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    1. Overview of Corporate Governance “Systems”

      Last update: June 26, 2019

      Corporate Governance System (as of May 23, 2019)

      Corporate Governance System

      1Separation of the Board of Directors’ supervisory functions and executive officers’ business execution functions through introduction of the executive officer system (clarification of the scope of matters delegated to management)

      The Company’s Board of Directors comprises 12 Directors (including 5 Outside Directors/11 men and 1 woman) and meets once a month in principle.
       To facilitate prompt decision making and business execution even amid a dramatically changing operating environment, the Company has introduced the executive officer system and separated the Board of Directors’ supervisory functions from the executive officers’ business execution functions. This developed an environment where the Board of Directors is able to focus on the “formulation of management strategies” and the “supervision of business execution,” while the executive officers can focus on “business execution.” The executive officers comprise 18 members (17 men and 1 woman). The term of office of the Directors is set to one year in order to reflect the intentions of shareholders regarding the appointment of the management team in a timely manner.

      Numbers and composition ratios of Outside Directors and Outside Audit & Supervisory Board Members

      Numbers and composition ratios of Outside Directors and Outside Audit & Supervisory Board Members Directors
      Numbers and composition ratios of Outside Directors and Outside Audit & Supervisory Board Members Audit & Supervisory Board Members

      Clarification of the scope of matters delegated to management
      [CGCSupplementary Principle 4.1.1]

      Matters to be decided by the Board of Directors at the Company are stipulated in the Board of Directors Regulations, the Decision Authority Regulations, and so forth, and matters stipulated by the Companies Act and the Company’s internal regulations are decided by the Board of Directors.
       The Decision Authority Regulations clearly set forth the scope of matters to be decided by the President and Representative Director. This clarifies the decision-making process for management and the structure of responsibility, while also expediting decision-making by rational delegation of authority.

      2Reason for adoption of current corporate governance system

      The Company ensures the effectiveness of its corporate governance by coordinating “audits” conducted by the Audit & Supervisory Board Members (Audit &Supervisory Board), including multiple Outside Audit & Supervisory Board Members who maintain their independence and have specialized knowledge in such areas as legal affairs and financial accounting, through their actively cooperating with the accounting auditor and the internal audit division, and “formulation of management strategies” and “supervision of business execution” conducted by the Board of Directors, including multiple Outside Directors who maintain their independence and have advanced management knowledge and experience.
       The Company has adopted this corporate governance structure because it judges the structure to be workable for realizing and ensuring the Company’s corporate governance and for conducting appropriate and efficient corporate management.

      Utilization of the company with Audit and Supervisory Board Member system

      The Company considers the following characteristics and advantages of the Audit & Supervisory Board Member system to be effective for ensuring the appropriateness of the Company’s Group governance and has therefore adopted it as the corporate governance system:

      ⅰ) Each Audit & Supervisory Board Member independently has its own auditing authority (individual independence system), which allows audits to be conducted from the perspectives of each Audit & Supervisory Board Member;

      ⅱ) The independence of the Audit & Supervisory Board Members is clearly specified by law, which enables independent and objective audits; and

      ⅲ) The Audit & Supervisory Board Members have legally specified authority to investigate subsidiaries, which is effective also from a Group audit perspective.

      3Nomination and Compensation Committee system

      The Company has established the “Nomination and Compensation Committee” with an Independent Outside Director as the Chair to be an advisory committee to the Board of Directors, and by the committee’s deliberations on the nomination, compensation, etc. of Representative Directors, Directors, Audit & Supervisory Board Members and executive officers, utilizes the knowledge and advice of Outside Directors and Outside Audit & Supervisory Board Members and ensures objectivity and transparency in the procedures for deciding the nomination and compensation of Representative Directors, Directors, Audit & Supervisory Board Members and executive officers, thereby enhancing the supervisory functions of the Board of Directors and further substantiating corporate governance functions.

      Nomination and Compensation Committee system

      Please see “Policies and Procedures for Appointment/Dismissal and Nomination of Directors and Audit & Supervisory Board Members, and Training” for details regarding the items for deliberation by the committee and committee composition, etc.

      4Advisors, etc. (as of May 23, 2019)

       Status of the advisors for the Company and major operating companies is as below.

      I. The Company

      Name Masatoshi Ito
      Title/position Honorary Chairman
      Duties Provide advice when needed by the Company’s management team
      Working arrangement/conditions Full-time/with compensation
      Term of office 1 year
      Name Toshifumi Suzuki
      Title/position Honorary Advisor
      Duties Provide advice when needed by the Company’s management team
      Working arrangement/conditions Full-time/with compensation
      Date of retirement of the Company’s president, etc. May 26, 2016
      Term of office 1 year

      II. Main operating companies

      Name Noritomo Banzai
      Title/position Advisor of SEVEN-ELEVEN JAPAN CO., LTD.
      Duties Provide advice when needed by the company’s management team
      Working arrangement/conditions Full-time/with compensation
      Term of office 1 year

      III. Others

      • ? Regarding the assumption of office by advisors of the Company and major operating companies, the Company’s Board of Directors deliberates and confirms matters and appropriately supervises their work.
      • ? Upon consultation from the Company’s Board of Directors, the Company’s Nomination and Compensation Committee deliberates and confirms the duties, work arrangements, and conditions, such as compensation terms for the advisors of the Company and major operating companies.
      • ? The roles of advisors of the Company and major operating companies are to provide advice when needed by the management team of each company, and advisors have no authority to affect the management decisions of each company.

      5Corporate governance by various committees

      The Company has established the “CSR Management Committee,” “Risk Management Committee,” and “Information Management Committee,” which report to the Representative Director. Each committee determine Group policies in cooperation with the operating companies, and strengthens corporate governance by managing and supervising their dissemination and execution.

      CSR Management Committee

      The Company has established the CSR Management Committee for the purpose of promoting, administrating and supervising the CSR activities of the entire Group. The Company has also established the “Corporate Ethics and Culture Subcommittee,” “Consumer Affairs and Fair Business Practices Subcommittee,” “Environment Subcommittee” and “Social Value Creation Subcommittee” as group-wide cross-organizational bodies under the CSR Management Committee tasked with the examination and execution of concrete measures to address the “Five Material Issues” of the Group as a whole. With these subcommittees, the Company aims to realize more thorough practice of compliance, promote operating activities that will contribute to the solution of social issues relating to stakeholders, and work toward the sustainable development of both society and the Group, from the perspective of ESG (environment, society, and governance).
       Furthermore, the Company operates an internal reporting system that can be used by Group officers, employees, and business partners as part of the internal controls of the whole Group. The executive officer in charge of the CSR Management Committee regularly reports and confirms the operational status of the internal reporting system at the Board of Directors’ meeting.

      Risk Management Committee

      In accordance with the basic rules for risk management, the Company and its Group companies establishes, streamlines, and manages comprehensive risk management systems, centered on the Risk Management Committee, in order to properly analyze, evaluate, and appropriately respond to risks associated with each business, with consideration for changes in the management environment and risk factors relevant to the Company and its Group companies.
       The Risk Management Committee regards all phenomena that threaten continuation of our businesses and hinder sustainable growth as risks, and works to strengthen comprehensive and integrated risk management.
       In FY2019, the committee revised the basic rules for risk management, based on a review of risk classifications and quantitative criteria, in accordance with changes in the internal and external environments. In addition, in an effort to increase risk management effectiveness, the committee further strengthened group-wide risk management through a risk assessment and analysis of each Group company by the departments responsible for the management of risks of the Company, as well as the provision of support for the implementation of risk mitigation measures.

      Information Management Committee

      The Information Management Committee is in charge of initiatives to strengthen corporate governance and information security based on gathering and managing information.
       In FY2019, the committee continued initiatives carried on from FY2018 and worked at strengthening information collection and management systems. While gathering important information from each company in an appropriate and timely manner and revamping the system for the cooperative framework for dealing with this, the committee centrally managed this information and strengthened the system for reporting that information without omission or delay to management and relevant divisions.
       Furthermore, in order to address heightened social awareness of personal information protection and assure the safety and peace of mind of customers who use the Group’s integrated EC site omni7 and the apps of each operating company, the business sites that handle customers’ personal information have acquired the international information security management systems (the ISMS) certification (ISO 27001), and the committee is undertaking efforts to strengthen information security. In addition, the committee formulated information security standards to be achieved by the Group and has taken steps to further bolster information security by deploying PDCA cycles based on the ISMS certification methods at each Group company.

      6Internal Control Resolutions

      The Company has resolved as the reference information below regarding “the development of systems necessary to ensure that the execution of the duties by the directors complies with the laws and regulations and the articles of incorporation, and other systems prescribed by the Ordinance of the Ministry of Justice as systems necessary to ensure the properness of operations of a stock company and of operations of a group of enterprises consisting of said stock company and its subsidiaries,” (so-called the “Internal Control Resolutions”) set forth in the Companies Act.

      7Risk management

      (1) Basic approach to risk management

      The Company is taking steps to appropriately manage the various risks associated with business continuity, in an effort to secure the soundness of its management and the efficiency of its business, while ensuring the lasting preservation and development of the Group.
       In the management of the Group’s risks, the Company quantifies the risks of every business domain to the extent possible, verifies that these risks are within an acceptable range based on the Company’s owners’ equity, and employs an integrated risk management method, which implements measures that avoid, transfer, mitigate, and retain risks.

      (2) Risks to be managed

      The Company classifies the risks to be managed into the four categories of governance risk, operational risk, B/S risk, and business risk, and manages these risks in line with the basic rules for risk management shared by the whole Group.
       In order to assess the group-wide status of each risk and effectively make improvements, the Company has clarified the departments responsible for the management of risks within the Company, while also establishing the Risk Management Department to centrally and comprehensively manage all risk areas.

      Risk category Major examples of the key risks of the Group
      Governance risk Risk of degradation of the entire Group’s brand due to deficiencies in internal controls and compliance violations, etc.

      (3) Group risk management system

      The Company and its operating companies have established a Risk Management Committee, with the departments that oversee the overall risk management of the respective companies as the secretariat.
       As a general rule, the Risk Management Committee meets once every six months to receive reports on the risk management status of the respective companies from the departments responsible for the management of risks, to comprehensively determine, assess, and analyze risks and discuss measures, and to determine the future direction going forward.
       Meanwhile, with regard to individual risks, Group policies related to such risks, initiatives to mitigate risks undertaken by each company, and various internal and external examples illustrating signs of materializing risks, etc., are shared through a group-wide meeting body, etc., headed by the Company’s departments responsible for the management of risks.

      Group Risk Management System

      Group Risk Management System

      (4) The PDCA cycle of risk management

      The Group conducts risk management through the comprehensive identification and quantification of risks based on the shared Group risk assessment tables, “risk assessment and proposal of improvement measures,” “prioritization of risks,” and “improvement activities and monitoring.”
       In addition, the Auditing Office of each company verifies whether risk management is being conducted effectively, from an independent perspective, through periodic internal audits of the departments in charge of overall risk management and the departments responsible for the management of risks of the respective companies, and provides each department with the necessary advice for improving risk management, as required.

      The PDCA cycle of risk management

      8Internal reporting

      The Company operates an internal reporting system and has established a point of contact for reporting at an outside third-party organization that can be used by Group officers, employees and business partners as part of the internal controls of the whole Group. When an internal report is received, the administrative office and relevant departments confer together regarding the method of investigation and response, propose and execute it; and further inform the reporting person (whistleblower) of the result of the response and confirm if the problem is corrected. Under the rules of the internal reporting system, the personal information and privacy of whistleblowers are strictly protected, and at the whistleblowers’ desire, their name and department are kept within the third-party organization and they can make an anonymous report to the Company. Moreover, the Company and its domestic consolidated subsidiaries maintain systems to ensure that whistleblowers are not subjected to disadvantageous treatment for having used the help line.
       When a serious violation is found to have occurred, it is reported immediately to the Representative Director. Then the relevant department and relevant companies confer regarding the response and take necessary measures. Furthermore, the executive officer in charge of the CSR Management Committee at the Company regularly reports and confirms the operational status of internal reporting system at the Board of Directors’ meeting.
       In addition, in February 2019, the Company established an Audit & Supervisory Board Member Hotline to receive reports and consultations on violations of laws and regulations, social norms and internal rules by management team members, including the Group’s Directors, Audit & Supervisory Board Members, and executive officers.

      (Reference)

      Internal Reporting System for Employees:    Number of reports for FY2019: 1,245 (up 18% year on year)
      Internal Reporting System for Business Partners:   Number of reports for FY2019: 59 (up 90% year on year)

      Internal Reporting System for Employees and Business Partners

      Internal Reporting System for Employees and Business Partners

      Audit & Supervisory Board Member Hotline
      *For cases in which the subject of the whistleblowing is an executive officer or a person in a higher position

      Audit & Supervisory Board Member Hotlinev

      9Cross-shareholdings
      [CGC Principle 1.4]

      (1) Policy on cross-shareholdings

      Overall, the Group’s cross-shareholdings as of the end of February 2019 comprise 54 stocks, with a market value of ¥60.6 billion accounting for just over 2% of consolidated net assets.
       In principle, the Group does not hold cross-shareholdings except where there is an accepted rational for doing so, such as maintaining or strengthening business alliances or business relationships, in order to maintain and strengthen business competitiveness.
       Stocks held are reviewed annually and shares with less rationale are to be sold in view of the circumstances of the investee companies.

      (2) Method of assessing the rationale for the holdings

      The Company’s Board of Directors assesses the matters below regarding the rationale for holding listed cross-shareholdings and makes comprehensive decisions. The Company will continually review the matters to be assessed.

      Matters reviewed

      Qualitative Matters

      ⅰ) Background of acquisition;

      ⅱ) Presence or absence of business relationship;

      ⅲ) Strategic significance at the time of holding;

      ⅳ) Possibility of future business;

      ⅴ) Risks related to survival or stability, etc. of business if shares are not held; and

      vi) Continuity of advantages, future outlook for business, and risks if shares continue to be held.

      Quantitative Matters

      ⅰ) The most recent amounts of transactions and profits if any business is conducted through business alliances, etc.;

      ⅱ) Annual dividends received and gain or loss on valuation of shares; and

      ⅲ) Whether the benefits and risks from each holding cover the Company’s cost of capital.

      (3) FY2019 assessment of cross-shareholdings

      The results of the Board of Directors’ FY2019 assessment of all of the Company’s listed cross-shareholdings are as below. (The review was performed at the Board of Directors meeting on November 1, 2018.)

      Stock Qualitative/quantitative decision Rationale for holding Response
      AIN HOLDINGS INC. Yes Keep
      Credit Saison Co., Ltd. Yes Keep
      Mitsui Fudosan Co., Ltd. Yes Keep
      SEIBU HOLDINGS INC. Yes Keep
      Tokyo Broadcasting System Holdings, Inc. Yes Keep
      Dai-ichi Life Holdings, Inc. Yes Keep

       The Company’s Board of Directors confirms that its Group companies other than listed subsidiaries also assess cross-shareholdings based on the same shareholding policy as the Company.

      (4) Standards for exercising voting rights

      When exercising voting rights as to listed cross-shareholdings, the Company decides whether to vote for or against proposals from the perspective of increasing the medium- to long-term corporate value of the Company and the investee companies, and engages in dialogue with the investee companies about the proposals before exercising its voting rights if necessary.

      From FY2019, the Company is exercising the voting rights based on newly established detailed rules to specifically examine the above standards.

      Detailed Rules regarding Standards for Exercising Voting Rights

      a. Whether proposals at each Shareholders’ Meeting inure to medium-to long-term improvement of corporate value?

      b. Whether proposals at each Shareholders’ Meeting will maximize the benefits of shareholders of the company that convenes the Shareholders’ Meeting?

      c. Whether a convocation notice of Shareholders’ Meetings and other materials such as documents that explain proposals are timely and appropriate as information disclosure?

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