Corporate Governance

Approach to Corporate Governance

Duskin ensures the implementation of all of the principles contained in the Corporate Governance Code. For additional information, please refer to the Corporate Governance Report on our website.

https://www.duskin.co.jp/esg/governance/corporate/pdf/governance.pdf (Japanese version only)

Initiatives to Strengthen Corporate Governance

We are working to strengthen corporate governance, as we believe it to be one of the most important issues for management. In 2017 we created a Directors Evaluation Committee and introduced an Operating Officer System. With the aim of ensuring the independence of the Directors Evaluation Committee and maintaining its effectiveness, we mandated that only independent directors be members and made the committee an advisory body to the Board of Directors.

Taking into account amendments to laws and changing society, we will continue to work toward further improvements in corporate governance.

2003	Organized Quality Assurance Committee (now called CSR Committee)
2003	Established Compliance Promotion Committee (now called Compliance Committee)
2006	Management philosophy included in the Articles of Incorporation
	Established a basic policy for the Internal Control System
	Established Risk Management Committee
	Duskin stock listed on the first section of Tokyo Stock Exchange and Osaka Securities Exchange* *The cash equity markets of Tokyo Stock Exchange and Osaka Securities Exchange were integrated on July 16, 2013.
2007	Terminated the Directors' retirement benefit program
2008	Increased the number of Outside Audit & Supervisory Board Members from two to three
2013	Participated in Electronic Voting Platform
2014	Increased the number of Outside Directors from one to two
2015	Established Outside Directors and Audit & Supervisory Board Members Council
	Increased the number of Outside Directors from two to three
	Started to post our shareholders' meeting notice on the internet earlier than distributing print version
2016	Started to analyze and evaluate the effectiveness of the Board of Directors
2017	Established a share-based-remuneration-type stock option program
	Introduced Directors Evaluation and Nomination System
	Organized Directors Evaluation Committee
2018	Introduced Operating Officer System
	Decreased the number of Directors from not more than 15 to not more than 12
	Independent Outside Directors account for at least one third of all Directors.
2019	The Directors Evaluation Committee was changed to consist of only independent directors and to function as an advisory body for the Board of Directors.

Five Key Characteristics of Corporate Governance

1	Ratio of Outside Directors on the Board of Directors 33%	◆Of the nine board members, three are Outside Directors. ◆The ratio of Outside Directors on the Board of Directors remained at 33%, as it was in FY2018.
2	Ratio of women on the Board of Directors 22%	◆Of the nine board members, two are women. ◆Duskin is offering greater opportunities for women, who are essential to our business growth. One of our efforts is to increase board diversity with the appointment of more female Directors.
3	Board of Directors attendance rate 100%	◆All Directors, including Outside Directors are expected to attend every Board of Directors meeting and actively engage in discussions on the management and execution of the company's business. ◆This attendance rate reflects the average attendance rate for the 19 Board of Directors meetings since the general meeting of shareholders held in June 2019.
4	Establishment of a Directors Evaluation Committee	◆To improve the effectiveness of appointments to and evaluations of the Board of Directors, Duskin established the Directors Evaluation Committee, which is composed only of independent directors and functions as an advisory board to the Board of Directors.
5	Building a structure that allows Board members to comprehensively deliberate on important matters	◆By introducing an Operating Officer System in FY2018, we have reduced the number of proposals made to Board meetings so that Directors could focus more on discussing important agenda items. We are also further streamlining the Board of Directors' direction-making and oversight functions, and expediting business execution through delegating authority.

Basic Policy

Upholding Founder Seiichi Suzuki's philosophy of Prayerful Management, we are committed to each of our business operations to Sow the Seeds of Joy for people and communities. Our interpretation of corporate governance is for all of our employees to incorporate his earnest wish, as reflected in the philosophy, in our everyday activities.

Duskin positions the strengthening of corporate governance as one of its highest priorities to build a stronger relationship with stakeholders, increase corporate value over the medium- to long-term, and achieve sustainable growth. Duskin is further bolstering its structure, organization and systems to ensure transparent and sound management. Duskin also places compliance at the center of all our corporate activities to continuously improve our corporate value.

Corporate Governance Structure

Duskin is a company with an Audit & Supervisory Board system. In addition to the Board of Directors and the Audit & Supervisory Board, we have introduced the Operating Officer System to ensure expeditious decision making and business execution. At the Board of Directors, Directors monitor and supervise other Directors' performance. The Audit & Supervisory Board consists of independent outside Audit & Supervisory Board Members capable of objectively conducting audits and internal full-time Audit & Supervisory Board Members, who are well acquainted with our business operations and have skills needed to gather information. Under this system, the Audit & Supervisory Board Members, internal and outside, perform accurate audits. We consider this structure highly effective as it supports customer-oriented management while ensuring sound and efficient business operations. This system also enables us to swiftly and precisely respond to changes in the business environment.

Corporate Governance Structure (as of April 2020)

Corporate governance structure

Enlarge the image.

Board of Directors

Chaired by Teruji Yamamura, President & CEO

Directors are selected by taking into account the diversity of the board as a whole in terms of abilities, experience, gender and other characteristics. This is for the purpose of enabling the Board to make accurate management decisions in a wide range of business fields while maintaining the soundness, efficiency and effectiveness of the management. The number of Directors is limited to 12. This enables the Board of Directors to focus on making important management decisions and monitoring the execution of business to swiftly and precisely respond to changes in our business environment.

Meeting Attendance by Board Members and Audit & Supervisory Board Members

■Board of Directors ●Audit & Supervisory Board ★Chair ○Member △Observers
Name	Title	Attendance in FY2019	CSR Committee	Compliance Committee	Outside Directors and Audit & Supervisory Board Members Council	Directors Evaluation Committee	Risk Management Committee
Teruji Yamamura	President & CEO	■19/19	○
Kazushi Sumimoto	Director & COO	■19/19	○
Tetsuya Wada (new)	Director & COO	—	○
Naoto Miyata (new)	Director & CFO	—		★
Taku Suzuki	Director and Operating Officer	■19/19		○
Hiroyuki Okubo (new)	Director and Operating Officer	—	★
Tomoya Yoshizumi	Outside Director	■19/19			★	★
Nobuko Sekiguchi	Outside Director	■15/15	○	○	○	○
Yukiko Tsujimoto (new)	Outside Director	—	○	○	○
Takashi Yoshida	Audit & Supervisory Board Member	■19/19 ●13/13		○			△
Hideyuki Naito (new)	Audit & Supervisory Board Member	—	○
Takaaki Oda	Outside Audit & Supervisory Board Members	■18/19 ●13/13			○	○
Sachiko Kawanishi	Outside Audit & Supervisory Board Members	■19/19 ●13/13			○
Kyoichiro Arakawa	Outside Audit & Supervisory Board Members	■19/19 ●13/13			○

Note: Board meeting attendance for Nobuko Sekiguchi reflects attendance after her appointment on June 25, 2019.

Advisory Bodies

Outside Directors and Audit & Supervisory Board Members Council Chaired by Tomoya Yoshizumi, Outside Director

Duskin has an Outside Directors and Audit & Supervisory Board Members Council, which is an advisory council for the Board of Directors. Its purpose is to provide beneficial views for ensuring effective corporate governance, while enabling Outside Directors to gather information without affecting their independence. This makes it possible to monitor and superviseDuskin's management from a transparent, fair and objective viewpoint.

Directors Evaluation Committee Chaired by Tomoya Yoshizumi, Outside Director

The Directors Evaluation Committee was established as an advisory body for the President & CEO to consider Director and Operating Officer candidates and their remuneration, which requires the approval of the Board of Directors. In April 2019, this committee was changed to an advisory body for the Board of Directors to improve the effectiveness of the Directors Evaluation and Nomination System. The committee now consists of only independent directors, resulting in greater transparency and objectivity.

CSR Committee Chaired by Hiroyuki Okubo, Director

To fulfill our corporate social responsibilities (CSR), we have a CSR Committee, which is an advisory council for the Board of Directors. The purpose of the committee is to identify key CSR priorities to be addressed and the scope of our CSR activities in order to implement CSR management across Duskin Group.

Membership in Committees and Meetings
Name		2019 Achievements
Board of Directors	9 Directors (3 Outside Directors) Observers: 5 Audit & Supervisory Board Members (3 Outside Audit & Supervisory Board Members)	19
Audit & Supervisory Board	5 Audit & Supervisory Board Members (3 Outside Audit & Supervisory Board Members)	13
CSR Committee	5 Operating Officers (4 are also Directors), 2 Outside Directors, 1 Standing Audit & Supervisory Board Member	2
Risk Management Committee	1 Operating Officer, 7 from corporate office departments, and 3 from business divisions Observer: 1 Audit & Supervisory Board Member	2
Compliance Committee	7 Operating Officers (2 are also Directors), 2 Outside Directors, 1 Standing Audit & Supervisory Board Member, 1 labor union chair, 1 attorney	4
Outside Directors and Audit & Supervisory Board Members Council	3 Outside Directors, 3 Outside Audit & Supervisory Board Members	7
Directors Evaluation Committee	2 Outside Directors, 1 Outside Audit & Supervisory Board Member	4
Business Strategy Meeting	13 Operating Officers, 3 Outside Directors, 5 Audit & Supervisory Board Members (3 Outside Audit & Supervisory Board Members)	2
Operating Officers Board	13 Operating Officers Observers: 2 Standing Audit & Supervisory Board Members	12
Budget Meeting	6 Operating Officers (6 are also Directors), 2 Standing Audit & Supervisory Board Members	10

Business Execution

Operating Officers' Board Chaired by Teruji Yamamura, President & CEO

For the President & CEO to conduct business operations based on the basic management policy established at the Board of Directors meetings, Duskin has an Operating Officers' Board, a deliberative body to examine important business matters.

Business Strategy Meeting Chaired by Teruji Yamamura, President & CEO

The Business Strategy Meeting is for all Directors and division managers to discuss comanywide business strategies, business portfolios and the allocation of Duskin Group resources from a medium- to long-term perspective.

Budget Meeting Chaired by Teruji Yamamura, President & CEO

The Budget Meeting is held to monitor budget progress for each business division and identify the discrepancies between forecasts and actual results as well as to discuss measures to be taken.

Evaluation of the Effectiveness of the Board of Directors

Summary: Duskin analyzes and evaluates the effectiveness of the entire Board of Directors annually in order to achieve medium- and long-term sustainable growth and stronger corporate value.
The FY2019 analysis and evaluation process and results and FY2020 plan are as follows:

1.Third party expert — Analysis and evaluation process Target and Period: 15 meetings of the Board of Directors held between April 2019 and December 2019

2.Outside Directors & Audit & Supervisory Board Members Council — Analysis and evaluation process Target and Period: 15 meetings of the Board of Directors held between April 2019 and December 2019

FY2019 issues		FY2019 initiatives
1	Enhanced discussions of management strategies	(ⅰ) Review the business portfolio and search for optimal portfolio. Regularly review financial policies and resource allocations on investments. (ⅱ) The Board of Directors regularly monitors all resolutions made.
2	Composition of the Board of Directors and development of next generations of executives	(ⅰ) The Board of Directors shares information on the selection, development and promotion of current Directors and the next generations of Director candidates. (ⅱ) Provide current Directors and the next generations of Director candidates with training for corporate operations and governance.

Evaluation of the effectiveness and results in FY2019
Initiatives and Improvements
1	(ⅰ) ●Launched the Investment Assessment Committee, a reviewing authority of new investment projects ●Discussed a direction forward for all businesses based on their portfolio analysis. A policy review meeting was held based on the result. (ⅱ) ●Reviewed the progress of policies at each business division when monthly reports were submitted to the Board of Directors
2	(ⅰ) ●Shared policies on the selection of the next generation management team ●To ensure fairness and an objective perspective, we changed the composition of the Directors Evaluation Committee to consist only of Outside Directors in FY2019. The director candidates and Operating Officers will be determined based on the Committee's findings. ●Established and shared a succession plan that clarifies the process and standards in the selection of next-generation director candidates. (ⅱ) ●In line with the educational program included in the succession plan, we developed next year training sessions program required for management and business execution as well as training plan for next generation Director candidates. (The next year training sessions program was not carried out this year.)

FY2020 initiatives
Issues	Initiatives
1.Increase effectiveness of supervisory functions and broaden discussions on strategies for enhancing corporate value 2.Further broaden discussions aimed at optimizing business portfolios on a companywide level 3.Deepen the discussions of organizational functions and the role of Operating Officers that respond to changes in the business environment and strategies	●Review the entire value chain to ensure growth throughout the group ●In addition, set specific targets, make appropriate management decisions that takes into account the cost of capital, and conduct periodic checks on progress

Election Policies for the Board of Directors

Selection Standards

Duskin selects candidates for election as Directors from among individuals who fulfill the criteria of possessing the character, knowledge and integrity to serve as a Director and who have no health issues that would interfere with performing the duties of a Director.

◆Internal Director candidates

The Representative Director requests recommendations from the current Directors and Audit & Supervisory Board Members.
The Representative Director selects a person who can have a positive effect on the organization's vitality and continuously execute medium- to long-term strategies of Duskin Group.
The Board of Directors makes final selections after thorough discussions, with advice from the Directors Evaluation Committee (chaired by an Outside Director, the majority is comprised of independent Directors).

◆Outside Director candidates

●Duskin selects individuals who can maintain independence and have no special financial relationship with Duskin Group.
●These individuals must also have a business career and professional knowledge needed for enabling the Board of Directors to perform its supervisory and advisory functions.
●These individuals must also be able to provide useful advice from a multifaceted perspective in order to maintain the transparency and soundness of management and the fairness of procedures.

The Board of Directors makes final selection among candidates who meet the aforementioned criteria.

Under the provisions of Article 427, Paragraph 1 of the Companies Act, Duskin has contracts with Outside Directors that limit their liability as provided in Article 423, Paragraph 1 of this act. The maximum liability under the contracts is the amount as provided in laws and ordinances.

Reasons for selections of Outside Directors

Name	Reasons for election
Tomoya Yoshizumi	Extensive experience and insight in corporate management as a Member of the Board and Corporate Vice President at Ajinomoto Co., Inc., where he was engaged in strategic production planning, the Medium-Term Management Plan and implementing M&A strategies for the Ajinomoto Group. Mr. Yoshizumi supervised business operations from April 2011 in North America as General Manager, North America Division and President of AJINOMOTO NORTH AMERICA, INC. Since assuming the position of Outside Director at Duskin in June 2017, has strengthened Duskin's corporate governance by providing advice and supervision regarding the Company's overall management from an objective standpoint independent of its executive team. Therefore, Duskin selected him as an Outside Director.
Nobuko Sekiguchi	After working as a management consultant, Ms. Sekiguchi joined Capcom, where she served as an executive officer responsible for business planning, including the formulation of the Medium-Term Plan, management of the annual budget, organizational reforms, and M&A. Her extensive experience and insights allowed her to strengthen Duskin's corporate governance by providing advice and supervision regarding the Company's overall management from an objective standpoint independent of its executive team. Therefore, Duskin selected her as an Outside Director.
Yukiko Tsujimoto	As a director at Procter & Gamble Japan, Ms. Tsujimoto has a wealth of experience and insight in corporate management. As part of her tenure at the company, Ms. Tsujimoto has been responsible for overseeing brand marketing and public relations, as well as serving as PR leader for the Asian region. With her background and knowledge, Ms. Tsujimoto is expected to strengthen Duskin's corporate governance by providing advice and supervision regarding the Company's overall management from an objective standpoint independent of its executive team. Therefore, Duskin selected her as a new Outside Director.

Note: All three are independent directors.

Standards for Independence of Outside Directors and Outside Audit & Supervisory Board Members

To ensure the independence of an Outside Director or Outside Audit & Supervisory Board Member, Duskin selects a member in accordance with our own selection criteria as well as the independence standards of the Enforcement Rules for Securities Listing Regulations of the Tokyo Stock Exchange.

When selecting the candidates, Duskin confirms that they comply with all items of the criteria. Then, the Board of Directors makes the final decision.

Directors' Remuneration

Duskin positions Directors' remuneration as an important issue for our corporate governance. To raise Directors' motivation to achieve medium- and long-term sustainable growth and enhance corporate value, Duskin established the Directors Evaluation and Nomination System. With this system, their contributions and capabilities are determined and reflected in their remuneration.

The methods used in calculating Director remuneration and actual remuneration in FY2019 are as follows.

Process and calculation methods of Director remuneration and actual remuneration
Items	Methods applied in FY2019
Items	Directors	Outside Directors	Audit & Supervisory Board Members
Decision-making process	●The determination of remuneration by the Board of Directors is based on officer remuneration survey data provided by an external research organization comparing Duskin to companies of a similar size and companies in similar business sectors and with similar operations. ●The Board of Directors make the final decisions, taking into consideration the advice of the Directors Evaluation Committee, after thorough discussions.	●A certain amount is set as base compensation and bonuses for Outside Directors, after taking into account their backgrounds and other matters.	●Remuneration for each Audit & Supervisory Board Member member is determined based on discussions with those members.
Remuneration	●The remuneration consists of basic compensation (fixed compensation), a performance-based bonus (short-term incentive) and share-based-remuneration-type stock options (medium- to- long-term incentive).	●Basic remuneration, bonuses	●Basic remuneration, bonuses

Compensation is determined within the amount resolved at the general shareholders' meeting.

Actual remuneration (FY2019) (thousands of yen)

Category	Total Remuneration	Type of remuneration			Members
Category	Total Remuneration	Basic remuneration	Bonus	Stock option	Members
Directors	236,685	170,152	41,200	25,333	6
Outside Directors	23,400	18,600	4,800	0	4
Standing Audit & Supervisory Board Members	53,700	46,500	7,200	0	2
Outside Audit & Supervisory Board Members	30,000	25,200	4,800	0	3

The numbers above include Outside Directors who retired as of the 57th Ordinary General Meeting of Shareholders on June 23, 2019. As of the end of FY2019 the number of Outside Directors stood at three.

Internal Control

Duskin Group places the pursuit of the Economy and Morals in Unity at the heart of our business management. We have formulated the following Code of Conduct Statement to serve as a compass for the realization of our management philosophy as well as Duskin Code of Conduct to define concrete standards of conduct for our business operations.

Code of Conduct Statement: Aiming to be a trustworthy and reliable company

1 We always think of customers in everything we do.
2 We observe the law in all that we do.
3 We are ethical in all our actions.
4 We take pride in everything we do.

Training for Directors

At Duskin, newly elected Directors and Audit & Supervisory Board Members can attend seminars to receive information about their legal duties and responsibilities. When selecting Outside Directors, the President & CEO explains Duskin's management philosophy and confirms their agreement. Then, Duskin's business strategy and business operations are explained. To help them deepen their knowledge of Duskin, opportunities to visit major business sites, training facilities and plants are provided.

Successor Development Plan

Duskin formulated its succession plan in FY2019 to foster next-generation management and successors to our chief executives. We have created an educational program to train those with the appropriate qualities, as well as a selection process for executive officers and candidates for director positions. We launched these operations in FY2020 and regularly share information and report to the Board of Directors on the progress. The President & CEO conducts monthly individual meetings with all Operating Officers. Quantitative assessments of their performances and improvements are made every six months in line with the Directors Evaluation and Nomination System, with the opportunity used to provide further guidance as well as to review their capabilities and performance with them.

Policy Related to Acquisition and Holding of Cross-Shareholdings

The policy for cross-shareholdings is to hold a suitable number of shares only when there is a legitimate reason for owning these shares. Investments in stocks for which there is no legitimate reason for ownership are reduced or eliminated. Every year, the Duskin Board of Directors determines if the ownership of each cross-shareholding is proper or not. Decisions are based on the need for each cross-shareholding regarding business activities, such as business alliances, maintaining and strengthening business relationships, Duskin's cost of capital, share price movements and other factors.

Constructive Dialogue with Investors, Analysts and Shareholders

Duskin conducts a variety of investor relations (IR) and shareholder relations (SR) activities for the purposes of earning trust in the company's management, receiving a proper evaluation of the company, and achieving sustained business growth and medium- to long-term growth in corporate value. Our senior management and Directors protectively respond to the requests of individual or institutional investors to meet with them.

Information, evaluation and opinions gained through IR and SR activities are reported at meetings of the Board of Directors twice each year. In addition, reports as deemed necessary are made by the IR Section to an Operating Officer in charge, then from the Operating Officer to the Board of Directors to reflect this information in the management.

We strive to improve our IR tools, including our website, that are useful for individual investors and shareholders in making investment decisions. Duskin discloses the financial results, business strategies, ESG information, news and other topics of interest.

Initiatives

Duskin holds financial results briefings for institutional investors and analysts twice a year (once when 1H results are announced and once when full-year results are announced). Duskin visits institutional investors and analysts to have active dialogue with them.
The company has postponed briefings due to the spread of the novel coronavirus from February 2020 and meet with them over the phone.

Duskin held its first round-table conference for shareholders on November 14, 2019, with 102 individuals out of 1,419 applicants taking part. In addition to Operating Officers and President & CEO speaking on Duskin's business and history, the meeting provided an opportunity for participants to exchange opinions while enjoying our Mister Donut and other items of our Food Group.
There are no plans at present to hold such events during the current fiscal year.