AEON delight

Corporate Governance

AEON delight Corporate Governance Guidelines

Basic Philosophy

Based on our Management Principle, "We pursue the creation of 'environmental value' for the customers and for the local communities," we fulfill our responsibilities to our stakeholders through sustainable growth of our company and by increasing the value of our company, and implement an optimal corporate governance system designed to best meet the needs of society and the business environment.

In AEON delight Corporate Governance Guidelines (hereafter the "AEON delight Guidelines"), we have defined our corporate governance system as "a mechanism that helps to bring about sustainable growth of our company by maintaining balance between 'offense' and 'defense' in the four areas as follows":

1) Means for integrating the business activities of the members (executives and employees) of our enterprise under one policy or vector and then utilizing managerial resources to the maximum degree.
2) Basic promises that underpin the trusting relationships with stakeholders who support our enterprise
3) Preparedness for unexpected ordinary or extraordinary events
4) Rules each enterprise should follow for surviving as a member of society

[Management Principle]
We Pursue the Creation of "Environmental Value" for our Customers and for the Local Communities.

[Code of Conduct]
1 I am always grateful to the many other individuals who provide help and support,and I never forget to act with humility.
1 I always act with integrity and sincerity in every situation.
1 I always work to improve myself so as to offer services that exceed customer expectations.
1 I continually challenge myself, without hesitation, to help AEON delight to create environmental values.
1 I always act as a good corporate citizen in serving local communities.
1 I always seek to improve and maintain a delightful workplace and to respect my fellow employees.

[Basic Policies for Sustainability]
AEON delight’s management philosophy is "We Pursue the Creation of ’Environmental Value’ for our Customers and for the Local Communities.”
Based on this management philosophy, we will contribute to solving social issues and achieving a sustainable society by creating "environmental value" in all aspects of our business together with our many stakeholders.
・We will strive to create a safe, secure, hygienic, and healthy usage environment in and around our facilities.
・By providing solutions that meet society's expectations, we will contribute to achieving a decarbonized society,conserving biodiversity, and promoting recycling.
・We will comply with laws and social norms, build relationships of mutual trust with our business partners,and conduct fair business activities throughout the supply chain.
・We will respect the human rights of each individual and create a vibrant organizational culture in which diverse human resources can demonstrate their abilities.
・As a corporate citizen, we will engage in social contribution activities that aim for a better environment and society.

Corporate Governance System

Overview of Current Corporate Governance System

[Group Governance]
In response to the discovery of accounting problems at our consolidated subsidiary in the past, we established the 3 pillars of group governance (1. the growth strategy of each company; 2. budget control; and 3. compliance and internal control system) to accelerate the overall growth strategy of the AEON delight Group and strengthen the Group governance system.
The Board of Directors, the Domestic Group Management Committee, and the Overseas Group Management Committee, to which authority has been transferred, monitor whether these 3 pillars of Group governance are functioning systematically. In addition, the Board of Corporate Auditors and the Group Management Audit Department audits the effectiveness of these 3 pillars as a whole.
We have also reviewed our organizational structure, and since March 2021, in addition to strengthening the existing Risk Management Committee, we have established two new committees: the Group Governance Enhancement Promotion Committee, which is responsible for monitoring the maintenance and continuation of the recurrence prevention measures that have been implemented to date, and the Corporate Culture Committee, which is responsible for instilling the Group's common philosophy and Delight Way as a mindset for all Group employees, as well as for creating a diverse work environment centered on the concept of diversity.
In the fiscal year ended February 28, 2022, the Risk Management Committee met twice and the Group Governance Enhancement Promotion Committee met 12 times. The Corporate Culture Committee conducted a questionnaire survey regarding organizational culture for employees, including those of Group companies, and reported the results of the survey at a meeting of the Board of Directors.
By having these three committees work together according to their respective responsibilities, we have strengthened the Group's governance system.
In addition, issues identified by each of the three committees were consolidated under the supervision of the executive officer in charge of corporate culture reform, who was appointed in May 2021, and reported to the Board of Directors of the Company.
In this way, we are further strengthening our Group governance system by establishing a system to resolve issues throughout the organization.
The Sustainability Committee was established in April 2022 as a group-wide promotion body for ESG management, which is aimed at solving social issues through our business activities. Based on our Basic Policies for Sustainability and Material Issues, the committee makes decisions on the highest priority issues and initiatives, etc. The committee is scheduled to meet twice a year going forward.

[The Board of Directors]
The Board of Directors plays the second most important role after the general meeting of shareholders in our company's corporate governance system. It makes important decisions on business management as well as provides effective oversight over the senior management team, including the directors and executive officers.
In principle, the Company holds regular meetings of the Board of Directors once a month, as well as extraordinary meetings as necessary. A total of 17 meetings were held during the fiscal year ended February 28, 2021.
Since July 2019, half of our directors have been independent outside directors as defined by the Tokyo Stock Exchange, Inc. to ensure transparency in management. In addition, by clearly separating the supervisory functions of the directors from those of the executive officers, the Board of Directors are able to focus on important decisions and supervisory functions, such as setting the management framework.

[Management Meeting]
The Management Meeting Committee consists of Managing Officers and above, as well as other members as necessary depending on the nature of the discussion, and discusses management policies, management strategies, and other important management matters.
In particular, proposals to be submitted to the Board of Directors are discussed thoroughly in advance at the Management Committee before being submitted to the Board of Directors to ensure enhanced deliberations and appropriate decision-making by the Board of Directors.
In principle, the Management Committee meets at least once a month. A total of 18 meetings were held during the fiscal year ended February 28, 2022.

[Nomination and Compensation Advisory Committee]
The Nomination and Compensation Advisory Committee was set up voluntarily by the Board of Directors to advise the Board on the nomination and selection of directors and corporate auditors, succession planning of the President and other senior executives, and incentive plans and compensation of directors.
Similarly, the Nomination and Compensation Advisory Committee also advises the Board on the nomination and dismissal of the President and directors of each Group company.

[Evaluation Advisory Committee]
The Evaluation Advisory Committee is a voluntary advisory body to the Board of Directors, established to strengthen the independence and objectivity of the Board of Directors. It analyzes and evaluates the effectiveness of the Board of Directors as a whole and provides advice and recommendations to the Board of Directors. In principle, the Board of Directors meets once a year.
Composition of the Committee
Committee Chairman: Yoshiaki Hompo, Independent Outside Director
Committee Members: Kazumasa Hamada, President; Keiji Yoshikawa, Independent Outside Director; Tsukasa Takahashi, Independent Outside Auditor

[Special Committee]
The Special Committee is an advisory body to the Board of Directors and was established in May 2022 for the purpose of appropriately reflecting the opinions of minority shareholders and other stakeholders in the Board of Directors from a standpoint that is independent of management executives and controlling shareholders. The committee is chaired by an independent outside director and all committee members are independent outside directors. Meetings are held when there is a concern about a conflict of interest between controlling shareholders and minority shareholders.
Composition of the Committee: *All independent outside directors
Committee Chairman: Yoshiaki Hompo
Committee Members: Masaaki Fujita, Keiji Yoshikawa, Asako Takada

[Internal Audit]
The Corporate Audit Department periodically conducts internal audits, including audits of the company's subsidiaries, reports the audit results to the President and the Board of Directors, and provides appropriate supervision on business management.

[Corporate Auditors and Board of Auditors]
Corporate Auditors attend the meetings of the Board of Directors and Board of Executive Officers as well as other important meetings, and serve a key supervisory function with regard to decisions made and duties executed by the Directors and Board of Directors.

Reason for Adopting the Current Corporate Governance System

The Company is a company with a Board of Corporate Auditors, and the Corporate Auditors and the Board of Corporate Auditors audit the execution of duties by the Directors and the Board of Directors. The Board of Directors of the Company has both executive and supervisory functions. However, in order to speed up decision-making related to execution, the Board of Directors has introduced an executive officer system and delegated the execution of specific areas of business to executive officers.

Corporate Governance Structure

Corporate Governance Structure
Election status of External Director Elected
Number of External Directors 4
Number of External Directors designated as Independent Executive Officer 4
Election status of External Auditor Elected
Number of External Auditors 3
Number of External Auditors designated as Independent Executive Officer 2

Auditors hold meetings periodically and as required with the Accounting Auditor to exchange information. AEON delight has concluded an audit agreement with Deloitte Touche Tohmatsu LLC as the Accounting Auditor and receives audits based on the Company Act and the Financial Instruments and Exchange Act.

The Office of Corporate Audit has been established as the Group Corporate Audit Department and conducts assessments and audits in a planned manner to enhance appropriateness and efficiency of internal control across all business operations with efforts made to ensure smooth management and control of business affairs.

The corporate auditors exchange information and opinions with the Group Corporate Audit Department on a regular and daily basis, and as necessary, and also organizes three-way audit meetings to ensure mutual cooperation.

Accounting Audit

AEON delight has elected Deloitte Touche Tohmatsu LLC as its Accounting Auditor and receives accounting audits from the company. The certified public accountants undertaking this role during FY2021 are Kazunari Todoroki and Hideshi Fujii, while sixteen other certified public accountants as well as fifteen junior accountants and certified public accountant exam passers offer assistance with the auditing procedure. There is no special vested interest between AEON delight and Deloitte Touche Tohmatsu LLC or any of the public accountants engaging in the auditing work.

Matters Related to Internal Control Systems

Basic Views on Internal Control System and the Progress of System Development

On May 18, 2022, the Board of Directors adopted a resolution on the basic policy related to systems for ensuring that directors execute their duties in compliance with laws and regulations and with the Articles of Incorporation, and systems necessary to ensure the appropriateness of the Company's operations and the operations of the corporate group consisting of the Company and its subsidiaries, as follows.

Basic Policy on Internal Control Systems (Updated May 18, 2022)

(1) The system to ensure that the execution of duties by its directors and employees complies with laws and regulations and with the Company's Articles of Incorporation (compliance system)

① In addition to complying with laws and regulations and with its Articles of Incorporation, the Company always adheres to its Management Principle and Code of Conduct and acts with high ethical standards.
② The Company will implement a system to ensure that the execution of duties by its directors and employees complies with laws and regulations and with its Articles of Incorporation, as follows:
(a) The Board of Directors will make decisions on matters of importance as prescribed by the Board of Directors rules and standards on deliberations as well as provide oversight over the execution of the Company's business operations. Directors will mutually exercise checks and balances within the Board and will ensure that decisions of the Board and the Company's execution of its business comply with laws and regulations and with its Articles of Incorporation;
(b) The Board of Directors will appoint an officer in charge of compliance, and the Group Compliance Division will be under this officer’s control. The officer in charge of compliance and the Group Compliance Division will be responsible for ensuring that the Company and its consolidated subsidiaries (hereinafter referred to as the "Group") implement necessary measures to strengthen compliance.
(c) The Company's Group Compliance Division will appoint compliance committee members who do not concurrently serve as directors or officers at Group companies. Under the Company's Group Compliance Division Manager, it will evaluate the appropriateness of their activities and nominate and dismiss committee members.
(d) The Company will require all employees to adhere to laws, regulations, company rules, etc. in the Company's working rules and will organize compliance training periodically or whenever necessary to raise directors' and employees' compliance awareness;
(e) The Company will establish a whistleblower system for early detection and remedy of inappropriate corporate activities and prevention of similar incidents from happening again;
(f) The Group Corporate Audit Department, as an internal audit department, will examine and assess the effectiveness of the compliance system; and
(g) The Corporate Auditors and the Board of Auditors will, if they recognize problems in the system of compliance of laws and regulations and the Articles of Incorporations, request the Board of Directors to implement measures to remedy such problems.

(2) The system for preservation of information related to execution of duties by the directors (information preservation system)

① The Company will implement a system to appropriately store and preserve documents such as the minutes of the general meetings of shareholders and of the Board of Directors, the preservation of which is a statutory requirement, and other important information, as follows:
(a) In accordance with laws and regulations as well as the internal regulations on document management and other internal regulations, the Company will appropriately store and preserve important documents and electromagnetic digital media relating to execution of business by its directors;
(b) The Company will respond immediately to requests from directors and auditors to examine those documents and media; and
(c) The Company will manage information appropriately in accordance with internal regulations, including regulations on information security management and on protection of personal information, and review such regulations from time to time.

(3) The regulations and systems for management of risk of loss (risk management system)

① The Company will implement a system to make necessary decisions and take necessary steps in response to various risks that may arise during the course of business activities, as follows:
(a) As for risk management during the normal course of business, risk management departments, assigned for each risk, will manage risk to prevent risk-related incidents and reduce loss;
(b) The Risk Management Committee, with the Group Compliance Division serving as its secretariat, will summarize the results of risk assessment and analysis performed by each department in charge of risk management as well as the proposed countermeasures, verify the risk scenarios of each Group company, and periodically report its findings to the Board of Directors. If risk becomes actualized and substantial damage can be expected, directors must promptly report it to the Corporate Auditors; and
(c) In times of emergencies, the Disaster Response Headquarters will be established, with the President acting as the head, to enable quicker decision making and execution than during normalcy. In addition, it will prepare the basic regulations and manuals for business continuity in times of crisis (BCP basic regulations), BCP detailed regulations, disaster recovery handbook, etc, periodically revise regulations and manuals, and plan and conduct disaster drills.
(d) The Group Management Audit Department will evaluate the effectiveness of risk management through audits of the departments in charge of risk.
② The Company, with its commitment to quality of its operations as a way to concretize "creation of environmental value" enshrined in its Management Principle, will implement a system for maintaining and improving quality so as to continue to win the support of its customers, as follows:
(a) The Company will establish an Integrated Manual on Quality and Environment and review its contents as needed.
(b) The Company shall provide ISO internal auditor qualification training to all Area managers and Cite managers to ensure that operations are conducted in accordance with business management regulations and manuals. In addition, mutual audits will be conducted by ISO internal auditors to confirm the effectiveness of such audits.

(4) The system for ensuring that directors are executing their duties efficiently (system to ensure efficiency)

① The Company will implement a system to ensure that directors are executing their duties with efficiency, as follows:
(a) The Company will set out the rules of the Board of Directors and identify those issues that require the resolution of the Board and those issues that must be reported to the Board. As for other issues before the Board, the company will demarcate decision-making authority based on regulations on decision-making and on responsibilities and authority of the directors. It will also set out clearly the division of labor for executing business operations within the organization and the boundaries of jobs and responsibilities;
(b) The Board of Directors shall devote sufficient deliberation to important management decision-making and supervision of management and business execution. In addition, the Company shall implement an executive officer system to improve the efficiency of business execution, and shall utilize such meeting bodies as the Management Committee, Regional Office Management Committee, Domestic Group Management Committee, and Overseas Group Management Committee to ensure efficient management of the Group.
(c) The Company shall establish a system that ensures management efficiency by including multiple independent outside directors on the Board of Directors, examining management proposals from various perspectives, providing highly effective supervision of directors, and supporting prompt and decisive decision-making.
The Board of Directors shall establish the Nomination and Compensation Advisory Committee and the Evaluation Advisory Committee as voluntary advisory committees for the purpose of supervising the fairness of the execution of duties and evaluating their appropriateness, and shall appoint an independent outside director as the chairman of these committees.
(d) The basic concepts of the Company's corporate governance, which have been outlined above, will be set down in writing and disclosed in AEON delight Corporate Governance Guidelines.

(5) The system to ensure fair business transactions within the corporate group consisting of the Company, its parent company and subsidiaries (internal control within the corporate group)

① Transactions between AEON delight and any of AEON Co., Ltd., AEON Group companies, or AEON delight subsidiaries will be based on the market price. Measures will be implemented to prevent conflict of interest and to ensure fair transaction.
② Material transactions that may cause conflicts of interest between controlling shareholders and minority shareholders shall be deliberated and reviewed by a Special Committee consisting of independent outside directors.
③ AEON delight Group will implement a system for sharing its basic philosophy and principles and reinforcing internal control within the Group, as follows:
(a) The Company will set down the basic framework for governance of subsidiaries by parent companies in the regulations on management of affiliated companies, including provisions on matters that subsidiaries must report to the parent company and matters requiring prior approval of the parent company. The Company will also dispatch its directors and auditors to its subsidiaries to supervise management of the subsidiaries;
(b) In addition to receiving monthly performance reports from its subsidiaries, the Company will organize the Domestic and Overseas Group Management Committee meetings, which include the Company’s directors and the Presidents of subsidiaries as members. Through this, the Company will take stock of the performance of its subsidiaries, and establish individual growth strategies, budget performance management, and internal control systems as a part of Group governance.
(c) The AEON delight Group will operate its compliance and whistleblower system under a common, unified framework. The Company will conduct annual compliance training for officers and employees of the Group to foster compliance awareness. The Group Compliance Division will work with the Compliance Committee members appointed for each Group company to carry out activities that raise compliance awareness among the management and employees of each company. In addition, the Company will ensure that all employees are aware of the Group's whistleblower system and will operate it independently of the management of each Group company.
(d) As for internal control related to financial reporting, risk management, and internal audits, AEON delight will have basic policies implemented across the Group. On the other hand, it will also consider the nature, scope and complexity of the businesses of its subsidiaries so that it can determine the reporting and management systems of each of its subsidiaries; and
(e) The Corporate Auditors and The Group Corporate Audit Department will regularly inspect and supervise the subsidiaries. In conducting business operation audits, the Corporate Audit Department will place under close scrutiny those subsidiaries that are considered high risk in light of past performance audits and whistleblower incidents.

(6) Matters related to employees assisting the Corporate Auditors (assignment of auditor staff)

① The Company shall assign dedicated employees to assist the Corporate Auditors at the request of the Corporate Auditors.
② Such employees will follow the instructions of the Corporate Auditors and assist their work.

(7) Matters related to the independence of employees assisting the Corporate Auditors (independence of auditor staff)

① The Company shall obtain approval from the full-time Corporate Auditor or the Board of Corporate Auditors in advance for matters related to personnel affairs, such as the hiring, selection, and transfer of employees to assist the Corporate Auditor's Office, and the full-time Corporate Auditor shall make personnel evaluations of such employees.
② The Company must obtain prior approval of full-time Corporate Auditors or of the Board of Auditors before initiating disciplinary action against employees working in the Audit Office.

(8) The System for enabling directors and employees to report to the Corporate Auditors and other matters related to making reports to the Corporate Auditors (auditor reporting system)

① The directors and employees of AEON delight Group must report immediately to the Corporate Auditors or the Board of Auditors if they discover or come to have knowledge of any fact that will have a significant impact on the Group's business or business performance, or if they discover or come to have knowledge of any breach of laws and regulations or other compliance-related issues.
② The Group Corporate Audit Department and Group Compliance Department will regularly report the statuses of internal audits, compliance, and risk management to the Corporate auditors.
③ The Corporate Auditors may attend the Board of Directors meetings and other important meetings related to the management of the Company's business and freely express their views.
④ The Group Corporate Audit Department will be the office responsible for AEON delight Group's whistleblower system. The Corporate Auditors will, periodically or whenever necessary, receive reports from the office on the status of whistleblower reports made by AEON delight Group's directors and employees through the whistleblower system.
⑤ The Company prohibits anyone from unfavorably treating or taking retaliatory action against any director or employee of AEON delight Group or any user of the whistleblower system for having made a report to a Corporate Auditor or for having used the whistleblower system. The Company will ensure that directors and employees of AEON delight Group are made fully aware of this prohibition.

(9) Other systems for ensuring that the Corporate Auditors can execute their duties effectively (system for ensuring effective audit by auditors)

① The Company will implement a system to ensure that the Corporate Auditors can conduct their audits effectively, as follows:
(a) To enable effective execution of audit duties, the Corporate Auditors will have regular meetings with the President and exchange views on issues that need to be dealt with and other important issues pertaining to the audit;
(b) To enable effective execution of audit duties, the Corporate Auditors will work in close collaboration with the Corporate Audit Department;
(c) The Corporate Auditors will also exchange information with and work in close collaboration with the Accounting Auditor and with outside directors; and
(d) If requested by the Corporate Auditors to make a report or submit related documents and other materials on matters within the remit of the Corporate Auditors, the directors and employees of AEON delight Group will comply with the request promptly and in good faith.
② The Company will meet reasonable requests made by the Corporate Auditors for payment of expenses required for execution of their duties, as follows:
(a) If requested by the Corporate Auditors to make advance payment of costs related to execution of their duties pursuant to the provisions of the Companies Act, Article 388, the Company will promptly settle such expenses or debt; and
(b) The Company will allocate a budget for expenses that the Company deems necessary for the Corporate Auditors to execute their duties. Contingencies paid by the Corporate Auditors will be settled based on a claim made by the Corporate Auditors.

(10) System for eliminating anti-social forces

① The Company will sever any and all ties with anti-social forces. If unfair claims are made against the Company by anti-social forces, the Company will work with specialist outside organizations to take legal steps as an organization.
② If it comes to light that a business partner of the Company is an anti-social force, has business dealings with anti-social forces, or has resorted to a violent and intimidating anti-social behavior, the Company will immediately rescind all transactions and agreements with such a business partner.
③ The Company will appoint the Group Legal Affairs Department to handle requests from anti-social forces, actively collect information from external organizations, and strive to eliminate anti-social forces.

(11) Internal control system for financial reporting

① The Company will set out the Regulations on Internal Control Related to Financial Reporting based on the Company's internal control and reporting system. The Company will work towards ensuring the accuracy and reliability of financial reporting of AEON delight Group through education, supervision, and evaluation.

Compensation for Directors and Auditors

Note that compensation of individual executives is not disclosed, as no director or auditor received a total executive compensation of ¥100 million or more on a consolidated basis.
The total executive compensation for directors and auditors in the fiscal year ended February 28, 2022, was as shown below.

Number of compensated directors: 3 (excluding outside directors)
Amount of compensation: ¥67 million

Number of compensated auditors: 1 (excluding outside corporate auditors)
Amount of compensation: ¥1 million

Number of outside directors and corporate auditors: 7
Amount of compensation: ¥54 million

System for Timely Disclosure

Basic Policy

On information disclosure and transparency, it is stated as follows in the AEON delight Guidelines, Article 11:

1. Our company will disclose the following items in addition to those mentioned herein, for appropriately disclosing information pursuant to law, securing the transparency and fairness of decision making in our company, and achieving effective corporate governance. [Principle 3-1]
2. Basic policies for business administration, including managerial strategies, managerial plans, and capital measures
3. Basic philosophy and policy for corporate governance
4. Quantitative and qualitative information that is helpful for understanding the business conditions of our company, including the information that is found to be demanded by investors through the dialogues with them
5. We will make efforts to disclose and offer information in English within a reasonable range as much as possible, from the viewpoint of international information disclosure.

Corporate System

Important management information (facts that have been determined, facts that have occurred, financial information, etc.) shall be disclosed in a timely and appropriate manner using TDnet by the Presidentʼs Office, PR & IR Group in charge of PR and IR based on direction from the Group Strategy Division, which is in charge of handling information, upon discussion and reporting at the meetings of the Board of Directors.

Flow Chart of Internal System of Timely Disclosure

Flow Chart of Internal System of Timely Disclosure