ダイドーグループホールディングス（2590） – Corporate Governance Report

This document has been translated from the Japanese original, as submitted to the Tokyo Stock Exchange, for reference purposes only. in the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. DyDo Group Holdings, Inc. assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation. CORPORATE GOVERNANCE DyDo Group Holdings, Inc. Last update: April 18, 2022 DyDo Group Holdings, Inc. Tomiya Takamatsu, President Inquiries: Corporate Communication Department Share code: 2590 https://www.dydo-ghd.co.jp/en/ This document describes the Company’s approach to corporate governance. I. Basic approach to corporate governance, capital structure, corporate attributes, and other general information 1. Basic Approach Taking into consideration the provisions and spirit of the Corporate Governance Code issued by the Tokyo Stock Exchange, we have formulated a Basic Approach to Corporate Governance that our basic approach and policies in the area of corporate governance in order to facilitate sustained growth and improve our corporate value over the medium and long term. [Basic Policy] 1. Basic Approach to Corporate Governance “Creating happiness and prosperity, together with people and with society. To achieve this goal, the DyDo Group will continue to embrace new challenges in a dynamic way.” Our corporate philosophy inspires us in our ongoing quest to ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations. It motivates us to constantly improve management efficiency and transparency, and to promote the group’s mutual benefits with all of our stakeholders, including our customers, our employees, our business partners, our communities, and our shareholders. It is the very cornerstone of our corporate governance, which is geared toward generating sustainable growth and improving corporate value over the medium- to long-term. [DyDo Group Philosophy] [DyDo Group Vision] Together with our customers. Creating happiness and prosperity, together with people and with society. To achieve this goal, the DyDo Group will continue to embrace new challenges in a dynamic way. With our high-quality products, we will offer our customers excitement and enhanced wellness, with distinctive delicious flavors that only DyDo can. Together with society. Bringing together all DyDo’s resources in the entire Group’s product development and corporate activities, we will help build a rich and vibrant society. Together with the next generation. We will create a “DyDo Standard” for the next generation that transcends national borders and conventional frameworks. Together with our people. We will tirelessly embrace the “DyDo Challenge” of bringing happiness to all whose lives are touched by the DyDo Group. The core business of the DyDo Group is Domestic Beverage Business, and considering the fact that approximately 80% of our sales for this segment come from vending machines in the local community, it is fair to say that our soft drink products are a familiar part of consumers’ everyday lives. Moreover, our operations are conducted under a “fabless management” system, which means we have no plants of our own and instead work in close cooperation with producers and distributors nationwide, to whom we outsource the manufacture and delivery of our products. We concentrate our resources on more specific roles, such as product planning and development, and vending machine operations. We have one of the industry’s most extensive networks of vending machines, which are maintained by DyDo Group employees and the “Kyoeikai” (special vending machine operators that handle DyDo products). It is a rather unique model that depends on the trust of our stakeholders. As such, we believe “happiness and prosperity together with people and society as a whole” is more than just a nice phrase for a corporate philosophy—it is our duty, and the overriding objective of our business activities. To that end, our “dynamic efforts” are founded on bedrock of corporate governance, a steadfast platform of transparent, fair, swift, and bold decision-making. Moreover, we continually work to improve that foundation in order to contribute to the benefit of our shareholders. 2. How We Put the Japan’s Corporate Governance Code (1) Securing the rights and Equal Treatment of Shareholders At the DyDo Group, our corporate philosophy guides us to work in close partnership with a broad range of stakeholders. For instance, we endeavor to effectively secure the rights of our shareholders, and to prepare an environment in which they can exercise those rights appropriately. (2) Appropriate Cooperation with Stakeholders Other Than Shareholders We are keenly aware that our efforts to generate sustainable growth and improve corporate value over the medium- to long-term (as enshrined in our corporate philosophy) are reliant on the valuable resources and contributions of a broad spectrum of stakeholders, including our customers, our employees, our business partners, and our communities. Moreover, we are proud to work in close partnership with our stakeholders, and we proactively incorporate their feedback into the running of the DyDo Group. The executives and board of directors are charged with leading the creation and maintenance of a corporate culture that demands respect for the rights and positions of stakeholders and firm adherence to corporate ethics. (3) Ensuring Appropriate Information Disclosure and Transparency In line with our policy of transparency, fairness, and long-term focus, we provide shareholders, investors, and all other stakeholders the information they need to make informed decisions. This includes information on our companies’ finances, business performance, management strategies and issues, risks, and other matters relating to governance. Indeed, we consider our legal obligation to disclose pertinent information promptly and appropriately to be a serious matter. In addition, however, we are also eager to publish information that encourages correct understanding of the DyDo Group to the furthest possible extent. (4) Responsibilities of the Board The board of directors seeks to discharge its responsibility and accountability to shareholders by pursuing a three-pronged strategy for consistent improvement of the group’s earning power and capital efficiency so as to achieve sustainable growth and improve corporate value over the medium- to long-term. Those three facets are: 1) set the direction for implementation of the group’s corporate strategy; 2) establish a platform for executives to take calculated risks; and 3) institute effective, independent, and objective oversight of executives and directors. (5) Dialogue with Shareholders Constructive dialogue with shareholders is an integral part of our IR strategy, which is geared toward our goal of sustainable growth and improved corporate value over the medium- to long-term. Such communication not only fosters correct understanding of the DyDo Group, but it also generates valuable feedback that serves as a frank appraisal of our true trustworthiness and corporate value. [Reasons for not implementing certain principles of Japan’s Corporate Governance Code] Supplementary Principle 1.2.5 Treatment of institutional investors who own shares in the name of a trust bank (shintaku ginko) and/or custodial institutions and express a wish in advance to exercise their voting rights at the General Meeting of Shareholders Because voting rights at the General Meeting of Shareholders are held by entities that are included in or registered on the list of shareholders as of the date of record, we do not allow institutional investors who own shares in the name of a trust bank or other institution to attend, exercise their voting rights at, or pose questions at the General Meeting of Shareholders. Due to the large number of administrative issues associated with implementation of this principle, we have decided to study it in the future after clarifying future trends. Principle 1.4 Cross-Shareholdings We annually assess whether or not to hold each individual cross-shareholding. The results of the most recent assessment, which was conducted at the February 15, 2022, meeting of the Board of Directors with regard to conditions as of January 20, 2022, confirmed the Company’s policy of continuing to hold some shares that can be expected to help increase the Company’s value over the medium and long term but considering selling or otherwise disposing of others. With regard to “methods for specifically assessing whether or not the purpose of, and the benefits and risks from, holding each individual cross-shareholding is appropriate and covers the company’s cost of capital,” as required by this principle, the Board of Directors recognizes this as an issue requiring further discussion. Principle 1.4.1 Response to Cross-Shareholder Indication of Intent to Sell When cross-shareholders indicate their intention to sell their shares, we do not hinder the sale of the cross-held shares by, for instance, implying a possible reduction of business transactions. However, in cases where parties which are cross-shareholders for the purpose of business cooperation indicate their intention to sell their shares, we recognize the need to consider revising cooperative relations based on economic rationality. Principle 2.6 Roles of Corporate Pension Funds as Asset Owners Because the management of corporate pension funds impacts stable asset formation for employees and our own financial standing, we ensure that potential conflicts of interest between pension fund beneficiaries and our company are appropriately managed by entrusting fund operation to a management institution and by receiving regular reports on the status of fund management and stewardship activities. However, with regard to the involvement of human resources and operational practices, as required by this principle and including recruiting or assigning outside qualified persons, discussion of this issue will be revisited in the future as warranted based on careful monitoring of developments. Supplementary Principle 4.1.3 Proactive engagement in the establishment and implementation of a succession plan for the CEO and other top executives, and appropriate oversight of the systematic development of succession candidates Since assuming the position in April 2014, Tomiya Takamatsu, the Company’s president, has demonstrated strong leadership by managing the company with rapid, decisive decision-making in line with its medium- and long-term management posture based on the perspective of all stakeholders and in keeping with the newly formulated Group Philosophy and Group Vision. Although we do not currently have a specific succession plan for positions such as president, we recognize that the cultivation of corporate officers and management positions that support the Company’s executive team is an important priority, and we launched DyDo Innovation Academy, a long-term training program for mid-level employees, in order to cultivate and identify the next generation of leaders who will be responsible for driving the organization’s sustained growth going forward. We are working to foster problem-solving skills, strengthen leadership, and facilitate management literacy through a combination of off- and on-the-job training. For the future, the Board of Directors will appropriately supervise the implementation of initiatives aimed at medium and long term improvement in corporate value, including a strategic development plan for the next generation of corporate officers and managers. Supplementary Principle 4.8.2 Election of a head independent outside director Four of the seven positions on our Board of Directors are occupied by independent outside directors, but we do not elect a head independent outside director. In addition to the support offered to outside directors by the Board of Directors Secretariat to facilitate clear communication and coordination with the rest of the Company’s executive team, we foster collaboration with auditors and the Kansayaku Board by means of such measures as regular meetings that are attended exclusively by independent external officers. [Disclosures in accordance with the principles of Japan’s Corporate Governance Code] Principle 1.3 Basic Strategy for Capital Policy The Group’s basic policy is to pursue stable and robust financial management in order to secure stable profits and improve its corporate value so that it can realize sustained growth over the medium and long term. The Group’s funds are concentrated in its holding company, and it strives to maintain financial soundness and to practice stable management by allocating those funds in an appropriate manner. In addition to carrying out strategic business investments geared to drive future growth, we will work going forwards to maintain and build a sound, balanced financial base for the Group’s operations, including by returning profits to shareholders in an appropriate manner over the medium and long term, while accumulating sufficient equity to cover unexpected risks and other contingencies. Our basic policy concerning the allocation of profits is to continue to pay stable dividends while considering the balance between the internal reserves necessary for sustained growth and shareholder returns. With regard to internal reserves, we believe that shareholders’ joint interests are best served by giving priority to strategic business investments that will generate sustained profit growth and capital efficiency. Principle 1.4 Cross-Shareholdings (Policy and approach on reduction of cross-shareholdings) We may establish strategic stakes in important stakeholders such as business partners or companies with which we have entered into operational alliances in keeping with a basic approach of achieving sustained growth and increasing corporate value over the medium and long term while pursuing mutually beneficial relationships with stakeholders. Examples include situations where we stand to gain stable and sustained cash flow by maintaining a good relationship over the medium and long term because a partner can offer a large number of favorable vending machine locations, or where an operational alliance would contribute to efforts to increase corporate value over the medium and long term. We clearly identify the purpose of each new stake and then regularly verify its status following acquisition, and if it is determined that stable and ongoing cash flows and improved corporate value in the medium and long term cannot be expected, reductions are performed via sale of shares or some other, appropriate method. (Content of assessment of whether or not to hold each individual cross-shareholding) The company assesses the suitability of cross-shareholding on a regular basis once each year. The results of the most recent assessment, which was conducted at the February 15, 2022, meeting of the Board of Directors with regard to conditions as of January 20, 2022, confirmed the Company’s policy of continuing to hold some shares that can be expected to help increase the Company’s value over the medium and long term but considering selling or otherwise disposing of others. As of January 20, 2022, the balance for equity investments obtained for the purpose of holding, excluding net investments, was 10,387 million yen (9,096 million yen on January 20, 2021), with the primary cause of the decrease being fluctuations in the value of the underlying shares. Also, as of January 20, 2022, the number of listed companies for which equity investments have been obtained for the purpose of holding, excluding net investments, was 29 (32 on January 20, 2021), which is a decrease of three companies compared with the previous year. This is due to the sale of some shares after verification at a meeting of the Board of Directors on February 15, 2021. (Standard on exercising voting rights deriving from cross-shareholdings) Voting rights deriving from cross-shareholdings are exercised on a case-by-case basis following an investigation of whether this decision will damage our corporate value. Principle 1.7 Related Party Transactions To prevent directors, auditors, corporate officers, and other company officials and major shareholders from abusing their positions by engaging in transactions that harm the interests of the Company or its shareholders, competition and conflict of interest transactions with officers and corporations that are substantially controlled by officers must be deliberated and decided by the Board of Directors. In addition, affected officers may not participate in those deliberations and decisions. Investigations to identify any transactions with directors, corporate auditors, or their close relatives are documented, and any results including material information, are reported to the Board of Directors. Furthermore, the Company discloses transactions between related parties in accordance with the Companies Act, the Financial Instruments and Exchange Act, and rules imposed by the Tokyo Stock Exchange. Supplementary Principle 2.4.1 Approach to Securing Diversity within the Company and Status of Related Initiatives (Approach to securing diversity through appointing core personnel, etc., independent, measurable targets, and status toward their achievement) The Group works to cultivate a corporate culture that encourages employees to embrace challenges as a way to spur its growth as well as their own in keeping with its Group Philosophy (“Creating happiness and prosperity, together with people and with society. To achieve this goal, the DyDo Group will continue to embrace new challenges in a dynamic way.”). We are also strengthening our personnel management system from the three perspectives of securing human capital, fostering the development of human resources, and assigning and transferring human resources. Society is changing as a result of the COVID-19 pandemic and this is causing dramatic shifts in the business environment. For us to provide value to customers and society, and to achieve sustainable growth, it is extremely important that we secure and train personnel who will support innovation, and put in place an internal environment that supports that. With this awareness, we are actively pressing forward with employing and promoting outside experts who have the high degree of specialization needed to work on the three basic policies outlined in Group Mission 2030—innovation in the Domestic Beverage Business, expansion of our business overseas, and development of a second major source of revenue in non-beverage businesses. As an example of an initiative to assign and promote core personnel, designed to train and root out the managers that will form DyDo’s next generation, we are implementing a long-term training program for employees in middle management—DyDo Innovation Academy. The program, which combines off- and on-the-job training, gives participants the skills to resolves problems and issues, strengthens their leadership abilities, and improves their management literacy. In recent years, we have also made concrete efforts to appoint more female managers. We have set ourselves the following goals: raising the proportion of female managers from the current figure of approximately 10% (as of January 2022) to 15% or higher by 2030 in DyDo DRINCO, the Group’s core business, and 10% or higher by 2030 at the Group’s major subsidiaries (DAIDO Yakuhin and Tarami). (Personnel training policy and policy to put in place an in-house environment aimed at securing diversity, and their respective implementation statuses) Reflecting our belief that investment in “invisible assets” like human resources is a key part of achieving sustained growth and increasing our corporate value over the medium and long term, we are striving to expand our systems for childcare leave, nursing leave, teleworking, etc., so that employees can do their very best in both their professional and private lives, whatever their stage of life. As part of our commitment to facilitating a work-life synergy that allows each and every employee to make the most of their skills and abilities while maintaining physical and mental health, we adopted the DyDo Group Health Declaration in 2019, and we are working to put in place an environment that fosters employees’ awareness of their own health. To achieve that goal will require employees to gain the requisite capabilities and knowledge and to that end we are working to establish systems that support employees autonomous learning—via online training sessions, e-Learning, etc.—and systems that develop capabilities, for example career-stage-specific training. In addition to transitioning in June 2020 to a new, telework-based workstyle that gives employees more freedom with regard to how and when they work at DyDo DRINCO, the Group’s core company, we’ve worked to accommodate the diversification of values as regards workstyles, for example by introducing second jobs and second job acceptance programs in September 2020. In March 2022, we moved to a super-flex system in which we have no core working hours, and we have amended our rules to reflect employee feedback on new workstyles. These new rules will allow employees to choose individually whether to commute to work or to telework (attending the office once a week). In this way, we are responding to the diversification of workstyles and promoting initiatives that will aid the hiring and training of autonomous professionals with a diverse range of knowledge, values, and skills as a way to foster innovation. Principle 2.6 Content of human resources and operational practices implemented to ensure expected functioning of corporate pension funds as asset owners Because the management of corporate pension funds impacts stable asset formation for employees and our own financial standing, we ensure that potential conflicts of interest between pension fund beneficiaries and our company are appropriately managed by entrusting fund operation to a management institution and by receiving regular reports on the status of fund management and stewardship activities. However, with regard to the involvement of human resources and operational practices, as required by this principle and including recruiting or assigning outside qualified persons, discussion of this issue will be revisited in the future as warranted based on careful monitoring of developments. Principle 3.1 Full Disclosure (1) Company objectives (e.g., business principles), business strategies and business plans The Group established a Group Philosophy, Group Vision, and Group Slogan in 2014 in a concerted effort to facilitate sustained future growth in the face of substantial changes in the environment in which its Domestic Beverage Business operates. The Group Philosophy (“Creating happiness and prosperity, together with people and with society. To achieve this goal, the DyDo Group will continue to embrace new challenges in a dynamic way.”) carries on the spirit of striving to achieve happiness and prosperity together that the Group has cultivated since its founding. In January 2019, the Group adopted Group Mission 2030, which summarizes its vision for 2030 as “for DyDo Group to create enjoyable, healthy lifestyles for people around the world.” We see our mission as contributing to the realization of the future envisioned by the SDGs through our businesses, which will facilitate a sustainable society that will in turn make possible our sustained growth. The spirit of striving to achieve happiness and prosperity together dove-tails perfectly with the SDG principle of “leaving no one behind.” As we look towards 2030, we will strive to contribute to the realization of a sustainable society in which the people of the world can live happy, healthy lives, and to achieve the Group’s sustained growth and improve its corporate value over the medium and long term by creating social, environmental, and economic value. The Group Mission 2030 describes the Group’s philosophy and vision, sets forth four themes that define the mission it believes it should achieve by 2030, and offers a roadmap for its achievement. Specifically, it divides the years leading up to 2030 into three phases (a platform-strengthening and investment stage, a growth stage, and an achievement stage) by means of which we will develop a business portfolio with high growth potential, profitability, and efficiency and build highly competitive business models by pursuing business strategies that correspond to each stage. The five-year Mid-term Business Plan 2026, of which FY2022 is the first year, forms the growth stage as we work to leap forward. We will be focusing on renewing growth in the Domestic Beverage Business, and plan to foster growth from a long-term perspective. (2) Basic Approach and Policy Regarding Corporate Governance “DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.” Our corporate philosophy inspires us in our ongoing quest to ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations. It motivates us to constantly improve management efficiency and transparency, and to promote the group’s mutual benefits with all of our stakeholders, including our customers, our employees, our business partners, our communities, and our shareholders. It is the very cornerstone of our corporate governance, which is geared toward generating sustainable growth and improving corporate value over the medium- to long-term. The core business of the DyDo Group is Domestic Beverage Business, and considering the fact that approximately 80% of our sales for this segment come from vending machines in the local community, it is fair to say that our soft drink products are a familiar part of consumers’ everyday lives. Moreover, our operations are conducted under a “fabless management” system, which means we have no plants of our own and instead work in close cooperation with producers and distributors nationwide, to whom we outsource the manufacture and delivery of our products. We concentrate our resources on more specific roles, such as product planning and development, and vending machine operations. We have one of the most extensive networks of vending machines in Japan, maintained by DyDo Group employees and the “Kyoeikai” (special vending machine operators that handle DyDo products). As such, we believe “happiness and prosperity together with people and society as a whole” is more than just a nice phrase for a corporate philosophy—it is our duty, and the overriding objective of our business activities. To that end, our “dynamic efforts” are founded on bedrock of corporate governance, a steadfast platform of transparent, fair, swift, and bold decision-making. Moreover, we continually work to improve that foundation in order to contribute to the benefit of our shareholders. The President and Representative Director, Tomiya Takamatsu is a member of the family that founded the Company and a major shareholder who holds shares of the Company directly and through asset management companies under his direct control. (See “2. Capital structure” for more information concerning major shareholders) He directs the Company’s management through swift and bold decision-making, and a management stance characterized by a medium- and long-term perspective that is based on stakeholders’ positions. In keeping with our recognition that ensuring transparency and fairness in the decision-making process is imperative in order to implement effective corporate governance at the Company, we have chosen to structure the Company as a company with a Kansayaku Board. In this organizational structure, auditors have investigative authority under applicable laws and regulations to audit directors’ performance of their obligations and responsibilities. By filling three of the four seats on the Kansayaku Board with outside corporate auditors (three of which are independent outside corporate auditors), we have sought to strengthen the ability of auditors to oversee the Company’s management from an independent perspective. Furthermore, we have elected independent outside directors to the Board of Directors since April 2014 in order to incorporate outside perspectives into our management and enhance the Board’s ability to supervise the Company’s operations. We are making progress on appointing outside directors with diverse backgrounds in line with the development of management strategy and changes in society, while also working to increase the accountability of top executives and transparency. As of April 15, 2022, four of the seven seats on our Board of Directors are occupied by independent outside directors, with the result that independent outside directors account for 57.1% of the Board of Directors. (3) The 16th Annual General Meeting of Shareholders imposed a limit of 280 million yen per year on director compensation (not including the portion of compensation paid as employee salary) on April 18, 1991, while the 32nd General Meeting of Shareholders imposed a limit of 40 million yen per year on auditor compensation on April 18, 2007. Furthermore, at the 41st General Meeting of Shareholders on April 15, 2016, it was determined that a new trusteed performance-based stock compensation system for relevant directors, separate to the compensation detailed above, and set a total upper limit of 550 million yen. The decision-making policy for director compensation and related matters was determined by the Board of Directors on March 4, 2022. For more details, please see the section on policies on amount of compensation or the method used to calculate compensation The retirement benefit program for officers was abolished for directors and auditors at the 39th Annual General Meeting of Shareholders, which convened on April 16, 2014. Directors and auditors who continued to serve following the conclusion of that meeting are eligible to receive the retirement benefits they earned during their service before the program was abolished, with the specific amount, timing, method of presentation, and other terms to be determined by the Board of Directors (for directors) or Kansayaku Board (for auditors). (4) Board policies and procedures in the appointment of the senior management and the nomination of directors and kansayaku candidates; Our policies require the election of individuals who possess extensive knowledge of the Company’s operations and who excel in character, knowledge, and energy as candidates for managing director positions, and of individuals who possess specialized knowledge and extensive experience along with the ability to contribute to the enhancement of our corporate governance, for example by offering advice as appropriate concerning decision-making by the Board of Directors from an independent perspective or by providing highly effective supervision of the Company’s executive team, as candidates for outside director positions. Similarly, our policies require the election of individuals who possess extensive expertise and experience as specialists in areas such as finance, accounting, or law and who can carry out audits from a highly independent and broad perspective as candidates for external auditor positions. The key consideration in nominations of individuals to fill top executive positions is the ability to exercise strong leadership and direction over the Company’s management through prompt and decisive decision-making, a management stance characterized by a medium- and long-term perspective, and consideration of stakeholders’ positions. (5) Policies and Procedures with respect to the dismissal of corporate executives In order to increase accountability of corporate executives and, thereby, further promote transparency, four of the seven members of the Board of Directors are independent outside directors. In the unlikely event that a situation arises which is deemed objectively worthy of dismissal, such as legal or corporate by-law violations by corporate executive which significantly harm the value of the company, a decision will be made after thorough discussion by the Board of Directors with independent, outside directors in attendance. (6) Explanation of individual nominations and appointments based on (4) Details of the reasons for the selection of each candidate are detailed on the notice of convocation. Details for directors to be appointed on April 15, 2022, are as follows. Tomiya Takamatsu Since his appointment to the position of President in April 2014, Mr. Takamatsu has demonstrated strong leadership by managing the Company with rapid, decisive decision-making in line with its medium- and long-term management posture based on the perspective of all stakeholders and in keeping with the newly formulated Group Philosophy and Group Vision. He has been steadily working to build business foundations geared to achieving growth in the future which has involved strengthening the Group’s management. Based on this proven track record, he is considered to be qualified for service on the Board of Directors. Naoki Tonokatsu Since joining the Company, Mr. Tonokatsu has engaged in finance for many years and has extensive experience and achievements. Currently, as the Director, Corporate Officer, and General Manager of Finance Department, he is putting effort into sound company management such as by building a solid structure for the entire Group’s financial base and contributing to improving profitability. Based on this proven track record, he is considered to be qualified for service on the Board of Directors. Naoyuki Nishiyama Mr. Nishiyama has engaged in a wide range of duties covering overall management such as corporate strategy, strategic investment, and international business and has extensive experience and achievements. Currently, he is leading Group companies as the Director, Corporate Officer, and General Manager of Corporate Strategy Department and pursuing initiatives to expand into new business domains. Based on this proven track record, he is considered to be qualified for service on the Board of Directors. Shinji Mori (outside director) Mr. Mori has extensive experience and an advanced level of specialized knowledge as an attorney, and he has served the Company as an Outside Corporate Auditor and as an Outside Director. Based on that experience, he is appropriately carrying out his role in strengthening the oversight function of the Board of Directors by commenting on the Company-wide approach to risk management, and otherwise offering advice and suggestions as to the Company’s management from an independent perspective. Based on this proven track record, he is considered to be qualified for service on the Board of Directors. Although Mr. Mori has not been involved in corporate management in a manner other than that of being an outside director/corporate auditor of the Company and other companies in the past, the Company has judged that he will be able to appropriately carry out his duties as Outside Director for the above reasons. *We have submitted filings to the Tokyo Stock Exchange designating Mr. Mori as an independent outside director. Masataka Inoue (outside director) Mr. Inoue has a wealth of knowledge and overseas experience in the food industry. Based on his auditing experience in areas such as business development through overseas M&As and overseas subsidiaries, he is appropriately carrying out his role in strengthening the oversight function of the Board of Directors by commenting with respect to his viewpoint on risk and returns in the course of deliberations concerning such management issues of the Company as accelerated development of the Company’s business overseas and expanding into new business domains, and otherwise offering advice and suggestions from an independent perspective. Based on this proven track record, he is considered to be qualified for service on the Board of Directors. *We have submitted filings to the Tokyo Stock Exchange designating Mr. Inoue as an independent outside director. Michiaki Kurihara (outside director) Michiaki Kurihara possesses extensive expertise and experience in the pharmaceutical industry. The Company believes he will be able to further strengthen the oversight function of the Board of Directors by offering advice and suggestions from an independent perspective concerning the development of its businesses overseas and of a second pillar in the healthcare domain, both of which are key management priorities, based on his business and other experience in the domestic pharmaceuticals business and with overseas subsidiaries. Based on this proven track record, he is considered to be qualified for service on the Board of Directors. * We have submitted filings to the Tokyo Stock Exchange designating Mr. Kurihara as an independent outside director. Junko Kawano (outside director) Junko Kawano has a wealth of knowledge and experience in human resources development, including consistent involvement in organizational culture reform to emphasize customer value and the promotion of the advancement of women. We believe that she will be able to further strengthen the supervisory function of the Board of Directors by providing advice and recommendations from an independent standpoint on the promotion of human resources strategy and diversity, which form the foundation of the Group’s sustainability management. * We have submitted filings to the Tokyo Stock Exchange designating Ms. Kawano as an independent outside director. Supplementary Principle 3.1.3 Sustainability Initiatives (Disclosure of the Sustainability Initiatives That Form Part of Our Management Strategies) The Group formulated the Group Mission 2030—“For DyDo Group to create enjoyable, healthy lifestyles for people around the world.”—to explain where, and what, it wants to be by incorporating issues previously identified and analyzing changes to domestic population trends and other medium- and long-term changes in the business environment as either risks or business opportunities that will exert a serious impact on its business model. We see our mission as contributing to the realization of the future envisioned by the SDGs through our businesses, which will facilitate a sustainable society that will in turn make possible our sustained growth. The spirit of striving to achieve happiness and prosperity together dove-tails perfectly with the SDG principle of “leaving no one behind.” As we look toward 2030, we will strive to contribute to the realization of a sustainable society in which the people of the world can live happy, healthy lives; to achieve the Group’s sustained growth; and to improve its corporate value over the medium and long term. (Investments, etc., in human capital and intellectual properties) Reflecting our belief that investment in “invisible assets” like human resources is a key part of achieving sustained growth and increasing our corporate value over the medium and long term, we are strengthening our personnel management system from the three perspectives of securing human capital, fostering the development of human resources, and assigning and transferring human resources. The COVID-19 pandemic has led to dramatic changes in society—including shifts in consumer values and behavior, and the rapid development of the digital transformation (DX)—and we believe that this presents a new business opportunity for future growth. With this in mind, we are making progress with initiatives aimed at hiring, retaining, and training autonomous professionals with a diverse range of knowledge, values, and skills as a way to foster innovation. In the Domestic Beverage Business, the Group’s core business, we must also lead the industry in workstyles at vending machine operations sites to establish a solid advantage in the vending machine market. To this end, we are steadily working to develop our smart operation structure by utilizing cutting-edge technologies. By fusing our strengths in vending machine operational expertise with digital technologies, we are working to create value, while at the same time, we will aim to achieve sustainable growth in the vending machine business by diversifying workstyles in response to a declining working population in the future. (Enhancing disclosure quality and quantity based on the TCFD’s recommendations and other high-level frameworks) In recent years, changes in the way stakeholders evaluate corporate attitudes toward environmental issues such as climate change, and new values in the market, have a major impact on how consumers choose products and services. To curtail the likelihood of climate change, systems of laws and regulations—such as those that aim at rationalizing energy usage on a global scale and measures to combat global warming—are being strengthened. Climate-change-related physical risks that affect the supply chain, including the loss of clean water resources, its impact on coffee and other raw materials, and damage to manufacturing facilities from large-scale natural disasters, are growing. Therefore, we recognize that responding to climate change, and the major issue it presents global society, is an important factor for our management in achieving sustainable growth for the Group. We have put contributing to a decarbonized, recycling-oriented society as one of the Group’s material issues, and in January 2022 we declared our support for the Task Force on Climate-related Financial Disclosures (TCFD). We have also set ourselves groupwide CO2 emissions reduction targets. The TCFD’s recommendations suggest disclosing information in four categories: governance, risk management, strategy, and metrics and targets. Based on our TCFD framework, we detail the following climate-related information. https://www.dydo-ghd.co.jp/en/sustainability/eco/tcfd/ Supplementary Principle 4.1.1 Scope of authority delegated to the executive team by the Board of Directors Our Board of Directors is the body with decision-making authority over important matters related to the Company’s operations and responsibility for supervising those operations. The specific matters over which it has decision-making authority and the reporting requirements to which it is subject are set forth in our Board of Directors Rules. The Management Meeting, whose membership consists of full-time directors and corporate officers, serves as an advisory body for the president by proposing policies and plans related to the overall management of the Company and by investigating, researching, planning, managing, communicating, and coordinating the same. As part of our transition to a holding company structure in January 2017, we transferred authority for certain operations to group companies in order to accelerate decision-making and stimulate robust deliberation about group strategy, business plans, and other topics by the Board of Directors. We set forth a series of new, specific standards by revising applicable provisions of the Board of Directors Rules, Management Meeting Rules, Management Authority Rules, and other documents. Principle 4.8 Effective Use of Independent Directors Principle 4.9 We have elected two independent outside directors to the Board of Directors since April 2014 in order to incorporate outside perspectives into our management and enhance the Board’s ability to supervise the Company’s operations. In this way, we’re working to increase the accountability of top executives and to increase transparency. We are also making progress on appointing outside directors with diverse backgrounds in line with the development of management strategy and changes in society. As of April 15, 2022, four of the seven seats on our Board of Directors are occupied by independent outside directors, with the result that independent outside directors account for 57.1% of the Board of Directors. Independence Standards and Qualification for Independent Directors The Company has established the following standards to govern the independence of its Outside Directors/Corporate Auditors. 1. Candidates may not be an individual with responsibility over operations (*1) of the DyDo Group; 2. Candidates may not have the DyDo Group as a major business partner (*2) or be an individual with responsibility over operations of a company that has the DyDo Group as a major business partner; 3. Candidates may not be a major business partner of the DyDo Group, or an individual with responsibility over operations of a major business partner of the DyDo Group; 4. Candidates may not be a consultant, accounting specialist, or legal specialist who receives a large amount of money (*3) or other assets apart from officer compensation from the DyDo Group; 5. Candidates may not be a trustee or an individual with responsibility over operations of an organization that receives donations or subsidies in excess of a certain amount (*4) from the DyDo Group; 6. Candidates may not be a major shareholder of the Company (*5) or an individual with responsibility over operations of a major shareholder of the Company; 7. Candidates may not be an individual with responsibility over operations of a certain other company if an Executive Director or full-time Corporate Auditor of the Company is concurrently serving as an outside director or outside corporate auditor of that company; 8. Candidates must not have fallen under the statuses described in 1 through 7 above at any time during the last three years, and; 9. Candidates must not be a close relative (*6) of an individual who falls under any of the statuses described in 1 through 8 above (however, this applies only to an individual deemed an important employee (*7) with respect to an employee described in 1 above). *1 In this context, an individual with responsibility over operations refers to an Executive Director or executive officer of the Company, or another company’s company officer with responsibility over that company’s business operations, or individuals or employees with the same responsibilities. *2 In this context, a major business partner refers to a business partner whose payments or receipts with respect to transactions with the DyDo Group have exceeded 2% of its total annual consolidated net sales during the most recent fiscal year. *3 In this context, a large amount of money refers to an amount, when averaged over the last three years, that is ¥10 million or more per year (for individuals), or, over 2% of an organization’s consolidated net sales when averaged over the last three fiscal years (for organizations). *4 In this context, a certain amount refers to an amount, when averaged over the last three fiscal years, that is either ¥10 million per year or 30% of the average annual total expenses of the organization, whichever is larger. *5 In this context, a major shareholder of the Company refers to a shareholder who directly or indirectly holds 10% or more of voting rights of the Company. *6 In this context, a close relative refers to a spouse, a relative within the second degree of kinship, or a relative residing in the same household. *7 In this context, an important employee refers to an employee of the rank of General Manager or above. Principle 4.10 Use of Optional Approach On March 15, 2019, the Board of Directors approved the formation of an Advisory Board consisting of roughly three outside experts not currently serving as outside directors or corporate auditors as a voluntary mechanism to further enhance its corporate governance. In addition to offering assessments and advice from an objective perspective concerning issues that demand a high level of specialized knowledge, for example investment decisions related to the orphan drug business, the Advisory Board, which will advise the president, is intended to further boost the transparency of the Company’s management by incorporating outside perspectives into the execution of strategy, for example by offering advice concerning management issues faced by the Group. Supplementary Principle 4.10.1 Nominating and Compensation Committee Meeting on August 30, 2021, the Board adopted a resolution to establish a Nominating and Compensation Committee. Role and authority of the Committee The Committee will play its role as a voluntarily established advisory body to the Board by exercising its authority to discuss the matters listed below and report its findings to the Board in response to consultation requests. The Board will respect the findings of the Committee to the greatest extent possible. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Matters related to the appointment and dismissal of directors Matters related to the selection and dismissal of the representative director Matters related to the selection and dismissal of executive directors Mattes related to upper limits on compensation and other remuneration awarded to directors Matters related to policies for determining compensation and other compensation awarded to individual directors Matters related to compensation and other compensation awarded to individual directors Matters related to succession planning (including training) Matters related to policies for nominating directors Matters related to policies for nominating representative directors of important subsidiaries Other matters as deemed necessary by the Board of Directors Approach to independence in the composition of the Committee The Committee will consist of at least three directors as selected by resolution of the Board, and a majority of its members must be independent outside directors. To ensure the transparency and objectivity of discussions and bolster the Committee’s independence, a member who is an independent outside director will be selected to serve as its chairperson. Supplementary Principle 4.11.1 Approach to the overall balance of knowledge, experience, and skill as well as the diversity and size of the Board of Directors Our Articles of Incorporation require seven or fewer directors and four or fewer auditors. Currently, our Board of Directors consists of seven seats. We believe this size maintains the potential for meaningful deliberation while bringing together members with different backgrounds in terms of characteristics such as expertise and experience, for example directors who possess extensive knowledge of the Company’s businesses as well as outside directors who can help enhance the Company’s corporate governance by offering highly effective oversight of the executive team and advice concerning appropriate decision-making by the Board from an independent perspective. Collectively, the Directors possess the necessary skill-set and diversity to address the challenges involved in implementing the basic policies of the Group Mission 2030, i.e., innovation in the Domestic Beverage Business, expansion in overseas business development and development of a second major source of revenue through non-drink businesses, and we believe that the current structure of the Board, of which four out of seven members—more than half—are independent outside directors (one of whom is female), allows us to ensure an additional level of independence and objectivity. Moreover, we compile a skill matrix—a chart showing the knowledge, experience, specialties, etc., expected of our directors—and disclose this information when proposing new directors and on notices of convocation for the General Meeting of Shareholders, as well as in our Integrated Report. Our Kansayaku Board consists of four seats, of which three are occupied by outside corporate auditors (and one of which is occupied by a woman). These corporate auditors provide independent oversight of the manner in which directors carry out their obligations and responsibilities. Supplementary Principle 4.11.2 Concurrent service by officers of other listed companies on the Company’s Board of Directors or Kansayaku Board We disclose information about concurrent service by officers of other listed companies on the Company’s Board of Directors or Kansayaku Board on an annual basis in notices of convocation of the General Meeting of Shareholders, securities reports, and corporate governance reports. As of April 15, 2022, one of the Company’s four outside directors also serves as an external auditor at a listed company, while one other serves as a director at a listed company. In addition, one of the Company’s three outside corporate auditors also serve as outside directors on the audit and supervisory committee of a listed company. Supplementary Principle 4.11.3 Analysis and evaluation of the overall effectiveness of the Board of Directors and overview of the results of the same We have evaluated the effectiveness of the Board of Directors since FY2016, and we adopted the following analysis/evaluation method in FY2021. We released an overview of those evaluation results on March 15, 2022. 1. Analysis/Evaluation Method In order to analyze and evaluate the effectiveness of the Board of Directors, during the period between December 2021 and March 2022, all directors and auditors carried out a self-evaluation survey, and individual interviews were carried out by the Secretariat of the Board of Directors. After that, at a meeting of the Board of Directors that was held on March 15, 2022, in addition to analyzing the results of the self-evaluation surveys, and in an attempt to enhance awareness regarding present problems, constructive discussions were held regarding these matters and future efforts to realize a higher level of effectiveness for the Board of Directors. 2. Evaluation Items The self-evaluation form used the following headings to facilitate a review of the nature of discussions held by the Board as well as how the body dealt with issues over the last year. (1) Agenda and operations of the Board of Directors (2) Operations of the Board of Directors over the medium and long term in light of the Group Mission 2030 (3) Other (issues related to the strengthening of governance structures, etc.) 3. Overview of Analysis/Evaluation Results A discussion based on our analysis of the self-evaluation results concluded that the Board of Directors is functioning effectively. Improvements in Board of Directors operations during FY2021 To formulate Mid-term Business Plan 2026, in addition to discussions at the Board of Directors, there were separate opinion exchanges for topics such as human resources strategy and international business strategy. Moreover, we have had an outside director with a wealth of experience and knowledge about the highly specialized medical-use pharmaceuticals business give medical study seminars. In these and other ways, we have worked to invigorate communication between outside directors and auditors and the directors responsible for executing management duties, and to enhance debates. In August 2021, we established the Nominating and Compensation Committee, more than half of the members of which are independent outside directors. Through this committee and other measures, we are putting in place systems that appropriately oversee initiatives related to succession plans for the next generation of executive leadership and securing personnel. Furthermore, with regard to investment in the orphan drug business, our new business sector, we have made it clear that we recognize the need to enhance deliberations based on more detailed information, considering the importance of the sector. Moreover, the future issues that relate to bolstering the functions of the Board of Directors and further improving its effectiveness, are as follows: (1) We are promoting greater understanding by outside directors of our businesses by having them visit and monitor worksites and other measures. We also have face-to-face discussions when making important suggestions. Through these and other effective hybrid management methods that take into account living with COVID-19, we will further enhance deliberations. (2) We will collaborate with the Nominating and Compensation Committee to strengthen human resources strategy, such as cultivating the next generation of executive leadership and promoting diversity. (3) We will promote more detailed management reference documents, including those related to ROIC, which we have newly set as a financial KPI. (4) We will appropriately oversee initiatives and the status of major KPIs related to sustainability issues—those issues considered material issues—that impact on our realization of the goals of Group Mission 2030. (5) In the orphan drug business, we will appropriately monitor the progress of existing drug development seeds and carry out sufficient discussions as a prerequisite before deciding on investments. [Reference] Issues identified last year Future issues to address in order to boost the effectiveness of the Board of Directors (as announced March 15, 2021) (1) The Board needs to create new opportunities for communication and further deepen discussions on the nature of the company’s business portfolio and on the direction of its investment strategy as the company prepares to formulate the next mid-term business plan. (2) The Board needs to ensure appropriate oversight of the status of initiatives related to the hiring, retention, and training of human resources with the skills necessary to implement the succession plan that will orchestrate the transition to a new generation of executive leadership and the company’s international business strategy. (3) In addition to working to strengthen management and auditing structures to accommodate the expansion of our international businesses, the Board needs to develop more sophisticated management techniques, for example by establishing KPIs that accommodate growth in our business domains. (4) With regard to the composition of the Board of Directors over the medium and long term, we need to continue to study how to appoint even more diverse human resources in response to progress in our management strategy and changes in society. Supplementary Principle 4.14.2 Policies on the training of directors and auditors We provide opportunities for directors and auditors, including outside directors and external auditors, to gain necessary knowledge about the Company’s businesses, financials, organization, and other characteristics and to develop an understanding of the roles and responsibilities of directors and auditors when they assume their positions. We also offer top executives, defined as individuals serving in positions at the corporate officer level and above, opportunities to gain knowledge about corporate legal affairs, accounting, corporate governance, capital markets, and other topics and to keep their knowledge up to date. Principle 5.1 Policy for Constructive Dialogue with Shareholders (1) DyDo Group Holdings strives to achieve sustained growth and increased corporate value over the medium and long term by promoting constructive dialog with stakeholders. By giving overall responsibility for dialog with stakeholders to the president and having the general manager of the Corporate Communications Department (Information Management Officer) pursue dialog with specific purposes, the Company strives to build trust with structures that bring stakeholder voices to bear on its management. (2) The Corporate Communication Department works closely with other involved departments to facilitate smooth dialog with shareholders and investors by holding meetings as necessary. In addition, the head of the department attends meetings of the Board of Directors, Management Meeting, Boards of Directors of important subsidiaries, and other groups in an effort to maintain a timely understanding of information about the Group’s management. Furthermore, we hold multiple meetings that are attended by the president and corporate officers with relevant areas of authority, including quarterly financial briefings and briefings on important developments such as mergers and acquisitions, and we carefully study how to best offer easy-to-understand explanations to shareholders and investors. (3) Means by which we facilitate dialog apart from individual meetings include financial briefings conducted by the president for institutional investors following the end of the second quarter and the end of the fiscal year as well as small meetings that are attended by the president. In addition, we also focus on pursuing a proactive program of IR activities such as individual visits by the corporate officer in charge of the Corporate Communication Department in order to build smooth relationships with shareholders and investors. IR activities for individual investors include online information sessions, as well as website content such as videos. As a tool to communicate with all shareholders, we publish the DyDo Challenge newsletter (Japanese Only) twice a year and, in response to the wishes of those shareholders who are unable to attend the General Meeting of Shareholders in Osaka, we hold an information session featuring the President of DyDo as a speaker in Tokyo, as well as factory tours and other information sessions for each of our businesses (although face-to-face meetings were cancelled in FY2020 and FY2021). (4) We strive to reflect feedback from shareholders and investors in the Company’s management by regularly reporting views and concerns that emerge from dialog with shareholders and investors to the Board of Directors and by providing more detailed information to the president as feedback. (5) We strive to comply with fair disclosure practices by managing insider information during dialog with shareholders and investors in an appropriate manner that conforms with internal rules. Rules require that meetings with individual shareholders and investors be attended by more than one employee, and meeting minutes are shared with top management and division directors. In keeping with our Disclosure policy, we avoid individual meetings with shareholders and investors during quiet periods. In addition, the Audit Department regularly monitors implementation of the Disclosure Policy and structures designed to ensure the timely disclose of information. 2. Capital structure [Major Shareholders] Percentage of shares owned by foreigners Less than 10% Shareholder name Number of shares Percentage of voting rights (%) HighWood Co. Ltd. Santomi Japan Trustee Services Bank,Ltd. (Trust Account) Taita Corporation Tomihiro Takamatsu Tomiya Takamatsu Akira Takamatsu Lemon gus Kagoshima,Ltd. Custody Bank of Japan, Ltd. (Trust Account) Lemon gas Kumamoto Ltd. Controlling shareholders (except parent company) — Parent company None Supplemental explanation for this item 2,470,800 2,011,600 884,200 638,000 495,000 495,000 494,000 250,000 231,400 223,400 15.54 12.65 5.56 4.01 3.11 3.11 3.10 1.57 1.45 1.40 ― 3. Corporate attributes End of fiscal year Industry Listed stock exchange and market segment Tokyo, Prime January Foods Number of employees (consolidated basis) at end of last business year More than 1,000 Consolidated sales during last business year From 100.0 billion yen to less than 1 trillion yen Number of consolidated subsidiaries at end of last business yea