Outline of corporate governance structure

1. Board of Directors

The Board of Directors consists of six directors, including two independent outside directors. In principle, the Board of Directors meets once a month, and holds extraordinary meetings as necessary to ensure flexibility. In addition, the Board of Directors makes decisions on inportant management matters, and ensures management transparency through the appointment of independent outside directors. The Board of Directors is also attended by three Audit & Supervisory Board members, who check whether the performance of the duties of the directors is in violation of laws and regulations and the Articles of Incorporation, and express their opinions as necessary.

2. Audit & Supervisory Board

The Audit & Supervisory Board consists of one full-time Audit & Supervisory Board member and two outside Audit & Supervisory Board members, and meets in principle once a month. In addition to sharing information and exchanging opinions on the status of directorsʼ performance of their duties, full-time Audit & Supervisory Board member reports on the status of audits at important meetings and the results of internal document inspections. Also discusses cooperation with the Audit Office and accounting auditor. Outside Audit & Supervisory Board members are certified public accountants with extensive expertise in accounting and lawyers with extensive expertise in legal affairs, which strengthens the auditing and supervisory functions of the Audit & Supervisory Board.

3. Nomination & Compensation Advisory Committee

The Nomination & Compensation Advisory Committee is chaired by an independent outside director and consists of the President and Representative Director and two independent outside directors. To strengthen the fairness, transparency, and objectivity of the procedures related to nomination and remuneration, and to enhance corporate governance, deliberates on matters raised by the Board of Directors, such as the policy and standards for the election and dismissal of directors, the remuneration system for directors, and the policy for determining remuneration, and reports back to the Board of Directors.

4. Group Management Meeting

The Group Management Meeting consists of Daiei Kankyo Co., Ltd.’s full-time directors, full-time Audit & Supervisory Board member, and executive officers stationed at the Group headquarters, and is attended by related parties including group subsidiaries as necessary. In principle, it meets once a month to optimize Group management, makes decisions related to the management of the Group from a companywide perspective.

5. Risk Management & Compliance Committee

The Risk Management & Compliance Committee is chaired by the President and Representative Director and consists of the full-time Audit & Supervisory Board member, the director in charge of business administration, the general manager of the Business Administration Division, the general manager of the General Affairs Department, and the manager of the Audit Office as its members. This committee meets at least once every quarter. By establishing standard items regarding risk management to prevent the occurrence of risks and ensure compliance, the committee strives to minimize the Group’s losses and enhance its social credibility. Moreover, deploys a risk management promotion manager and a person in charge of risk management promotion to each department, thereby ensuring that each department is thoroughly informed of matters related to risk management and compliance.

6. Rewards & Disciplinary Committee

The Rewards & Disciplinary Committee is chaired by the general manager of the Business Administration Division and consists of the full-time Audit & Supervisory Board member, the manager of the Human Resources Department, the manager of the General Affairs Department, and the manager of the Audit Office as its members. This committee strives to ensure sound management through the strict and proper application of the regulations regarding rewards and discipline stipulated in the employment regulations.

7. Sustainability Promotion Committee

The Sustainability Promotion Committee is chaired by the President and Representative Director, and consists of full-time directors, the full-time Audit & Supervisory Board member, the general manager of the Corporate Strategy Planning Division, the manager of the Sustainability Promotion Department, the general manager of the Purchasing Department, the manager of the Business Administration Division, the general manager of the Enterprise Division, and the General Sales Manager, and meets at least twice a year. The committee is responsible for formulating and revising the Basic Policy for Sustainability, identifying material issues, setting goals and manages progress toward resolving social issues. When receiving a consultation from the Board of Directors, discusses management plans from the perspective of promoting sustainability and reports back to the Board of Directors.

8. Audit Office

The Audit Office conducts internal audits of the Group. As an organization reporting directly to the President and Representative Director, it ensures independence from business execution departments. It also collaborates with Audit & Supervisory Board members and accounting auditors to conduct effective internal audits.

9. Executive Officers

We have introduced an executive officer system to ensure the prompt execution of business operations by separating the decision-making and business execution processes.

Other matters relating to corporate governance

(1) Status of internal control system

The Daiei Kankyo Group’s systems for ensuring the appropriateness of its operations are as follows.

1. System to ensure the appropriateness of operations of the corporate group consisting of Daiei Kankyo Co., Ltd. and its group companies

• ・In order to establish a governance system as a group, we have determined the department in charge of subsidiary management, its authorities, and the director in charge of subsidiary management.
• ・We have established the Affiliate Company Management Rules to clarify our basic policies on the management of subsidiaries, and the subsidiary management departments receive prior approval and reports on important management matters from each subsidiary.
• ・The directors in charge regularly report to our Board of Directors on the status of business execution, financial conditions, and other matters.
• ・Our Audit Office conducts audits of subsidiaries.
• ・We have established systems through which to contact Daiei Kankyo in the event of a crisis.

2. System to ensure that the execution of duties by directors and employees complies with laws and regulations and the Articles of Incorporation

• ・In addition to establishing the Daiei Kankyo Group Business Conduct Guidelines as specific standards of conduct to be observed by directors and employees, we carry out our business activities in compliance with our Articles of Incorporation and other internal rules and regulations. In particular, in order to prevent any kind of relationship with anti-social forces, we have established the Rules for the Elimination of Antisocial Forces and other regulations to ensure that the entire company takes a resolute and unified stance against such organizations.
• ・We have established the Whistleblower System Rules as an internal reporting system in the event that any violation of laws, regulations, or the Articles of Incorporation is discovered.
• ・In the event that a director discovers a significant fact concerning a serious violation of laws, regulations, or other internal rules, he or she shall immediately report the matter in question to Daiei Kankyo’s Audit & Supervisory Board (or to an Audit & Supervisory Board member in the case of subsidiaries). In addition, he or she shall also report the matter in question to Daiei Kankyo’s Board of Directors (or to the subsidiary’s Board of Directors and Daiei Kankyo’s Board of Directors in the case of subsidiaries) without delay (for subsidiaries that do not have a Board of Directors, he or she shall immediately report it to the subsidiary’s president and Daiei Kankyo’s Board of Directors without delay).
• ・We have established internal audit systems by the Audit Office.

3. System to ensure the efficient execution of duties by Directors

• ・In addition to stipulating matters concerning the operation of the Board of Directors in the Rules of the Board of Directors, we hold meetings of the Board of Directors on a monthly basis, as well as extraordinary meetings as necessary.
• ・We have established the Rules of Administrative Authority to stipulate decision-making matters that are reserved for the Board of Directors and those that are delegated to the President and Representative Director and general managers of divisions.

4. System for the storage and management of information related to the execution of duties by directors

We store and manage important documents and important information related to management, confidential information, and personal information for a specified period of time in accordance with laws, regulations, and the Document Handling Rules.

5. Basic stance on eliminating antisocial forces and the status of development of such measures

The Daiei Kankyo Group shall not have any involvement with antisocial forces that threaten social order and sound corporate activities, and shall take a resolute stance against any unreasonable demands from such antisocial forces. The General Affairs Department of the Business Administration Division plays a central role in promoting the development of internal systems for the elimination of antisocial forces in cooperation with outside professional organizations such as lawyers and the police, as well as in the collection of information.

6. Rules and other systems for managing risk of loss

• ・We carry out risk management in an effective and comprehensive manner under a consistent policy based on the Risk Management and Compliance Rules.
• ・We have formulated the Internal Control Rules for Financial Reporting as a means of establishing internal control over the financial reporting of our group, thus ensuring the reliability of our financial reporting.

7. System for reporting to Audit & Supervisory Board members

Directors and employees report matters related to the performance of their duties when requested to do so by Audit & Supervisory Board members.

8. Matters related to employees assisting the duties of Audit & Supervisory Board members and matters related to the independence of employees from directors

The Audit & Supervisory Board assigns employees to assist the duties of Audit & Supervisory Board members in accordance with the Rules of the Audit & Supervisory Board.

9. Other systems to ensure that audits by Audit & Supervisory Board members are conducted in an effective manner

• ・Audit & Supervisory Board members attend meetings of the Board of Directors and other meetings in order to understand the processes by which important decisions are made and the state of execution of duties.
• ・Audit & Supervisory Board members conduct timely on-site inspections of the various departments, offices and group subsidiaries in cooperation with Daiei Kankyo’s Audit Office.

(2) Status of risk management systems

The Daiei Kankyo Group’s Risk Management & Compliance Committee, chaired by the President and Representative Director, establishes standard items for risk management (discovery, identification, analysis, and consideration of countermeasures for risks to be addressed by each division) in accordance with the Risk Management and Compliance Rules. This committee manages the risks of the entire group in an integrated manner by bringing up and reporting to the Board of Directors important risks that could have a particularly large impact on the group’s management, such as accidents which cause significant damage to property or a serious health hazard, injury, or death, as well as illegal acts.
In addition, we have established the Daiei Kankyo Group Business Conduct Guidelines as a code of conduct applicable to all executives and employees of the Daiei Kankyo Group, and we conduct compliance training for about 3,000 of all group executives and employees to minimize losses and improve social credibility. For those items that are subject to a Business Continuity Plan (BCP), we set out our response policies in a BCP established separately.
In the event that a risk arises, the Risk Management & Compliance Committee takes the lead in developing countermeasures in coordination with the originating department and department in charge. In addition, if a significant risk arises and it is determined that a company-wide response is necessary, a meeting of the Risk Management & Compliance Committee is convened, and a prompt and appropriate response is taken to minimize any loss or disadvantage to the Group.
In the event that we take measures to prevent the recurrence of risks that have occurred in our group, the Risk Management & Compliance Committee reports them to the Board of Directors and shares them within the Group to ensure that similar risks do not occur.

(3) Outline of the content of liability limitation agreement

Pursuant to Article 427, Paragraph 1 of the Companies Act, Daiei Kankyo has entered into an agreement with its directors (excluding executive directors) and outside Audit & Supervisory Board members to limit their liability for damages under Article 423, Paragraph 1 of the Companies Act. The purpose of this agreement is to create an environment in which directors and Audit & Supervisory Board members can fully demonstrate their abilities and fulfill their expected roles in the execution of their duties. However, the maximum amount of liability based on such contracts is the amount stipulated by laws and regulations.

(4) Outline of the content of indemnity agreement

Daiei Kankyo has entered into an indemnity agreement as stipulated in Article 430-2, Paragraph 1 of the Companies Act with directors Fumio Kaneko, Yoshikazu Inoue, Nariyuki Ohta, Kazumasa Onaka, Kazumasa Murai, and Tomoko Murakami, and with Audit & Supervisory Board members Akira Minemori, Ryuta Uozumi, and Noriko Kitajima. This agreement provides that Daiei Kankyo will compensate them to the extent permitted by law for expenses under Item 1 and losses under Item 2 of the said Paragraph.
However, in order to ensure that the said indemnity agreement does not impair the appropriateness of the performance of duties by all company executives, indemnification is not provided in the following cases: where they seek to gain unjust profits for themselves or third parties; where they are found to have performed their duties with the intent to cause damage to Daiei Kankyo; where compensation is claimed due to malicious intent or gross negligence in performing their duties; and where they fail to provide information or make reports or are late in providing such information or making such reports.

(5) Outline of the content of liability insurance policy for executives, etc.

Daiei Kankyo has concluded a liability insurance contract with an insurance company to cover the liability of executives, etc. as stipulated in Article 430-3, Paragraph 1 of the Companies Act. The scope of those insured under this insurance policy is (i) directors, (ii) managerial employees, and (iii) employees belonging to Daiei Kankyo and its subsidiaries (limited to claims arising from wrongful acts) , and the insured persons do not bear the insurance premiums for this policy. The said insurance policy covers the insured’s liability for damages to Daiei Kankyo and for damages to third parties. However, in order to ensure that the policy does not impair the insured’s proper performance of his or her duties, the policy does not provide coverage in cases where the insured’s conduct was intentional or caused by gross negligence.

(6) Fixed number of Directors

Daiei Kankyo’s Articles of Incorporation stipulate that there shall be no more than eight directors.

(7) Requirements for resolutions for the election of directors

Daiei Kankyo’s Articles of Incorporation stipulate that resolutions for the election of directors shall be passed by a majority of the voting rights of shareholders present at a meeting where shareholders holding one-third or more of the voting rights of shareholders who are entitled to exercise their voting rights are present. The Articles of Incorporation also stipulate that resolutions for the election of directors shall not be made by cumulative voting.

(8) Requirements for special resolutions of the General Meeting of Shareholders

Daiei Kankyo’s Articles of Incorporation stipulate that the requirements for special resolutions of the General Meeting of Shareholders provided in Article 309, Paragraph 2 of the Companies Act shall be passed by two-thirds or more of the votes of shareholders present at a meeting where shareholders holding one-third or more of the voting rights of shareholders who are entitled to exercise their voting rights are present. The purpose of this provision is to ensure the smooth operation of the General Meeting of Shareholders by relaxing the quorum for special resolutions at the General Meeting of Shareholders.

(9) Items to be resolved at the General Meeting of Shareholders that can be resolved by the Board of Directors

• ・Organization for determining the distribution of surplus funds, etc.
  Daiei Kankyo’s Articles of Incorporation stipulate that matters listed in Article 459, Paragraph 1 of the Companies Act may be determined by a resolution of the Board of Directors. The purpose of this provision is to provide a flexible return of profits to shareholders by giving the Board of Directors authority over matters such as the distribution of surplus funds, etc.
• ・Interim dividends
  Pursuant to Article 454, Paragraph 5 of the Companies Act, Daiei Kankyo’s Articles of Incorporation stipulate that it may pay interim dividends with a record date of September 30 of each year by a resolution of the Board of Directors. The purpose of this provision is to enable the flexible return of profits to shareholders.
• ・Exemption from liability
  Pursuant to Article 426, Paragraph 1 of the Companies Act, Daiei Kankyo’s Articles of Incorporation stipulate that directors (including those who used to be directors) and Audit & Supervisory Board members (including those who used to be Audit & Supervisory Board members) may be exempted from liability for damages due to negligence of their duties by a resolution of the Board of Directors to the extent permitted by laws and regulations. The purpose of this provision is to ensure that directors and Audit & Supervisory Board members can fully perform their expected roles and to secure appropriate human resources on an ongoing basis.

Audits by Audit & Supervisory Board members are conducted by one full-time and two outside Audit & Supervisory Board members, and meetings of the Audit & Supervisory Board are held once a month in accordance with the Rules of the Audit & Supervisory Board. In addition to attending meetings of the Board of Directors and other important meetings, Audit & Supervisory Board members review important documents related to the execution of business operations and other matters, and receive reports from executives and employees of Daiei Kankyo and its group subsidiaries as needed on information required for auditing. In addition, they strive to ensure the effectiveness of audits by maintaining close contact with accounting auditors and the Audit Office through the exchange of information and other means, as well as by regularly sharing views with the President and Representative Director and other means.

We have established an Audit Office (10 members including the Audit Office manager), which reports directly to the President and Representative Director, and conducts internal audits of the Daiei Kankyo Group from an independent and objective standpoint.
The Audit Office, in accordance with the Internal Audit Rules , conducts audits of the business activities and implementation of various systems in each department in light of management objectives. As part of this process, it verifies and evaluates compliance with management policies, rules, other business systems and standards, and the appropriateness and efficiency of various business activities and management. In doing so, it endeavors to coordinate with the Audit & Supervisory Board members and accounting auditors as necessary, conducting internal audits efficiently. In addition, based on the results of internal audits, it provides guidance, advice, and recommendations to the audited departments. After the audit, based on the results of the internal audit checklist and other reasonable evidence, and having undertaken a comprehensive review and evaluation of the opinions expressed by the auditors and the opinions of the audited departments, it prepares an Internal Audit Report and submits it to the President and Representative Director, and reports the results of the internal audit to the Board of Directors and the Audit & Supervisory Board.
Regarding the effectiveness of internal controls over financial reporting based on the Financial Instruments and Exchange Act, the Audit Office evaluates the status of company-wide internal controls and the maintenance and operation of important business processes, and reports the evaluation results to the Board of Directors, the President and Representative Director, and the Audit & Supervisory Board.

Name of auditor: Gyosei & Co. (duration of audit: 3 years)