Sakai Moving Service : Corporate Governance Report

Corporate Governance Report

Last Update: November 11, 2021

Sakai Moving Service Co., Ltd.

Representative: Tetsuyasu Tajima, President and Representative Director Contact: Mikio Yamano, Managing Director ([phone])

Stock Code: 9039 https:www.hikkoshi-sakai.co.jp

This report explains the corporate governance framework of Sakai Moving Service Co., Ltd. (SMS).

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

1. Basic Views

The business activities of SMS are guided by a corporate philosophy based on the company's mission statement: Constantly aim for progress of business activities while contributing to communities and society by providing services that reflect a sincere commitment to customers. SMS positions the establishment of a corporate governance framework as one of its highest priorities and is taking actions to create and maintain this framework. Corporate governance is needed as an infrastructure for the discipline of corporate activities for the purposes of fulfilling the company's social mission and responsibilities as a publicly owned company and of achieving the consistent growth and advancement of business activities.

The basic policy for corporate governance is as follows.

1. Protect shareholders' rights and equality.
2. Maintain mutually beneficial relationships with stakeholders other than shareholders (customers, suppliers, creditors, communities and society, employees, and others).
3. Disclose information in an appropriate manner and maintain the transparency of corporate activities.
4. Ensure that the Board of Directors properly performs its roles and duties in order to make decisions with transparency, fairness, speed and boldness.
5. Conduct constructive dialogues with shareholders.

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

[Principle 1.2 Exercise of Shareholder Rights at General Meetings of Shareholders] [Supplementary Principle 1.2.4]

SMS will continue to examine the need for an English language translation of notices of the general meeting of shareholders based on the foreign shareholder ratio and other factors.

[Supplementary Principle 4.3.2]

There are no general evaluation standards or conditions for the selection of the company president, who is the chief executive officer. However, the president is selected properly after deliberation by the Nomination and Compensation Advisory Committee, of which the majority are independent outside directors, based on discussions of results of operations and other parameters for evaluating an individual's performance, changes in the business climate, and other items by the Board of Directors, which includes independent outside directors.

[Supplementary Principle 4.3.3]

There are no general evaluation standards or conditions for the dismissal of the company president, who is the chief executive officer. If an objective decision is made that dismissal is the proper course of action because the president has violated a law, regulation, provision of the Articles of Incorporation or some other guideline

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and, as a result, seriously damaged corporate value, the president may be dismissed by a resolution of the Board of Directors, which includes independent outside directors, after a thorough discussion of this matter.

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

[Principle 1.4 Cross-shareholdings]

Cooperation with real estate companies, homebuilders and many other companies is vital to achieving the continued growth of business activities. SMS purchases and holds the stock of other companies from a medium to long-term perspective concerning upcoming business activities and maintaining and strengthening relationships with companies that do business with SMS. These stock investments are monitored and managed as follows in accordance with Rules for Handling Financial Instruments.

1. The Board of Directors periodically receives reports concerning the current condition of cross- shareholdings. The directors verify if the purpose of holding the stock is appropriate, if the benefits and risk are suitable in relation to the cost of capital, and other items. Cross-shareholdings that are not consistent with the purpose of making these investments are reduced.

If the directors decide that there is no longer any rationale for owning a particular stock, the stock is sold after taking into consideration the current stock price, the effect of the sale on the stock price and other factors.

In October 2021, the Board of Directors completed an examination of all listed stocks owned by SMS.

1. When exercising the voting rights for cross-shareholdings, SMS thoroughly examines all proposals and does not support proposals by the company or one of its shareholders that SMS determines correspond to any of the following three cases: (1) an action that would be significantly detrimental to shareholder value,
   (2) an action that would have an extremely negative impact on results of operations for many years with no prospects for a recovery, and (3) any other proposal that SMS has serious doubts about supporting.

[Principle 1.7 Related Party Transactions]

The Board of Directors Regulations define related parties (SMS officers, group companies, major shareholders, etc.). All transactions between SMS and a related party must be approved by the Board of Directors.

[Principle 2.6 Roles of Corporate Pension Fund as Asset Owner]

SMS does not have a fund-type or contract-type defined benefit pension plan or welfare pension fund that is envisioned in the Corporate Governance Code.

[Principle 3.1 Full Disclosure]

1. Company Objectives (e.g., Management Philosophies), Management Strategies and Management Plans The business activities of SMS are guided by a corporate philosophy based on the company's mission statement: Constantly aim for progress of business activities while contributing to society by providing services that reflect a sincere commitment to customers. SMS positions the establishment of a corporate governance framework as one of its highest priorities and is taking many to create and maintain this framework.

Corporate governance is needed as an infrastructure for the discipline of corporate activities for the purposes of fulfilling the company's social mission and responsibilities as a publicly owned company and of achieving the consistent growth and advancement of business activities.

Information about management strategies and management plans is provided in documents used at information meetings for results of operations and is disclosed in other ways.

1. Basic Views and Guidelines on Corporate Governance Based on the Principles of the Corporate Governance Code

This subject is described in "I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information, 1. Basic Views."

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(iii) Policies and Procedures in Determining the Remuneration of Senior Executives and Directors by the Board of Directors

The basic policy for the determination of remuneration for directors and the method for calculating remuneration places emphasis on the operation of business activities and the oversight of management, which are the two primary duties of the directors. This information is provided in the Securities Report. The draft prepared in accordance with the basic policy is deliberated by the Nomination and Compensation Advisory Committee, of which the majority are independent outside directors, and the decision is made by the Board of Directors after receiving the report of the committee.

1. Policies and Procedures in the Appointment and Dismissal of the Senior Executives and the Nomination of Candidates for Directors (Excluding Directors who are Audit and Supervisory Committee Members) by the Board of Directors

Appointments and Dismissals of senior executives and nominations of director candidates (excluding directors who are Audit and Supervisory Committee members) and nominations of Audit and Supervisory Committee members are conducted by performing comprehensive examinations from the standpoint of placing the right people in the right positions. For senior executives and director candidates (excluding directors who are Audit and Supervisory Committee members), the key considerations are making accurate and speedy decisions, properly managing risk, supervising how business operations are conducted, and achieving the balance needed to cover all of the functions and business units of SMS. For Audit and Supervisory Committee members, the key considerations are a knowledge of finance, accounting and legal matters, an understanding of the business activities of SMS, and a variety of perspectives about corporate management in order to achieve the proper balance of knowledge and skills for this committee.

The representative director uses opinions from various sources and information about the performance, character, knowledge and other aspects of candidates in order to select individuals who are best suited to perform the required duties. Objectivity and transparency of the procedures are ensured through deliberation by the Nomination and Compensation Advisory Committee, the majority of whose members are outside directors.

(v) Explanations of Individual Appointments and Dismissals and Nominations with Respect to Appointments of Senior Executives and Nominations of Candidates for Directors by the Board of Directors based on (iv) above

SMS discloses its reasons for appointing, dismissing and nominating candidates for directors in notices of the general meeting of shareholders.

[Supplementary Principle 4.1.1]

The Board of Directors Regulations state that the following items can be submitted to the board. In addition, senior executives are entrusted with conducting business activities. These executives appropriately perform their duties in accordance with the company's mission statement, basic policies and all applicable rules (Regulations for Assignment of Duties, Regulations for Decisions and others).

1. Items prescribed by laws and regulations and the Articles of Incorporation
2. Important items concerning management, including matters involving the SMS Group
3. Other items that the Board of Directors decides are necessary

[Principle 4.9 Independence Criteria and Qualification for Independent Outside Directors]

Candidates for independent outside directors are selected by using the independence standards of the Tokyo Stock Exchange.

[Supplementary Principle 4.11.1]

There are currently 12 directors, including directors who are Audit and Supervisory Committee members. SMS believes that this is the proper number of directors for reaching decisions quickly.

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The composition of the Board of Directors provides expertise concerning the management and urgent issues of every business unit and has excellent balance regarding knowledge, experience, skills and other characteristics, including for outside directors (including directors who are Audit and Supervisory Committee members).

SMS plans to continue using the current size of the Board of Directors and stance regarding the board as the guidelines when selecting future director candidates.

[Supplementary Principle 4.11.2]

Information about concurrent positions of SMS directors (including directors who are Audit and Supervisory Committee members) at other listed companies is provided in notices of the general meeting of shareholders.

[Supplementary Principle 4.11.3]

All directors (including directors who are Audit and Supervisory Committee members) complete questionnaires to perform a self-assessment, with the input of a third-party organization, in order to analyze and evaluate the effectiveness of the Board of Directors.

(i) Evaluation method

Questionnaire with the name of the director submitting responses (ii) Questions

1. Roles and functions of the Board of Directors
2. Size and composition of the Board of Directors
3. Operation of the Board of Directors
4. Cooperation with auditing units
5. Communication with senior executives
6. Relationships with shareholders and investors

1. Responses and tabulation

A third-party organization collected the questionnaires and tabulate the responses. (iv) Analysis and evaluation

Based on the results of this process, the Board of Directors performed an analysis and evaluation of the board's effectiveness and discussed issues and actions that should be taken.

(v) Summary of analysis and evaluation results

The analysis and evaluations performed by the Board of Directors confirmed that the board is properly performing the roles expected of the board and that the board's effectiveness is sufficient regarding the following points. These conclusions are based on the results of the questionnaire response analysis and discussions by the directors concerning the results, including items that have been improved since the analysis and evaluation performed in the previous fiscal year.

Although the Board of Directors confirmed that improvements have been made overall since the previous fiscal year regarding discussions, the board's operation and other items, more improvements will be made.

1. Sufficient discussions that are consistent with the corporate philosophy and other guidelines
2. Suitability of the timing, frequency and length of board meetings and of items to be resolved and reported
3. Proper size and composition of the board
4. Sufficient and proper number, percentage, skills and other characteristics of outside directors and clear definition of expected roles of outside directors
5. Existence of a framework for the timely and suitable provision to shareholders and others of information

about management strategies and other subjects

The Board of Directors identified the following items that require more improvements.

1. More thorough discussions about nominations, remuneration and succession planning
2. Supervision of succession planning
3. More thorough discussions about sustainability

1. Upcoming activities
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The Board of Directors will use the results of this analysis and evaluation as issues to resolve regarding the board's operation during fiscal 2021. In addition, the directors will continue to discuss medium and long-term issues at board meetings.

The Board of Directors plans to continue performing self-evaluations in order to make more improvements in the board's functions.

[Supplementary Principle 4.14.2]

For the growth of corporate value, there are suitable training programs, both internal and external, that match the duties of each officer.

Outside directors receive information that they require to perform their duties properly.

[Principle 5.1 Policy on Constructive Dialogue with Shareholders]

SMS has the following policies for the framework and activities for constructive dialogues with shareholders.

1. The director responsible for investor relations oversees activities involving shareholder dialogues, including information meetings for results of operations, information meetings for individual investors and a broad range of other activities.
2. SMS departments associated with shareholder dialogues prepare disclosure materials and share necessary information to play a role in constructive dialogues with shareholders.
3. SMS uses individual meetings with shareholders as well as investor information meetings for results of operations, shareholder questionnaires and other activities in order to upgrade information that is disclosed by reflecting the opinions and requests of investors.
4. As needed, feedback from shareholders at dialogues is reported to the Management Committee and Board of Directors to enable directors, senior executives and departments of SMS to utilize this information.
5. IR activities are restricted for a certain period prior to earnings announcements in order to temporarily stop dialogues with investors.
   For the management of insider information, everyone associated with insider information is required to manage this information strictly in accordance with the Internal Information Management Regulations.

2. Capital Structure

	Foreign Shareholding Ratio	From 20% to less than 30%
[Status of Major Shareholders]
Updated
	Name / Company Name	Number of Shares Owned		Percentage (%)
	ai Co.,Ltd.	7,077,000		34.47
	MISAKI ENGAGEMENT MASTER FUND	2,332,400		11.36
	Tetsuyasu Tajima	1,180,900		5.75
	Michitoshi Tajima	1,154,100		5.62
	The Master Trust Bank of Japan, Ltd. (Trust Account)	1,129,300		5.50
	BBH FOR FIDELITY LOW-PRICED STOCK FUND	1,120,854		5.45
	(PRINCIPAL ALL SECTOR SUBPORTFOLIO)
	Sakai Moving Service Employee Stock Ownership Plan	620,500		3.02
	THE BANK OF NEW YORK MELLON 140042	505,359		2.46
	Custody Bank of Japan, Ltd. (Trust Account)	365,700		1.78
	STATE STREET BANK AND TRUST COMPANY	279,800		1.36
	505224

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