JAFCO : Corporate Governance Report（PDF：222KB）

This is an excerpt translation of the Japanese original for convenience only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Last Update: June 21, 2017

JAFCO Co, Ltd.

Shinichi Fuki, President & CEO Contact: [phone]

Securities Code: 8595 http://www.jafco.co.jp/english/

The corporate governance of JAFCO Co., Ltd. (the "Company") is described below.

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

   With an eye to increasing corporate value over the medium to long term, the Company has established the following basic policies on corporate governance and will make continuous efforts for its enhancement:

   • Build respectful relationships with stakeholders;

   • Maintain transparency and fairness in decision making;

   • Establish an appropriate supervising structure;

   • Establish a corporate structure that ensures effective and swift business execution.

     [Reasons for Not Implementing Each Principle of the Corporate Governance Code]

     The Company implements all of the principles of the Corporate Governance Code.

     Updated

     [Disclosure Based on the Principles of the Corporate Governance Code]

     Based on the above basic views, the Company has established the Corporate Governance Policy (the "Policy") which outlines the Company's concrete corporate governance measures. The Policy is posted on the Company's website:

     http://www.jafco.co.jp/corporate/governance/ (Japanese) http://www.jafco.co.jp/english/corporate/governance/ (English)

     Descriptions of the items disclosed based on the principles of the Corporate Governance Code are as follows: Principle 1.4 Cross-Shareholdings Chapter II 1(4) of the Policy

     • The Company may hold shares of other listed companies as cross-shareholdings in the following cases:

     • When it determines that the holding would be beneficial in maintaining and strengthening a cooperative business relationship with the counterparty;

     • When it determines that the value of the shares would be financially beneficial for the Company.

     • The Board of Directors regularly examines the rationale behind the cross-shareholdings. When it determines that the continuous shareholding lacks rationale after reviewing the risks and returns from a medium- to long-term perspective as well as the objectives given above, the Company will make efforts to sell such stock to the extent possible.

     • When executing voting rights, the Company decides whether to vote for or against the proposal by taking into account the counterparty's situation and after discussing whether or not the proposal would contribute to higher corporate value of the counterparty over the medium to long term.

       Principle 1.7 Related Party Transactions Chapter II 1(6) of the Policy

     • The Company shall engage in transactions with its directors or corporate officers only with the prior

     approval of the Board of Directors (and the Board-Audit Committee if applicable) and in accordance with laws and regulations.

     - The Company shall engage in transactions with affiliated firms or major shareholders (including their subsidiaries) on fair terms and conditions with due consideration to market quotations, etc. The Board of Directors, representative directors or other applicable corporate bodies will evaluate and approve such transactions based on the detail and amount.

     Principle 3.1(i) Company objectives (e.g., business principles), business strategies and business plans Chapter I 1 of the Policy

   • JAFCO's Mission

     "Commit to new business creation and jointly shape the future."

     Since the establishment, the Company has created various innovative products/ services with entrepreneurs. The Company's mission is to open a new era with its stakeholders by committing to creating new businesses needed in the society.

   • Policy and Strategy for Achieving JAFCO's Mission

   The Company aims to achieve its mission by making venture/ buyout investment through funds. In realizing its mission, the following strategies will be implemented.

   1. Highly selective, intensive investment and management involvement

      To create new businesses, the Company will narrow down investment targets and make bold investments in companies with high growth potential. It acquires influential stakes in its portfolio companies and is deeply involved in the management to accelerate their growth.

   2. Sustain improvement in fund performance

      To secure sufficient investment capital, it is vital to achieve sustainable improvement in fund performance and raise funds from outside investors. The Company also invests its own capital in funds and shares gains with fund investors. It will build high-quality portfolios through highly selective, intensive investment and management involvement to achieve sustainable improvement in fund performance.

   3. JAFCO as "Co-Founder"

   During the startup phase of a business, the Company is required to be a "Co-Founder" rather than an investor. It aims to become an organization where each employee and the Company as a whole can play an active role as a "Co-Founder" by passing on and developing its spirit, expertise and experience that it has built up since establishment.

   * About business plans

   Due to the nature of the venture/ buyout investment business, the Company is greatly impacted by volatility in stock markets and the IPO environment in Japan and overseas. Moreover, as the Company invests its own capital alongside its partners in funds, its earnings may fluctuate sharply over the short term. With the aim of enhancing its corporate value over the medium to long term, the Company strives to achieve long-term targets set for its fund performance.

   Principle 3.1(ii) Basic views and guidelines on corporate governance Chapter I 2 of the Policy

   The Company's basic views on corporate governance are as shown in the section "1. Basic Views". The Company has established the Corporate Governance Policy, which is posted on the Company's website:

   http://www.jafco.co.jp/english/corporate/governance/

   Principle 3.1(iii) Board policies and procedures in determining the remuneration of the senior management and directors Chapter IV 2(3) of the Policy

   • The Board of Directors decides the remuneration of directors (excluding directors serving as Board-Audit Committee members) and corporate officers based on the exchange of views between the Board-Audit Committee and representative directors. The decision on remuneration adequately reflects evaluation of the Company's performance and the degree of individual contribution.

   • The remuneration of directors (excluding directors serving as Board-Audit Committee members) and corporate officers comprises a basic salary and an extraordinary compensation. The extraordinary compensation and part of the basic salary correspond to the Company's performance.

   • The Company considers, as necessary, stock-related compensations in relation to medium- to long-term interests of shareholders.

     Principle 3.1(iv) Board policies and procedures in the appointment of the senior management and the nomination of director candidates Chapter IV 2(4) of the Policy

   • Directors and corporate officers are appointed by the Board of Directors based on the exchange of views between the Board-Audit Committee and representative directors, and by reflecting the evaluation of the Company's performance and the degree of contribution.

   • The Company shall select independent director candidates who have abundant experience and deep insight into corporate management or specialist fields, and can be expected to fulfill the roles and responsibilities of an independent director. The selection is in accordance with the Company's "Standards for Independence of Independent Directors."

   Principle 3.1(v) Explanations with respect to the individual appointments and nominations based on (iv) above

   Reasons for the appointment of four (4) directors and four (4) directors serving as Board-Audit Committee members elected at the 45th Annual General Meeting of Shareholders on June 20, 2017 are explained in the notice of convocation of the 45th Annual General Meeting of Shareholders.

   The notices of convocation of the annual general meetings of shareholders are posted on the Company's website:

   http://www.jafco.co.jp/english/ir/shareholder/meeting/

   Principle 4.1.1 Matters Delegated to the Management Chapter IV 2(1) of the Policy

   • With due attention to its responsibilities to shareholders, the Board of Directors makes important management decisions and supervises the execution of business with the aim of achieving sustainable growth and enhancing corporate value.

   • The Board of Directors holds a regular monthly meeting, in principle, and an extraordinary meeting as necessary.

   • Matters to be discussed in the Board of Directors meetings are set out in the Regulations on the Board of Directors. The Company's basic policy is that the Board of Directors, including independent directors, makes decisions on important operational issues based on thorough discussions. Therefore, the Company has no provision in the Articles of Incorporation that delegates decisions on important operational matters to a director.

   • The Investment Committee chaired by the President has an authority to make investment decisions to allow quick decision-making. In the situation where a conflict of interest with funds that the Company manages may arise, such as in the case of investing its own capital, not only the Investment Committee but also the Board of Directors examine the case and make decisions.

   • The decision-making authority on certain matters is delegated to the representative directors or directors/ officers in charge, depending on the content and degree of importance, based on the Rules on Document Approval.

   Principle 4.8 Effective Use of Independent Directors Chapter IV 5(2) of the Policy

   Independent directors comprise one third or more of the Board of Directors to further enhance effective corporate governance. The Company will make continuous efforts to identify suitable candidates for independent directors.

   Principle 4.9 Independence Standards and Qualification for Independent Directors Chapter IV 5(3) of the Policy

   The Board of Directors has established the "Standards for Independence of Independent Directors" in reference to the independence criteria set out by the Tokyo Stock Exchange. The Standards has been disclosed in the section "Matters relating to Independent Directors" below, the notice of convocation of the Annual General Meeting of Shareholders, and Independent Directors/Auditors Notification.

   Principle 4.11.1 Views on Board Composition Chapter IV 8 of the Policy

   • The Board of Directors elects director candidates based on business skills, insight, experience, and expertise to act as a director, as well as from the aspect of diversity to allow it to fully exercise its operational and supervisory functions.

   • The Board of Directors maintains the composition and size that enable it to fully demonstrate its effectiveness in term of the Company's scale and business.

   Principle 4.11.2 Concurrent Positions of Directors Chapter IV 8 of the Policy

   The Company discloses major concurrent positions of directors in the notice of convocation of Annual General Meeting of Shareholders every year.

   Principle 4.11.3 Analysis, Evaluation and Disclosure of Board Effectiveness Chapter IV 9 of the Policy The Board of Directors analyzes and evaluates its effectiveness every year and discloses the summary of the result on the Company's website:

   http://www.jafco.co.jp/english/corporate/governance/

   Principle 4.14.2 Training Policy for Directors Chapter IV 12 of the Policy

   • The Company provides and arranges training for directors necessary to fulfill their responsibilities.

   • A newly-appointed director will be given training on director responsibilities and corporate governance requirements, and will be provided continuous training on legal revisions, etc..

   • An independent director will receive an explanation about the Company's business when assuming office, and will be provided information on management issues etc., as necessary.

     Principle 5.1 Policy for Constructive Dialogue with Shareholders Chapter II 1(7) of the Policy The Company has set the policy for constructive dialogue with shareholders as shown below:

   • The Company holds constructive dialogue with shareholders and other investors through investor relations to enhance its corporate value over the medium to long term.

   • The director/ corporate officer in charge of administration manages investor relations, and the IR team of the administration division carries out investor relation activities based on close cooperation with relevant internal departments.

   • The Company holds an information meeting for institutional investors every six months in Tokyo, in which the President gives an explanation of the financial results. The summary and presentation materials of the meeting are disclosed on the Company's website.

   • In principle, the director/ corporate officer in charge of administration shall, to the extent reasonable, attend individual meetings for institutional investors.

   • The Company arranges opportunities for the President or a director/ officer to have dialogue with foreign investors during their regular overseas visits for IR purposes.

   • The Company will hold meetings with its domestic and foreign institutional shareholders on an ongoing basis to help them deepen their understanding of its management policy and business strategy, and also to better grasp their views on exercising voting rights.

   • The Company makes efforts to enhance the disclosure of information about the Company's management policy, investment activity and financial conditions, as well as investor relations materials, through its website. The Company will work to enhance the details in the convocation notice of the General Meeting of Shareholders to provide accurate information to shareholders. Such information will also be provided in English to the extent possible depending on importance.

   • The opinions or suggestions obtained through dialogue with investors will be given as feedback to directors/ officers as necessary, and be reported at the Board of Directors meeting to be utilized for the Company's future management.

   • The Company appropriately controls the insider information in accordance with the internal rules to prevent external leaks.

2. Capital Structure

3. Foreign Shareholding Ratio More than 30%

   [Status of Major Shareholders] Updated

   Name / Company Name	Number of Shares Owned	Percentage (%)
   Nomura Holdings, Inc.	8,488,200	17.58
   Nomura Research Institute, Ltd.	4,948,000	10.25
   Japan Trustee Services Bank, Ltd.	4,629,700	9.59