efforts for Active Meetings of Shareholders and Smooth Exercise of Voting Rights Items Supplementary explanation Early notification of shareholders’ meeting Scheduling the date of the shareholders’ meeting to avoid peak days Exercise of voting rights by electronic means Participation in electronic voting platform and other efforts to improve environment for exercising voting rights by institutional investors. The Company mailed its notices of shareholders’ meeting (held in June 2021) 29 days prior to the meeting. The Company started to hold the shareholders’ meeting on Saturday beginning with the shareholders’ meeting in 2001. Following the shareholders’ meeting, there is held a social gathering between the executive staff and shareholders to promote their mutual communication. The Company has introduced the voting method by way of Internet for the benefit of shareholders unable to attend the shareholders’ meeting in person. Effective as from the shareholders’ meeting held in June 2008, institutional investors have become able to use the electronic voting platform for institutional investors operated by ICJ, Inc. Providing the notice of shareholders’ The Company prepares the notice of shareholders’ meeting in meeting in English. English and makes it public on its website. Others shareholders’ meeting, the Company utilizes a projector to clearly To provide shareholders with information as promptly as possible, the Company publishes the notice of shareholders’ Meeting both in Japanese and English on its website ahead of mailing it out. At the explain to shareholders about business result and future plan. An annual calendar is being mailed to every shareholder holding a voting unit of 100 shares or more as a complimentary gift 2. IR Activities Items Supplementary explanation Presentation by the corporate representative The Company believes that it is one of the management’s important tasks to make a timely and accurate disclosure of the status of the Preparation and publication of Company to all stakeholders. Such disclosure is Disclosure policy made pursuant to laws and regulations, including the related provisions in the Financial Instruments and Exchange Law, and further in accordance with the Credo of the Company. 25 Regular briefings for individual investors the Company has the opportunity to talk to retail Yes Regular briefings for analysts policy. and institutional investors As for such briefing for 2020 and 2021, the Yes Briefings for individual investors are not regularly organized. However, the Company participates in “Information Meetings for Retail Investors”, where investors about management policy, financial condition, dividend policy and capital policy. The Company started, effective as from fiscal year ended March 31, 2000, to hold briefings for analysts and institutional investors twice a year where the Company talks about its management policy, financial condition, dividend policy and capital Company has been taking flexible policies from the view point of the prevention of the Covid-19 infection. relerant data. Such flexible policies include the distribution of The corporate representative of the Company visited institutional investors in England and the U.S. (from 2005 to 2009) and institutional investors in the U.S. (from 2013 to 2016). From 2017, the Representative visited institutional investors in England. With respect to 2020, the Company suspended its briefing for overseas investors due to the spread of The Company has an English section on its website where it discloses financial data and press releases. The Company also proactively receives foreign institutional investors’ visits for business briefings and exchange of views and responds to overseas enquiries by phone. The Company intends to continue its IR activities overseas. Regular briefings for overseas i