Corporate Governance

As a bank that owns and operates an ATM network that manages deposits from a large number of customers and has a nature similar to that of public infrastructure, the Bank recognizes that ensuring disciplined corporate management is vital in responding to social trust and seeks to ensure effective corporate governance. This is achieved by maintaining and improving corporate governance and compliance systems to ensure transparent, fair and swift managerial decision making; clarifying the roles and responsibilities of executives and employees; strengthening management oversight functions; and ensuring equitable operations. The Bank adopts the organizational form of a Company with Audit & Supervisory Board. At the Board of Directors, the Bank ensures effective corporate governance through decision making by Directors with executive authority over operations who are well versed in the Bank’s operations and Outside Directors who have considerable experience and insight in their areas of expertise as well as through audits by the Audit & Supervisory Board Members.

For the sustainable growth and the improvement of corporate value, the Bank has positioned strengthening governance as a key management issue. In FY2021, amid the significant changes in environments surrounding companies, we put emphasis on further increasing effectiveness of the Board of Directors in order to carry out the growth strategies toward the realization of the Purpose, and promote sustainability management centering on resolution of social issues. As a place for more strategic discussion, which we regarded as an issue, “Officers Discussion” is periodically held to conduct discussion under themes which would contribute to management. In FY2022, with a new Outside Director added, we will enhance independence of the Board of Directors, and strive to make governance more effective with the Board of Directors composed of diverse members.

The Seven Bank has annually conducted “evaluation of effectiveness of the Board of Directors” since FY2015. In FY2021, a questionnaire survey was conducted for Directors and Audit & Supervisory Board Members in relation to evaluation, etc. for items measured at a fixed point such as operation of the Board of Directors, prior explanations, and contents of deliberations, as well as improved items for a single year. The results were reported to and deliberated at the Board of Directors.

The Bank’s Board of Directors continues to be operated appropriately under a well-balanced structure featuring diverse knowledge and expertise. And it was confirmed that the Board of Directors has been fulfilling both its decision-making and supervisory functions as all Directors share its roles and responsibilities, while incorporating the perspective of Independent Outside Directors, thereby ensuring its effectiveness. Details of initiatives for specific issues are as follows.

The Bank’s Independence Standards for Outside officers are as follows:

We believe that the role of Directors and Audit & Supervisory Board Members is to realize appropriate business management by supervising and auditing business execution while fully understanding the social responsibilities and mission of the banking business. In order to properly fulfill this role, we utilize the skill matrix when appointing Directors and Audit & Supervisory Board Members, and aim for a well-balanced composition of members with diverse skills and expertise.

Seven Bank’s “Policy on Compensation of Officers and Compensation System for Officers” were, excluding compensation for Audit & Supervisory Board Members, proposed to the Board of Directors by the Nomination & Compensation Committee, and determined with a resolution of the Board of Directors as follows:

The Bank decides compensation of officers based on the following points.

The Bank has established a Nomination & Compensation Committee, comprising a total of four members made up of two independent Outside Directors and two Representative Directors, chaired by an Independent Outside Director, as an advisory body to the Board of Directors. The Nomination & Compensation Committee proposes specific amounts of compensation, etc. to be granted to Directors within the range of the total amount approved at the General Meeting of Shareholders, for determination by resolution of the Board of Directors. From the perspective of understanding the process of discussion, Audit & Supervisory Board Members may participate as observers who do not possess voting rights, when a Nomination & Compensation Committee meeting is held. The procedure is stipulated in the Regulations for Officers, which is modified, amended, or abolished by a resolution of the Board of Directors upon discussion with the Audit & Supervisory Board Members. Compensation, etc. for Audit & Supervisory Board Members is determined upon discussion by the Audit & Supervisory Board Members within the range of the total amount approved at the General Meeting of Shareholders.

The Bank’s compensation structure for officers comprises “basic compensation” as fixed compensation and “bonuses” and “performance-based stock compensation” as variable compensation, which are applied as follows.

Each plan is positioned as follows.

The ratio of each plan has been decided as described on the following page after deliberation by the Nomination & Compensation Committee chaired by an independent Outside Director. Factors taken into account included a balance between fixed compensation and variable compensation, a balance between cash remuneration and stock compensation, and a balance between bonuses and stock compensation, which are incentives to execute management with a well-balanced perspective in both the short term and the medium to long term.

In addition, non-executive Directors and Audit & Supervisory Board Members receive only fixed compensation, as their role is to supervise the Bank’s management from an objective and independent standpoint

Excluding compensation for Audit & Supervisory Board Members, to provide a competitive compensation level and thereby secure highly capable human resources, the Bank’s compensation level for officers has been determined by a resolution of the Board of Directors based on the proposal made by the Nomination & Compensation Committee. The deliberation has been based on the analysis and comparison of data on the compensation levels of a group of companies of the same size and operating in the same industry as the Bank, which has been drawn from a larger body of objective data on compensation levels provided by an outside professional organization.

from April 1, 2021 to March 31, 2022

Audit & Supervisory Board Members and the Accounting Auditor hold regular meetings to exchange opinions and promote mutual cooperation, based on the audit contract with KPMG AZSA LLC. Audit & Supervisory Board Members perform audits on the execution of duties by Directors by attending the Board of Directors meetings or other means. In addition to conducting their own operational and accounting audits, Audit & Supervisory Board Members receive reports on results of external audits by the Accounting Auditor, and check the appropriateness thereof. Members from the Internal Audit Division are also present when receiving accounting audit reports from the Accounting Auditor, in an effort to facilitate close cooperation.

The Bank has in place the Internal Audit Division, which is independent of the Bank’s other divisions engaging in business operations and directly reports to the President and Representative Director. The Internal Audit Division annually sets a basic policy for internal auditing plans and priority issues to be addressed, which are to be approved by the Board of Directors. Individual internal auditing plans are formulated by the General Manager of the Internal Audit Division, and approval of these plans is obtained from the President and Representative Director, who is the officer in charge of the Internal Audit Division.

Individual internal audits are conducted by investigating and evaluating the appropriateness and effectiveness of internal management systems as a whole based on the following items to discover problems, if any, and suggest how to address them. The results of these audits are reported to the President and Representative Director, the Executive Committee and the Audit & Supervisory Board Members.

Internal audits are conducted on all the Bank’s divisions and systems, including those of its subsidiaries. Audits are also conducted on the operations of the Bank’s major outsourcing contractors regarding the status of management by its relevant internal divisions, as well as on the outsourcing contractors themselves, within the scope agreed with them.

Audit &Supervisory Board Members receive periodic reports from the Internal Audit Division on its audit plans and results, and request investigations as necessary to ensure that the audit results of the Internal Audit Division are effectively utilized for internal control system audits by Audit & Supervisory Board Members. In addition, Audit & Supervisory Board Members receive reports on the status of improvement of internal control systems regularly or as necessary from the divisions in charge of internal control functions, and ask for detailed explanations as necessary.

Concerning the system upgrades stipulated in Article 362, Paragraph 4, Item 6 of the Companies Act, the Board of Directors made a resolution on May 8, 2006, on matters to be implemented by the Bank. Progress of the details of this resolution is reviewed each fiscal year. In line with this resolution, Seven Bank strives for good corporate governance and internal control, while ensuring appropriateness in the Seven Bank Group’s operations.

Seven & i Holdings Co., Ltd. is the Bank’s parent company, indirectly holding 46.27% of its voting rights, and therefore falls under the category of controlling shareholder stipulated in the Timely Disclosure Rules. When conducting transactions, etc., with the parent company, the Bank will comply with the arm’s-length rule under the Banking Law, which is a rule established to prevent the soundness of the Bank’s management from being compromised through conflict-of-interest transactions. The Bank fully confirms the necessity for such transactions and that the conditions of such transactions do not differ significantly from conditions of usual transactions with third parties.

The Bank believes that in order to achieve sound and sustainable growth, it is essential to engage in business development (innovation) by integrating collaboration with various partners to an advanced degree based on our credibility and transparency of management as a corporate entity. Furthermore, we recognize that listing on the market is one of the most effective ways to ensure the Bank’s credibility and transparency of management. As an independently listed company, the Bank independently and autonomously deliberates and determines our own business strategies, personnel policies, capital policies, etc., as we engage in our own operating activities. In addition, in order to ensure the necessary independence from our parent company, we have established the Nomination & Compensation Committee chaired by an Independent Outside Director as an advisory body to the Board of Directors. This Committee deliberates on matters concerning recommendations of candidates for Director and Executive Officer, thereby ensuring independence from our parent company in the appointment of top management. The Bank has also appointed Independent Outside Directors and Independent Outside Audit & Supervisory Board Members, who provide supervision to ensure that no conflict of interest arises between our parent company and shareholders other than the parent company. The Bank does not have any agreements concluded regarding group management with the parent company. In addition, to comply with the disclosure obligations, etc. of the parent company, the Bank has established the Guidelines for Reporting of Material Facts with the parent company and reports to the parent company accordingly. These reports are limited to matters that impact the parent company’s timely disclosure, materially impact the parent company’s consolidated financial statements, and may potentially impair the credibility of the Seven & i Group.

The parent company’s approach and policy regarding group management are as follows: “Although the Company owns the listed subsidiary, Seven Bank, Ltd., from the standpoint of respecting the independence of Seven Bank, Ltd., we value the management decisions of the said listed subsidiary, and respect the independent and autonomous deliberation and determination of its business strategies, personnel policies, capital policies, etc., as it engages in its own operating activities.” (Excerpt from “Seven & i Management Report” issued by Seven & i Holdings Co., Ltd.; January 12, 2022 edition)