Keisei Electric Railway : Corporate Governance Report 2021/7/6

Corporate Governance Report

Last Update: July 6, 2021

Keisei Electric Railway Co., Ltd.

Toshiya Kobayashi, President and Representative Director Securities Code: 9009 https://www.keisei.co.jp/

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

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

1. Basic Views

In our business operations, the Company puts safety and security first under the Keisei Group Philosophy. We believe that we need to improve our corporate governance to earn the trust of all stakeholders, achieve sustainable growth, and maximize the enterprise value of the Group. Specifically, to increase the health and transparency of management, we are working to improve our systems for speedier and more efficient decision-making, stricter supervision, more effective internal control, and the proper and timely disclosure of information.

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

The Company implements all principles of Japan's Corporate Governance Code.

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

[Principle 1.4 Cross-shareholdings]

We may engage in cross-shareholding when it is deemed that cross-shareholdings will help build, maintain, or strengthen transactional relationships or partnerships with the cross-shareholding company, and that relationship will contribute to increasing the medium- to long-term value of the Company and our Group. Every year at the Board of Directors meeting, we report on the status of transactional relationships and partnerships to conduct quantitative and qualitative evaluations of income benefits and risks related to stock retention, and assess medium and long-term economic viability in order to validate retention. Based on this validation, we immediately dispose or reduce stocks for which we cannot validate retention.

When exercising voting rights, we examine voting decisions from the perspective of increasing the medium and long-term value of the Company and our Group, and vote against any motions that oppose our reason stock retention.

[Principle 1.7 Related Party Transactions]

In accordance with the Companies Act and the Financial Instruments and Exchange Act, our Board of Directors conducts annual checks to confirm the existence and details of any our Company's transactional relationships with Company executives and their family members (up to second degree of kinship) and our Group as well as our Company's transactional relationships with any companies in which Company executives and their family members (up to second degree of kinship) substantially obtain a majority share of voting rights. Furthermore, if an executive will conduct competitive transactions or transactions in

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opposition to the Company's interests, the executive must receive prior approval from the Board of Directors and report to the Board of Directors on the results of said transaction.

[Principle 2-6 - Fulfilling Functions as Corporate Pension Asset Owner]

The Company does not utilize a fund type or defined benefit pension or welfare pension fund.

[Principle 3.1 Full Disclosure]

1. Company Vision (Corporate Philosophy, etc.), Corporate Strategy, Corporate Plan
   The Keisei Group philosophy and long-term management plan are published on our website. (Website: https://www.keisei.co.jp/keisei/ir/english)
2. Basic Views and Basic Policy on Corporate Governance See Section I-1, Basic Views in this report.
3. Policy and Procedures for the Board of Directors to Determine Compensation of Executive Management and Directors
   The Company submitted a proposal on policies for determining matters related to individual compensation for directors for a review of adequacy by the Nomination/Compensation Committee. Based on the results of that review, the Company Board of Directors passed a resolution adopting said policies at the Board of Directors' meeting convened on February 26, 2021.
   The Company's main operation is the transportation business, a business deeply tied to the public. We are keenly aware that responding to the expectations of shareholders, customers, employees, and local society means ensuring healthy business management and stable and continuous profit returns. As such, compensation to Company directors is comprised of two portions: compensation determined based on factors such as position, operating environment, and operating performance, and compensation outlined for the acquisition of company shares, which we position at compensation linked to medium- to long- term performance. We believe this structure increases incentives for directors to contribute to increasing the Company's medium- to long-term corporate value. Furthermore, payments are issued monthly and we do not issue bonuses or retirement benefits.
   The Board of Directors defers decisions on the specific details of compensation amounts for individual directors to the Company president. The reason for consigning this authority to the Company president is that the Company president is in the position of having a comprehensive understanding of overall Company performance. As such, it is the determination of the Company that they Company president is the most appropriate party to make decisions on the details of compensation for individual directors. To ensure that authority is exercised appropriately, the Nomination/Compensation Committee, which reports directly to the Board of Directors and is comprised mainly of independent outside directors, evaluates the adequacy of proposals put forth by the Company president and reports the results of their deliberations to the Board of Directors, which then votes on whether or not to consign decision-making to the Company president. Company requires that the Company president make decisions on individual compensation based on the report issued by the Nomination/Compensation Committee.
   Furthermore, when deciding on the details of individual compensation for directors, as the Nomination/Compensation Committee evaluates the adequacy of proposals, in principle, the Board of Directors respects the results of the Nomination/Compensation Committee and judges those results as being in line with policies on decision-making.

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1. Regarding Policy and Procedure for Appointing and Removing Executive Management and Nominating Candidates for the Positions
   Based on our Company scope and operations, to ensure efficient deliberations, we believe up to 20 directors and up to five auditors is the appropriate member composition for our Board of Directors. When the Board of Directors will appoint director/auditor candidates and nominate executive management, the Company president shall create a proposal that prioritizes balance (knowledge, experience, skills, year, etc.) and diversity with a focus on candidates who share Keisei Group philosophy and values such as safety and security first, legal and regulatory compliance, and who have the advanced experience, competence, and knowledge to contribute towards maximizing our Group value. The same standards are applied when making decisions on the removal of executive management.
   The appointment of director candidates, the nomination or removal of the representative director and executive directors, and decisions on the responsibilities of managing directors shall be based on a motion submitted by the Company president. The Nomination/Compensation Committee, which is comprised of independent external directors who report to the Board of Directors, evaluates the adequacy of the president's proposal, after which deliberations are held by the Board of Directors and a decision is made.
   In a case where the removal of a director is deemed truly necessary, the Nomination/Compensation Committee will evaluate the adequacy of that decision and, after deliberation by the Board of Directors, present a motion for removal at the General Meeting of Shareholders.
   For the nomination of Audit & Supervisory Board Members, the Company president will select candidates with knowledge related to finance and accounting. Nominations shall require approval from the Audit & Supervisory Board, which is comprised of five members, of which four members are independent outside Audit & Supervisory Board Members, and then voted on by the Board of Directors.
2. Explanations by the Board of Directors for Individual Appointments or Removal and Nominations when Appointing or Removing Executive Management and Nominating Candidates for the Positions of Director and Audit & Supervisory Board Member based on (4) above
   The career histories and reasons for selection for each director and Audit & Supervisory Board candidate as well as the reasons for removal for any directors to be removed shall be indicated in the "Notice of the Ordinary General Meeting of Shareholders".

[Supplementary Principle 4.1.1]

The Company Board of Directors votes on matters that by law require a vote of the Board of Directors and matters defined in the Board of Directors Bylaws. The Board of Directors Bylaws also stipulate that when the Board of Directors only votes on the basic matters or critical matters of a motion, the president may determine detailed matters, or the president may designate an executive director to decide on business operations within the scope delegated in accordance a resolution by the Board of Directors. Furthermore, we separately outline Work Authority Regulations in which we clarify authority and responsibilities in relation to business operations with the aim of ensuring the efficient management of operating activities.

[Principle 4.9 Independence Standards and Qualification for Independent Directors]

Referencing the judgment standards outlined by the Tokyo Stock Exchange related to independence of independent directors, the Company outlines the following as standards for judging the independence of outside executives (outside directors and outside Audit & Supervisory Board Members).

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(Criteria related to the independence of outside directors)

In principle, persons not applicable to any of the following conditions are considered independent outside directors.

1. Persons applicable to any of the following a through f during the past three fiscal years
2. 1. A party that is a major transaction partner (annual transaction amount equivalent to 2% or more of the Company consolidated operating income, or 2% or more of that company's consolidated operating income), or an executive (executive director, executive officer, owner, or employee) of said company.
   2. A party that is a major lender (a financial institution or other large-scale bondholder upon which the Company is dependent for capital procurement during that fiscal year to an extent that is irreplaceable) of the Company, or an executive of said company.
   3. A party that receives compensation from the Company beyond executive compensation that exceeds the value of 10 million yen per year in cash or other assets as a consultant, accountant or legal professional.
   4. If the party receiving the income outlined in c. above is an organization, then a party associated with organizations for which payments from the Company to that organization during any given fiscal year exceed 10% of that organization's total annual revenues.
   5. Company major shareholders (a shareholder retaining stock equivalent to 10% or more of voting rights) or their executive
   6. A party or receiving contributions from the Company exceeding 10 million yen during a given fiscal year, or their executive
3. The Spouse or Relative within the Second Degree of Kinship to the Persons outlined below.
4. 1. Persons outlined in (1) above
   2. A person who is currently or in the past three years has been an executive of the Company or a Company subsidiary
   3. A person who is currently or in the past three years has been a non-executive director of a Company subsidiary

[Supplementary Principle 4.11.1] Refer to Principle 3.1 (4).

[Supplementary Principle 4.11.2]

Information on important concurrent positions of directors and Audit & Supervisory Board members is published annually in the "Notice of the Ordinary General Meeting of Shareholders" reference documents and the marketable securities report.

[Supplementary Principle 4.11.3]

1. Method of Evaluation
2. • 
     The Company explained the gist of the Board of Directors efficacy evaluation to all directors and Audit
   • Supervisory Board members and then distributed questionnaires related to each assessment item. Based on those responses, a six-person evaluation committee comprised of the chair of the Board of Directors (chairperson), the president, the director in charge of general affairs, and three independent
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outside directors (two outside directors, one full-time Audit & Supervisory Board member), analyzed and evaluated the overall effectiveness of the board of directors.

1. Assessment Items and Evaluation Results for Each Item
   The assessment items applied in the analysis and evaluation, and the result of each assessment item are shown below.
2. 1. Scope of Board of Directors: Appropriate number of members for the company scope and operations format
   2. Structure of the Board of Directors: Structure is appropriate for the current status of the Company in terms of the necessary balance of skills, knowledge, and experience, the status of diversity, and in terms of consistency with current strategy.
   3. Operating status of Board of Directors' meetings: Meeting frequency and time allocation is appropriate and agenda details, materials, and explanations are appropriate. Meeting procession is appropriate and appropriate deliberations are made concerning decision-making.
   4. Relationships with shareholders and other stakeholders: Board of Directors' meetings appropriate incorporate the perspective of major shareholders and other stakeholders.
   5. Environment supporting risk-taking: The Board of Directors functions to promote appropriate risk- taking by executive directors primarily in the transportation business and based on the characteristics of Company operations.
   6. Monitoring of the Board of Directors: The Board of Directors mutually and appropriately monitors the representative director, executive directors, and other directors.
3. Summary of Results of Board of Directors Efficacy Evaluation
   Through an analysis and evaluation of each assessment item, we confirmed that the Company Board of Directors is sufficiently effective. Furthermore, in response to issues identified during the previous fiscal year, we provided preliminary explanations to both outside directors and outside Audit & Supervisory Board Members to increase opportunities for information sharing and to promote more active deliberations. We also increased the number of outside directors by one, resulting in outside directors representing one-third of the Board of Directors. We will reference the perspective gained through this efficacy evaluation as we continue working to improve the functionality of the Board of Directors.

[Supplementary Principle 4.14.2]

Newly appointed directors other than outside directors are provided documentation outlining the Company code of conduct for directors. Also, the Company president conducts seminars to increase awareness. Furthermore, the Company bears the expense required to dispatch directors for outside training in order to provide opportunities to acquire the necessary knowledge and information related to the roles and responsibilities of a director. Once per year, we invite outside experts to conduct seminars on management topics.

Newly appointed outside directors and outside Audit & Supervisory Board Members are provided with information related to Company operations and history, business strategy, and core policy. Also, outside directors and outside Audit & Supervisory Board Members are provided with opportunities for on-site tours to ensure an appropriate understanding of Company and Group company operations.

[Principle 5.1 Policy on Constructive Dialogue with Shareholders]

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