Basic Management Policies

We will pursue diverse expansion and development of our healthcare business under our corporate philosophy and the long-term vision HOPE100, striving to advance as a group that supports sound and healthy lifestyles.

Basic Policy on Corporate Governance

The most important management goal for KYORIN Holdings, Inc. is to continue raising shareholder value. To achieve this goal requires fostering a management environment that enables us to build trust with the general public. Therefore, having given better corporate governance a high priority, we seek to ensure prompt decision making, strong monitoring of the appropriateness of management, and to secure ethical and transparent corporate activities. To ensure transparency and fair disclosure, we release appropriate information without delay for the benefit of shareholders and investors. In the future, we intend to actively increase our disclosure of information, and expand our communications with all stakeholders.

KYORIN Holdings, Inc. has appointed three outside directors to further strengthen the supervision of the business execution of directors, and to further enhance the transparency and fairness of management.

Kyorin is a Company with a Board of Corporate Auditors based on the Companies Act of Japan. The Board of Corporate Auditors, including three outside corporate auditors, endeavors to fully demonstrate its auditing and supervising functions and to ensure the transparency of the decisions being made by the Board of Directors. At the same time, corporate auditors carry out a diverse range of activities in fulfilling their auditing function. In addition to participating in important meetings, including those of the Board of Directors and the Management Committee, corporate auditors implement comprehensive audits by checking documents and other materials relating to important decisions and inspecting Group companies.

In addition, in recognition of our corporate social responsibility (CSR), for every Kyorin Group company we appoint compliance and risk management promotion officers. We have established a Group-wide compliance and risk management system that is administered by the Compliance Committee and Risk Management Committee. We have established guidelines for each affiliated company based on the Kyorin Compliance Guidelines and set up a system for employees to report and seek advice about possible irregularities. As well as the above measures, we have created management guidelines for affiliated companies and built a system of governance while securing their autonomy. Under this system, we receive regular business reports from these companies and hold meetings with their management before deciding important issues. The Internal Audit Office conducts audits of affiliated companies based on internal audit guidelines. Following the results of these audits, departments that oversee the operations of the affiliated companies issue instructions or warnings and provide appropriate guidance.

Management Organization and Internal Control System

1. Management Organization

To clarify the roles of our directors, who are responsible for making business decisions and supervising business execution, and corporate officers, who are responsible for business execution, Kyorin has established a corporate officer system. The Board of Directors usually meets once a month, deciding important operational matters in a timely manner after debating issues as well as supervising each director’s duties. To oversee business execution, we established a Management Committee, comprising the president and directors, which discusses key operational matters concerning the Group. In addition, at its Ordinary General Shareholders’ Meeting, Kyorin appointed three outside directors, and we will be leveraging their independence, rich experience, and high level of specialization to further enhance our management transparency and monitoring functions.

We also utilize a corporate auditor system with two statutory corporate auditors and three outside corporate auditors. By capitalizing on such auditing and supervisory functions, we have built a system that facilitates highly transparent decision-making.

Regarding remuneration and nomination of directors and corporate auditors, Kyorin has established the voluntary Committee on Remuneration and Nominations, mainly comprising independent outside directors, to seek appropriate advice in order to enhance the transparency of decision making.

2. Internal Control System and Risk Management System

Kyorin is building an internal control system in accordance with the following

basic policy

In keeping with our corporate philosophy of "cherish life and benefit society by contributing to better health," we undertake our activities in Japan and overseas guided by a high standard of corporate ethics as we respect human rights and comply with the letter and spirit of all laws and codes of conduct.

• We established the Compliance Committee, which is chaired by a corporate officer in charge, and controlled by "Promotion Compliance & External Relations" department and includes the participation of the Director of the Internal Audit Office who serves as a member of the committee. Thoroughgoing guidance is provided to executives and regular employees via training programs, while the Corporate Ethics Hotline has been set up for consultations and reporting matters concerning internal violations. Moreover, we have set Company rules to ensure the accuracy of financial reporting, and developed systems for ensuring the validity and reliability of internal controls over financial reporting of the Group.
• We are building and operating a structure for reducing and preventing risks. As part of this structure, we established the Risk Management Committee, chaired by a corporate officer in charge, with the General Affairs Department responsible for overseeing the committee. For risks concerning compliance, the environment and accidents, we also formulated the Risk Management Guidelines and the Corporate Ethics and Compliance Guidelines as part of a quick-response structure. Additionally, to handle crisis management when dealing with any contingencies, we have set up the Contingency Measures Headquarters under the leadership of the president.
• In accordance with the Documentation Management Guidelines and other internal regulations, we carry out the appropriate preparation, preservation and management of information regarding directors' decisions, their execution of other duties and reports concerning directors.
• To ensure that auditors effectively perform audits, the accounting auditing firm explains the details of the accounting audit to the auditors and exchanges various information while cooperating with the Internal Audit Office in ensuring appropriate communication and effective auditing.
• Along with establishing compliance committees and risk management committees at each Kyorin Group company, the Compliance Committee and Risk Management Committee of KYORIN Holdings, Inc. oversee and promote compliance and risk management for the entire Group. In addition, we have built a structure for consultation and reporting that covers the whole Group.
  
  We will create management guidelines for affiliated companies and build a system of support that respects their autonomy. Under this system, we will receive regular business reports from these companies and hold meetings with their management before deciding important issues.
  
  The Internal Audit Office performs audits of affiliated companies based on internal audit guidelines. Depending on the results of these audits, departments that oversee the operations of the affiliated companies issue instructions or recommendations and provide appropriate guidance. Moreover, we are also building a structure that enables managers to prepare reliable internal control reports for financial reporting. Under this structure, the Internal Audit Office also evaluates and reports on internal controls related to financial reporting based on the Standards and Practice Standards for Management Assessment and Audit Concerning Internal Control Over Financial Reporting.
• Basic rationale on the elimination of anti-social forces and the establishment of related measures
  
  Giving consideration to our corporate philosophy, we formulated the Kyorin Corporate Charter to ensure a high standard of corporate ethics and thoroughgoing compliance. This charter clearly states that we will "stand firmly against any anti-social forces or groups that pose a threat to the order and safety of society", and we strongly confront anti-social forces or groups.
  
  We have also established standard measures to prepare for any possible undue demands from anti-social forces. To this end, we have built a structure that includes designating a "person responsible for prevention of undue claims" at our Head Office and all branch offices of each Group company to respond to encounters with any anti-social forces or groups. We also maintain close communications with police departments with relevant jurisdictions, special crime prevention units and legal advisers to ascertain the latest trends and gather other information on anti-social forces or groups as well as for guidance, consultation and assistance. Also, we have prepared Responding to Telephone Calls and Visits to the Company During the Initial Phase of Claim-related Problems as a manual, to ensure that employees make appropriate initial responses. In this manner, we have established a structure for properly responding to any demands from anti-social groups.

3. Audit Organization

a) Internal auditors

Internal audits are conducted by the Internal Audit Office, which is staffed by six employees who report directly to the president, and is independent from other sections. Based on yearly auditing plans, the Internal Audit Office regularly assesses and evaluates the effectiveness and efficiency of the legal compliance and internal control systems in the parent and Group companies. After an audit, the office communicates any problems or areas that need improvement directly to the president and makes the appropriate recommendations.

Another function of the office is to evaluate the Group’s internal controls over financial reporting. The office evaluates the development and operation of these internal controls according to a predetermined scope for evaluation, and makes a report to the president.

b) Corporate auditors

Corporate auditors conduct audits in line with an auditing policy and plan set by the Board of Auditors at the beginning of each fiscal year. In addition to participating in important meetings, including those of the Board of Directors and the Management Committee, corporate auditors implement comprehensive audits by checking documents and other materials relating to important decisions and inspecting departments, facilities, and Group companies.

Under our adopted system, if executives or regular employees discover that an executive officer or employee is acting in contravention of either laws and regulations, or the Company’s Articles of Incorporation, they immediately notify the corporate auditors. We are working to establish an environment conducive to more efficient audits by corporate auditors by coordinating closely with executives and regular employees and by fostering deeper understanding of audits.

c) Outside directors and outside corporate auditors

Kyorin has three outside directors and three outside corporate auditors.

We seek independent and objective advice from outside directors at Board of Directors’ meetings, etc., and have established a highly effective management supervision system that maintains a distance from business execution.

Noriyuki Shikanai uses his advanced expertise and abundant experience as an attorney to provide advice on corporate management, mainly from legal perspective.

Ken Shigematsu uses his abundant corporate experience and wide-ranging insight to provide advice on management in response to changes in the social environment.

Hiromi Watanabe uses her wide-ranging insight as a physician to provide advice from the perspective of promoting women’s participation in the workplace, an aspect of diversity.

Three outside corporate auditors are neutrally positioned and uncompromised by relationships with management or parties with special interests. All have considerable knowledge of corporate legal affairs, finance or accounting, and perform a monitoring function with wide-ranging insight.

Masaji Obata is well versed in Corporate Law as an attorney and has considerable knowledge of finance and accounting. Takao Yamaguchi has a considerable knowledge of finance and accounting as a certified public accountant and a certified tax accountant. Naohiro Kamei is very familiar with finance and accounting from his work in the financial industry.

Kyorin selects outside directors and outside corporate auditors after reviewing the individuals’ backgrounds and relationship with Kyorin, and from a standpoint independent from that of management, on the assumption that sufficient independence is ensured. All outside directors and outside corporate auditors fulfill the requirements as independent officers stipulated by the Tokyo Stock Exchange and have been reported as such to that body.

d) Independent auditors

In accordance with the Corporation Law and the Financial Instruments and Exchange Law, we receive annual audits by Ernst & Young ShinNihon LLC.

The following certified public accountants performed the audit of KYORIN Holdings, Inc.:

4. Overview of Personnel, Capital and Trading Relationships between the Company and the Outside Directors and Outside Corporate Auditors

None to report.

5. Compensation of Directors and Corporate Auditors

a) Total compensation paid to each director or corporate auditor, total paid by type of compensation, and number of applicable directors and corporate auditors

b) Importance of employee salary in cases where a director is also an employee

None to report.

c) Policy and method of determination of the policy, as regards the amount of compensation paid to a director or corporate auditor, and the method of calculation

The Group’s basic policy is to provide compensation that contributes to the enhancement of Group’s corporate value through sustainable and stable growth. Specifically, our compensation consists of two tyes: basic compensation, which is paid in cash, and stock options, which are paid in shares of the Company.

However, to ensure that outside directors are able to fully exercise their management oversight function, their compensation is limited to basic compensation, which is not linked to annual performance and does not include stock options.

The amounts of basic compensation and stock options are calculated in accordance with relevant decision-making policies, within the limits of the compensation approved by the General Shareholders’ Meeting. The amounts are determined by the Representative Directors, President and Chief Executive Officer, who is delegated by the Board of Directors, after the objectivity and transparency of the decision-making process have been confirmed by the voluntary Committee on Remuneration and Nominations, the majority of whose members are independent outside directors.

6. Number of Directors

The number of directors is limited to 15 as set out in the Company’s Articles of Incorporation.

7. Conditions for Resolution on Appointments of Directors and Corporate Auditors

The Company’s Articles of Incorporation stipulate that a resolution to appoint a director or corporate auditor must be made by the majority vote of attending shareholders holding at least onethird of the voting rights of shareholders who are eligible to exercise voting rights.

8. Ordinary General Shareholders’ Meeting Matters that May Be Resolved by the Board of Directors

a) Acquisition of treasury stock

Pursuant to the provisions of Article 165, paragraph 2 of the Corporation Law of Japan, the Company’s Articles of Incorporation stipulate that the Company may acquire treasury stock by a resolution of the Board of Directors. The aim is to allow management to swiftly exercise capital policies as deemed appropriate in response to changes in the operating environment, by allowing the Company to acquire treasury stock through market transactions, etc.

b) Decision-making body for cash dividends from retained earnings

Pursuant to Article 459, paragraph 1 of the Corporation Law of Japan, and except where otherwise specified in a separate applicable legal or regulatory provision, the Company’s Articles of Incorporation stipulate that cash dividends are to be decided by resolution of the Board of Directors, and not the ordinary general shareholders’ meeting. The aim is to allow management to exercise a capital policy as deemed appropriate.

9. Requirements for Special Resolution by an Ordinary General Shareholders’ Meeting

Pursuant to Article 309, paragraph 2 of the Corporation Law of Japan, the Company’s Articles of Incorporation stipulate that special resolutions by an ordinary general shareholders’ meeting must be passed by at least a two-thirds majority vote of attending shareholders holding at least one-third of the voting rights of shareholders eligible to exercise voting rights. The aim is to lower the required quorum for a special resolution of an ordinary general shareholders’ meeting to facilitate the smooth operation of the meeting.

10. Reasons for adopting the existing corporate governance structure

Reflecting the proactive comments and opinions expressed by the three Outside Directors and three Corporate Auditors, who have no vested interest in the Company and possess a wide range of knowledge and experience and professional views, at meetings of the Board of Directors and the Board of Corporate Auditors and other meetings, the Company believes that legitimacy, fairness and impartiality in the decision-making regarding important management matters and business execution are ensured. With this structure, the Company also believes that communication among Directors and Corporate Auditors will be able to be further facilitated.