Chapter 4

GovernanceCorporate governance

Activity highlights observed since fiscal 2022

Corporate governance structure

Shareholders Meeting
Selection/
dismissal

Selection/dismissal
Determination of remuneration caps

Nomination Advisory Committee
AdviceRemuneration Advisory Committee

Oversight/auditing

Board of Directors

Audit & Supervisory Committee
Collaboration

Audit & Supervisory Committee members

Accounting auditor(Grant Thornton Taiyo LLC)

Reporting
Reporting
Auditing

Appointment/oversight

Instruction

Internal Audit Office

Collaboration

Accounting
auditsAuditing
Reporting

Organizations responsible
for business execution
Monitoring

President & CEO
Management Committee

Compliance Committee

Risk Management Committee

Investment & Financing Committee

Sustainability Committee

Vice presidents
Responsible divisions, subsidiaries, etc.

Key governance characteristics
Risk management and internal control

Corporate culture reforms

Pursuit of monitoringboard-based governance

Net One’s uniquethree lines model

Fostering a corporate culture
rooted in our Purpose

Major examples

Major examples

Major examples

Transformation into a company with
an audit and supervisory committee

Risk management process oversightfrom the CRO and the Risk
Management Committee

Corporate culture monitoring surveys

Establishment of a Governanceand Corporate Culture Advisory Committee

Dialogue held between
management and employees (RCT)Six out of nine executive directors are
independent outside executive directors

Execution functions enhanced throughour chief executive system

Establishment of a unique 1.5th line
between the firstand second internal
control lines of defense

Corporate philosophy
dissemination activities

Continuous implementation of measures to prevent recurrence of fraudulent acts45

net one report 2023

Separating oversightand executive functions
and clarifying
the responsibilities of both

Generating synergy between businessdivisions, optimizing resource allocation,and streamlining the implementation ofpolicies and initiatives

Improving our ability togather information
egarding key issues

Appropriatedelegation of authority

Responsibilities of chief executives
Assist the CEO and participate in decision-making processes associated with business challenges and company-wide
strategies● Provide direction, orders, guidance, advice, and support to divisions throughout the Company regarding matters relevant todesignated areas of responsibility● Support operational execution performed by vice presidents responsible for functional and business strategies● Develop personnel capable of implementing company-wide strategies to ensure healthy and perpetual growth for the Net One
Group moving forward●

Chief
executive officer(CEO)

1. Facilitate the realization of the Group’s Purpose by developing short-, medium-, and long-term visions and formulating management policies andstrategies
2. Lead the formulation of management strategy action plans and oversee execution of the Group’s business operations
3. Share the Group’s future vision with all its stakeholders and strengthen relationships with these stakeholders through appropriate and proactive
information disclosure
4. Promote sustainable growth by leading the development of future managerial personnel

Chief
operating officer(COO)

1. Support the achievement of business goals by overseeing operational execution within the Group’s areas of business and optimizing management
resource allocation
2. Cooperate with the CEO while coordinating with, and providing support to, all chief executives
3. Provide all stakeholders with explanations regarding the Group’s operations
4. Maintain organizational control and lead business continuity efforts during both normal and emergency situations

Chief
financial officer(CFO)

1. Formulate financial strategies (targeting optimal financing and capital allocation) and policies to facilitate the realization of management strategies
2. Conduct appropriate financial reporting in accordance with laws and regulations and spearhead appropriate responses to audit results; in addition,
promote the establishment of management and tax accounting practices that contribute to corporate value enhancement
3. Oversee risk management (assessments, evaluations of effectiveness, and decisions regarding the need for impairment accounting) related toinvestments
4. Lead timely and appropriate disclosure of financial information, take heed of feedback provided by shareholders and investors, and formulate disclosure
measures that enhance corporate value

Chiefhuman resources
officer(CHRO)

1. Conduct flexible and swift decision-making to facilitate the execution of management strategies while investigating organizational structures andformulating policies to ensure efficient operations; in addition, develop policies and measures to help organizations function reliably in pursuit of theirobjectives
2. Secure personnel capable of facilitating the achievement of management objectives, identify the expertise required for the Group to ensure theirsuccess, and formulate basic policies for recruitment, training, evaluation, and compensation
3. Assist the CEO while promoting the development and advancement of future managerial personnel
4. Establish basic policies to ensure that both our Purpose and the rest of our corporate philosophy system receive acceptance throughout the Groupand establish a better corporate climate and culture

Chief strategy
and digital officer(CSDO)

1. Formulate strategies to facilitate growth, promote flexible and expeditious decision-making within the Group, generate synergy between organizations,and strengthen the momentum behind efforts targeting strategy achievement
2. Formulate company-wide operational reforms and information strategies to strengthen the Group’s business base and increase both productivity andmanagerial adaptability through the application of digital technologies

Chief
technology officer(CTO)

1. Stay abreast of technological trends and environmental changes and spearhead efforts targeting competitive advantage while monitoring the executionof growth strategies from a diverse range of perspectives
2. Maintain a strong awareness of our Purpose and Mission and ensure widespread acceptance of our corporate philosophy system while formulating
technology and service strategies aimed at resolving challenges through the application of more advanced technologies
3. Facilitate the attainment of our growth strategy by formulating company-wide policies for the development of personnel with expertise in technology
and service-related fields, thereby supporting the development of professional personnel

Chiefrisk management
officer(CRO)

1. Analyze and assess company-wide risks, formulate basic policies to ensure appropriate mitigation, and direct the implementation of these policies
2. Establish systems for addressing major disasters and other contingencies and provide leadership for the entire Company while assisting the CEO
during emergency situations
3. Formulate policies related to the establishment of internal control systems, monitor the regulation of these systems, and ensure efficient improvement
cyclesChief complianceofficer(CCO)

1. Establish a basic policy for compliance with laws and regulations and promote investigations into measures targeting its enduring acceptance andimplementation
2. Establish a culture of respect for human rights within the Company and spearhead business operations rooted in mutual respect between employees
3. Formulate policies targeting broad contributions to society, including regional development and the resolution of various social challenges

net one report 2023

Business Segments

Chairperson of the Board of Directors is
an independent outside executive director

Primary objectives behind efforts targeting the development and enhancement of our chief executive system

GovernanceOversight and execution

We have introduced chief executive positions into various sectors with the aim of building a highly effective corporate
governance structure. By clarifying the roles and domains associated with these positions, we are strengthening theirpractical functionality. In addition, we have created profiles for a total of 19 positions, including both CEO and vice president,
to facilitate a sustainable system of succession.
Chief executives formulate and implement company-wide strategies pertaining to their areas of responsibility to facilitate
the achievement of targets associated with our Purpose and the rest of our corporate philosophy system. In addition, they
carry out their own professional responsibilities while providing direction to others in positions of authority.

Management Capital

Governance and Corporate Culture Advisory Committee

Executive directors

AdviceDevelopment and enhancement of our chief executive system

Growth Strategy

ReportingReinforcement of executive functions

Value Creation

Net One Systems is working to establish a highly effective corporate governance structure through several measures. We
conduct supervision and audits of management and the execution of duties performed by the Board of Directors (themajority of whom are independent outside executive directors) and the Audit and Supervisory Committee. We have also
strengthened the business management and supervisory functions of the Board of Directors by introducing a vice president
system while improving the efficiency and speed of business execution. Furthermore, we work to ensure fairness andobjectivity through the nomination and remuneration of executive directors and vice presidents conducted by the Nomination
Advisory Committee and the Remuneration Advisory Committee.

Introduction

In accordance with its corporate philosophy system, the Net One Group is continuously striving to enhanceand strengthen its corporate governance to ensure transparent, impartial, and swift decision-making while
generating sustainable growth and raising its corporate value over the medium to long term.

46

Governance

Chapter 4

Message from the Chairperson of the Audit and Supervisory Committee

Nomination Advisory Committee

During fiscal 2022, the first year following the inauguration of our Nomination Advisory Committee, the committee primarily
reviewed succession plans applicable under our current structure. Having obtained approval from our Board of Directors, thecommittee is proceeding with the formulation and implementation of a final succession plan. The committee is also in the
P.49
process of clearly defining requirements for inclusion in our skill matrix.

Review procedures for the formulation and implementation of a CEO succession plan
3. Conducting
assessments

Kazuhiro Noguchi

and execution of placement
4. Reviewand training policies

Personnel requirements

Selection methods

Assessment examples

Long-term implementation of personal
development measures in accordancewith assessment resultsCompetency

Recommendations
from executive directors
and/or vice presidents

Expert-led interviews
exploring candidate
activity and behavior

Experience authorization, etc.

Experience

Selection of qualified
personnel using multiple
sources of HR data

Personality

Transfer, assignment,

Exposure

Active participation in discussions andinterviews with executive, supervisory,and independent external parties

Education

Acquisition of managerial perspectives,
formulation of personnel/organizational
strategies, etc.

360-degree evaluations
Psychological assessments

Remuneration Advisory Committee

Fine-tuning our remuneration system while strengthening our chief executive system

Major discussion
details

Benefits and other forms ofcompensation associated withour complete transition toward
a delegated vice president structure

Reviewing ourcompensation
breakdown

Breakdown of executive remuneration*1
Annual base salary (ABS)

Short-term incentives (STIs)
BonusesLong-term incentives (LTIs)
Restricted stock compensation

22%

33%

44%

CEO

20%

55%

Vice presidents

30%
25%

Point of change

20%

Expansion of compensation share consisting of incentives

10%

Service ratio

Three priority services

ROE

Corporate
culture reforms

Materiality

Other personal
objectives

20%

20%

10%

15%

10%

5%

10%

Financial: 70%
Point of change

Compared to a service ratio weighting of 50%
in fiscal 2022
Pursue further value sharing with shareholders
through the adoption of ROE metrics*1 Figures have been rounded to the nearest percentage point and therefore may not add up to 100%.

47

net one report 2023

Non-financial: 30%
Point of change

Compared to respective weightings of 10%
and 15% for corporate culture reforms andmateriality in fiscal 2022
Greater emphasis on corporate culture reforms

Enhancing our audit system to facilitatea more thorough exploration of the true natureof challenges confronting the Group
During fiscal 2022, instead of simply identifying incidents, we
focused on conducting more thorough explorations of thereasons behind them. During screening panels held through theInternal Audit Office (meetings conducted for the purpose of
discussing and evaluating the content of reviews conducted inaccordance with internal audits), we begin this exploration
process by establishing an understanding of the specificcircumstances behind each detected incident. Throughmultifaceted discussions, we produce internal audit results thatlead to the discovery of the root causes or issues behind theseincidents. We then report these discoveries to the divisions that

Pursuing future development

Focusing on the construction of systems
designed to anticipate change while carefully
monitoring the implementation of recurrence
prevention measures
As environments within our industry undergo rapid change, wemust proactively adjust our regulations and controls to keep pacewith fluctuations in the nature of business dealings. I expect that
future discussions conducted within our corporate division will
have a positive impact on our internal control system’s capacity
for identifying and responding to change. As time progresses, wewill also encounter a greater need for operational risk analyses
based on the status of our budgetary plans. Accordingly, we
focus intently on monitoring the speed at which efforts aimed at
improving our corporate division, which checks and supports oursales division, are being undertaken.
We have implemented a variety of recurrence prevention
measures, and while our understanding of associatedmechanisms has progressed quickly, we are also facing
workload-related issues and have begun planning adjustments forthese measures. Maintaining a cohesive vision for ideal futurecontrols, we will continue to monitor corresponding plans toensure that all essential measures are appropriately maintained.
The success of the Net One Group’s future development
hinges upon the extent to which it can effectively shift toward a
service-based business model. Essential to this shift are efforts
associated with visualization, which are currently underway acrossthe entire Company. If we more accurately determine the earning
power of our services and further improve our governance andrisk management, we will be able to hedge against risks andreach investment decisions that will facilitate the transition toward
our next phase of growth. Moving forward, through soundauditing and purposeful proposals, we will push forward withefforts targeting the prosperous future envisioned by the Net One
Group.

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Business Segments

Bonuses (STIs)

Operating margin or
operating income

The Net One Group’s governance reforms have reached new
milestones since Net One Systems transitioned into a company
with an audit and supervisory committee in fiscal 2022. We havechanged the composition of our Board of Directors and shifted toa system under which the board will place more focus on its
supervisory role (a monitoring board system). Thanks to thesemodifications, the atmosphere of board meetings has changed,with the exchange of ideas and opinions becoming more
dynamic. Through two-way consultations involving our Board of
Directors, our Audit and Supervisory Committee makes decisions
regarding the details and specifics of proposals and basic policies
and plans related to internal audits. Additionally, as a full-time
Audit and Supervisory Committee member, I consistently attend
important internal conferences and committee meetings whileworking to enhance the committee’s collaborative relationshipwith the Internal Audit Office. Through these efforts, I gain a better
understanding of the Company’s internal circumstances andformulate my recommendations to the Board of Directors and the
Audit and Supervisory Committee in accordance with thisunderstanding.
Our Audit and Supervisory Committee has three members.
Like myself, Outside Executive Director Iizuka is a certified public
accountant, but she is also a business manager and has
accumulated a wealth of knowledge and experience concerning
accounting systems while working as a consultant. Outside
Executive Director Kusaka has previously held positions with large
companies and due to his managerial experience, is uniquelyequipped with highly sound and principled perspectives. We areconfident that the current composition of the Audit andSupervisory Committee allows us to effectively combine ourexpertise and supplement each other’s capabilities as we fulfill thecommittee’s responsibilities.

Priority measures for fiscal 2022

Description of short-term incentives and key points for review heading into fiscal 2023
Revenue

Focusing on improving the capabilities of
the Audit and Supervisory Committee undera three-member structure

were subject to internal auditing and additionally share them withall other relevant divisions and departments, thereby facilitating
improvements that help prevent recurrence.
Meanwhile, we have endeavored to conduct theme-specificinternal audits regarding risks affecting the entire Company, andthese efforts have led to meaningful suggestions andrecommendations. Additionally, thanks to improvement in thequality of information supplied by the Internal Audit Office, ourAudit and Supervisory Committee has been able to recognize
issues facing the Company more precisely and conduct morethorough and in-depth audits.
With regard to personnel development, during fiscal 2022, we
held study sessions for staff attached to the Audit andSupervisory Committee. Career paths associated with the Internal
Audit Office are progressively taking shape, and we are confident
that expansion in opportunities for personnel equipped withperspectives related to auditing will help strengthen foundations
supporting the Net One Group.

Governance

50%

Chief executives

Transition into a company with an audit
and supervisory committee

Management Capital

During the first year following the inauguration of our Remuneration Advisory Committee, the committee reviewed possible
remuneration systems for the subsequent fiscal year based on our current executive remuneration system, which wassignificantly revised during fiscal 2022 (introduction of a restricted stock compensation plan, adoption of non-financial targets
and indicators, etc.), and our Board of Directors has approved and adopted the committee’s proposed system.

Independent Outside Executive Director
Full-time Audit & Supervisory Committee Member
Chairperson of the Audit & Supervisory Committee

Growth Strategy

Repeat processes in subsequent years and achieve talent pool expansion

Setting compensation levels
based on the expectations,rather than the duties,
associated with each position

Our Board of Directors is improving
its effectiveness while our Audit andSupervisory Committee strengthens
its auditing capabilities

Value Creation

an ideal
1. Establishing
CEO archetypeof
2. Selection
candidates

Introduction

Formulation and administration of succession plans48

Chapter 4

Governance

Executives

Name and position

Introduction

Executive directors◎Chairperson ●Member

President & CEO

Takuya Tanaka

Executive director
Executive vice president
Chief operating officer (COO)

Mitsuru Kiuchi

Maya Ito

Masayoshi Wada

Shinobu Umino
Newly appointed

Kazuhiro Noguchi

Sachiko Iizuka

Shigeki Kusaka

Independent executive director

Independent executive director

Independent executive director

Independent executive director

Independent executive director

Executive director
Executive vice president
Chief human resources officer (CHRO)
Chief risk management officer (CRO)
Chief compliance officer (CCO)

Independent outside executive
director
Chairperson of the Board of
Directors

Independent outside executive
director
Chairperson of the Remuneration
Advisory Committee

Independent outside executive
director
Chairperson of the Nomination
Advisory Committee

Independent outside executive
director
Full-time Audit & Supervisory
Committee member
Chairperson of the Audit &Supervisory Committee

Independent outside executive
director
Audit & Supervisory Committee
memberIndependent outside executive
director
Audit & Supervisory Committee
memberIndependent executive director

66,604

14,726

11,121

413

441

194

248

692

2,309

Attendance at meetings ofthe Board of Directors

15/15(100%)

15/15(100%)

13/13(100%)

15/15(100%)

13/13(100%)

ー

15/15(100%)

15/15(100%)

15/15(100%)

Nomination Advisory
Committee

10/10(100%)●

Committee●

Remuneration Advisory
Committee

10/10(100%)

10/10●(100%)●(100%)

10/10

◎

ー

10/10

◎

(100%)

Audit & Supervisory
Committee

●

●

●

●

Technology

●

●

●

●

Human resources / corporate
culture and organizational reform

●

●

●

●

●

Governance / law / risk
management●

Sustainability

◎

3/3*1
(100%)●

3/3*1(100%)● （100%)◎10/10(100%)●

10/10(100%)

10/10● （100%)●

3/3*1Management Capital

Skill matrix

Corporate management /management strategy

Finance / accounting

Growth Strategy

Shares held

Value Creation

Takafumi Takeshita

●
●

●
●

●

●

●

●

●

●

Vice presidents●●* The skill matrix above identifies the primary specialties and experience of each executive director and does not reflect the full ranges of their expertise.

Governance*1 Refers to attendance at meetings of the Audit & Supervisory Board (prior to Net One Systems’ transition into a company with an audit and supervisory committee)●●

Skill descriptions and significanceFumihiko Shinoura

Senior vice president, chief strategy &digital officer (CSDO)

Koji Tsuji

Senior vice president,
chief financial officer (CFO),
executive director of Net One Partners Co., Ltd.

Masayuki Kitajima

Senior vice president, general manager of Corporate Planning Division,
general manager of Corporate Management & Administration Division,
general manager of Business Control Division

Kazuaki Ishibashi

Vice president,
general manager of East Japan Business Unit 1

Junji Ueno

Vice president, general manager of
East Japan Business Unit 2,
executive director of Net One Next Co., Ltd.

Akiko Kanai(Shares held: 8,584)(Shares held: 8,365)(Shares held: 6,783)(Shares held: 3,600)(Shares held: 3,400)(Shares held: 4,113)

Vice president, general manager of
East Japan Business Unit 3

Yoshimitsu Narita

Vice president, general manager ofCentral Japan Business Unit

Yoichi Matsumoto

Vice president, general manager ofWest Japan Business Unit

Daisuke Hatakeyama

Vice president, general manager ofSales Engineering Unit

Kenta Minagawa

Vice president, general manager ofCustomer Service Division

Takatoshi Tsuchiya

Vice president, general manager ofBusiness Development Division,
executive director of Net One Next Co., Ltd.

Yusuke Fujita(Shares held: 4,910)(Shares held: 9,900)(Shares held: 3,540)(Shares held: 2,800)(Shares held: 2,100)(Shares held: 1,900)

Corporate management /management strategy

As we aim to fulfill our Purpose and all other elements of the Declaration of the Net One Group while simultaneously enhancing ourcorporate value, we must ensure appropriate oversight and support for the decision-making processes of our executive
management team by securing experience in the fields of corporate management or managerial oversight.

Technology

To establish a solid position as a leading network company, we must demonstrate thorough understanding and experience intechnological areas (e.g., knowledge of networks and ICT, insight into market environments, and perception of future trends).

Human resources /corporate culture and organizational reform

To maximize the activity of our personnel, who represent the source of our competitive strength, and improve employee engagement while
promoting corporate culture reforms using our restructured corporate philosophy system as a driving force, we must exhibit knowledge
and experience concerning basic HR principles, human capital management methods, and corporate culture and organizational reforms.

Finance / accounting

As we aim to increase our medium- to long-term corporate value, we must demonstrate knowledge and experience in finance,accounting, and shareholder relations, thereby ensuring a proper balance between strategic business investment and the proactive
delivery of shareholder returns while facilitating our pursuit of an optimal capital structure and our establishment of a stable business base.

Governance / law /risk management

To develop strong trust-based relationships with stakeholders, further strengthen our business base, and become a shining
example of effective corporate governance, we must exhibit comprehensive knowledge and experience concerning governance,
law, and risk management.

Sustainability

To cement sustainability as the foundation of our management and accelerate efforts addressing our four key materiality-related
issues, we must demonstrate knowledge and experience related to the co-creation of social and economic value (e.g.,understanding of social challenges and their incorporation into management strategies).

Business Segments

Senior vice president,
chief technology officer (CTO)* Shareholdings indicated above reflect the number of shares held by each individual according to the Company’s shareholder register as of March 31, 2023 plus restricted stock compensation grantedby resolution of the Company’s Board of Directors on June 23, 2023 and the number of shares held by each individual through the Company’s employee shareholding association as of August 31, 2023.

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