Basic Policy Regarding Corporate Governance


Chapter 1: General rules

Objectives

Article 1
The objectives of this policy shall be to achieve an effective corporate governance as a system for transparent/fair and prompt/bold decision-making that gives due consideration to the situation regarding shareholders / suppliers / employees / local communities (hereinafter referred to as "Stakeholders"), in order to aim for sustainable growth of Takihyo Co., Ltd. and to improve its medium- and long-term corporate value.

Basic way of thinking with regard to corporate governance

Article 2
  1. Our company shall always endeavor to achieve effective corporate governance, and continuously work toward the fulfillment of same.
  2. Our company shall work toward the fulfillment of corporate governance mainly from the following viewpoints:
    • (1)We shall respect the rights of Stakeholders and ensure equality;
    • (2)We shall take into consideration the interests of Stakeholders, including shareholders, and cooperate appropriately with those Stakeholders;
    • (3)We shall disclose company information appropriately and ensure transparency;
    • (4)We shall involve independent outside directors in important matters such as the appointment of candidates to be directors and remuneration for directors, and shall make the supervisory function with regard to the execution of business by the Board of Directors effective.
    • (5)We shall have constructive dialog with shareholders who have an investment policy that matches the medium- and long-term interests of shareholders.

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Chapter 2: Ensuring the rights/equality of shareholders

General meetings of shareholders

Article 3
  1. Our company shall deliver notices of the convocation of shareholders early and disclose such notices of convocation on this website immediately after delivery of same, in order to ensure a sufficient period of time for shareholders to examine the agenda items of general meetings of shareholders and be able to exercise their voting rights appropriately.
  2. Our company shall announce on this website the matters set forth in the notice of convocation between the resolution of the Board of Directors with regard to the general meeting of shareholders and the delivery of the notice of convocation.
  3. Our company shall as far as possible avoid dates when many other companies hold shareholders meetings when we decide to hold general meetings of shareholders.
  4. Our company shall endeavor to maintain an environment in which all shareholders, including shareholders who are not present at general meetings of shareholders, will be able to exercise their voting rights appropriately.

Ensuring the equality of shareholders

Article 4
Our company shall treat shareholders equally in accordance to their equity interest, and disclose information in a timely and appropriate manner in order to prevent information gaps from arising.

Response policy with regard to large-scale purchases of our company's shares

Article 5
  1. From the viewpoint of ensuring and improving our company's corporate value and in turn the common interests of our shareholders, our company has introduced anti-takeover measures by which any person who intends to make a large-scale purchase of our company's share certificates, etc. is required to submit certain information with regard to such purchase, and which enable requiring the securing of a period of time for our company's Board of Directors to examine such purchase offer, negotiate with the purchaser, and if necessary present an alternative proposal to shareholders, so as that shareholders will be able to judge appropriately whether or not to accept such purchase.
  2. The introduction of such anti-takeover measures was carried out by obtaining approval at a general meeting of shareholders after thorough examination of their necessity and rationality at meetings of the Board of Directors and of the Board of Auditors, and the same procedures are followed when they are due for renewal every three years. Furthermore, with regard to the operation of such anti-takeover measures, the stipulated rules shall be complied with, thorough examination shall be conducted at meetings of the Board of Directors and of the Board of Auditors in the light of the objectives set forth in the previous clause, and disclosures shall be made to shareholders in a timely and appropriate manner.

Basic policy regarding the exercising of voting rights pertaining to cross-shareholding of shares and to cross-shareholding shares

Article 6
  1. Our company may acquire and hold shares of its clients in order to build good business relationships with them and promote business smoothly.
  2. With regard to the major shares among the shares of its clients, our company shall verify the objectives/rationality of holding them on the basis of their returns and risks, explain the objectives/rationality of holding with regard to shares that will continue to be held, and sell shares besides those promptly while closely watching share prices and market trends.
  3. When exercising voting rights pertaining to shareholdings, our company shall consider separately whether they will contribute to improving the medium- and long-term corporate value of companies of which our company holds shares and our company's medium- and long-term corporate value, and decide to approve or disapprove agenda items on the basis of the results.

Transactions between related parties

Article 7
In the event that a problem pertaining to conflict of interest between our company's officers and major shareholders arises, pursuant to the "Rules of the Board of Directors", it must be reported to the Board of Directors promptly and approval of the Board of Directors must be obtained.

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Chapter 3: Appropriate cooperation with Stakeholders

Ethical standards

Article 8
With regard to appropriate cooperation with Stakeholders, respecting their interests, and sound corporate activity, our company shall, on the basis of its management philosophy/management principles, separately stipulate and disclose ethical guidelines/rules of conduct, etc. with which our directors, executives, employees, etc. must comply.

Securing in-house diversity

Article 9
Our company shall recruit diverse human resources regardless of gender/nationality/age, develop them and secure opportunities for them to use their skills, on the basis of an awareness that leveraging diverse viewpoints and sets of values is necessary for sustainable growth and the improvement of the medium- and long-term corporate value.

Appropriate operation of an internal reporting system

Article 10
  1. As a point of contact for employees for consultations or reporting with regard to organizational or individual breaches of laws, violations of company regulations, etc., our company shall establish "Takihyo Hot Line", for which a third party that is independent from our company will be the point of contact.
  2. Pursuant to the provisions of the "Rules for Handling Internal Reporting", our company shall not subject reporters to any disadvantageous handling. Furthermore, the names of reporters shall be concealed in response to their requests.
  3. The departments responsible for legal affairs / compliance shall endeavor to verify the details of reports objectively, take measures to correct breaches and to prevent recurrence according to their materiality, and report to the Board of Directors.

Approach to sustainability

Article 11
In order to achieve sustainable growth and the improvement of medium- and long-term corporate value, our company shall respect the interests of various Stakeholders, give appropriate consideration to the sustainability of the environment and society, and contribute to it actively, in all processes pertaining to our company's business activity.

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Chapter 4: Ensuring appropriate information disclosure and transparency

Disclosure of basic policy regarding corporate governance

Article 12
Our company shall pass resolutions on and disclose "Basic Policy Regarding Corporate Governance" (hereinafter referred to as "this Basic Policy") through meetings of the Board of Directors. Furthermore, in the event that this Basic Policy is revised, the details shall be disclosed in a timely and appropriate manner.

Disclosure of policies regarding risk management, internal control systems, etc.

Article 13
Pursuant to the Companies Act and other laws, the Board of Directors shall decide our company's policies regarding risk management, internal control systems, legal compliance, etc. for our company and for the corporate group that includes our company, and shall disclose them in a timely and appropriate manner.

Disclosure of management principles / business plans, etc.

Article 14
In accordance with the Companies Act, with the Financial Instruments and Exchange Act, with other laws and with the regulations of securities exchanges, the Board of Directors shall disclose matters regarding management principles, business plans, finance and the execution of business in a timely and appropriate manner.

Securing a proper environment for the execution of audits by external auditors

Article 15
  1. The Board of Auditors shall appoint and evaluate external accounting auditors on the basis of the following criteria laid down by the Board of Auditors, and confirm that such external accounting auditors have expertise and independence based on applicable laws such as the Certified Public Accountants Act and the Financial Instruments and Exchange Act.
    • (1)The validity of the basic policy with regard to audit work, and validity of the important audit items;
    • (2)The validity of the number of members, the experience, etc. of the team that will carry out the audit work, and the validity of the support system for audits;
    • (3)The validity of the number of days for the audit work and of the concrete method for carrying out the audit, and the rationality of the services included in the audit contract;
    • (4)The validity of the estimate for the audit fees and of the estimation method, and the rationality of the method for making changes to fees to accompany changes to the number of days for the audit and the target areas for the audit;
    • (5)The record of performance of audits from the viewpoint of scale, type of industry, etc.
  2. In order to achieve proper execution of audits by external accounting auditors, the Board of Directors and the Board of Auditors shall maintain an in-house acceptance system from the following viewpoints, and appoint departments responsible for operational planning as points of contact in practice:
    • (1)Securing a sufficient period of time necessary to execute the audit work, securing places in which to work, and maintaining the necessary materials;
    • (2)The implementation of regular information exchange among external accounting auditors, the president (CEO) and directors responsible for finance, and the setting up of interviews with them if external accounting auditors require it;
    • (3)The implementation of regular information exchange among external accounting auditors, auditors and the internal audit department, and the securing of their cooperation if external accounting auditors require it;
    • (4)The securing of cooperation with outside directors if external accounting auditors require it;
    • (5)In the event that external accounting auditors point out problems and request correction, prompt reporting to the Board of Directors, the examination of concrete counter measures regarding consolidated risk management by meeting bodies, and decisions on counter measures at meetings of the Board of Directors.

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Chapter 5: Responsibilities of the Board of Directors as a supervising body

Roles of the Board of Directors

Article 16
  1. The Board of Directors shall be responsible for achieving effective corporate governance, and through that, for our company's achieving sustainable growth and working to improve medium- and long-term corporate value.
  2. In order to fulfill the responsibilities set forth in the previous clause, the Board of Directors shall ensure fairness/transparency of management by demonstrating its supervisory function for the overall management, and shall be responsible for conducting the best decision-making through decisions on the appointment of and remuneration for the president (CEO) and other members of management, the assessment of the risks that our company faces and the development of counter measures, and decisions on the execution of important businesses of our company.
  3. The Board of Directors shall stipulate important matters with regard to management in the "Rules of the Board of Directors" and the "Rules on Authorization for Decision", shall make judgments/decisions on these matters by themselves, and shall delegate other decision-making pertaining to the execution of business to directors and executive officers, for the purposes of prompt and flexible decision-making and the strengthening of the supervision of executive bodies by the Board of Directors.

Roles of independent outside directors

Article 17
The independent outside directors of our company shall assume the following roles and responsibilities
  • (1)They shall actively advise with regard to matters for decision by the Board of Directors on the basis of their own knowledge and experience, from the viewpoint of our company's sustainable growth and the improvement of medium- and long-term corporate value;
  • (2)They shall be involved in important decision-making, such as the appointment of candidates to be directors and remuneration for directors;
  • (3)They shall supervise with regard to issues pertaining to conflicts of interest, such as transactions between related parties;
  • (4)They shall reflect the opinions of Stakeholders, including minority shareholders, appropriately at meetings of the Board of Directors;

Chairpersons of meetings of the Board of Directors

Article 18
  1. Chairpersons of meetings of the Board of Directors shall endeavor to stimulate discussion at meetings of the Board of Directors, and to enable meetings of the Board of Directors to operate effectively and efficiently.
  2. In order to fulfill the responsibilities set forth in the previous clause, Chairpersons of meetings of the Board of Directors shall secure a sufficient period of time for all of the agenda items, and must give consideration so that each director will be able to obtain sufficient information with regard to each agenda item.

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Chapter 6: Effectiveness of the Board of Directors

Structure of the Board of Directors

Article 19
  1. In accordance with the Articles of Incorporation, the number of members for our company's Board of Directors shall be fifteen (15) or less, and two (2) of them shall be independent outside directors.
  2. The standards regarding the independence of our company's outside directors (hereinafter referred to as the "Independence Standards") shall be as follows, on the basis of "Standards for Independence" stipulated by the Tokyo Stock Exchange:
    • (1)Not currently falling under or having in the past one (1) year fallen under any of the following persons:
      1. (ⅰ)A client whose annual turnover with our company group exceeds 5% of our company's consolidated sales, or a director, executive officer, corporate officer, employee or other executor of business stipulated in Article 2, Clause 3, Item 6 of the Ordinance for Enforcement of the Companies Act (hereinafter referred to as the "Executors of Business") of same;
      2. (ⅱ)A client whose annual turnover with our company group exceeds 5% of its annual consolidated sales, or an Executor of Business of same;
      3. (ⅲ)A financial institution that our company group borrows from and is a lender for which the debt balance of our company group at the end of the business year exceeds 5% of the our consolidated total assets, or an Executor of Business of same;
      4. (ⅳ)An expert, such as an attorney, certified public accountant, tax accountant, or consultant, who has acquired money and other property from our company group other than officer’s remuneration that exceeds ten (10) million yen in a year. (In cases where the person who has acquired such property is an entity such as a corporate body or association, this shall refer to persons who belong to such entity).
    • (2)Not being a spouse or relative within the second degree of kinship of a person who falls under (ⅰ) or (ⅱ) of the following:
      1. (ⅰ)A person who is currently or has been in the past five (5) years a director, or executive officer, corporate officer, or an employee with a position of manager or above, of our group company, or another person equivalent to these;
      2. (ⅱ)A person who falls under any of the persons set forth in (ⅰ) to (ⅳ) of (1) above. (The above Executors of Business in (ⅰ) to (ⅲ) of (1) shall be limited to directors, executive officers, corporate officers, or employees with a position of manager or above, or to other persons equivalent to these.)

Qualifications of directors and nomination procedures

Article 20
  1. Directors of our company must be persons of outstanding personality, insight, and capabilities, and who have extensive experience and high ethical standards.
  2. Our company shall give consideration to the diversity of directors when deciding on candidates to be directors, on the basis of the idea that diversity of gender, age, nationality, skills, etc. will contribute to the achievement of effective corporate governance, the sustainable growth of our company and the improvement of medium- and long-term corporate value.
  3. The terms of office for all of directors of our company shall be two (2) years pursuant to the Articles of Incorporation, and their appointment shall be in accordance with a resolution of a general meeting of shareholders.
  4. Candidates to be directors shall be decided on at meetings of the Board of Directors, after judgment at a meeting of the nomination advisory committee, on the basis of this article.

Qualifications of auditors and nomination procedures

Article 21
  1. Auditors of our company must be persons of outstanding personality, insight, and capabilities, and who have extensive experience and high ethical standards. At least one (1) of our company's auditors must have appropriate knowledge and experience regarding finance/accounting.
  2. Our company shall give consideration to the diversity of auditors, on the basis of the way of thinking that diversity of gender, age, nationality, skills, etc. will contribute to the achievement of effective corporate governance.
  3. Candidates to be auditors shall be decided on at meetings of the Board of Directors, after judgment at a meeting of the nomination advisory committee and agreement of the Board of Auditors, on the basis of this article.

Establishment of a nomination advisory committee and remuneration advisory committee

Article 22
  1. Our company shall establish a nomination advisory committee and remuneration advisory committee as advisory committees for the Board of Directors.
  2. The nomination advisory committee and the remuneration advisory committee shall consist of the representative director and independent outside directors.

Nomination advisory committee

Article 23
The nomination advisory committee shall examine the details of agenda items of general meetings of shareholders regarding the appointment of directors and auditors before such agenda items are decided on, and shall advise the Board of Directors. Furthermore, it shall advise the Board of Directors with regard to the details pertaining to Independence Standards.

Remuneration advisory committee

Article 24
The remuneration advisory committee shall examine the details of policy regarding directors' remuneration, etc. and of individual remuneration, etc., and shall advise the Board of Directors.

Succession plans

Article 25
When the president (CEO) retires, the Board of Directors shall decide on candidates to be the successor to the president (CEO) on the basis of the opinions of the nomination advisory committee.

Responsibilities of directors

Article 26
  1. Directors must collect sufficient information to execute their duties and must discuss matters thoroughly, expressing their opinions actively.
  2. Directors shall demonstrate the capabilities expected of them, spend sufficient time for the sake of our company, and execute their duties as directors.
  3. On taking up their office, directors of our company must understand our company's internal rules, including applicable laws, our company's Articles of Incorporation, and the Rules of the Board of Directors, and must fully recognize their responsibilities.

Diligent study and training of directors and auditors

Article 27
  1. Directors and auditors shall participate in the compliance committees held every two (2) months and acquire necessary knowledge with regard to legal compliance, corporate governance and other important matters regarding management.
  2. In order to achieve the purpose set forth in the previous clause, departments responsible for legal affairs / compliance shall invite company attorneys and external professionals to the compliance committees and continue to make it an opportunity for directors and auditors to acquire expert knowledge.
  3. In order to fulfill their roles, directors and auditors must always collect information actively and devote themselves to study with regard to our company's financial condition, legal compliance, corporate governance and other matters. Directors in charge of legal affairs / compliance and directors in charge of operational planning shall provide necessary documents and take on the duty of explanation in response to requests from directors and auditors.

Setting the agenda for meetings of the Board of Directors, etc.

Article 28
  1. Prior to a meeting of the Board of Directors, the chairperson of the meeting of the Board of Directors shall consult with directors in charge of operational planning and set the agenda for the meeting of the Board of Directors.
  2. The agenda items for a meeting of the Board of Directors and the materials regarding the matters to be reported shall be distributed or sent by electromagnetic means to each director well before the date of the meeting of the Board of Directors, so that a fruitful discussion can be held at the meeting of the Board of Directors. However, this shall not apply to matters of urgency or high confidentiality.
  3. In order to achieve the purpose set forth in the previous clause, the agenda items of meetings of the Board of Directors shall be deliberated on in advance at management meetings prior to the meetings of the Board of Directors.

Access to in-house information by independent outside directors and auditors

Article 29
  1. Independent outside directors and auditors may whenever necessary request explanations or reports from internal directors, corporate officers and employees, or the submission of in-house documents.
  2. Our company shall have persons who belong to departments responsible for operational planning assist independent outside directors when it is necessary in order for them to execute their duties appropriately.
  3. Our company shall have persons who belong to the Audit Office assist the Board of Auditors and each auditor when it is necessary in order for them to execute their duties appropriately, and the persons who belong to the Auditors Office who are thus entrusted shall follow the instructions of the auditors independently from the directors.

Self-assessment

Article 30
The Board of Directors shall analyze and assess the effectiveness of the Board of Directors as a whole every year on the basis self-assessments by each director, and disclose a summary of the results in a timely and appropriate manner.

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Chapter 7: Remuneration system

Remuneration, etc. of directors, etc.

Article 31
  1. Remuneration, etc. of executive directors, etc. shall be appropriate, fair and well-balanced remuneration that can enhance the motivation of such executive directors toward the maximization of our company's corporate value.
  2. Our company shall disclose in a timely and appropriate manner the policy regarding remuneration, etc. of directors that the Board of Directors has decided on in accordance with advice from the remuneration advisory committee pursuant to the provisions of Article 24.
  3. The remuneration, etc. of independent outside directors must reflect the hours and duties for which each independent outside director is involved in our company's business, and must not include shares-related remuneration or other performance-based elements.
  4. The amount of individual remuneration etc. for directors shall be decided through fair examination and with advice from the remuneration advisory committee, in accordance with the provisions of Article 24.
  5. In cases where the remuneration advisory committee advises on the amount of individual remuneration etc. for directors in accordance with the provisions of Article 24, it shall judge the appropriateness of the amount of remuneration, etc. by taking into consideration the type of work and while referring to remuneration standards of other companies that are appropriate targets for comparison.

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Chapter 8: Dialog with shareholders

Dialog with shareholders

Article 32
  1. Our company shall communicate information regarding performance record transitions, management strategy, etc. equally to shareholders, etc. and promote shareholders' understanding through the holding of regular events, including general meetings of shareholders and information sessions for analysts, institutional investors and individual investors, posting on this website and the publishing of communications for shareholders.
  2. In the event that our company has received a request for an interview regarding corporate governance and important management policies from a major shareholder with an investment policy that matches the medium- and long-term interests of shareholders, directors or leading members of the departments stipulated in the next clause shall respond to it.
  3. In order to achieve the objectives of the previous two (2) clauses, our company shall endeavor to prepare the following systems, and shall have the persons responsible be directors responsible for operational planning departments.
    • (1)On the occasion of the dissemination of information and dialogs with shareholders set forth in the previous two (2) clauses, departments responsible for operational planning, IR, and legal affairs/compliance shall unify explanatory materials and details of responses, upon mutual consultation.
    • (2)Departments responsible for IR shall decide an annual schedule for information sessions for investors and IR activities every year, and disclose it through this website, etc.
    • (3)Departments responsible for IR shall summarize shareholders' opinions and matters of concern on each occasion of an information session for investors and an IR activity, report them to the president and directors, and reflect them in information sessions for investors and IR activities.
  4. On the occasion of a dialog with shareholders, directors responsible for operational planning departments shall judge whether matters fall under internal information or not in advance in accordance with the provisions of the "Regulations for the Prevention of Insider Trading", and shall give due consideration so as to prevent substantial information gaps from arising among shareholders.

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Chapter 9: Other matters

Revisions

Article 33
  1. Revisions to this policy shall be in accordance with resolutions of the Board of Directors.
  2. Furthermore, in the event that this Basic Policy is revised, the details shall be disclosed in a timely and appropriate manner.

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Established on November 20, 2015

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