Sanyo Shokai : Corporate Governance Report

Note: This document is an excerpt translation of the original Japanese document and is only for reference purposes.

In the any discrepancy between this translated document and the original Japanese document, the later shall prevail.

Corporate Governance Report

CORPORATE GOVERNANCESANYO SHOKAI LTD.

Last Update:	May 27, 2022
	SANYO SHOKAI LTD.
	Shinji Oe
	Representative Director
	President & Chief Operating Officer
Contact:	Yoshihiro Taniuchi
	General Manager, Investor Relations
	Corporate Management Headquarters
	03-3357-4111
Securities code:	8011
	http://www.sanyo-shokai.co.jp/

The corporate governance of SANYO SHOKAI LTD. (the "Company") is described below.

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

Basic Information

1. Basic Views

The Company's policies are based on achieving the return of profits to shareholders as well as social responsibilities through enhancing business results and corporate value. To achieve these, we are working to improve management efficiency, speed, and transparency.

The Basic CSR Policy within "SANYO SHOKAI Corporate Philosophy" (published on our website: http://www.sanyo-shokai.co.jp/) is as follows.

"Corporate social responsibility is a top priority for the Company. We pursue ongoing improvements in corporate value by making and selling apparel and offering services that are socially useful. We are committed to satisfying and building trust among all our stakeholders, including shareholders, customers, employees, suppliers, and local communities, by always ensuring that our operations are socially appropriate."

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

The principles are stated in accordance with the Code after the June 2021 revision.

The Company is implementing all the principles of the Corporate Governance Code.

Disclosure Based on the Principles of the Corporate Governance Code

[Principle 1.4: Strategic Shareholdings]

(1) Policy related to strategic shareholdings

In addition to shareholdings for the purpose of pure investment, which is solely aimed at generating profit from fluctuations in the value of stocks and from dividends related to stocks, we may also hold shares of other companies as strategic shareholdings when doing so contributes to the creation of business opportunities for the Company and to the establishment, maintenance, and strengthening of business and collaborative relationships.

1

In regard to each strategic shareholding, every year, upon confirming its purpose, recent dividend status, stock price, etc., the Board of Directors verifies the economic rationality in light of the Company's capital cost and, in addition, verifies the risks of continuing to hold the shares. As a result of the verification, for those shares which have diminished significance behind their holding, we will proceed with selling them in stages, taking into consideration the situation of the company concerned.

(2) Verification of the appropriateness of shareholdings

At the Board of Directors meeting held on February 26, 2021, we examined whether individual holdings were appropriate in light of the above criteria and, of the two stocks we held, a resolution was passed to hold one stock because it is currently pledged as collateral, and to sell the other stock since there is no recognized quantitative effect in holding it.

(3) Criteria for the exercise of voting rights

Upon consultation with each department in charge, the Representative Director & President makes decisions of approval or disapproval taking into consideration the perspective of whether or not the proposed content will contribute to the medium- to long-term improvement of corporate value and shareholder value pertaining to the issuing company, the impact on our Company's corporate value, and other factors.

[Principle 1.7: Transactions Between Related Parties]

The Company requires the prior approval of the Board of Directors in the event that any of the Company's Director conducts a conflict-of-interest transaction or a competitive transaction as stipulated in the Companies Act, and in addition, if any such transaction has been conducted, shall report such transaction to the Board of Directors without delay.

We distribute survey forms individually to the Board of Directors once a year to confirm whether or not there are any transactions with the Directors of the Company, affiliated companies, or subsidiaries, or with the close relatives of said Directors.

Transactions between major shareholders or other related parties are appropriately disclosed in accordance with the Companies Act, the Financial Instruments and Exchange Act, and other applicable laws, in addition to the provisions of the Tokyo Stock Exchange.

[Principle 2.4: Ensuring Diversity in the Promotion to Core Human Resources] [Supplementary Principle 2.4.1]

(1) Ensuring diversity

In order to respond to the rapidly changing market environment and transform our strength into becoming an organization that can constantly create new business with speed, we will actively and continuously recruit and promote diverse human resources such as women, foreigners, and mid-career hires with various work experience, while promoting efforts such as developing a working environment that allows them to make the most of their own characteristics and abilities and providing management development. We will continue to develop an environment where flexible and diverse work styles can be achieved such as the active participation of women, which we have been working on so far, the further promotion of diversity, and the use of flextime and telework. We have implemented human resources measures to promote diverse career paths and work styles, and to utilize the diversity of employees in our new business creation.

Regarding our views toward promotion, we believe that human resources are the most important capital for

2

enhancing corporate value over the medium to long term, and we will actively promote a diverse group of employees, regardless of gender or nationality or whether they are new graduates or mid-career hires. With an emphasis on ability and aptitude, we promote employees based on their personal characters that reflect their capabilities and achievements.

In addition, with respect to ensuring diversity in the promotion to core human resources, we will promote employees through evaluations that take individual abilities into consideration, regardless of their attributes.

1. Voluntary and measurable targets for ensuring diversity and the status of these efforts
   (i) Promotion of women to managerial positions
   We are developing an environment in which female employees can fully demonstrate their abilities and play an active role in the workplace, and we have set a target to increase the ratio of female employees in managerial positions to 20% or more for the period from April 1, 2021 to March 31, 2026.
   As of March 1, 2022, the ratio of female managers is 7.6%. We will continue to promote efforts to increase the number of candidates in order to increase the number of female managers in the future.
   (Note that the managerial positions correspond to managers and supervisors under the Labor Standards Act, and represent the total of general managers and division managers.)
   For other information regarding the active participation of women, please refer to the diversity initiatives disclosed under "Sustainability" on our website.

・Sustainability (https://www.sanyo-shokai.co.jp/company/sustainability/) (ii) Promotion of foreigners to managerial positions

We do not set any restrictions on promotion of employees according to nationality, but in view of the characteristics of our business, we have not set any target for the promotion of foreigners to managerial positions as of now. In the future, in accordance with our business development, etc., we will consider establishing and strengthening our system for the promotion to managerial positions.

1. Voluntary and measurable targets and the status thereof pertaining to promotion of mid-career employees to managerial positions
   As of March 1, 2022, the ratios of mid-career employees in managerial positions in the Company are 28.1% for general managers and 15.1% for division managers, representing 19.0% in overall.
   We will maintain our current target for the promotion of mid-career employees to managerial positions, while actively recruiting professional employees and fairly promoting a wide range of people in line with our policy on promotion, etc. in order to secure further diversity in the future (provisional target: 20% of mid-career employees in managerial positions).
   (3) Policies for human resource development and internal environment development to ensure diversity, as well as the status thereof

1. Human resource development policy to ensure diversity
   We work to develop highly specialized human resources who can respond sensitively to changes and needs of the society and professional employees who can support the growth and development of our business (development of human resources with expertise).
   We will recruit human resources with diverse abilities (promoting diversity), develop an environment where they can fully demonstrate their abilities (promoting inclusion), and promote "diverse work styles" as part of our efforts to build a foundation where diverse employees can play an active role.
2. Developing an environment to further the active participation of diverse human resources

3

We enable each employee to choose a more flexible work style by expanding the use of flextime and telework, and will make an effort to achieve work-life balance by respecting diverse work styles while at the same time improving productivity.

Since September 2017, we have not set core hours for the entire company and have been using a flextime work system.

(iii) Promotion of "diversity and inclusion"

We believe that promoting diversity and inclusion allows us to leverage the strengths of a diverse group of employees and provide them the opportunities to fully demonstrate their abilities, which will create new values and enhance our corporate competitiveness, thereby leading to enhanced corporate value. Regardless of gender, nationality, or disability, we respect the diversity in values and work styles, and will strive to create a corporate culture where all employees can play an active role and develop professionally.

1. Status of efforts to ensure diversity Support for employee career development:
   Implementation status of the career path system (promotion of mainly people who have experience working in stores)

・Career-track permanent employees: 2 persons (2021), 3 persons (2020), 11 persons (2019), 10 persons (2018), 5 persons (2017)

・Specialist permanent employees: 4 persons (2021), 4 persons (2020), 5 persons (2019), 2 persons (2018), 7 persons (2017)

Fair and equitable recruitment with an emphasis on diversity: Recruitment status of mid-career employees (excluding sales staff)

・New hires in 2021: 31 mid-career employees; new hires in 2020: 17 new graduates/20 mid-career employees;

new hires in 2019: 17 new graduates/45 mid-career employees; new hires in 2018: 16 new graduates/20 mid- career employees

[Principle 2.6: Roles of Corporate Pension Funds as Asset Owners]

The Pension Fund Asset Management Committee, which consists of members of the Accounting Department, Finance Department, and Human Resources Department including the General Manager of the Accounting & Finance Headquarters and the General Manager of the Personnel & Administration Headquarters, considers and decides the Company's pension fund management policy. The pension fund management policy aims to secure the required overall profit over the long term while considering risks in order to ensure that pension benefits to beneficiaries will be provided in the future.

When considering the policy, the Pension Fund Asset Management Committee hears opinions from multiple external fund management institutions, and formulates the strategic asset allocation from a medium- to long- term perspective.

[Principle 3.1: Enhancement of Information Disclosures]

1. Company objectives (e.g., business principles), business strategies, and business plan Please see the following on our website:

・Corporate Philosophy (https://www.sanyo-shokai.co.jp/en/company/corporate/philosophy.html)・Medium-Term Business Plan (Fiscal 2023-2025)

4

(https://www.sanyo-shokai.co.jp/en/company/ir/pdf/79_renketu_s2_en.pdf)・Fiscal 2022 Financial Results Explanatory Materials

(https://www.sanyo-shokai.co.jp/en/company/ir/pdf/79_renketu_s_en.pdf)

1. Basic policy on corporate governance based on each of the principles of the Code Please see the following on our website:

・Basic Policy on Corporate Governance (https://www.sanyo-shokai.co.jp/company/sustainability/governance/governance.html)

・Corporate Governance Policy (https://www.sanyo-shokai.co.jp/company/ir/pdf/cg_policy_20211117.pdf)・Annual Securities Report (https://www.sanyo-shokai.co.jp/company/ir/report.html)

1. Board policies and procedures in determining the compensation of the senior management and Directors Details are stated below in "Existence of methods to determine compensation or compensation policies" (II- 1(7)②).
2. Board policies and procedures in the appointment/dismissal of the senior management and the nomination of candidates for Directors and Corporate Auditors
   The Company has established the Nomination & Compensation Committee, chaired by an independent Outside Director, as a voluntary advisory committee to the Board of Directors in the deliberation and decision-making at the board meetings concerning the appointment or dismissal of senior management, the nomination of candidates for Directors and Corporate Auditors, as well as the compensations and compensation system for Directors and Managing Officers. By establishing the Nomination & Compensation Committee, we utilize the knowledge and advice of outside officers, while ensuring the objectiveness and transparency in the procedures related to the appointment or dismissal of senior management, the nomination of candidates for Directors and Corporate Auditors, as well as the compensations and compensation system for Directors and Managing Officers in order to enhance the function of corporate governance.
   The nomination of candidates for Directors or Corporate Auditors is, as a general rule, based on the following conditions: The candidates must have engaged in duties as a Managing Officer, General Manager, or the equivalent thereof for at least one year, be well-versed in the Company's business operations with extensive work experience, have excellent management acumen as well as ability to lead, take action, and plan, and in addition, possess the character and knowledge appropriate to the position of a Director or a Corporate Auditor. The nomination of candidates for Outside Directors or Outside Corporate Auditors is based on the following conditions: In addition to having excellent management acumen as well as ability to lead, take action, and plan, and possessing the character and knowledge appropriate to the position of a Director or a Corporate Auditor, the candidates must be a person with abundant experience in management or with expertise in various fields including law and accounting, who can be expected to fulfill the functions and roles of performing an objective and appropriate supervision or auditing, and whose independence can be ensured without any risk of conflict of interest with general shareholders.
   The standards for the independence of Outside Directors and Outside Corporate Auditors are as stipulated in the "Standards for the Independence of Outside Officers."
3. Explanations with respect to the individual appointments/dismissals of senior management and nominations of candidates for Directors and Corporate Auditors conducted by the Board of Directors based on (4) above The Company's reasons for the individual appointments of candidates for Directors and Corporate Auditors are described in the "Convocation Notice of the Annual General Meeting of Shareholders."

5