Systena : Corporate Governance Report

Corporate governance

Last Update: June 30, 2021

Systena Corporation

Miura Kenji, President & Representative Director Contact: Corporate Administration 03-6367-3841 Securities Code: 2317 https://www.systena.co.jp/

The corporate governance of Systena Corporation (the "Company") is described below.

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

１．Basic policy

The Company intends to enhance corporate governance with the aim of responding to rapid changes in the business climate, to promote management emphasizing speed based on prompt decision-making to increase management efficiency, to work toward sustainable growth of the business, increasing shareholder value and continuous shareholder returns, to harmonize the interests of shareholders, customers, business partners, employees, local communities and other stakeholders (interested parties) and to maximize general benefits as a whole while endeavoring to secure soundness in management and full regulatory compliance.

To achieve this, the Company intends to take very seriously the advice and suggestions of the audit corporation, other external experts and stakeholders and will work to enhance the fairness and transparency of management, to build systems appropriate to the size of the Company using its inherent mobility, to further promote self-improvement as a listed company in full awareness of stakeholders, to enhance corporate governance and to disclose information in a timely and appropriate manner.

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

Update

Principle 1-2 Exercise of Shareholder Rights at General Shareholder Meetings Supplementary Principle 1-2-4

In view of the current situation regarding the exercise of voting rights of institutional investors and foreign investors who are shareholders of the Company, the Company believes that the current written vote system does not pose a major obstacle. The Company will consider the creation of an infrastructure allowing electronic voting (such as the use of the Electronic Voting Platform), and English translations of the convening notices of general shareholder meeting in light of trends in the shareholding ratios and exercise of voting rights of such investors in the future.

Supplementary Principle 4-1-3 Succession Plan for the CEO and Other Top Executives

The Company has two Representative Directors, a Chairman & Representative Director, who is the founder, and a President & Representative Director, who is in his early 50s. The Company is in the "owner-operating company" stage of development, in other words, the Chairman & Representative Director, who is the founder, is directly involved as Chief Executive Officer in steering management based on a management policy of selection and concentration, and since the succession plan for the CEO currently depends on the future business environment and management policy, the Company believes that giving the Chief Executive Officer sole prerogative is best for the Company's development. Accordingly, the Board of Directors is not currently involved in the formulation or implementation of a specific succession plan. The Company will consider this matters as necessary in the future.

Supplementary Principle 4-3-3 Establishment of an objective, timely and transparent procedure for CEO dismissal

The Company adopts a structure whereby the Chairman & Representative Director, who is also the founder and the owner-operator, steers the general direction of management as Chief Executive Officer, while the President & Representative Director leads internal operations as Chief Operating Officer with an appropriate evaluation of business results and other factors. In addition, the Company structure is such that the Representative Directors are kept in check by seven Outside Officers (three Outside Directors and four Outside Audit & Supervisory Board Members) who each meet the requirements of independent officers, and the Company believes that if a situation which might involve the dismissal of a Representative Director arose, the Board of Directors would come to a decision through discussion based on recommendations of the Independent Officers and would be able to deal with the situation. Accordingly, the Company has not, at present, established an objective, timely and transparent procedure for CEO dismissal. The Company will consider the matters where necessary in the future.

Supplementary Principle 4-10-1 Establishment of independent advisory committees, such as non-mandatory Nomination Committee and Executive Compensation Committee

The Company has eleven Directors, of whom three Directors are Independent Outside Directors. Although the number of Independent Outside Directors is less than a third of the number of Directors, all seven Independent Officers - the three Outside Directors plus four Outside Audit & Supervisory Board Members - satisfy the requirements for independent officers determined by the Tokyo Stock Exchange and they each leverage their specialist knowledge and extensive experience to actively express opinions during deliberations of important matters at board meetings and the Company is afforded timely and appropriate advice and has, therefore, not currently established independent advisory committees. The Company will consider the matters where necessary in the future.

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

Update

Principle 1.4: Cross-Shareholdings

The Company's policy is not to hold listed shares as cross-shareholdings and has no shares held as cross-shareholdings.

Principle 1.7: Related Party Transactions

The Company's policy is that competition and conflicting interest transactions by directors are matters to be discussed/reported at board meetings and every transaction is approved in advance by the board and the result of each transaction is reported.

Principle 2.6: Roles of Corporate Pension Funds as Asset Owners

The Company's financial position is not affected as its only corporate pension is a defined contribution pension plan.

Principle 3.1: Full Disclosure

(1) Management philosophy, management strategy, management plan

The Company formulates and discloses a management philosophy, a management strategy, and a medium-term management plan. Please refer to the Company's website for further details.

Management Philosophy and Standards of Conduct: https://www.systena.co.jp/about/idea.html

Management Targets and Management Basic Policy: https://www.systena.co.jp/ir/management/business_plan.html

Medium-Term Management Plan: https://www.systena.co.jp/ir/management/business_plan.html

1. Basic views and guidelines on corporate governance are described in "I. 1 Basic Views" of this Report.
2. Board policies and procedures in determining the remuneration of the senior management and directors are described in "II.1. Directors' Compensation System" of this Report.
3. Board policies and procedures in the appointment/dismissal of the senior management and the nomination of candidates for Director and Audit & Supervisory Board Member
   On the appointment/nomination of candidates for Director, the President & Representative Director proposes candidates to the Board of Directors based on a comprehensive judgment of attributes such as past achievements, character, insight and ability, and the Board of Directors selects the right person for the job ensuring that the overall composition of the Board of Directors will enable accurate and speedy decision-making, appropriate risk management and supervision of business execution, in accordance with the rules of employment of Directors.
   In the event of circumstances requiring the dismissal of a Director, Audit & Supervisory Board Member or Corporate Officer, the Representative Directors shall hold deliberations and the Board of Directors shall take the result of these deliberations into consideration and decide whether to propose dismissal in the case of a Director or Audit & Supervisory Board Member or whether to dismiss in the case of a Corporate Officer. The dismissal of a Director or Audit & Supervisory Board Member is carried out in accordance with the provisions of the Companies Act and other relevant legislation.
   On the appointment/nomination of candidates for Audit & Supervisory Board Member, the President & Representative Director proposes candidates to the Board of Directors based on a comprehensive judgment of attributes such as past achievements, character, insight and ability, and the Board of Directors selects candidates, taking into consideration the balance between knowledge about finance, accounting or law and experience of management supervision. The consent of the Audit & Supervisory Board must be required with respect to candidates for Audit & Supervisory Board Member.
4. Explanation of individual appointments/dismissals and nominations when the Board of Directors appoints and dismisses executive management and nominates candidates for Director or Audit and Supervisory Board Member in accordance with (4) above
   The Company discloses reasons for the appointment/dismissal or nomination of candidates for Outside Director and candidates for Outside Audit & Supervisory Board Member and other details about Directors and Audit & Supervisory Board members such as a career summary, positions and duties in materials such as the notice of convocation of the ordinary general meeting of shareholders and the annual securities report. Please refer to the Company's website for further details. In the event of circumstances requiring the dismissal of a Corporate Officer, the Company describes the reason for dismissal mainly in timely disclosure materials.
   https://www.systena.co.jp/ir/library/general_meeting.html https://www.systena.co.jp/ir/library/securities.html

Principle 4-1 Roles and responsibilities of the Board of Directors (1) Supplementary Principle 4-1-1 Scope of Management Responsibility

Matters to be judged and determined by the Board of Directors itself are set out in the Rules of the Board of Directors. The Company has a Management Meeting which acts as an advisory body to the Board of Directors and discusses matters of general importance for company management. The Company leaves other matters concerning the execution of specific business operations to the management team, including the President & Representative Director, to decide, in principle, and clarifies the scope of delegation according to the scale and nature of transactions and business operations in a management authority chart.

Principle 4.9 Independence Standards and Qualification for Independent Directors

The Company elects Outside Directors, who are Independent Officers, in accordance with the requirements for Outside Directors set out in the Companies Act and the Independence Standards determined by the Tokyo Stock Exchange.

Principle 4-11 Preconditions for Ensuring Effectiveness of the Board of Directors and the Board of Corporate Auditors

Supplementary Principle 4-11-1 View on the Appropriate Balance between Knowledge, Experience and Skills of the Board as a Whole, and also on Diversity and Appropriate Board Size, and Policies and Procedures for Nominating Directors

The Company ensures that the composition of the Board of Directors allows for appropriate and flexible decision-making and supervision of business execution, giving comprehensive consideration to expertise, experience and past achievements and managerial ability. The Company's Board of Directors is currently composed of individuals from inside and outside the company who possess diverse knowledge, experience and abilities, and in addition to eight internal directors who are familiar with every area of the Company's business, the Company has three Independent Outside Directors, making a total of eleven Directors as well as four Independent Outside Audit & Supervisory Board Members.

Supplementary Principle 4-11-2 Status of Concurrent Serving of Directors and Audit & Supervisory Board Members as Directors, Audit & Supervisory Board Members or the Management at Other Listed Companies

The Company discloses the status of concurrent serving of Directors and Audit & Supervisory Board Members as Officers, Audit & Supervisory Board Members or the management at other companies in its business reports and reference documents for shareholders meeting. Please refer to the Company's website for further details.

https://www.systena.co.jp/ir/library/general_meeting.html

Supplementary Principle 4-11-3 Analysis and Evaluation of Effectiveness of Board of Directors as a Whole, and Summary of the Results

The Company's Board of Directors is composed of 15 members who attend Board meetings, of which seven are Outside Directors or Outside Audit & Supervisory Board Members who are Independent Officers in accordance with the provisions of the Tokyo Stock Exchange. To conduct an analysis/evaluation of the effectiveness of the Board of Directors, the Company uses a "Questionnaire Survey for Evaluation of the Board of Directors" and all Directors and Audit

• Supervisory Board Members conduct self-evaluations of the composition and operations of the Board of Directors and the results of analysis of this survey are discussed at a meeting of Outside Officers consisting of the two Outside Directors, excluding a new Outside Director, and the four Outside Audit & Supervisory Board Members.
  The results of analysis of self-evaluations based on the questionnaire survey and the results of discussion at the meeting of Outside Officers confirmed that the Company's Board of Directors leverages the knowledge, experience and insights of each officer to engage in discussions which contribute to the sustainable growth and enhancement of shareholder value from a medium-to-long term perspective and that sufficient discussions for the supervision of management are held, and the Company, therefore, concluded from these findings that the effectiveness of the Board of Directors is ensured.
  With reference to the self-evaluations of the Directors and Audit & Supervisory Board Members, the Company conducts an analysis and evaluation of the effectiveness of the Board of Directors as a whole every year, in principle, to maintain effectiveness and also pursues further improvement to ensure that effective discussions are held.

Principle 4-14 Training for Directors and Audit & Supervisory Board Members Supplementary Principle 4-14-2

The Company provides training about the role and responsibilities (including legal responsibilities) officers are required to fulfil, as necessary, and also provides support to Outside Officers to increase their understanding of the Group.

Principle 5.1: Policy for Constructive Dialogue with Shareholders

The Company establishes and discloses a disclosure policy to encourage constructive dialogue with shareholders. Please refer to the Company's website for further details.

https://www.systena.co.jp/ir/management/disclosure.html

Please refer to "2. Status of IR Activities" in "III Implementation Status of Measures for Shareholders and Other Stakeholders" in this Report for information about the development of a framework and initiatives for this.

2. Capital Structure

Foreign Shareholder Ratio	From 20% to less than 30%

[Status of Major Shareholders]

Update

	Name /	Number of Shares	Percentage
	Company name	Owned	(%)
	SMS Holdings Corporation		26,036,800	26.77
	The Master Trust Bank of Japan, Ltd. (Trust account)		7,163,700	7.36
	Custody Bank of Japan, Ltd. (Trust account)		6,102,100	6.27
	Systena Employee Ownership Association		2,556,200	2.62
	THE BANK OF NEW YORK MELLON 140044		2,539,400	2.61
	NORTHERN TRUST CO.(AVFC)RE MONDRIAN INTERNATIONAL SMALL CAP EQUITY	2,322,600	2.38
	FUND, L.P.
	SSBTC CLIENT OMNIBUS ACCOUNT		2,094,608	2.15
	Custody Bank of Japan, Ltd. (Trust Account 9)		1,666,400	1.71
	STATE STREET BANK AND TRUST COMPANY	505103	1,502,994	1.54
	BBH FOR FINANCIAL INV TRUST GRANDEUR PEAK INTERNATIONAL STALWARTS FD	1,342,800	1.38
	Existence of Controlling Shareholder		―――
	(except for Parent Company)
	Existence of Parent Company		None
	Supplementary Explanation
	―――
3. Corporate Attributes
	Listed Stock Market and Market Section		Tokyo Stock Exchange First Section
	Fiscal Year-End		March
	Type of Business		Information & Communication
	Number of Employees (consolidated) as		More than 1000
	of the End of the Previous Fiscal Year
	Sales (consolidated) as of the End of the		From ¥10 billion to less than ¥100 billion
	Previous Fiscal Year
	Number of Consolidated Subsidiaries as of		From 10 to less than 50
	the End of the Previous Fiscal Year

4．Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

―――

5. Other Special Circumstances which may have Material Impact on Corporate Governance

―――

• Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organization Form	Company with a board of auditors

[Directors]

Maximum Number of Directors Stipulated	11
in Articles of Incorporation
Term of Office Stipulated in Articles of	1 year
Incorporation

Chairperson of the Board	President

Number of Directors	Update	11

Appointment of Outside Directors	Appointed

Number of Outside Directors	Update	3
Number of Independent Directors	3
Update

Outside Directors' Relationship with the Company (1)

Name	Attribute				Relationship with the Company*
a	b	c	d	e	f	g	h	i	j	k
Yukio Suzuki	From another company								△
Kouichi Ogawa	From another company
Mari Itoh	Lawyer								△

* Categories for "Relationship with the Company"

* "○" when the director presently falls or has recently fallen under the category; "△" when the director fell under the category in the past

* "●" when a close relative of the director presently falls or has recently fallen under the category; "▲"when a close relative of the director fell under

the category in the past

a. Executive of the Company or its subsidiaries

b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company

d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the Company or an executive thereof

f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/accounting auditor

g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity)

h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only)

i. Executive of a company, between which and the Company outside directors/accounting auditors are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only)

k. Others

Outside Accounting Auditor's Relationship with the Company (2)

	Designation as	Supplementary Explanation of the
Name	Independent	Reasons of Appointment
Relationship
	Director
		Mr. Suzuki is not now, nor has never been an	Mr. Suzuki has extensive experience and deep
		employee of the Company or an affiliate of the	insight as a manager accumulated over many years
		Company.	working at a securities firm and other companies as
		Mr. Suzuki is a Representative Director of Belle	well as specialist financial and economic knowledge
		Investment Research of Japan Inc., an Outside	as a securities analyst and the Company benefits from
		Director of Ichigo Inc., and an Outside Audit &	his accurate advice to ensure the validity and
		Supervisory Board Member of WILLs Inc. and XNET	appropriateness of decision-making by the Board of
		Corporation. The Company has no special	Directors. The Company elected him again expecting
		relationships with these companies at which Mr.	that his appropriate advice on the Company's
		Suzuki concurrently serves. In addition, Mr. Suzuki	management from an independent perspective and
		used to work for Nomura Holdings, Inc., with which	appropriate supervision of business execution will
		the Company does business. The Company has no	contribute to enhancing the Company's corporate
		special relationship with Nomura Holdings, Inc.	value.
		Mr. Suzuki and the Company have concluded an	Mr. Suzuki has a high degree of independence, with
	○	agreement limiting Mr. Suzuki's liability for	no direct interest in the Company's management and
Yukio Suzuki	damages as Outside Director of the Company in	the Company, therefore, believes that he can duly
accordance with the provisions of the Articles of	fulfil the role expected of him by shareholders, etc.
		Incorporation, and the maximum limit on liability	which is to supervise those who execute business
		under said agreement is the minimum liability	operations led by the Representative Directors from an
		amount as provided in laws and ordinances.	independent standpoint.
		The Company has entered into a directors and	Based on the views outlined above, the Company
		officers liability insurance agreement under Article	nominated Mr. Suzuki as an Independent Officer
		430-3, Paragraph 1 of the Companies Act with an	who will pose no risk of a conflict of interests with
		insurance company, with the insurance covering the	general shareholders.
		damages and court costs, etc. that Mr. Suzuki is
		required to pay resulting from a claim for damages
		due to any act (including inaction) of Mr. Suzuki
		based on his position as a director of the Company.
		There are, however, certain exceptions to the
		agreement. Damages will not be covered if they arise
		from an act of Mr. Suzuki that he is aware violates
		laws and regulations.
		Mr. Ogawa is not now, nor has never been an	Mr. Ogawa has extensive experience and deep insight
		employee of the Company or an affiliate of the	accumulated over many years working at a financial
		Company.	institution and the Company benefits from his useful
		Mr. Ogawa used to work for Mizuho Bank, Ltd.,	advice mainly from the perspective of internal controls
		with which the Company does business, and the	and compliance. The Company elected him again
		Company had bank loans of 760 million yen and other	expecting that his appropriate advice on the Company's
		transactions such as the provision of IT services, sale	management from an independent perspective and
		of products and system development amounting to 521	appropriate supervision of business execution will
		million yen with the bank in the fiscal year ended	contribute to enhancing the Company's corporate value.
		March 31, 2021. However, these are normal business	Mr. Ogawa has a high degree of independence, with
		transactions and the Company believes that there is no	no direct interest in the Company's management and
		question about Mr. Ogawa's independence.	the Company, therefore, believes that he can duly fulfil
		Mr. Ogawa and the Company have concluded an	the role expected of him by shareholders, etc. which is
		to supervise those who execute business operations led
		agreement limiting Mr. Ogawa's liability for
		by the Representative Directors from an independent
	○	damages as Outside Director of the Company in
Kouichi Ogawa	standpoint.
accordance with the provisions of the Articles of
	Incorporation, and the maximum limit on liability	Based on the views outlined above, the Company
		nominated Mr. Ogawa as an Independent Officer
		under said agreement is the minimum liability
		amount as provided in laws and ordinances.	who will pose no risk of a conflict of interests with
		general shareholders.
		The Company has entered into a directors and
		officers liability insurance agreement under Article
		430-3, Paragraph 1 of the Companies Act with an
		insurance company, with the insurance covering the
		damages and court costs, etc. that Mr. Ogawa is
		required to pay resulting from a claim for damages
		due to any act (including inaction) of Mr. Ogawa
		based on his position as a director of the Company.
		There are, however, certain exceptions to the
		agreement. Damages will not be covered if they
		arise from an act of Mr. Suzuki that he is aware
		violates laws and regulations.