東京センチュリー（8439） – [Delayed]Corporate Governance Report

Corporate Governance Report Last Update: April 1, 2022 Tokyo Century Corporation President & CEO Koichi Baba Contact: Investor Relations Division Securities Code: 8439 https://www.tokyocentury.co.jp/en/ The corporate governance of Tokyo Century Corporation is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views Recognizing that effective corporate governance is a key for maximizing corporate value, Tokyo Century endeavors to create a sound and highly transparent management structure that swiftly responds to changes in the business environment and makes accurate decisions. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] This report is presented in accordance with the Code after its revision in June 2021 (including the principles for the Prime Market that will be applied from April 4, 2022). Tokyo Century complies with all of the principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] Principle 1-4 Cross-Shareholding Policy on Cross-Shareholdings Cross-shareholdings by Tokyo Century (equity securities held for purposes other than pure investment) consist of shares issued by important stakeholders of Tokyo Century Group, such as its major business partners, shareholders, and lenders. The shares held are necessary to promote Tokyo Century’s business over the medium to long term. In addition, Tokyo Century considers whether or not these cross-shareholdings should be continued by periodically reviewing the corresponding business relationships and the status of profit or loss and by having the Board of Directors verify the reasons for these holdings and whether the benefits of holding these shares exceed the capital costs. In cases where the rationality of such holdings is not recognized, a proposal regarding the reduction of said shares is made. In fiscal 2021, the Company reviewed all of the shares held and decided to reduce part of its holdings. In fiscal 2022, Tokyo Century plans to continue to review all of the shares held. Policy on the Exercise of Voting Rights The decision to approve or disapprove each agenda item is made by the division in charge of exercising the voting right (Corporate Planning Division) after considering the benefits of being a shareholder and the – 1 – purpose of holding the relevant shares in consultation with the Operation Headquarters, Credit Supervision Unit, and other divisions. The Company has also established internal procedures on the exercise of voting rights to provide a checklist and clarify the related process. Particularly with regard to items that may damage the corporate value of the issuer of the shares or Tokyo Century’s interests as a shareholder (e.g., corporate reorganization such as mergers, introduction of anti-takeover measures, election of officers or rewarding of retirement benefits to officers at a poorly performing company, and other limits placed on shareholders’ rights), approval or disapproval is determined after confirming the content and impact. Principle 1-7 Related Party Transactions Tokyo Century has established the following system to ensure that no transactions between the Company and its officers or major shareholders (related party transactions) can damage the interests of the Company or the common interests of its shareholders. Based on the resolutions of the Board of Directors, the Company has established the Corporate Code of Conduct, Our Action Guidelines, and the Basic Policy for the Internal Control System for officers and other employees for the purpose of prohibiting acts that could create a conflict of interest with Tokyo Century Group, implementing corporate activities in a sound and fair manner, and practicing and enforcing legal compliance and actions guided by common sense. In addition, the president and CEO designates compliance management regulations after deliberations by the Management Meeting. The Company monitors the status of compliance based on reports submitted periodically and as needed to the Board of Directors, the Management Meeting, and the president and CEO, who serves as the chief compliance officer of Tokyo Century Group. responsibilities. With regard to related party transactions, “approval of competitive transactions and transactions involving a conflict of interest by directors” is stipulated as an item requiring a decision by the Board of Directors under the Company’s rules governing the board. Furthermore, corporate auditors conduct “audits concerning competitive transactions and transactions involving a conflict of interest,” as stipulated by the auditing standards for corporate auditors, with the purpose of monitoring and verifying possible violations of director Principle 2-4 Ensuring Diversity, Including Active Participation of Women Supplementary Principle 2-4-1 For its core human resources, including managers, Tokyo Century evaluates each individual, regardless of whether they are women, mid-career hires, or foreign nationals, and appoints a diverse range of human resources that the organization requires. As of April 1, 2021, the ratio of female employees was 31.4% (non-consolidated basis, hereinafter the same), and the ratio of female managers was 9.1%. Going forward, the Company will promote the active participation of women by setting a target of 30% for the ratio of female managers, the same as the government policy target. – 2 – The ratio of mid-career hires was 31.6%, and the ratio of mid-career hires in management positions was 35.1% as of April 1, 2021. Since its merger in 2009, the Company has been actively hiring mid-career workers to strengthen its human resources as it expands its business. The Company will continue to actively recruit human resources in line with changes in its growth strategies and business models and aim to increase the number of mid-career hires and their promotion to management positions from the current level. The ratio of foreign national employees was 0.9%, and the ratio of foreign national managers was 0.4% as of April 1, 2021. To continue to grow on a global scale, the Company requires the hiring and promotion of foreign nationals; therefore, it will aim to increase the number of foreign employees hired and promoted to management positions from the current level. The Company has established the Diversity Promotion Office within the Personnel Division to ensure that employees with diverse abilities and personalities can continue to provide high value-added services by exercising their flexibility and ability to act. In addition, the Company has been striving to develop diverse human resources and improve the internal environment by formulating the Basic Diversity Policy. Please refer to the Basic Diversity Policy and Initiatives on the corporate website for details of its diversity initiatives. Principle 2-6 Performance of Functions as a Corporate Pension Asset Owner Tokyo Century does not accumulate nor manage pension funds as a corporate pension asset owner. However, the Company has adopted a defined contribution corporate pension scheme to enable stable asset formation by its employees. The Company provides continuous education for its employees with regard to the management of the defined contribution corporate pension scheme, and the selection of investment products is determined based on discussions by the employees’ union. Principle 3-1 Full Disclosure i. Management Philosophy, Business Strategy, and Business Plans Tokyo Century has formulated its management philosophy and management policies, medium-term management plan, and business strategies, which are disclosed on its website (About Us, IR Information), in its Securities Report (Outstanding Issues), and by other means. (https://www.tokyocentury.co.jp/en/) ii. Basic Views and Basic Policies on Corporate Governance The Company’s basic views and basic policies on corporate governance are provided under “I. 1. Basic Views” and “II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination, and Remuneration Decisions (Overview of the Current Corporate Governance System)” of this report. iii. Officer Compensation and Other Issues The Company’s policies on officer compensation are provided under “II. 1. Items Concerning Organizational Composition and Operation (Officer Compensation) Disclosure of Policy on Determining Compensation – 3 – Amount and Calculation Methods” of this report. iv. Policy and Procedures for the Nomination, Election, and Dismissal of Directors and the Nomination and Election of Corporate Auditors With regard to the nomination and election of candidates for directors, Tokyo Century pays due consideration to its fiduciary responsibility to shareholders by nominating persons who are qualified to help achieve sustainable growth and enhance medium- to long-term corporate value for the Company based on their expert knowledge and broad insight as well as their abundant experience in corporate management and operational execution. The Board of Directors determines the nomination and election of candidates for directors by referring to the opinions expressed by the Nomination Committee, an advisory body to the Board of Directors chaired by an independent external director, in which the majority of members consists of independent external directors. With regard to the nomination and election of candidates for corporate auditors, Tokyo Century selects those who are qualified to provide appropriate management oversight for the execution of operations by the Company’s directors and executive officers as well as legal compliance and appropriateness of corporate activities based on their abundant experience and extensive knowledge gained as a manager of a company or through management of a financial institution. In principle, at least one corporate auditor should possess sufficient knowledge of finance and accounting. The Board of Directors determines the nomination and election of candidates for corporate auditors, following deliberation by the Board of Corporate Auditors. With regard to the dismissal of directors, the Board of Directors deliberates on the issue by referring to the opinions provided by the Nomination Committee. When the Board of Directors determines there is justification for dismissal, such as when the director is not deemed to be fully demonstrating their abilities for achieving sustainable growth and enhancing mid- to long-term corporate value, or when the director is deemed to fall short of the Company’s standards of election, or when they have engaged in an act that goes against the public order and standards of decency, the board will act in accordance with the law and present a dismissal proposal to the General Meeting of Shareholders, whereupon the director will be dismissed once the proposal is approved by shareholders. v. Explanations Concerning the Election, Nomination, and Dismissal of Individual Officers Reasons for the election of directors and corporate auditors are provided in the Reference Document of the “Convocation Notice for the Annual General Meeting of Shareholders” dispatched upon presenting the proposal on the election of directors and other officers for deliberation by the General Meeting of For more information on the Company’s sustainability initiatives, please refer to “Sustainability Initiatives” Shareholders. Supplementary Principle 3-1-3 on its website. (https://www.tokyocentury.co.jp/en/csr/) – 4 – Please refer to “Securing and Developing Human Resources to Support the Group’s Sustainable Growth” on the corporate website for initiatives related to investment in human capital. (https://www.tokyocentury.co.jp/jp/challenge/sdgs/humanresources.html) (Japanese only) Tokyo Century has set the promotion of business transformation through digital technology as an important theme and newly established the DX Strategy Division in December 2020 as a specialized division for promoting digital transformation (DX). In addition, the Company has defined key issues as materiality. Of these issues, it has set “creation of new businesses driven technical innovation.” As a strategy to achieve the Company’s sustainable business growth, it invests in venture companies and forms business alliances. For details, please refer to its press releases. (https://www.tokyocentury.co.jp/_cms/wp-content/uploads/2021/03/210303_Investment-to-Volocopter-GmbH-a-next-generation-German-urban-air-mobility-company.pdf, https://ssl4.eir-parts.net/doc/8439/tdnet/1860085/00.pdf (Japanese only)) Principle 4-1 Roles and Responsibilities of the Board of Directors (1) Supplementary Principle 4-1-1 An overview of the roles and responsibilities of the Board of Directors and delegation of authority concerning operational execution is provided under “II. 2. Items Concerning Functions Including Operational Execution, Auditing and Supervision, Nomination, and Determination of Compensation (Overview of the Current System of Corporate Governance)” in this report. Principle 4-8 Effective Use of Independent External Directors Tokyo Century currently has a total of 13 directors, of which five are independent external directors. Principle 4-9 Independence Standards and Qualification for Independent External Directors Tokyo Century adheres to its basic views in electing its independent external directors by complying with the independence criteria for “independent directors” designated by the Tokyo Stock Exchange (Tokyo Stock Exchange “Guidelines Concerning Listing Management”) and selecting persons who are capable of objectively supervising the Company’s management based on their specialized knowledge and broad insight as well as their abundant experience in corporate management. In this way, the Company ensures the independence of its independent external directors. Supplementary Principle 4-10-1 Tokyo Century has established the Nomination Committee and Compensation Committee, chaired by independent external directors and composed of a majority of independent external directors. As advisory bodies to the Board of Directors, the Company ensures the independence of the Board of Directors’ functions related to the nomination (including succession planning) and compensation of senior management and directors. – 5 – For the composition, authority, and roles of the committees, please refer to “Principle 3-1 iv. Policy and Procedures for the Nomination, Election, and Dismissal of Directors and the Nomination and Election of Corporate Auditors.” For gender and other diversity and skills, please refer to “Supplementary Principle 4-11-1.” Principle 4-11 Preconditions for Ensuring the Effectiveness of the Board of Directors Supplementary Principle 4-11-1 With regard to the nomination and election of candidates for directors, Tokyo Century pays due consideration to its fiduciary responsibility to shareholders by selecting persons who are qualified to help achieve sustainable growth and enhance mid- to long-term corporate value based on their expert knowledge and broad insight as well as their abundant experience in corporate management and operational execution. When electing the candidates, due consideration is also paid to diversity, including the perspectives of gender and nationality, and to the appropriate scope of the Board of Directors. The balance of knowledge, experience, and other capabilities presented in the Board of Directors as a whole is based on the basic strategies in the New Fourth Medium-Term Management Plan. To verify the process of nominating candidates for directors, the Company analyzes diversity in the areas of expertise and knowledge, such as corporate management, global operations, legal affairs and risk management, finance, and accounting and taxation. With regard to “Diversity of Directors,” please refer to page 57 of the “Integrated Report 2021.” (https://www.tokyocentury.co.jp/download/pdf/en/ir/2021en_all.pdf) The Company has established the Nomination Committee and Compensation Committee, which are chaired by an independent external director. The majority of members consist of independent external directors, to serve as advisory bodies to the Board of Directors. The board seeks advice from the Nomination Committee on important agenda items such as the nomination of candidates for directors and from the Compensation Committee on key items such as the design and policy of the compensation system for directors, etc., and With regard to the current status of significant concurrent positions held by candidates for directors and incumbent directors, Tokyo Century discloses the information each year in the Reference Document of the “Convocation Notice for the Annual General Meeting of Shareholders” and in disclosure documents such as makes decisions by referring to their opinions. Supplementary Principle 4-11-2 business reports. Supplementary Principle 4-11-3 Tokyo Century has established the Board Effectiveness Review Council, which primarily consists of independent external directors and corporate auditors to advise the Board of Directors. The council conducts an analysis and review of the Board of Directors once a year in principle on aspects such as the effectiveness of its supervisory functions, status of deliberations, structure, and operating method, taking into account the self-evaluations submitted by each director. – 6 – In fiscal 2020, as in the previous year, the Company hired a third-party assessment institution to objectively review the effectiveness of directors and used its evaluation report during the meeting of the Board Effectiveness Review Council. The Board of Directors will analyze and assess the effectiveness of the board as a whole by referring to the opinions provided by the council and will duly disclose the results. Important themes pointed out during the review of the effectiveness of the Board of Directors in fiscal 2019 included reinforcement of control and oversight functions for subsidiaries and affiliates, management of the business portfolio, and composition of the Board of Directors including the issue of diversity. Accordingly, the Company assessed the following points and pursued related initiatives in fiscal 2020. In fiscal 2020, the Board of Directors was deemed to be adequately and appropriately fulfilling its roles and duties, which are providing overall direction by setting corporate strategies, creating an environment conducive to appropriate risk taking by top management, and exercising highly effective oversight of top management and directors from an independent and objective standpoint. With regard to its operations, the Board of Directors was deemed to be responding accurately to changes in the business environment associated with factors such as the COVID-19 pandemic and the drive to decarbonize and engaging in constructive and meaningful discussion related to management strategy. The board will continue to conduct discussions on mid- to long-term management strategy by paying due consideration to the circumstances and external environment surrounding the Company. Independent external directors were deemed to be appropriately performing their roles and responsibilities, including supervision of management, by drawing on their respective insights to actively offer their opinions from an independent and objective standpoint during meetings of the Board of Directors, Nomination Committee, Compensation Committee, Board Effectiveness Review Council, and other bodies. With regard to the functions and composition of the Board of Directors, the Nomination Committee took the lead in discussions concerning the ideal form of supervision and revision of the composition, further enhancing the balance of directors in terms of knowledge, experience and abilities as well as diversity through measures such as increasing the number of female external directors. As a result, the Board of Directors was deemed adequate and appropriate in terms of its diversity and scope. Looking ahead, Tokyo Century will seek to deepen its discussion on the board’s oversight functions and continue to explore the ideal ratio of internal and external directors and the gender and global aspects of diversity to further improve the board’s effectiveness. During the review of the effectiveness of the Board of Directors, a proposal was made regarding the need for maintaining discussion of issues such as operational methods for invigorating debate at board meetings, enhancing free discussions as an opportunity for exchange outside the Board of Directors, and a system for managing Group companies. Tokyo Century remains committed to improving the effectiveness of the Board of Directors as the task at hand for fiscal 2021. The Company will continue to enhance the board’s functions by paying due consideration to the results of the effectiveness review. – 7 – Principle 4-15 Training of Directors and Corporate Auditors Supplementary Principle 4-12-2 To fulfill their expected roles and responsibilities as members of a body that oversees corporate governance, directors, and corporate auditors, including newly appointed officers, are required to deepen their understanding of their roles and responsibilities as well as strive to acquire and appropriately build on their knowledge of necessary issues. Upon their election, directors and corporate auditors, including external directors and external corporate auditors, receive a briefing providing the necessary knowledge on matters such as the Company’s business, finances, and organization and developing a sufficient understanding to fulfill the roles and responsibilities (including legal responsibilities) required of them as directors and corporate auditors. Tokyo Century also organizes training seminars and information-sharing meetings for officers as opportunities for receiving continuous updates after they are appointed. Principle 5-1 Policy for Constructive Dialogue with Shareholders For Tokyo Century’s policy for constructive dialogue with shareholders, please refer to the section under “III. 2. Status of IR Activities” of this report and the Investor Relations page (IR Policy and other information) of its corporate website. (https://www.tokyocentury.co.jp/en/ir/) 2. Capital Structure Foreign Shareholding Ratio Less than 10% [Status of Major Shareholders] Company Name Number of Shares Owned Percentage (%) 36,714,800 15,712,600 12,302,800 10,306,000 4,688,030 4,188,800 4,002,650 3,109,200 2,228,865 1,900,000 ITOCHU Corporation Chuo-Nittochi Co.,Ltd. Nippon Telegraph and Telephone Corporation KSO Co., Ltd. Mizuho Bank, Ltd. Custody Bank of Japan, Ltd. (Trust accounts) Seiwa Sogo Tatemono Co., Ltd. The Master Trust Bank of Japan, Ltd. (Trust accounts) Nippon Life Insurance Company Mizuho Trust & Banking Co., Ltd. (Retirement Allowance Trust, Orient Corporation Account Trust & Custody Services Bank, Ltd. re-entrusted) Controlling Shareholder (except for Parent Company) － – 8 – 30.07 12.87 10.08 8.44 3.84 3.37 3.28 2.55 1.83 1.56 Parent Company － Supplementary Explanation 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year-End Type of Business Tokyo Stock Exchange First Section March Other Financing Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year More than 1000 Sales (consolidated) as of the End of the Previous Fiscal Year More than ¥1 trillion Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 100 to less than 300 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder 5. Other Special Circumstances which may have Material Impact on Corporate Governance 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 Kansayaku Board – 9 – － － － [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 18 1 year President 13 Elected 5 5 Outside Directors’ Relationship with the Company (1) Name Attribute Relationship with the Company* a b c d e f i j k Masao Yoshida Yukito Higaki Akio Nakamura Toshio Asano Miho Tanaka From another company From another company From another company From another company Lawyer h g △ ○ ○ △ ○ * * * 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 Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) – 10 – Name Supplementary Explanation of the Relationship Reasons of Appointment Designation as Independent Director Masao Yoshida ✓ External Director Masao Yoshida had been engaged in the operational execution of Furukawa Electric Co., Ltd. as its Director. Although this company has a business relationship with Tokyo Century, the amount of transaction accounted for less than 1% of the respective sales of either of the two companies, and of Tokyo Century’s consolidated revenues during the most recent fiscal year. External Director Yukito Higaki concurrently holds the positions of president of IMABARI SHIPBUILDING CO., LTD. and of SHOEI KISEN KAISHA, LTD. In addition, IMABARI SHIPBUILDING CO. owns 0.05% of the shares of Tokyo Century Corporation as of March 31, 2021. Tokyo Century has no business relationships with either IMABARI SHIPBUILDING CO., LTD. or SHOEI KISEN KAISHA, LTD., at which Mr. Yukito Higaki serves as president. Although the Company has business relationships with Japan Securities Depository Center, Incorporated, at which the external director Akio Nakamura serves as president – 11 – Mr. Masao Yoshida has abundant experience and wide range of knowledge gained in corporate management over his many years as the manager of a leading electronics manufacturer, and he has applied his insight in the management of the Company and carried out management and monitoring of operational execution from an independent perspective as an external director of the Company since June 2017. (Reasons for selection as an independent director candidate) Mr. Masao Yoshida is an external director who is not affiliated with any of Tokyo Century’s major business partners, and the Company sees no likelihood of a potential conflict of interest between Mr. Yoshida and its general shareholders. Mr. Yukito Higaki has abundant experience and a wide range of knowledge gained in corporate management over his many years as the manager of a leading shipbuilding company, and he has applied his insight in the management of the Company and carried out management and monitoring from an independent perspective as an external director of the Company since June 2017. (Reasons for selection as an independent director candidate) Mr. Yukito Higaki is an external director who is not affiliated with any of Tokyo Century’s major business partners, and the Company sees no likelihood of a potential conflict of interest between Mr. Higaki and its general shareholders. Mr. Akio Nakamura has provided accurate advice on the overall management of the Company from an objective perspective as an external director of the Company and has ably carried Yukito Higaki ✓ Akio Nakamura ✓ and CEO, and Tanabe & Partners, at which he serves as a special partner, the amount of a transaction accounted for less than 1% of the sales of these companies and the consolidated revenue of the Company, and the amount of a transaction with Tanabe & Partners is 1 million yen during the most recent fiscal year. Tokyo Century has no business relationships with either JASDEC DVP Clearing Corporation, at which Mr. Nakamura serves as president and CEO, or Sompo Research Institute Inc., at which Mr. Nakamura served as chairman. Although the Company has a business relationship with Asahi Kasei Corporation, at which Mr. Toshio Asano was engaged in executing business as director, the amount of transaction accounted for less than 1% of the sale of Asahi Kasei Corporation and the Company’s consolidated revenues during the most recent fiscal year. Tokyo Century has no business relationships with either Maruho Co., Ltd., at which Mr. Asano serves as an outside director of the board, MEDIPAL HOLDINGS CORPORATION, at which he serves as an outside director, or Daicel Corporation, at which he serves as an external director. Tokyo Century has no business relationships with either Shiba & Tanaka Law Offices, at which Ms. Miho Tanaka serves as a partner, Solasto Corporation, at which Ms. Tanaka serves as an outside corporate auditor, Marimo Regional Revitalization REIT, Inc. or JINUSHI Private REIT Investment Corporation, at which Ms. Tanaka serves as a supervisory director. The name of Ms. Miho Tanaka on the family register is Miho Takahashi. – 12 – out management and monitoring from an independent perspective, applying his abundant experience and wide range of knowledge gained in fields such as finance and taxation, from June 2015 to June 2017, and again from June 2018. (Reasons for selection as an independent director candidate) Mr. Akio Nakamura is an external director who is not affiliated with any of Tokyo Century’s major business partners, and the Company sees no likelihood of a potential conflict of interest between Mr. Nakamura and its general shareholders. Mr. Toshio Asano has led a major diversified chemicals company and has abundant experience and broad knowledge of corporate management. He has applied his insight in the management of the Company and carried out management and monitoring from an independent perspective as an external director of the Company since June 2019. (Reasons for selection as an independent director candidate) Mr. Asano is an external director who is not affiliated with any of Tokyo Century’s major business partners, and the Company sees no likelihood of a potential conflict of interest between Mr. Asano and its general shareholders. Ms. Miho Tanaka has abundant knowledge and experience as an attorney at law, particularly in corporate legal affairs and M&A. Although she has never been directly involved in corporate management, she is capable of applying her deep insight and abundant experience in the management of the Company and carrying out management and monitoring of operational execution from an independent perspective Toshio Asano ✓ Miho Tanaka ✓ (Reasons for selection as an independent director candidate) Ms. Tanaka is an external director who is not affiliated with any of Tokyo Century’s major business partners, and the Company sees no likelihood of a potential conflict of interest between Ms. Tanaka and its general shareholders. Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Corresponding to Committee Nomination Committee Nomination Committee Corresponding Committee Remuneration Committee Remuneration Committee to Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson Supplementary Explanation 8 0 3 5 0 0 8 0 3 5 0 0 Outside Director Outside Director Tokyo Century has established the Nomination Committee and Compensation Committee as voluntary advisory committees under the Board of Directors to strengthen the independence, objectivity, and accountability of the functions performed by the Board of Directors. The members (as of April 1, 2022), roles, and status of activities of each committee are as follows. Nomination Committee Members 1. Chair (external director): Toshio Asano 2. Members: Masao Yoshida, Yukito Higaki, Akio Nakamura, Miho Tanaka (external directors) and Shunichi Asada, Koichi Baba, Toshihito Tamba (internal directors) 3. Advisors (attorneys at law): Tadashi Kunihiro, Katsumi Nakamura Responsibilities 1. Matters related to proposals concerning the election and dismissal of directors presented to the Annual General Meeting of Shareholders 2. Matters related to the election and dismissal of the president 3. Matters related to succession planning for the president (including education) 4. Other important personnel matters involving directors and other officers Status of Activities The Nomination Committee met eight times in fiscal 2021. Compensation Committee Members – 13 – 1. Chair (external director): Masao Yoshida 2. Members: Yukito Higaki, Akio Nakamura, Toshio Asano, Miho Tanaka (external directors) and Shunichi Asada, Koichi Baba, Masataka Yukiya (internal directors) 3. Advisors (attorneys at law): Tadashi Kunihiro, Katsumi Nakamura Responsibilities 1. Matters related to the design of compensation systems and compensation policies for directors and executive officers 2. Other important matters related to compensation for directors and other officers Status of Activities The Compensation Committee met two times in fiscal 2021. [Kansayaku] Establishment of Kansayaku Board Established Maximum Number of Kansayaku Stipulated in Articles of Incorporation Number of Kansayaku Cooperation among Kansayaku, Accounting Auditors and Internal Audit Departments The Board of Corporate Auditors receives a report from the independent auditor on the quarterly earnings review and audit results for full-year earnings and on the status and system of operational execution, which is followed by an exchange of views. All corporate auditors attend the meetings of the Board of Directors and receive reports from the Audit Division on the audit plan and internal auditing results along with the status of establishment and management of the internal control system. In addition and in principle, standing corporate auditors (including the external corporate auditor) exchange information with the Audit Division on a quarterly basis, and important information is shared with the other external corporate auditor during meetings of the Board of Corporate Auditors. Appointment of Outside Kansayaku Appointed Number of Outside Kansayaku Number of Independent Kansayaku Outside Kansayaku’s Relationship with the Company (1) Name Attribute Relationship with the Company* A b c d e Futoshi Okada Masao Fujieda From another company Tax Accountant g f △ h i j k l m ○* * * 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 Company or its subsidiary b. Non-executive director or accounting advisor of the Company or its subsidiaries c. Non-executive director or executive of a parent company of the Company d. Kansayaku of a parent company of the Company e. Executive of a fellow subsidiary company of the Company 8 4 2 1 – 14 – f. A party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a kansayaku i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity) j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h) k. Executive of a company, between which and the Company outside directors/kansayaku are mutually (the kansayaku himself/herself only) appointed (the kansayaku himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the kansayaku himself/herself only) m. Others Outside Kansayaku’s Relationship with the Company (2) Name Futoshi Okada ✓ Designation as Independent Kansayaku Supplementary Explanation of the Relationship Reasons of Appointment Mr. Futoshi Okada has served as the Company’s external corporate auditor since June 2012 and has applied the extensive experience and broad knowledge he has gained by engaging in corporate management, sales, and overseas business execution at financial institutions to provide appropriate management oversight regarding the adequacy and validity of Tokyo Century’s corporate activities. External Corporate Auditor Futoshi Okada concurrently holds positions as auditor at Nippon Car Solutions Co., Ltd., auditor at Nippon Rent-A-Car Service, Inc., auditor at IHI Finance Support Corporation, auditor at TRY Corporation, auditor at TC Property Solutions Corporation, auditor at TC Business Experts Corporation, auditor at Shinko Real Estate Co., Ltd., auditor at TC Hotels & Resorts Karuizawa K.K., auditor at Century Tokyo Leasing China Corporation, and auditor at Century Tokyo Factoring China Corporation. All of these companies are consolidated subsidiaries. Mr. Okada has work experience at Mizuho Bank, Ltd. and its affiliated companies, and four people from these companies have been appointed directors at Tokyo Century Corporation. As of March 31, 2021, Mizuho – 15 – Masao Fujieda ✓ Bank, Ltd. owned a 3.8% stake in Tokyo Century Corporation. In addition, as of March 31, 2021, Tokyo Century Group had business loans totaling 460,102 million yen from Mizuho Bank, Ltd. Tokyo Century conducts business with Mizuho Bank, Ltd. and its affiliated companies, but the prices and other transaction conditions are the same as transactions with other entities. External Corporate Auditor Masao Fujieda concurrently holds positions as a representative of Fujieda Masao Tax Accounting Office and as auditor at Nip Corporation. Although the Company has a business relationship with Nip Corporation, the amount of transaction accounted for less than 1% of the sale of Nip Corporation and the Company’s consolidated revenues during the most recent fiscal year. Mr. Masao Fujieda has served as the Company’s external corporate auditor since June 2018 and has applied his expert knowledge and experience in taxation and accounting as a tax accountant to provide appropriate management oversight regarding the adequacy and validity of Tokyo Century’s corporate activities. (Reasons for selection as an independent director candidate) Mr. Masao Fujieda is an external corporate auditor who is not affiliated with any of Tokyo Century’s major business partners, and the Company sees no likelihood of a potential conflict of interest between Mr. Fujieda and its general shareholders. [Independent Directors/Kansayaku] Number of Independent Directors/Kansayaku 6 Matters relating to Independent Directors/Kansayaku － [Incentives] Incentive Policies for Directors Performance-linked Remuneration / Stock Options Supplementary Explanation At the 43rd Annual General Meeting of Shareholders on June 21, 2012, the Company received approval for granting stock options as stock-based compensation to directors, excluding external directors. The upper limit – 16 – of the amount to be paid as stock-based compensation in the form of stock options was set at 130 million yen per annum, while the upper limit for issuing new stock acquisition rights was set at 1,800 units (one unit buys 100 shares of common stock of Tokyo Century Corporation), which will be issued within a year of the date of the Annual General Meeting of Shareholders for the relevant fiscal year. Subsequently, at the 47th Annual General Meeting of Shareholders on June 24, 2016, approval was given to a resolution for raising the upper limit of the amount to be paid as stock-based compensation in the form of stock options to 400 million yen per annum. Recipients of Stock Options Supplementary Explanation Inside Directors / Employee / Subsidiaries’ Directors / Subsidiaries’ Executive Officers (Shikkoyaku) / Other Tokyo Century began granting stock options as stock-based compensation to directors, excluding external directors and part-time directors, and to executive officers from fiscal 2012. This was intended to further motivate directors to enhance corporate value by raising their sensitivity to the Company’s stock price and business performance and sharing not only the merits of an increase in the stock price but also the risks of a decline with shareholders. From fiscal 2014, the Company also began granting stock options as stock-based compensation to some of its employees. [Director Remuneration] Disclosure of Individual Directors’ Remuneration Supplementary Explanation Partial disclosure on an individual basis. Tokyo Century discloses the total amount of compensation paid to all directors in its Securities Report and Business Report. For the 52nd fiscal year (ended March 2021), the total amount of compensation paid to directors and corporate auditors was 879 million yen, comprising 784 million yen paid to directors and 94 million yen paid to corporate auditors. The above-mentioned amount includes 194 million yen in provisions for directors’ bonuses accounted for as costs in the fiscal year under review. The above-mentioned amount of compensation for directors includes 184 million yen paid in the form of stock options. Policy on Determining Remuneration Amounts Established and Calculation Methods Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods (Officers’ Compensation) (1) Matters Concerning the Policy for Determining Compensation for Individual Directors Director compensation is decided by a resolution of the Board of Directors based on recommendations from the Compensation Committee, primarily consisting of independent external directors, on the policy for determining the content of compensation for individual directors. The board also receives advice from outside experts. Regarding director compensation, the Company maintains a framework linked to sound incentives toward its sustainable growth and the medium- to long-term development of its businesses. It has established a director compensation system to align the interests of the directors with those of the shareholders, raise the awareness of directors regarding enhancing shareholder value, attract outstanding talent, and secure and develop human resources who can drive the improvement of the Company’s corporate value. Draft proposals on matters such as the policy, systems, and levels of officer compensation – 17 – are referred to the Compensation Committee, and the Board of Directors makes the final decision based on the committee’s recommendations. Officer compensation comprises basic compensation, officer bonuses, and stock options as stock-based, non-monetary compensation. Basic compensation, which is fixed compensation, is determined through a comprehensive consideration of the duties, roles, and responsibilities and other factors of each officer. Compensation for directors responsible for business execution comprises performance-based compensation including basic compensation, officer bonuses, and stock options as stock-based compensation. The ratio for the amount of basic compensation to performance-based compensation is set at approximately 1.0 to 1.0-2.5, determined by comprehensively accounting for achievements and performance based on each director’s expected duties. The content of compensation for each director is referred to the Compensation Committee, which deliberates on aspects including adherence to the policy on determining officer compensation, and the president, CEO, and representative director approves the content due consideration for the committee’s recommendations; and with this final decision, the content is formally deemed to adhere to the policy by the Board of Directors. The compensation of external directors and corporate auditors, who are in a position independent from business execution, consists entirely of basic compensation based on their roles, and the compensation of corporate auditors is determined through deliberations by the corporate auditors within the prescribed limits. (2) Matters Concerning Resolutions by the General Meeting of Shareholders on Compensation for Directors and Corporate Auditors By resolution of the Annual General Meeting of Shareholders on June 24, 2016, the maximum compensation for directors is 1,000 million yen per year, including 100 million yen per year for external directors. Furthermore, the maximum fair value of stock options that may be granted to directors, excluding external directors, is 400 million yen per year within the said maximum. There were ten directors, including two external directors, as of the conclusion of the Annual General Meeting of Shareholders previously mentioned. By resolution of the Extraordinary General Meeting of Shareholders on February 25, 2009, the maximum compensation for corporate auditors is 150 million yen per year. There were five corporate auditors, including four external corporate auditors, as of the conclusion of the Extraordinary Annual General Meeting of Shareholders previously mentioned. (3) Matters Concerning the Delegation of Decision-Making on Compensation for Individual Directors President & CEO and Representative Director Makoto Nogami decides on the specific content of compensation for individual directors based on the resolution by the Board of Directors. The delegation of authority to decide on the amount of basic compensation and officer bonuses for directors is based on the belief that the president, CEO, and representative director is in the best position to evaluate the operations entrusted to each director, while leading the business of the entire Company. To ensure that the president, CEO, and representative director appropriately exercises this authority, the Board of Directors presents a draft proposal to the Compensation Committee and receives its recommendations. The Compensation Committee makes its recommendations by seeking advice from outside experts and referring to third-party survey data on compensation levels, and the president, CEO, and representative director exercises delegated authority and decides with due consideration for the committee’s recommendations. With regard to stock options offered as stock-based compensation, the Board of Directors deliberates on the number of stock options granted to each officer based on the recommendations of the Compensation Committee. (4) Matters Concerning Performance-Based Compensation and Content of Non-Monetary Compensation Performance-based compensation comprising officer bonuses and stock options as stock-based compensation are distributed according to profits, which in turn based on net income attributable to owners of parent for each fiscal year, with the maximum set at approximately 1% of net income. The amount of compensation for directors responsible for business execution is determined by comprehensively taking into account achievements and performance based on each director’s expected duties. Given that net income attributable to owners of parent represents the final profit or loss for the period generated through the activities of a fiscal year and is directly linked to the improvement of corporate value during the period, the Company has decided it is a suitable indicator for determining the compensation of directors, who are responsible for improving the corporate value of the entire Group and maximizing shareholder profits, and it has therefore been adopted as an indicator for performance-based compensation. The change in net income attributable to owners of parent over time, including fiscal 2020, has been published under “Section 1. Corporate Information, 1. Corporate Overview, 1. Change in Significant Indicators” in the First Section of – 18 – the Securities Report. Officer bonuses are paid to directors in charge of executing operations within a certain period following the conclusion of each business year. Stock options as stock-based compensation are allocated in the form of share subscription rights and offset by payments made from monetary compensations for directors. These stock options are allocated within a certain period each year. The ratio of officer bonuses to performance-based compensation is set at 50-50, and information on stock options as stock-based compensation is published under “Section 4. Information on the Reporting Company, 1. Information on Shares, etc. (2) Information on Share Subscription Rights (i) Stock Option System” of the Securities Report. [Supporting System for Outside Directors and/or Kansayaku] External directors perform their duties with assistance from the Corporate Planning Division, which serves as the secretariat of the Board of Directors. Tokyo Century has also established an Auditors Office under the corporate auditors, staffed by employees who assist with the duties of the corporate auditors. While these employees concurrently belong to other divisions, they remain under the command and control of corporate auditors with regard to the tasks they perform to assist in the duties of corporate auditors, thereby ensuring the effectiveness of instructions given by corporate auditors to these employees. [Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)] Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Name Job title/ position Responsibilities (Full/part time, with/without Employment terms compensation, etc.) – – – – Date when former role as president/ CEO ended – Term – Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) 0 Others The total number is listed as zero, since Tokyo Century does not have an advisor or counsel who has retired from president, CEO, and representative director or other executive positions. 2.Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) (1) Information on Corporate Bodies Tokyo Century has introduced an executive officer system to expedite decision-making on management strategy and strengthen the systems of supervision and execution of operations. Among the 28 executive officers is one female officer. The Company has established the following bodies to realize and secure corporate governance and operates under the current corporate governance system based on its judgment that appropriate corporate management is possible through the functioning of each body. Board of Directors – 19 – The Board of Directors is composed of 13 directors, including five external directors as defined by Article 2-15 of the Companies Act of Japan. The Board of Directors deliberates on and makes decisions about the policies, strategies, business plans, and other key management issues of Tokyo Century and its Group companies as well as matters specified by prevailing laws, regulations, articles of incorporation, and rules governing the board. It also supervises the execution of operations by directors and executive officers. The board met 13 times in fiscal 2021. Under the Company’s articles of incorporation, the maximum number of directors is set at 18. (Members) President & CEO, Representative Director Koichi Baba (Chairperson); Chairman, Representative Director Shunichi Asada; Deputy President, Representative Director and Executive Officer Masataka Yukiya; External Director Masao Yoshida; External Director Yukito Higaki; External Director Akio Nakamaura; External Director Toshio Asano; External Director Miho Tanaka; Deputy President, Director and Executive Officer Akihiko Okada; Deputy President, Director and Executive Officer Keiichiro Ogushi; Director and Managing Executive Officer Tatsuya Hirasaki; Director Toshihito Tamba; and Director Makoto Nogami Board of Corporate Auditors Tokyo Century has adopted the organizational structure of a company with a board of corporate auditors. The Board of Corporate Auditors comprises four members, including two who are external corporate auditors as defined by Article 2-16 of the Companies Act of Japan. The Board of Corporate Auditors meets regularly and executes independent and fair audits of compliance and the appropriateness of corporate activities including the performance of duties by directors and executive officers. The board met nine times in fiscal 2021. (Members) Standing Corporate Auditor (External Corporate Auditor) Futoshi Okada (Chairperson); Standing Corporate Auditor Yuichiro Ikeda; Standing Corporate Auditor Katsuya Amamoto; and Corporate Auditor (External Corporate Auditor) Masao Fujieda Nomination Committee Tokyo Century has established a Nomination Committee, primarily consisting of independent directors, as an advisory body to the Board of Directors. The committee comprises eight members and deliberates on the nomination of candidates for director and corporate auditor positions, and reports to the Board of Directors. The committee met eight times in fiscal 2021. For more information, please refer to the supplementary explanation for “Voluntary Committees Equivalent to a Nomination Committee or Compensation Committee” under “II. 1. Items Concerning Organizational Composition and Operation” of this report. (Members) External Director Toshio Asano (Chairperson); External Director Masao Yoshida; External Director Yukito Higaki; External Director Akio Nakamaura; External Director Miho Tanaka; Chairman, Representative Director Shunichi Asada; President & CEO, Representative Director Koichi Baba; and Director Toshihito Tamba Compensation Committee Tokyo Century has established a Compensation Committee, primarily consisting of independent directors, as an advisory body to the Board of Directors. The committee comprises eight members, discusses matters such as compensation systems and policies, and reports to the Board of Directors. It met two times in fiscal 2021. For more information, please refer to the supplementary explanation for “Voluntary Committees Equivalent to a Nomination Committee or Compensation Committee” under “II. 1. Items Concerning Organizational Composition and Operation” of this report. (Members) External Director Masao Yoshida (Chairperson); External Director Yukito Higaki; External Director Akio Nakamaura; External Director Toshio Asano; External Director Miho Tanaka; Chairman, Representative Director Shunichi Asada; President & CEO, Representative Director Koichi Baba; and Deputy President, Representative Director, and Executive Officer Masataka Yukiya Management Meeting Tokyo Century has established a Management Meeting comprising the president and CEO and officers appointed by the president and CEO. In principle, the Management Meeting is held once a week to deliberate on matters that are particularly important to the execution of operations and makes decisions for Tokyo Century Group as a whole. – 20 – (Members) President & CEO, Representative Director Koichi Baba (Chairperson); Chairman, Representative Director Shunichi Asada; Deputy President, Representative Director, and Executive Officer Masataka Yukiya; Deputy President, Director, and Executive Officer Akihiko Okada; Deputy President, Director, and Executive Officer Keiichiro Ogushi; Deputy President, Executive Officer Yoichiro Nakai; Director and Managing Executive Officer Tatsuya Hirasaki, Managing Executive Officer Takashi Yonetsu; and Managing Executive Officer Ko Nakagawa Transaction Evaluation Meeting Tokyo Century has established a Transaction Evaluation Meeting comprising the president and CEO and officers appointed by the president and CEO. In principle, the Transaction Evaluation Meeting is held once a week to discuss to make decisions about major business transactions being considered by Tokyo Century and its Group companies as well as transactions that warrant complex risk analysis. (Members) Managing Executive Officer Ko Nakagawa (Chairperson); Chairman, Representative Director Shunichi Asada; President & CEO, Representative Director Koichi Baba; Deputy President, Representative Director, and Executive Officer Masataka Yukiya; Deputy President, Director, and Executive Officer Akihiko Okada; Deputy President, Director, and Executive Officer Keiichiro Ogushi; Deputy President, Executive Officer Yoichiro Nakai; Director and Managing Executive Officer Tatsuya Hirasaki; and Managing Executive Officer Takashi Yonetsu ALM Committee Tokyo Century has established the Asset Liability Management (ALM Committee) to identify and minimize the exposure of assets and liabilities to risks, including fluctuations in interest and foreign currency exchange rates. It discusses matters relevant to managing market, liquidity, and other risks and reports to the Management Meeting. (Members) President & CEO, Representative Director Koichi Baba (Chairperson); Chairman, Representative Director Shunichi Asada; Deputy President, Representative Director and Executive Officer Masataka Yukiya; Deputy President, Director, and Executive Officer Akihiko Okada; Deputy President, Director, and Executive Officer Keiichiro Ogushi; Deputy President, Executive Officer Yoichiro Nakai; Director and Managing Executive Officer Tatsuya Hirasaki; Managing Executive Officer Takashi Yonetsu; Managing Executive Officer Ko Nakagawa; Executive Officer Yukihiro Tanaka; the general manager of the Corporate Planning Division, and the general manager of the Treasury Division Comprehensive Risk Management Committee Tokyo Century has established the Comprehensive Risk Management Committee to address any risks faced by the Company. The committee discusses matters such as construction of the risk management system and approaches to measuring risk. It also periodically assesses Tokyo Century’s risk exposure and reports to the Management Meeting. (Members) Managing Executive Officer Ko Nakagawa (Chairperson); Director and Executive Officer Akihiko Okada; Director and Managing Executive Officer Tatsuya Hirasaki; Managing Executive Officer Takashi Yonetsu; Managing Executive Officer Junji Tsutsui; Executive Officer Toshiyuki Otobe; Executive Officer Yukihiro Tanaka; Executive Officer Hideharu Suekane; Executive Officer Masaaki Teragami; the general manager of the Audit Division; the general manager of the Corporate Planning Division; the general manager of the Credit Supervision Division III; the general manager of the Specialty Finance Strategic Planning Division; and the general manager of the International Business Strategic Planning Division Internal Control Committee Tokyo Century has established the Internal Control Committee to ensure the internal control system functions effectively. It discusses general internal control matters, including evaluation of the effectiveness of the financial reporting system and scope of evaluation, and reports to the Management Meeting. (Members) Director and Executive Officer Akihiko Okada (Chairperson); Director and Managing Executive Officer Tatsuya Hirasaki; Managing Executive Officer Ko Nakagawa; Managing Executive Officer Junji Tsutsui; Executive Officer Toshiyuki Otobe; Executive Officer Yukihiro Tanaka; Executive Officer Hideharu Suekane; – 21 – Executive Officer Masaaki Teragami; the general manager of the Audit Division; the general manager of the Audit Office, Audit Division; the general manager of the Internal Control Office, Audit Division; the general manager of the Corporate Planning Division, the general manager of the Specialty Finance Strategic Planning Division; and the general manager of the International Business Strategic Planning Division Credit Risk Management Committee Tokyo Century has established the Credit Risk Management Committee to exercise appropriate management of credit risk. It discusses matters including the Group’s credit portfolio as a whole and credit risk management and reports to the Management Meeting. (Members) Managing Executive Officer Ko Nakagawa (Chairperson); Managing Executiv