Tokai Tokyo Financial : Corporate Governance Report

1. Enhancing Functions of the Board of Directors and the Audit & Supervisory Committee
   The Company has outside directors represent the majority of its Board of Directors, and it, in principle, appoints an outside director as the Chairperson of the Board, and thus it ensures the effectiveness of the Board of Directors while maintaining a high level of transparency and fairness. At present, the Board of Directors has five outside directors, including three who concurrently serve on the Audit & Supervisory Committee. Consequently, the majority of both the Board of Directors and the Audit & the Supervisory Committee is represented by outside directors. Thus, the Company maintains a heightened level of internal checks and balances.
2. Distinguish Clearly the Functions of "Business Execution" and "Management Supervision"
   The Company's directors each have clearly defined roles and they are the individuals holding positions of executive directors primarily in charge of business execution or non-executive directors basically in charge of overseeing business execution.

[The reason(s) why the Company has yet to comply with some of the Principles of the Corporate Governance

Code] UPDATE

N/A. The Company is now implementing all principles of the Corporate Governance Code. (The following part is based on the Governance Code revised effective June 2021)

[The Disclosure Based on each principle of the Corporate Governance Code] UPDATE[Principle 1.4] About "Cross-Shareholdings"

The Company laid out its policy on both the Cross-Shareholding and the execution of subsequently allocated voting right as stated in the Article 20 of its Corporate Governance Guideline and the Annex 5 thereof. [Corporate Governance Guideline]

Article 20 (Policy on Cross-Shareholdings)

In accordance with the Policy on Cross-Shareholdings as set forth in the Annex 5 as shown below, the Company, in principle, does not possess the share that constitutes cross-shareholdings.

1. In principle, the Company does not possess shares that constitute the cross-shareholdings unless such act is deemed reasonable, for instance, facilitating beneficial business relation and ultimately improving its corporate value and presence of the Company. In assessing the reasonableness of such act, the Company scrutinizes justifiability whether the proposed cross-shareholdings meet the requirement of its cost of capital in terms of the expected return matching the resulting risk level
2. If the Company does possess any material crossholdings shares, the reasonableness of such possession will be monitored on regular basis by the Board of Directors and if any such possession, as result of monitoring, is considered not reasonable, the Company reduces the possession.
3. The Company makes decision on the exercise of voting rights as the owner of such cross-held shares judging from the overall point of view taking into account medium-to-long term possibility of corporate value growth of the invested companies together with other judgment variables.

[Principle 1.7] Related Party Transactions

The Company sets forth the procedure concerning the Related Party Transaction in the Article 8-11 and the Article 22 of the Corporate Governance Guideline as well as in the pertinent section of the Company's Administrative Code addressing Related Party Transactions as follows.

[Corporate Governance Guideline]

Article 8 (The role, responsibility and authority of the Board of Directors)

11. The approval of the Board of Directors is required to commence the transactions that may cause competition or conflict-of-interest between the Company and its Director(s). Further, such transactions require the approval from the Audit & Supervisory Committee prior to acquiring the same from the Board of Directors.

Article 22 (The Related Party Transactions)

1. For the protection of the interests of shareholders, the Company strives to prevent the transaction that may cause the conflict of the interests either to the Group or its shareholders.
2. The approval of the Board of Directors is required to commence the transaction of conflicting interest between the Company and its major shareholders, of unusual nature or of significant importance to the Company management.
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3. The Company regularly verifies whether transaction has taken place between the Company and its Director(s) or major shareholder(s).

【Supplementary principle 2-4① 】Ensuring the diversity in selecting core personnel

We, the Group, consider the promotion of diversity and equal opportunity one of the crucial requirements for us to respond to social changes. Concerning the human resource training and the company' efforts to raise its organizational readiness to promote and secure diversity, please refer to "3. Measures to Ensure Due Respect for Stakeholders (Others), under III. The Measures Taken for Shareholders and other Interested Parties" on this report as posted on our website.

(https://www.tokaitokyo-fh.jp/corporate/businessplan/diversity.html）

We set 17% representation of managerial positions by female as a goal in promoting empowerment of women at workplace (as of April 1, 2021, the ratio was 13.5% and the goal to be achieved by the end of March 2022). We are now more active than before in recruiting mid-careers (in the range of 20 to 40% of all annual hiring) and we will increase the share of the mid-careers in managerial positions (that is 32% as of April 1, 2021). We do not set the goal of hiring foreigners since we operate mainly within Japan. We will change the practice as we find it necessary in our future operation. (* managerial position: the manager position either at the Company or Tokai Tokyo Securities, which is our primary subsidiary, to assume a non-executive work classified as the work grade of 7 or higher)

[Principle 2.6] Fulfillment of Function as an Asset Owner of Corporate Pension

The Company adopts two forms of corporate pension and they are "Defined Benefit Pension Plan" and "Defined Contribution Pension Plan". The Company considers it important to maintain the level of asset value suitable to help its employees form wealth for their post-retirement lives. Further, the Company recognizes that the performance of fund for "Defined Contribution Pension Plan" could affect its financial standing. The Company therefore administers appropriate monitoring over the asset management institutions in charge and prevent conflict of interest to occur. To facilitate those actions, the Company allocates appropriate staff to its Finance and HR departments and train those staffs. As such, the Company will strive to enhance organizational structure.

[Principle 3.1(ⅰ)] Disclosure Improvement

[Management Plans]

The Group formulates its Management Philosophy and Management Plans and posts them on the Company's website for public viewing. So, please refer to them on the website given below.

[Principle 3.1(ⅱ)] Disclosure Improvement

[Basic Approach to Corporate Governance and the Related Policy]

Please refer to the "Basic Approach" of this report in regard to the Basic Approach and the Policy related to Corporate Governance of the Company.

[Principle 3.1(ⅲ)] Disclosure Improvement

[Policy for determining the compensation for senior management/Directors by the Board of Directors]

(Policy)

The Company believes that the compensation for Directors suitably incentivizing them with the merit-based reward for their contributions to its performance and corporate value creation should be instrumental to foster or secure talented management personnel capable of promoting its sustained growth as a listed corporation.

The compensation for Executive Directors and Executive Officers is comprised of three components that include fixed salary, performance-linked bonus and the reward (which is given as stock option) linked with medium-to-long term performance. The compensation for non-Executive Directors (excluding those serving on the Audit & Supervisory Committee) is given only as fixed salary in order to ensure independence from the business execution of the Company.

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The compensation for the Directors serving on the Audit & Supervisory Committee is given only as fixed salary to ensure their appropriate duty fulfilment of audit & supervision of business execution.

Outside Directors have majority representation in the Company's Board of Directors. The Company, however, has established the Nomination & Remuneration Committee to ensure objectivity and transparency of the process for determining the compensation for Directors. Also, with an intent on further ensuring objectivity and transparency of the process for determining the compensation for Executive Officers, the Company has set up the "the Council for Officers' Nomination" in addition to the Nomination & Remuneration Committee. Please refer to "[Optional Committees] Supplementary Explanation" on this report about the Nomination & Remuneration Committee.

(Procedures)

Under the above stated principle, the Board of Directors determines the compensation for Directors (excluding those serving on Audit & Supervisory Committee) through their discussion in line with the recommendation made by the Nomination & Remuneration Committee.

The compensation for the Directors serving on the Audit & Supervisory Committee is determined by the Audit & Supervisory Committee through their discussion based on what is suggested by the Nomination & Remuneration Committee. The appraisal and compensation for Executive Officers are determined by the Chairman & Representative Director, based on what is discussed in the Council for Officers' Nomination.

[Principle 3.1(ⅳ)] Disclosure Improvement

[Policy and procedures for the election of senior management and the nomination of Director candidate(s) by the Board of Directors]

(Policy)

In accordance with the criteria set forth for the nomination of a Director candidate (except the one who serves, if elected, as a member of the Audit & Supervisory Committee), the Board of Directors elects a Director whose knowledge, experience and social credibility are sufficient to execute management duties at the Company in an appropriate, fair and efficient manner and whose capability is high enough to improve the Company's supervisory function. About candidates for Directors serving on the Audit & Supervisory Committee, the Company nominates persons whose knowledge, experience and social credibility are sufficient to audit the execution of duties by the Directors not serving on the Audit & Supervisory Committee in an appropriate, fair and efficient manner.

In addition, when nominating candidates for Outside Directors, the "Independence Assessment Standard" for Outside Directors, which is separately provided, is considered.

Although majority of its Board of Directors is comprised of Outside Directors, the Company has established "Officers' Nomination & Remuneration Committee" in order to ensure objectivity and transparency of the process for nominating Directors. Also, about Executive Officers, the Company has established "the Council for Officers' Nomination" besides the Nomination & Remuneration Committee". Please refer to "[Optional Committees] Supplementary Explanation" on this report on the Nomination & Remuneration Committee.

(Procedures)

In accordance with the policy stated above, the Board of Directors determines the matter concerning the election of the Directors (except those who, if elected, serve as members of Audit & Supervisory Committee) through their discussion in line with the recommendation made by the Nomination & Remuneration Committee.

The Board of Directors elects the candidates for Directors serving on the Audit & Supervisory Committee after acquiring the recommendation from the Nomination & Remuneration Committee" and the consent from the Audit & Supervisory Committee.

Also, the matter concerning the nomination of an Executive Officer will be determined by the Chairman & Representative Director, based on what is discussed in the Council for Officers' Nomination.

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