Corporate Governance

State of Establishment of Internal Control System

Hashimoto Sogyo Holdings has established an Audit Department with two members (as of the date of submission of the Securities Report) under the direct control of the president as a separate and independent section from business departments. This section periodically audits (business audits) the status of business execution in each department in the Company and reports on this to the president while encouraging improvements. In October 2012, Hashimoto Sogyo Holdings acquired Eco Stage 3 certification and through Eco Stage it checks the state of business execution of each business department from the perspectives of quality control and environmental management.

State of Establishment of Risk Management System

1. Cash management

   • Hashimoto Sogyo Holdings established a system that enables accurate and prompt processing by undertaking central processing of both the collection of payments for sales (accounts receivable management) and payments for purchases (accounts payable management) by the Accounting Department and by matching the accounting data received from the sales department with vouchers from customers and suppliers.
   • All settlements for projects involving expenses or investments exceeding a certain amount pass through the general manager of the Sales Department and details are checked by a department other than the originating department. Moreover, the Accounting Department undertakes individual post-checks on expense processing performed by each department, beginning with those at management bases.
   • The Company has a system for proper accounting and tax processing under which processing by the Accounting Department is checked separately by the Finance Department from the perspectives of accounting and taxation and advice is received from certified public accountants and tax accountants when needed.

2. Credit management

   • Accounts receivable management as credit management for business partners is supervised by the General Affairs Department that belongs to the Management Headquarters and the management of receivables is performed on a daily basis in accordance with internal rules taking into consideration information from outside the Company.
   • The General Affairs Department and departments and branches aim for thorough implementation of the policy at the Credit Meeting held once per month. At the Credit Meeting, the General Affairs Department checks the credit status of business partners and the degree of risk of trade receivables based on the customer rating list and as such this system unifies and centralizes recognition of the degree of soundness of trade receivables at each sales department and branch.

3. Compliance system

   • Hashimoto Sogyo Holdings established the Compliance Committee to encourage directors and employees to continuously undertake appropriate daily activities from the perspective of compliance with laws, corporate ethics, and internal regulations. Furthermore, by utilizing external experts such as lawyers, the Compliance Committee will consider responses as necessary in the event any laws and regulations related to the Company’s business are formulated or revised.
   • The Company established an internal whistle-blowing system as a compliance consultation desk and has set up internal and external whistleblowing desks that enable immediate consultation in the event any act considered illegal or unfair is discovered. Also, the Company continuously operates a system to check for unfair acts and to make improvements through regular audits of internal departments by the Audit Department.

State of Establishment of System for Assuring the Appropriateness of Operations of Subsidiaries

• A director or executive officer of the Company shall be appointed as a director of each Group company and the status of business implementation shall be confirmed through attendance at the meetings of the Board of Directors.
• At the Company’s Board of Directors business results are reported and plans approved.
• The Audit Department of the Company regularly audits each Group company.
• Based on the Regulations for Management of Affiliated Companies, Hashimoto Sogyo Holdings’ General Affairs Department provides guidance and training to facilitate the smooth operation and appropriate management of the Company and its Group companies and established an internal control system that covers all operations of the entire corporate group.

Summary of Details of Limited Liability Contract

As prescribed by Article 427-1 of the Companies Act, the Company, each director (excluding those who are executive directors) and each Audit & Supervisory Board member conclude a contract that limits their liability under Article 423-1 of the Act.
Based on this contract, the maximum liability for damages under such an agreement shall be either an amount specified in advance that is not less than 10 million yen, or an amount prescribed by relevant laws and regulations, whichever is higher, for Director Akira Uno, Director Kazuo Matsunaga, Director Shigenobu Aikyo, Director Yuka Yoshida, Director Makio Miyagawa, and Director Yutaka Miyauchi. For Corporate Auditors Shoji Moriguchi, Ataru Nakamura and Yutaka Azuma, the maximum liability for damages under such an agreement shall be either an amount specified in advance that is not less than 1 million yen, or an amount prescribed by relevant laws and regulations, whichever is higher.

Summary of Details of Officers’ Liability Insurance Contracts

Hashimoto Sogyo Holdings has entered into an officers’ liability insurance contract with an insurance company as stipulated in Article 430-3, Paragraph 1 of the Companies Act. The scope of the insured persons of this insurance contract covers all directors and auditors of the Company and its subsidiaries and the insured persons do not bear the cost of insurance premiums. The insured persons shall be responsible for the performance of duties, and damages borne by the insured that may arise from receiving claims related to the pursuit of such liability shall be compensated.

Fixed Number of Directors

Hashimoto Sogyo Holdings’ Articles of Incorporation stipulates that the number of directors shall be 20 or less.

Resolution requirements for appointment and dismissal of directors

Hashimoto Sogyo Holdings stipulates in its Articles of Incorporation that resolutions for the appointment of directors shall be adopted with the approval of a majority of the voting rights of shareholders where shareholders holding at least one third (1/3) of the voting rights of shareholders who can exercise voting rights are present.
Pursuant to the provisions of Article 341 of the Companies Act, resolutions for dismissal shall be passed with the approval of a majority of the voting rights of the shareholders where shareholders holding the majority of the voting rights of shareholders who can exercise voting rights are present.

Matters for Resolution at the General Meeting of Shareholders that Can be Resolved by the Board of Directors

1. Decision-making body for distribution of surplus, etc.

   Hashimoto Sogyo Holdings’ Articles of Incorporation stipulates that the matters contained in each item of Article 459-1 of the Companies Act, including distribution of surplus, shall be determined by a resolution of the Board of Directors rather than by a resolution of the General Meeting of Shareholders unless otherwise provided for by laws and regulations. The purpose is to flexibly return profits to shareholders by delegating to the Board of Directors the authority to distribute the surplus.

2. Liability Exemption for Directors and Audit & Supervisory Board Members

   Pursuant to the provisions of Article 426-1 of the Companies Act, the Articles of Incorporation stipulate that the Company can exempt directors and auditors (including former directors and corporate auditors) from liability for acts prescribed in Article 423-1 of the same law, to the extent set forth by laws and regulations, under a resolution by the Board of Directors. The purpose is to create an environment in which directors and auditors can fully demonstrate their abilities and fulfill their expected roles in the execution of their duties.

3. Decision-making Body for the Repurchase of Own Shares

   Regarding the acquisition of own shares, Hashimoto Sogyo Holdings’ Articles of Incorporation stipulate that the Company shall be able to repurchase its own shares through market transactions or other means by resolution of the Board of Directors based on the provisions of Article 165-2 of the Companies Act. This is to enable the Company to flexibly implement management measures such as financial policies in response to changes in economic conditions.

Requirements for a Special Resolution of the General Meeting of Shareholders

The Company’s Articles of Incorporation stipulate that a special resolution of the General Meeting of Shareholders, pursuant to Article 309-2 of the Companies Act, shall be adopted when it is approved by a vote of two-thirds or more of voting rights present at the General Meeting of Shareholders whereby shareholders holding at least one-third (1/3) of the voting rights of shareholders who can exercise voting rights are present. The aim is to facilitate the smooth operation of the General Meeting of Shareholders by relaxing the quorum requirements for special resolutions at the General Meeting of Shareholders.

Matters Related to Policy Regarding the Content of Remuneration for Individual Directors

1. Policy for Determining the Amount of Basic Remuneration (Monetary Remuneration) for Each Individual (including Policy for Determining the Timing and Conditions for Remuneration)

   The basic remuneration of the Company’s directors shall be fixed monthly remuneration in accordance with the regulations for officers. Remuneration shall be within the scope of the total amount of remuneration determined by a resolution of the General Meeting of Shareholders and determined making comprehensive considerations while taking into account position, responsibilities, levels at other companies depending on the length of service, the Company’s business results, and employee salary levels.

2. Policy for Determining the Content and Amount of Non-monetary Remuneration and Method for Calculating Number of Shares (including Policy for Determining the Timing and Conditions for Giving Remuneration)

   Restricted stock shall be granted as non-monetary remuneration. The transfer restriction period shall be the period from the delivery date of the restricted stock to the date on which the relevant eligible officer retires from the Company as a director. The specific timing and distribution of payments to each director shall be determined by the Board of Directors after comprehensively considering the stock price, job position and the contribution level and responsibilities of the director.

3. Policy on Determining the Percentage of Monetary Remuneration and Non-monetary Remuneration for Individual Directors’ Remuneration

   The remuneration percentage by type of remuneration shall be that deemed to be the most appropriate payment percentage based on the remuneration levels benchmarked to companies of similar business size and related industries and business categories as those of the Company.

4. Matters Related to Determining the Content of Remuneration for Individual Directors

   Based on a resolution of the Board of Directors, the president and representative director shall be entrusted with specific details regarding the amount of remuneration for each individual director. The content of that authority shall be the evaluated distribution of the amount of basic remuneration for each director.
   Regarding stock remuneration, the number of shares allotted to each individual director is resolved by the Board of Directors in accordance with the Stock Compensation Regulations.

Remuneration for Audit & Supervisory Board Members

Remuneration shall be determined through consultation with Audit & Supervisory Board members within the scope of the total amount of remuneration resolved at the General Meeting of Shareholders taking into consideration whether that person is full-time or part-time and the division of duties.

Matters Concerning Resolutions at the General Meeting of Shareholders Regarding Remuneration for Directors and Audit & Supervisory Board Members

At the 59th Ordinary General Meeting of Shareholders held on June 27, 1996, it was resolved that the amount of monetary remuneration for directors shall be within 300 million yen per year (not including the salary portion for employees who concurrently serve as directors).
Separately from monetary remuneration, at the 83rd Ordinary General Meeting of Shareholders held on June 26, 2020, it was resolved that the annual amount of stock remuneration shall be up to 30 million yen (including up to 3 million yen for outside directors) and the maximum number of shares shall be 30,000 shares per year (including 3,000 shares for outside directors). At the end of the General Meeting of Shareholders, the number of directors was 13 (including six outside directors).
At the 59th Ordinary General Meeting of Shareholders held on June 27, 1996, it was resolved that the amount of monetary remuneration for Audit & Supervisory Board members should be within 30 million yen per year. Separately from the monetary remuneration, at the 83rd Ordinary General Meeting of Shareholders held on June 26, 2020, it was resolved that the annual amount of stock remuneration shall be 3 million yen or less. At the conclusion of the General Meeting of Shareholders, the number of Audit & Supervisory Board Members was four (of which three are outside Audit & Supervisory Board members).