Corporate Governance Report

Transcription

1 Corporate Governance Report (Updated on Nov. 30, 2017) Sony Financial Holdings Inc. The status of corporate governance of Sony Financial Holdings Inc. (hereinafter, the Company ) is as follows: I. Basic Stance on Corporate Governance, Capital Structure, Company Type and Other Basic Information 1. Basic Stance Corporate Vision and Philosophy The Sony Financial Group (hereinafter, the Group ) positions its corporate vision and corporate philosophy as the basic policy for formulating management strategies and decision making. <Corporate Vision> The Group seeks to become the most highly trusted financial services group by customers. To this end, the Group will combine many different financial functions (savings, investment, borrowing, and protection) to provide high-value-added financial products and high-quality financial services that meet every customer s financial needs. <Corporate Philosophy> Put the Customer First We will provide financial products and services that satisfy customers by embracing their individual views, to ensure that we help them lead prosperous lives with financial security. Give Back to Society We believe that a special commitment to the public good is demanded of a financial services company. Conscious of this, we will realize our vision by upholding the highest level of ethics and a strong sense of purpose, and thereby give back to society. In addition, we will fulfill our responsibilities as a good corporate citizen and member of society. Strive for Originality We will constantly strive to come up with fresh ideas from basic principles as we pursue creativity and innovation, instead of merely following customs and convention. Foster an Open Corporate Culture We believe that every employee s contribution is important to develop our ideal of a financial services company. We will thus foster an open corporate culture where employees can freely express their individuality and demonstrate their abilities to the fullest. 1

2 Basic Stance on Corporate Governance The Company strives to meet the expectations and earn the trust of stakeholders, realize sustainable corporate growth and increase corporate value over the medium- to long-term by making effective use of the Group s various management resources and by realizing its corporate vision and philosophy. As a financial holding company, the Company is aware of the highly public nature of its financial business. Accordingly, the Company has in place a governance structure that emphasizes ensuring of soundness and appropriateness of the Group s management. The Company is a listed subsidiary of Sony Corporation, its parent company. As such, the Company maintains managerial independence from its parent company and strives to ensure a highly transparent management. [Reasons for not implementing the following principles of the Corporate Governance Code] The Company has implemented all the principles of the Code. [Disclosure based on each principle of the Corporate Governance Code] [Principle 1.4] Policy on Business-related Shareholdings The Company and its Group companies do not hold shares for the purpose of business-related investment (hereinafter, Business-related Shareholdings ). However, this excludes investments having a recognized strategic significance, such as business tie-ups, that contribute to enhancing the corporate value of individual Group companies. In the event that the Company and its Group companies hold Business-related Shareholdings, they regularly consider the objectives of such holdings and the effect of investment, and report these results to their respective Boards of Directors. Based on these reports, the companies Boards of Directors consider the liquidation of such holdings through such methods as sale or transfer in the event the significance of holding them has been lost. With regard to the exercise of voting rights in relation to Business-related Shareholdings, the Company and its Group companies make comprehensive decisions to vote for or against individual proposals from the perspective of whether appropriate governance structures are in place at investee companies, whether appropriate decisions are being made to enhance corporate value over the medium- to long-term, and from the perspective of enhancing the corporate value of individual Group companies. [Principle 1.7] Ensuring the Appropriateness of Group Management The Company requires resolution by the Board of Directors in the event of any competitive and conflict-of-interest transactions by directors. Furthermore, in the event of internal Group transactions (including transactions with its parent company, Sony Corporation and other Sony Group companies) that have the potential for individual Group companies to affect Group management, after the appropriateness and legality of such transactions are confirmed, they are resolved by or reported to the Board of Directors. [Principle 3.1] (i) Corporate Philosophy and Business Plans The Group s Corporate Vision and Corporate Philosophy are as written in I. 1. Basic Stance of this report. 2

3 The Company has disclosed the medium-term corporate strategy on the Company s website. (ii) Basic Stance and Policies on Corporate Governance The Company s basic view is as written in I. 1.Basic Stance of this report. The Company has disclosed Basic Policy on Corporate Governance on the Company s website. (iv) Board Policies and Procedures in the Nomination of Director and Statutory Auditor Candidates The Company has formulated the Basic Policy on the Selection of Director and Statutory Auditor Candidates. Reflecting this policy, the Company selects as director and statutory auditor candidates people who have suitable knowledge, experience, capacity for judgment and other characteristics suiting them to conduct decision making and perform management oversight in relation to overall Group management. To reinforce the transparency and objectivity of the process of selecting director and statutory auditor candidates, the Nomination Advisory Committee deliberates on candidates in response to inquiries by the Board of Directors. After receiving the committee s reports, the Board of Directors decides on candidates to propose at the General Meeting of Shareholders. The Company has disclosed Basic Policy on the Selection of Director and Statutory Auditor Candidates on the Company s website. (v) Explanations with Respect to the Individual Appointment and Nomination of Director and Statutory Auditor Candidates based on (iv) The Company has disclosed reasons for appointment on reference materials of the General Meeting of Shareholders. The reasons for appointment of statutory auditors are as follows: Yasuyuki Hayase, Standing Statutory Auditor (Outside) See II.1. [Directors] Relationships with the Company (2) of this report. Yoshimichi Makiyama, Statutory Auditor (Outside) See II.1. [Directors] Relationships with the Company (2) of this report. Hirotoshi Korenaga, Statutory Auditor Mr. Korenaga has extensive knowledge about finance and accounting acquired over many years of working in accounting at Sony Corporation and Sony Corporate Services (Japan) Corporation. Accordingly, the Company has determined that Mr. Korenaga will use his professional experience to fulfill his role of statutory auditor. See individual executives biography on reference materials of Convocation of the General Meeting of Shareholders. 3

4 [Principle 4.1 (1)] Summary of Scope of Delegation to Management In addition to items stipulated in laws and regulations and the Articles of Incorporation, the Board of Directors makes important decisions regarding management of the Group such as (i) formulation of Group corporate strategies and business plans, (ii) appointment and dismissal of directors, statutory auditors and other executives of subsidiaries in which the Company holds shares directly, (iii) entry into new businesses and withdrawal from businesses, and (iv) organizational restructuring. The Board of Directors sets up an Executive Committee, to which it delegates the execution of important routine business of the Company. [Principle 4.8] Effective Use of Independent Directors To reinforce its supervisory function and receive general advice on the management of the Group, the Company has appointed multiple highly independent outside directors, with two such directors in place as of July In addition, to increase management transparency the Company has established the Nomination Advisory Committee and the Compensation Advisory Committee as advisory bodies to the Board of Directors, and the two outside directors are members of both committees. [Principle 4.9] Independence Standards and Qualification for Independent Outside Directors In addition to the independence requirements of the Companies Act and the standards for independent directors provided by the Tokyo Stock Exchange, outside directors are people who satisfy the independence standards provided in the Company s Basic Policy on the Selection of Director and Statutory Auditor Candidates. Outside statutory auditors are people who satisfy the independence standards provided in the Company s Basic Policy on the Selection of Director and Statutory Auditor Candidates. The Company has disclosed Basic Policy on the Selection of Director and Statutory Auditor Candidates on the Company s website. [Principle 4.11 (1)] Composition of the Board of Directors The Board of Directors comprises 12 or fewer members (with one-year terms of office). The Board of Directors is composed of members who have a broad range of knowledge and experience. To promote efficient Group management, in principle, the representative directors of principal Group subsidiaries serve concurrently as the Company s directors. To reinforce the supervisory function and obtain general management advice for the Group, the Company appoints multiple highly independent outside directors. The current composition is as written in II Board Composition and Operations of Organizational Structure of this report. [Principle 4.11 (2)] Status of Concurrent Positions at Other Organizations of Directors and Statutory Auditors With regard to the status of concurrent positions at other organizations of directors and statutory auditors, the Company discloses the information on reference materials of the General Meetings of Shareholders. 4

5 [Principle 4.11 (3)] Evaluation of Effectiveness of the Board of Directors According to the Company s Basic Policy on Corporate Governance, the Board of Directors conducts self-evaluations, evaluating the effectiveness of its own decision-making and oversight, as well as its operation of meetings at least once a year. For the fiscal year ended March 31, 2017, an independent third-party evaluation company evaluated the effectiveness of the Board of Directors by questionnaire all directors and statutory auditors. Principal content of the questionnaire: Composition of the Board of Directors Quality and volume of the discussions on the Group s businesses, risks, strategies, etc. Degree of understanding, opportunities for training Operating practices of Board of Directors meetings Incentive Compensation Advisory Committee Support system for outside directors and statutory auditors Dialogue with shareholders In addition, an evaluation was conducted regarding response to items raised in the previous year s evaluation of effectiveness. Summary of the results of evaluation: As a whole, a high level of effectiveness was achieved. The Board of Directors consists of members with a wide variety of experience. The members of the Board of Director agree in recognizing never to be satisfied with current conditions and that further improvement and enhancement of the Board s function are necessary. The Board of Directors is united in an effort to improve its function. The agendas of the Board of Directors meetings were properly selected in terms of their quality and volume. There was an atmosphere where all members, including outside directors, could speak in a free and active manner. The meetings proceeded smoothly under the leadership of the chairman. Members of the Board of Directors are provided regular opportunities for communication, and mutual trust is high. Comments from shareholders are appropriately provided as feedback to the Board of Directors. While various improvements have been made with respect to the issues raised in the previous year s evaluation of effectiveness (discussion of medium- to long-term Groupwide business strategies and executive development strategies), the Board of Directors agrees that continuous discussion is needed. In addition, some members expressed a desire for more opportunities for study or training sessions related to the Group s management and businesses. Issues to Address and Responses to Make Based on the Results of Evaluation Based on the results of this evaluation, the Company s Board of Directors judges itself to be wholly effective at this time. That said, the Board will strive to further enhance its effectiveness through improving its understanding of the Group s management and business environment and continuous discussions on the Group s medium- to long-term business strategies. 5

6 [Principle 4.14 (2)] Training Policy for Directors and Statutory Auditors Upon their appointment, the Company provides opportunities for directors and statutory auditors to acquire knowledge related to laws and regulations, corporate governance and other areas necessary for appropriately fulfilling their roles and responsibilities. In particular, when outside directors and statutory auditors are newly appointed, the Company creates opportunities to provide the information necessary to promote an understanding of the Group s businesses, management strategy, management issues and other areas. The Company also has created such opportunities as necessary following their appointment. [Principle 5.1] Policy for Constructive Dialogue with Shareholders The Company conducts sincere and proactive IR activities, led by the president and representative director, to forge trust-based relationships with shareholders, investors and other parties. Useful opinions and requests obtained from shareholders, investors and other parties through IR activities are regularly provided as feedback mainly to the Board of Directors. The Company has established its IR Policy based on this stance. IR Policy is as written in V. 2. Other Corporate Governance Structures of this report. Capital Structure (updated) Ratio of shares owned by foreign shareholders: 20% or more and less than 30% [Major Shareholders] (updated) Name Number of Percentage of shares held ownership (%) Sony Corporation 274,050, Japan Trustee Services Bank, Ltd. (Trust Account) 11,943, STATE STREET BANK AND TRUST COMPANY 11,390, The Master Trust Bank of Japan, Ltd. (Trust Account) 10,695, Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account) 4,083, Japan Trustee Services Bank, Ltd. (Trust Account 5) 3,060, JP MORGAN CHASE BANK ,021, THE BANK OF NEW YORK ,822, STATE STREET BANK WEST CLIENT TREATY ,727, BBH FOR FIDELITY LOW-PRICED STOCK FUND (PRINCIPAL ALL SECTOR SUBPORTFOLIO) 2,719, Parent company: Sony Corporation (Listed on the Tokyo Stock Exchange, and Overseas) (Code: 6758) 3. Company Type Stock Exchange: The First Section of the Tokyo Stock Exchange 6

7 Fiscal Year End: March Industry: Insurance Number of employees (consolidated): more than 1,000 (Updated) Sales (consolidated): more than 1 trillion Number of subsidiaries: Fewer than Policy Concerning the Measures to Protect Minority Shareholders in Transactions with the Controlling Shareholder The Sony Financial Group s policy is to develop its business while maintaining a cooperative ties with the Sony Group. However, the Sony Financial Group believes that it has secured a certain degree of independence from the Sony Group, because it conducts independent business activities in line with its own management policies and strategies, and operates in different business fields than the Sony Group. When entering into transactions with Sony Corporation (the controlling shareholder), the Sony Financial Group adequately confirms the necessity for such transactions, and ensures that the conditions of such transactions do not differ markedly from the terms of ordinary transactions with third parties. 5. Other Special Issues That May Significantly Influence Corporate Governance (updated) (1) Capital relationships with Sony Corporation Sony Corporation holds 62.99% of Sony Financial Holdings shares outstanding (common stock). As a result, regardless of the intentions and interests of other shareholders, Sony Corporation may have an impact on all matters requiring shareholder approval such as the appointment and dismissal of Sony Financial Holdings directors and statutory auditors, mergers and other organizational restructuring, material asset and business transfers, amendments to the Articles of Incorporation, and the payment of dividends. (2) Senior management s concurrent positions with the Sony Group Sony Financial Holdings has assigned Mr. Shiro Kambe (EVP, Corporate Executive Officer of Sony Corporation) as its director and has assigned Mr. Hirotoshi Korenaga (Corporate Executive, Senior General Manager, Global Accounting Division of Sony Corporate Services (Japan) Corporation) as its statutory auditor. If the relationships between the Sony Financial Group and the Sony Group change due to such reasons including changes in the ratio of Sony Financial Holdings shares held by Sony Corporation, such personnel relationships may change. (Sony Corporate Services (Japan) Corporation is a subsidiary of Sony Corporation). (3) Use of the Sony trade name and trademark Sony Financial Holdings and Group companies have entered into royalty agreements with Sony Corporation to use the Sony trade name and trademark. However, these agreements can be rescinded by Sony Corporation under certain conditions, such as Sony Corporation s share of voting rights in Sony Financial Holdings falling below a majority, or Sony Financial Holdings percentage ownership of the voting 7

8 rights of Sony Financial Group companies dropping. Based on these agreements, the Sony Financial Group Companies pays royalty fees to Sony Corporation and Sony Corporation retains pre-approval rights with respect to, among other things, any use of the relevant trademarks for purposes other than those expressly provided for in the agreements. Sony Financial Holdings believes the Sony name has contributed to the Sony Financial Group s brand recognition and its growth. The termination of these royalty agreements to use the Sony trade name and trademark led primarily by a decrease in Sony Corporation s equity ownership in Sony Financial Holdings could adversely affect its business operations, marketing and operating results. If reputations of other Sony Group Companies excluding Sony Corporation and Sony Financial Group Companies were damaged due to loses of creditworthiness or drop in earnings, operating results of Sony Financial Group Companies may be affected by worsening corporate image. II. Management Control Structure Pertaining to Management Decision Making, Execution and Supervision and Other Corporate Governance Structure 1. Board Composition and Operations of Organizational Structure; Type of structure: Company with Board of Auditors [Directors] Number of members of the Board of Directors stipulated in the Articles of Incorporation: 12 Term of members of the Board of Directors stipulated in the Articles of Incorporation: One year Chairman of the Board of Directors: President Number of the Board of Directors: Nine Election of Outside Directors: Yes Number of Outside Directors: Two Number of Outside Directors who are appointed as Independent Directors: Two Relationships with the Company (1) Name Attribute Isao Yamamoto From another company Shiro Kuniya Attorney Relationship with the Company* a b c d e F g h i j k *Choices relating to relationships with the Company * indicates the relevant item that the person falls under as of today or recently indicates the relevant item that the person falls under as of previously. * indicates the relevant item that the person s close family member falls under as of today or recently indicates the relevant item that the person s close family member falls under as of previously. (a) (b) A person who is an executive or employee of the Company or its subsidiary A person who is an executive, employee or non-executive director of the Company s parent company 8

9 (c) (d) A person who is an executive or employee of a subsidiary of the Company s parent company A person who is an entity or, if that entity is a corporation, etc., its executive or employee for which the Company is a major client (e) (f) A person who is a major client or if that client is a corporation, etc., its executives or employees A person who in addition to executive compensation is receiving significant amounts of money or other property from the Company as consultant, accounting specialist or legal specialist (g) A person who is a major shareholder of the Company (or if that major shareholder is a corporation, etc., its executives or employees) (h) A person who is an executive or employee of an entity which is a client of the Company (does not fall under d, e and f) (only with respect to the person) (i) A person who is an executive or employee of a company whose outside director assumes the post on a reciprocal basis with the Company (only with respect to the person) (j) A person who is an executive or employee of an entity receiving contributions from the Company (only with respect to the person) (k) Other Relationships with the Company (2) Name Independent Director Supplementary Information Reason for appointment Mr. Yamamoto possesses many years of experience as a securities analyst and an Isao Yamamoto advisor for corporate finance and M&As, and has no conflict of special interest with the Company. Accordingly, the Company determined that Mr. Yamamoto can properly fulfill the duties of an outside director and an independent director. Mr. Kuniya works as a Managing Partner at Oh-Ebashi LPC & Partners and has specialized Shiro Kuniya knowledge and experience as a lawyer, and has no conflict of special interest with the Company. the Company has determined that Mr. Kuniya can properly fulfill the duties of as an outside director and independent director. Establishment or non-establishment of an optional committee which corresponds to the Nominating Committee or Compensation Committee: Established Status of the Establishment of a Discretionary Committee, Composition and Attributes of Chairperson 9

10 Committee s name All committees members Full-time members Internal Directors Outside Directors Outside Experts Others Chair-per son Committee corresponding to Nomination Committee Nomination Advisory Committee Outside Director Committee corresponding to Compensation Committee Compensation Advisory Committee Outside Director Supplementary Explanation Role of Nomination Advisory Committee: This committee deliberates the appointment and dismissal of directors and statutory auditors of the Company, as well as the presidents of Group subsidiaries, and deliberates succession planning and other activities with regard to the Company and Group subsidiary presidents in response to inquiries by individual companies Boards of Directors or requests by committee members and reports to the respective Boards of Directors, if necessary. Role of Compensation Advisory Committee: This committee deliberates compensation and other payments to directors of the Company and the representative directors of Group subsidiaries in response to inquiries by the individual companies Boards of Directors and reports to the respective Boards of Directors. [Statutory Auditors] Existence of a Board of Statutory Auditors: Yes Number of Statutory Auditors stipulated by the Articles of Incorporation: Five Number of Statutory Auditors: Three Cooperation between Statutory Auditors, Independent Auditors and the Internal Audit Division Statutory auditors receive regular reports on audit plans and audit results from the Company s independent auditor (PricewaterhouseCoopers Aarata LLC) and exchange information with the independent auditor in a timely and appropriate manner. Statutory auditors of the Company receive regular reports of internal audit plans and internal audit results from the internal audit division (Audit Department) and exchange information with this division in a timely and appropriate manner. The statutory auditors also receive reports on each subsidiary s internal audit results from subsidiaries internal audit divisions. Election of Outside Statutory Auditors: Yes Number of Outside Statutory Auditors: Two Number of Outside Statutory Auditors who are appointed as Independent Directors: Two Relationships with the Company (1): 10

11 Name Yasuyuki Hayase Yoshimichi Makiyama Attribute From another company Attorney Relationship with the Company* a b c d e f g h i j k m *Choices relating to relationships with the Company * indicates the relevant item that the person falls under as of today or recently indicates the relevant item that the person falls under as of previously. * indicates the relevant item that the person s close family member falls under as of today or recently indicates the relevant item that the person s close family member falls under as of previously. (a) (b) (c) (d) (e) (f) A person who is an executive or employee of the Company or its subsidiary A person who is a non- executive director or accounting advisor of the Company or its subsidiary A person who is an executive, employee or non-executive director of the Company s parent company A person who is a statutory auditor of the Company s parent company A person who is an executive or employee of a subsidiary of the Company s parent company A person who is an entity, if that entity is a corporation, etc., its executive or employee for which the Company is a major client (g) A person who is a major client of the Company or if that client is a corporation, etc., its executives or employees (h) A person who is in addition to executive or compensation is receiving money or other property as a consultant, accounting specialist or legal specialist from the Company (i) A person who is a major shareholder of the Company (or if that major shareholder is a corporation, etc., its executives or employees) (j) A person who is an executive or employee of an entity which is a major client of the Company (does not fall under f, g and h) (only with respect to the person) (k) A person who is an executive or employee of a company whose outside director assumes the post on a reciprocal basis with the Company (only with respect to the person) (l) A person who is an executive or employee of an entity receiving contributions from the Company (only with respect to the person) (m) Other Relationships with the Company (2): Name Independent Statutory Auditor Supplementary Information Reason for appointment Mr. Hayase possesses many years of Yasuyuki Hayase experience at a financial institution, and as a standing statutory auditor there. Accordingly, the Company has determined that Mr. Hayase will 11

12 use his professional experience to fulfill his role as an outside statutory auditor as well as an independent statutory auditor. Mr. Makiyama qualified as an attorney and patent attorney in Japan and as an attorney in the U.S. state of New York, with expertise in many areas including information security and Yoshimichi Makiyama compliance, and has a breadth of professional experience both at home and abroad. Accordingly, the Company has determined that Mr. Makiyama will draw on his professional experience to fulfill his role as an outside statutory auditor as well as an independent statutory auditor. [Independent Directors and Independent Statutory Auditors] Number of independent directors and independent statutory auditors: Four The Company has appointed all qualified outside directors and outside statutory auditors as independent directors / or independent statutory auditors. [Incentive-related Matters] Status of incentives granted to directors: Implemented a results-linked compensation and Introduced a stock-type compensation stock options program. Supplementary explanations: Compensation of executive directors comprises a fixed portion depending on the position, a results-linked portion depending on the entire Group s performance and individual responsibilities, and a medium- to long-term incentive portion in the form of a stock-type compensation. The results-linked portion could range from 0% to 200% of the standard amount subject to achievement of management targets of the Group and fulfillment of responsibilities. The medium- to long-term incentive portion is based on restricted stock compensation and stock-type compensation stock options. The stock-type compensation stock options, in principle, account for 20% of total annual compensation. Eligible persons for stock options: Executive directors of the Company and executive directors of principal subsidiaries Supplementary explanations: In the aims of sharing with shareholders the benefits and risks of stock price fluctuations and enhancing the motivation to contribute to sustainable increases in the corporate value of the Group, grantees shall be the executive directors of the Company and its principal subsidiaries (Sony Life, Sony Assurance and Sony Bank). 12

13 Note: With regard to restricted stock compensation, guarantees shall be executive directors and executive officers of the Company and its principal subsidiaries. [Compensation of Directors] Disclosure for compensation of individual directors: Partial disclosure only of individual amounts Supplementary explanations: Although the Company does not disclose the compensation of individual directors, the compensation of one director who received 100 million or more for the fiscal year ended March 31, 2017 is disclosed in Yukashoken Hokokusho Policy on compensation amount or calculation method: Yes Disclosure of policy on determining compensation amount and its calculation method: Policy for Determining the Compensation of Directors The compensation of directors is determined according to the following policy within the limit set by a General Meeting of Shareholders. [General Provision] Compensation of individual directors is determined by the resolution of the Board of Directors, based on a report from the Compensation Advisory Committee. Directors with no executive duties, except outside directors, are paid no compensation. (1) Executive Directors A balance between a fixed portion, a results-linked portion and a medium- to long-term incentive portion shall be considered. The objective of this is to secure talented executives for business execution and ensure that compensation serves as an effective incentive for improving the business performance and corporate value of the entire Group. a. Compensation Compensation comprises a fixed portion depending on the position, a results-linked portion depending on the entire Group s performance for the year and individual responsibilities, and a medium- to long-term incentive portion in the form of a stock-type compensation stock options program. The results-linked portion could range from 0% to 200% of the standard amount subject to achievement of management targets of the Group and fulfillment of responsibilities. The medium- to long-term incentive portion shall comprise restricted stock compensation and stock-type compensation stock options, and stock-type compensation stock option, in principle, account for 20% of total annual compensation. b. Level A suitable level of compensation shall be paid in order to secure talented individuals. The level of compensation is determined in consideration of the results of third-party surveys on the compensation levels of corporate managers and other relevant information. 13

14 (2) Outside Directors The main responsibility of outside directors is to enhance the transparency and objectivity of corporate management through the oversight and supervision of executive directors execution of duties. Consequently, compensation shall be fixed with the objective of securing talented individuals and ensuring that the supervisory and oversight function is working effectively. a. Compensation A fixed amount is paid according to the role. b. Level A suitable level of compensation shall be paid in order to secure talented individuals. The level of compensation is determined in consideration of the results of third-party surveys on the compensation levels of corporate managers and other relevant information. Policy for Determining the Compensation of Statutory Auditors The compensation of statutory auditors is determined according to the following policy within the limit set by a General Meeting of Shareholders. The main responsibility of statutory auditors is to ensure the transparency and objectivity of corporate management by conducting operational and accounting audits. Consequently, compensation for statutory auditors is determined as fixed compensation with a focus on securing talented individuals and ensuring that the audit function is working effectively. a. Compensation A fixed amount is paid according to the respective role of standing statutory auditors and non-executive statutory auditors. b. Level A suitable level of compensation shall be paid in order to secure talented individuals. The level of compensation is determined through discussion of statutory auditors by giving consideration to the results of third-party surveys of the compensation levels of statutory auditors and other relevant information. [Support Structure of Outside Directors/Statutory Auditors] The Corporate Planning Department of the Company provides information to outside directors and outside statutory auditors and distributes Board of Directors meeting materials prior to the meetings. 2. Functions on Execution of Operation, Audits and Supervision, Nomination, Determining Compensation and Other (updated) 14

15 The Company has adopted the statutory auditor system. The Company appoints outside directors who work with the statutory auditors to strengthen corporate governance. An overview of the current corporate governance system is provided below. (1) Board of Directors a. The Company is a pure holding company that owns direct subsidiaries, Sony Life Insurance Co., Ltd., Sony Assurance Inc., Sony Bank Inc. and Sony Lifecare Inc. From the perspective of group-wide efficiency in business operations, one representative director and two of the Company s executive directors out of nine directors serve as directors of its subsidiaries. Furthermore, the three representative directors of its subsidiaries (Sony Life Insurance Co., Ltd., Sony Assurance Inc. and Sony Bank Inc.) serve as non-executive directors of the Company. b. The Company has appointed two highly independent outside directors out of nine directors to introduce external perspectives and to protect minority shareholders interests. These outside directors are deemed as independent directors based on the Tokyo Stock Exchange regulations. c. The Board of Directors of the Company delegates to the Executive Committee the authority to deliberate and determine the execution of certain daily activities. The Executive Committee is composed of standing directors as well as executives and employees who are selected by resolution of the Board of Directors. This committee meets twice a month, in principle. Non-executive directors and statutory auditors may also attend meetings of the Executive Committee. (2) Statutory Auditors a. The Board of Statutory Auditors of the Company has three members, two of whom are outside statuory auditors and deemed as independent directors based on Tokyo Stock Exchange regulations. We elect one substitute statutory auditor in case of a vacancy. b. The standing statutory auditor of the Company cooperates with outside directors (independent directors), the corporate executive in charge of its Audit Department and employees in the Audit Department to enhance the supervisory function in corporate management. (3) Internal Audits The Company has established an Audit Department, which is independent of the Company s operating divisions and is composed of dedicated internal audit personnel. (4) Accounting Audits The Company has appointed PricewaterhouseCoopers Aarata as its independent auditor. (5) Establishment of Optional Committees To increase management transparency, the Company has established the Nomination Advisory 15

16 Committee and the Compensation Advisory Committee as advisory bodies to the Board of Directors. The composition of these committees is described in this report in II. 1 [Directors] Status of the Establishment of a Discretionary Committee, Composition and Attributes of Chairperson 3. Reason for choosing current corporate governance structure (updated) As the Company is a pure holding company, the Group believes that the current structure, in which directors and statutory auditors hold concurrent positions in the parent company and subsidiaries, is efficient from the perspective of Group management. As the Company is also a subsidiary of a listed parent company, Sony Corporation, the Company has appointed highly independent two outside directors and two outside auditors (These outside directors and outside auditors are deemed as independent directors and independent auditors based on Tokyo Stock Exchange regulations, respectively) to ensure an outside perspective and to protect the interests of minority shareholders. Furthermore, the Company also has established a Nomination Advisory Committee and a Compensation Advisory Committee as advisory bodies to the Board of Directors to increase management transparency. In addition to protecting the interests of minority shareholders, the Company believes that the current structure is optimal from the standpoints of ensuring Group management efficiency and enhancing corporate value. III. Implementation of Measures for Shareholders and Other Stakeholders 1. Efforts Towards Activation of Shareholders Meeting and Facilitation of Exercising Voting Rights (1) Early Delivery of Notice of Convocation for the General Meeting of Shareholders The Company sent the Notice of Convocation for the General Meeting of Shareholders 22 days before the meeting. (The Company held its General Meeting of Shareholders on June 21, 2017, and sent the Notice of Convocation on May 31, 2017, for the fiscal year ended March 31, 2017.) (2) Setting the Date for the General Meeting of Shareholders on a Date That Avoids the Day When General Meetings Tend to be Concentrated The Company held its General Meeting of Shareholders on June 21, 2017 and avoided the day when general meetings tend to be concentrated. (3) Exercise of Voting Rights via Electronic Means a. The Company has introduced the exercise of voting rights over the Internet. b. The Company has introduced the exercise of voting rights via the electronic voting platform for institutional investors operated by ICJ, Inc. (4) Participation in a Platform for the Electronic Exercise of Voting Rights and Other Initiatives to Enhance the Environment for the Exercise of Voting Rights by Institutional Investors The Company participates in a platform for the electronic exercise of voting rights in order to enhance the environment for the exercise of voting rights by institutional investors. Furthermore, a portion of the convocation notice is translated into English, and the convocation notice is disseminated early. 16

17 (5) Provision of a Convocation Notice (Summary) in English A portion of the convocation notice is translated into English. 2. IR Activities (updated) (1) Disclosure Policy The Company has established the IR Policy which indicates the Purpose of IR Activities, Basic Approach to IR Activities, Disclosure of IR Information, Framework for Disclosure of IR Information and Quiet Period for IR Activities. The Company has also disclosed the IR Policy onto its website. (2) Regular Meetings for Individual Investors Explanations by representatives: Yes The Company holds a conference for individual investors correspondingly. Furthermore, the Company will continue to hold meetings for individual investors. (3) Regular Meetings for Analysts and Institutional Investors Explanations by representatives: Yes Every quarter, the Company holds a teleconference with analysts and institutional investors on the day it announces quarterly financial results. The teleconference is hosted by a director of the Company and subsidiaries senior executives in charge of finance. In addition, Sony Financial Holding holds a Corporate Strategy Meeting once a year, hosted by the Group top managements. (4) Regular Meetings for Overseas Investors Explanations by representatives: Yes The Company top managements visit overseas investors in each region once a year to hold one-on-one meetings in Europe, North America and Asia. (5) Uploading IR Materials onto Website The Company uploads earnings releases, annual reports and other disclosure materials onto its website. The Company has also enhanced disclosure in English to ensure there are no material disclosure gaps between the English and Japanese languages. (6) IR-related Division The Company has established the Investor Relations Department. 3. Efforts to Adopt a Stakeholder Standpoint (1) Provisions within Internal Regulations for Respecting the Standpoint of Stakeholders The Group recognizes that taking stakeholders concerns into account in management decision making is an important part of ensuring sound business operations. Accordingly, the Group has established an 17

18 activity charter that it endeavors to follow in its operations. (2) Environmental Protection and CSR Activities The Company has established a CSR Basic Policy. Each of the companies in the Group conducts voluntary and fund-raising activities, has acquired ISO certification (the international standard for environmental management systems), has introduced a Green Power Certification system and participates in various other social contribution and environmental activities. IV. Basic Stance on Internal Control System and the Status of Establishment 1. Basic Policy on an Internal Control System The Company Board of Directors formulated a Basic Policy on Establishing an Internal Control System in compliance with Companies Act of Japan and associated enforcement regulations to ensure the appropriateness of the Group company business activities. The Company has implemented and operates an internal control system in line with this policy. [Basic Policy on Establishing an Internal Control System] (1) System to ensure that the execution of duties by directors and employees complies with laws and the Articles of Incorporation i. The Board of Directors establishes a code of conduct as a basic policy for compliance and makes this code clear to the Company' executives, employees and subsidiaries. ii. The Board of Directors creates a compliance manual that provides specific compliance guidelines and a compliance program that defines specific plans. iii. The Board of Directors creates a compliance supervisory department to promote its compliance program. The compliance supervisory department regularly reports to the Board of Directors on the progress of the compliance program. iv. The Board of Directors formulates the Basic Group Policy on Eradicating Anti-social Forces. This policy describes the firm stance the Group takes to counter anti-social forces and build the structure necessary to fulfill this policy. v. The Board of Directors establishes an internal hotline system and informs the Company' executives, employees and subsidiaries about the system. This system allows employees or others who become aware of corporate strategies, operations or other activities that contravene (or are in danger of contravening) laws and regulations to report directly to a hotline desk. The system prohibits any action from being taken against employees or others who provide such notification. vi. The Board of Directors creates the Group Information Security Policies and streamlines a structure to properly control Group information assets, including customer information. vii. The Board of Directors creates the Conflicts of Interest Policy within the Group and ensures that the necessary formats are in place to properly control transactions which have the potential to harm the interests of customers. 18

19 viii. ix. The Board of Directors establishes an internal audit supervisory department, which is independent from other operating departments. The internal audit supervisory department liaises and cooperates with the statutory auditors and the accounting auditor; monitors and verifies, from an independent and objective viewpoint, the implementation and operational status of the internal control system; and reports regularly to the Board of Directors the status of internal audits. The Board of Directors formulates the Basic Policy related to Group s Internal Audits as well as Regulations on Internal Audit, and informs the Company s executives and employees and subsidiaries of these. (2) System for storing and managing information related to the execution of duties by directors The Company establishes the Record-keeping Regulations to ensure that documents pertaining to the execution of duties by directors, such as records of decisions at Board of Directors and Executive Committee meetings, are appropriately stored and managed in accordance with these laws and regulations. (3) Systems of regulations related to risk management i. The Board of Directors formulates the Fundamental Principles for Risk Management Activities as a basic policy on Group risk management and informs the Company s executives, employees and subsidiaries of these. ii. The Board of Directors establishes a risk management supervisory department to manage risks appropriately for the Company and its subsidiaries, in accordance with each entity's scale, characteristics and business model. This department reports regularly to the Board of Directors on the status of risk management. iii. The Board of Directors evaluates the capital adequacy of subsidiaries to ensure that their levels of capitalization are sufficient in light of the risks the Group directly faces and to implement appropriate capital allocations. If necessary, the Board of Directors takes measures designed to strengthen capital bases. iv. The Board of Directors creates the Basic Policy Related to Group Business Continuity Risk Management, as well as contingency plans, to build a system that enables the Group to respond rapidly to a crisis and put in place measures to minimize the impact of these risks. The Board of Directors makes these plans known to the Company s executives, employees and subsidiaries. (4) Systems to ensure the efficient execution of duties by directors i. The Board of Directors establishes approval regulations, organizational and task-sharing regulations and other internal rules, and creates an appropriate structure for the efficient execution of duties. ii. The Board of Directors sets up an executive committee and delegates to this committee the discussion and decision-making authority regarding execution of important corporate day-to-day business activities. iii. The Board of Directors establishes the Business Plan Control Regulations, formulates and executes non-consolidated and consolidated medium-term business plans and annual business plans, and regularly confirms progress on business plans. 19

20 (5) System to ensure reliability of financial reporting The Company maintains the necessary system to ensure reliability of financial reports, in accordance with the Basic Policy Regarding Group Financial Reporting. (6) System to ensure the appropriateness of operations by the Company and the corporate group, including the Company s parent company and subsidiaries i. In addition to exercising shareholder rights as a financial holding company, the Company makes management control agreements with its subsidiaries, under which the Company manages subsidiaries by requiring them to comply with the Groupwide Basic Policy and to report and obtain prior approval of the Company on matters necessary for ensuring the appropriateness of operations of the Group, including subsidiaries. ii. Based on its Basic Policy on Management of Transactions within the Group, the Company deliberates and examines the appropriateness and compliance of intra-group transactions with subsidiaries that have the potential to significantly impact the operations of the Group before commencement of those transactions. Such issues are resolved at or reported to the Board of Directors. In addition, to protect minority interests, when conducting transactions with parent company Sony Corporation (controlling shareholder) and its group companies, Sony Financial Holdings and its subsidiaries duly confirm that these transactions are necessary and that they are entered into under conditions that are not conspicuously divergent from those of typical transactions with third parties. iii. The Company s Audit Department takes responsibility for ensuring that subsidiaries have appropriate internal control systems in place and monitors and verifies the results of internal and third-party audits of subsidiaries. iv. The Company and its subsidiaries submit management information about the Group as needed to the Company s parent company and interact with the parent company's internal audit supervisory department. (7) Items pertaining to employees who are requested to assist statutory auditors in their duties If directors receive requests from statutory auditors for employees to be allocated to assist them in their duties, the directors assign such personnel without delay. (8) Independence from directors of employees assigned to assist statutory auditors referred to in (7) above i. Statutory auditors must agree to the appointment, removal and evaluations of employees assigned to assist them in their duties. ii. Employees assigned to assist statutory auditors in their duties must exclusively follow the instructions and directives of statutory auditors, once they are given. (9) System for directors and employees to report to statutory auditors, and other reporting system i. If directors or employees are requested to provide reports regarding the execution of their business to statutory auditors, they must do so immediately. 20