Corporate Governance Report [PDF:1,430KB]

This document has been translated from the Japanese original (as submitted to the Tokyo Stock Exchange) for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Daiwa Securities Group Inc. assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Corporate Governance Report

Last Update: August 19, 2021

Daiwa Securities Group Inc.

President and CEO Seiji Nakata

Contact: 03-5555-1111

Securities Code: 8601

http://www.daiwa-grp.jp/english/index.html

The corporate governance of Daiwa Securities Group Inc. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and

Other Basic Information

1. Basic Views Updated

The Company will respect the rights and interests of the shareholders, consider the position of all stakeholders and strive for sustainable growth and improvement of medium to long term corporate value through realization of our corporate principles "Building trust", "Placing importance on personnel", "Contributing to society" and "Maintaining healthy earnings results".

For that purpose, the Company practices group management based on a holding company structure, establishes a highly transparent and objective governance structure that conforms to international standards, realizes highly efficient oversight of group companies and builds a unified group management system that elicits synergies among group companies. To achieve that, the Company has established "Daiwa Securities Group Inc. Corporate Governance Guidelines" to define the basic framework and policies of the Daiwa Securities Group's corporate governance. For the contents of the guideline, please check the website below.

(https://www.daiwa-grp.jp/about/governance/pdf/corporate_governance_guideline.pdf)

The Company has adopted a company with Three Committees System (a company with nominating committee, etc.) as an institutional design in order to supervise management through the following (1) and (2).

1. Making swift and decisive decisions by having the Board of Directors assign wide-ranging authority to Corporate Executive Officers and clarifying the division of duties among Corporate Executive Officers.
2. Improving transparency and fairness of the management by establishing three committees: the Nominating Committee, Audit Committee and Compensation Committee with highly independent Outside Directors as a majority of their members.

Furthermore, the Company positively addresses corporate social responsibility activities in order to obtain trust from all of the stakeholders. There are indeed various aspects to corporate social responsibility, such as providing superior products, services, and sincere responses to customers; returning profits appropriately and disclosing information to shareholders; measures for labor environment and evaluation of the employees; establishing legal compliance and corporate ethics; environmental management; as well as social contribution.

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The Company believes that these approaches, together with a strengthened corporate governance system which emphasizes transparency, mobility and efficiency will lead to the sustainable improvement of the corporate value.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

The Company complies with all principles of the Corporate Governance Code.

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

【Principle 1-4】 Strategic Shareholding Shares

• The Company and Daiwa Securities Co. Ltd. hold the strategic shareholding shares only when they determine that such shareholding serves their strategic interests. Furthermore, the Company regularly verifies the significance of such shareholding and will sell shares which are determined to be insignificant considering the impact on the market and other matters which should be taken into consideration.
  Total amount (book value) of the strategic shareholding shares* sold from the end of March 2016 to the end of FY2020: 6.6 billion yen (▲11%).
• • Excluding shares held for the purpose of alliance.
• In the verification of the significance of the shareholding, the Company checks whether such shareholding contributes to the enhancement of medium to long term corporate value of the Company group from the viewpoint of economic rationality (i.e. whether the returns from the shares such as revenues related to client companies or dividend income exceed the standard capital cost) and objectives for the shareholding (e.g. potential for growth and enhancement of business relationships, etc.).
  Moreover, the Board of Directors regularly verifies the significance of each strategic shareholding shares.
  *The result of the verification at the end of March 2021 is as follows:
  Excluding shares held for the purpose of alliance, around 80% of the client companies exceed the target value.
  For the other approximately 20% of the client companies which are below the target value, the Company will verify qualitative aspects of the shareholding such as maintenance and enhancement of future business relationships with these companies and aim to improve the profitability of the shareholding. However, if the profitability of the shareholding does not improve in a certain period, the Company will consider selling such shares.
• With regard to the exercise of the voting rights of strategic shareholding shares, the Company integrally determines whether or not each proposal should be approved taking into account the need to enhance medium to long term corporate value of both the strategic shareholding company and the Company group.
  Especially for the important proposals of the following proposals that could significantly affect the corporate value or shareholder interests, the Company will exercise the voting rights through dialogue with the client company if necessary.
• • Election of directors or audit & supervisory board members
  • Anti-Takeovermeasure
  • Organizational restructure
  • Distribution of Dividends of surplus, etc.
• In addition, if there is a possibility of a conflict of interest in exercising the voting rights, the Company will take appropriate measures in accordance with the Management Policy for Conflict of

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Interest of the Company.

【Principle 1-7】 Transactions between Related Parties

• In order to avoid any prejudice to the Company and the common interests of its shareholders, the Company has established Regulations of the Board of Directors that a prior approval of the Board of Directors is necessary in cases where the Company conducts transactions with the Directors or Corporate Executive Officers (Shikkoyaku) of the Company or major shareholders, etc., unless the terms and conditions of the transactions are the same as those of general transactions.

【Principle 2-6】 Roles of Corporate Pension Funds as Asset Owners

• Each company of the Company group, including the Company, adopted a Defined Contribution Pension Plan to allow each employee to freely build his/her assets according to his/her life plan.
• The Company has selected Daiwa Securities Co. Ltd., a subsidiary of the Company, as the DC provider and encourages employees of each company adopting the Defined Contribution Pension Plan to provide education for the subscribers and use a matching contribution plan.

【Principle 3-1】 Enhancement of Information Disclosure

1. The Company enacts and discloses the Corporate Principles. The Company also has developed and disclosed Medium-Term Management Plan on its website.
   Corporate Principles

（https://www.daiwa-grp.jp/english/about/management/philosophy.html）

Medium-Term Management Plan

（https://www.daiwa-grp.jp/english/about/story.html）

1. The basic views on Corporate Governance of the Company group are described in "I. 1. Basic Views" of this report.
2. The Company decides on the policy regarding the compensation of the Directors and Corporate Executive Officers (Shikkoyaku) in the Compensation Committee and has disclosed the policy on the Notice of Convocation of the Ordinary General Meeting of Shareholders, securities reports, and "II. 1. Organizational Composition and Operation, etc." of this report.
3. With regard to the election of Directors, the Nominating Committee, which is made up of a majority of Outside Directors, determines the candidates for the Directors. An overview of the procedure is disclosed in securities reports and "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.
   Based on the Regulations of Board of Directors, appointment and dismissal of the CEO and other Corporate Executive Officers (Shikkoyaku) are determined by the Board of Directors. The Board of Directors will appoint or dismiss based on the discussions of the Nominating Committee. The Board of Directors resolves the appointment and dismissal of the CEO based on the discussions at the Nominating Committee. The Board of Directors will dismiss the CEO and other Corporate Executive Officers (Shikkoyaku), if the Board of Directors judges that the CEO or a Corporate Executive Officer (Shikkoyaku) cannot dully fulfill his/her duties and considers it appropriate to dismiss such CEO or Corporate Executive Officers (Shikkoyaku).
4. The reasons for the election of Directors, including the Director holding concurrent post of representative Corporate Executive Officer (Shikkoyaku), are explained in the Appendix 1 of this report. With regard to the Outside Directors, the reasons for election are described on "Reasons for Appointment" of "Outside Directors' Relationship with the Company (2)" of [Outside Directors] of "II. 1. Organizational Composition and Operation, etc." of this report.

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【Supplemental Principle 4-1-1】 Scope of Delegation to the Managers

• In order to promote swift decision-making and efficient group management, the Board of Directors of the Company, in principle, delegates the decision-making authority regarding the execution of operations to the Corporate Executive Officer (Shikkoyaku) or the Executive Management Committee, which is comprised of the Corporate Executive Officers (Shikkoyaku), except for the matters that, according to the laws and regulations, have to be decided by the Board of Directors.

【Supplemental Principle 4-1-3】 Succession plan for the CEO

• The CEO establishes a succession plan for the CEO based on management strategy, business strategy and etc., and reports to the Nominating Committee. The Nominating Committee supervise its content properly.
• In case of unexpected situations for the CEO, COO will act for the CEO. The CEO will also establish a succession plan in case of unforeseen situations.

【Principle 4-9】 Independence Criteria and Qualities of the Independent Outside Directors

• The Company formulates evaluation criteria on the independence for becoming an Independent Outside Director at the Nominating Committee. Such criteria are disclosed in securities reports and "2. Auditing and Oversight (1) Nominating Committee" of "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.

【Supplemental Principle 4-11-1】 Structure of the Board of Directors

• The Board of Directors of the Company consists of all Directors, of which there are between three and twenty. In order for the Board of Directors to exercise the supervisory function over the management more appropriately, two or more and one-third or more of the members of the Board of Directors shall be independent Outside Directors with a high degree of expertise and a sense of ethics.
• As a general rule, the majority of Directors do not concurrently serve as Corporate Executive Officers (Shikkoyaku)
• Regarding the personnel composition of the Board of Directors, the Company endeavors to ensure a balance of knowledge, experience and abilities, and diversity including gender, internationality, etc. The Company aims to increase the ratio of female Directors to 30% or more by 2030.

【Supplemental Principle 4-11-2】 Status of Holding Concurrent Posts

• Status of holding concurrent posts of the Outside Directors is disclosed on the Notice of Convocation of the Ordinary General Meeting of Shareholders and "II. 1. Organizational Composition and Operation, etc." of this report.
• The status of other Directors is described in the Appendix 2 of this report.

【Supplemental Principle 4-11-3】 Evaluation of the Board of Directors

• The Company implements the effectiveness evaluation of the Board of Directors annually.
• The Company takes a survey for all of the Directors. Based on the results of the survey, the Company implements the interview for them, and analyzes and evaluates the results of those interviews. The results of the evaluation are reported to the Board of Directors and discussed by the directors in order to implement PDCA cycle. The Company endeavors to maintain and enhance the effectiveness of the Board of Directors using such PDCA cycle.

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＜Measures in response to the results of the evaluation of the effectiveness of the Board of Directors in FY2019＞

• Based on the issues pointed out in the evaluation of the effectiveness of the Board of Directors in FY2019, the Company reconfirmed the role of the Outside Directors and clarified it in Corporate Governance Guidelines. Also, the Company has strengthened its support for the Outside Directors by actively utilizing the Outside Directors' meetings and promoting information sharing, etc. Furthermore, the Company actively discussed strengthening group governance, "Customer First" operations, further promotion of SDGs/ESGs initiatives, DX (digital transformation), and potential risks related to the spread of coronavirus (COVID-19), etc.

＜Overview of the results of the evaluation of the effectiveness of the Board of Directors in FY2020＞

• Regarding the evaluation of the effectiveness of the Board of Directors in FY2020, the Company evaluated the following items with reference to the advice of an external third-party organization and confirmed that the effectiveness is ensured.
  Evaluation Items
  1. Strategy and its execution, 2. Risk and crisis management, 3. Corporate culture, 4. Performance monitoring, 5. Investment and business alliance, etc. 6. Engagement with stakeholders, and 7. Composition and operation of the Board of Directors.
• Directors pointed out that it is necessary to strengthen monitoring of the new Medium-term Management Plan and risks, and to discuss DX and SDGs/ESG. Furthermore, there was an opinion that it is necessary to deepen the common understanding of the functions and roles of the Board of Directors and to further streamline the operation of the Board of Directors.
• The Company will continuously endeavor to enhance the effectiveness of the Board of the Directors to earn trust from various stakeholders and improve the corporate value sustainably.

【Supplemental Principle 4-14-2】 Policy on Training for the Directors

• The Company provides training and explanations to newly appointed Directors when they take office so that they can effectively fulfill their roles and duties, and continues to support for them to acquire information and knowledge to fulfill their roles even after taking office.
• For Outside Directors, the Company shares sufficient internal information and bears the expenses for the Outside Directors to fulfill their roles (use of outside experts, etc.)
• The Company provides a wide range of training content, including description of business of the Company, laws, regulations and compliance, corporate governance, and the roles and duties of officers, etc. and supports directors to fully fulfill their functions.
  ＜Training implementation status in FY2020＞

• Training for newly appointed officers (April) Participants: newly appointed officers of the Group
  Contents: Management policy, Authority and responsibility of officers, Governance system of

the Group, Legal position of officers, Labor administration and social trends, etc.

• Training for officers (July)

Participants: officers of the Company and Daiwa Securities Co., Ltd.

Contents: Change of society based on the technology and management, Recent trends in compliance, Basics and practices of harassment prevention, etc.

• Training for newly appointed Outside Directors
• Training for Outside Directors (October) Participants: Outside Directors of the Company
  Contents: Global risks, Issues of securities business and the direction to aim for
• Compliance Training for officers (December)

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