Sony Financial Holdings

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Corporate Governance

Management System

Outline of Sony Financial Holdings' Corporate Governance Structure

(As of July 1, 2016)

Type of structure Company with a Board of Directors and a Board of Statutory Auditors
Number of directors 10 (including 2 outside directors)
Number of statutory auditors 3 (including 2 outside statutory auditors)
Director’s term of office 1 year
Number of independent directors 2
Outside directors’ involvement in determination of compensation Involved
Results-linked compensation system Adopted
Number of meetings of the Board of Directors held during fiscal 2015 14 times
Advisory bodies for the Board of Directors Nomination Advisory Committee; Compensation Advisory Committee

Board of Directors

(As of July 1, 2016)

Sony Financial Holdings, as a pure holding company, maintains a Board of Directors not only to manage Sony Financial Holdings itself, but also to promote integrated Group management and to ensure the Group’s corporate governance.
Sony Financial Holdings' Board of Directors is made up of 10 members, of which three are representative directors from Sony Financial Holdings' subsidiaries who serve as non-executive directors of Sony Financial Holdings and contribute to efficient business operations of the Group as a whole.
Additionally, to obtain general management advice applicable to the Group, Sony Financial Holdings has appointed directors from outside the Group, one of whom serves concurrently as a Corporate Executive Officer of Sony, the parent company. Because Sony Financial Holdings is the subsidiary of a listed parent company, it has appointed two outside directors who are independent directors as required by the Tokyo Stock Exchange to protect ordinary shareholders.
Regarding the boards of directors of Group subsidiaries, one of Sony Financial Holdings representative directors and three of its executive directors serve concurrently as directors of subsidiaries with the aim of increasing the effectiveness of Group strategies and ensuring the sound business management of each company.

Attendance of outside directors in meetings of the Board of Directors for fiscal 2015
Name Board of Director’s meeting
Outside directors Isao Yamamoto Attended all 14 meetings
Shiro Kuniya Attended 13 out of 14 meetings

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Statutory Audits, Internal Audits and Accounting Audits

(As of July 1, 2016)

Statutory Audits

Sony Financial Holdings' Board of Statutory Auditors has three members, two of whom are outside statutory auditors. Statutory auditors audit the execution of duties by directors based on the audit policy, audit plan and other matters stipulated by the Board of Statutory Auditors. Statutory auditors attend important meetings, including Board of Directors' meetings and examine Sony Financial Holdings' operations and financial condition. At the same time, statutory auditors maintain close contact such as through the receiving of reports from independent auditors, employees in charge of internal audits and other relevant persons.

Attendance of outside statutory auditors in meetings of the Board of Directors and the Board of Statutory Auditors for fiscal 2015
Name Board of Director’s meeting Board of Statutory Auditor’s meeting
Outside statutory auditors Yasuyuki Hayase Attended all 11 meetings after taking office of statutory auditor Attended all 9 meetings after taking office of statutory auditor
Yoshimichi Makiyama Attended all 11 meetings after taking office of statutory auditor Attended all 9 meetings after taking office of statutory auditor
Hirotoshi Korenaga* Attended 12 out of 14 meetings Attended 11 out of 12 meetings

* The conditions applicable to an outside statutory auditor were changed with the revision of the Companies Act of Japan. Mr. Korenaga, a statutory auditor from fiscal 2016, had satisfied the prevailing conditions applicable to an outside statutory auditor until the conclusion of the Ordinary General Meeting of Shareholders held in June 2016.

Internal Audits

Sony Financial Holdings performs internal audits through its Audit Department. The Audit Department takes an independent and objective standpoint in performing internal audits to check and evaluate the appropriateness of work processes and responses to risks. The Audit Department also monitors the results of both internal and external audits of Group companies and provides advice and proposals when necessary. The Audit Department regularly reports the results of its monitoring activities to the director in charge and the Board of Directors. When necessary, the Audit Department may audit subsidiaries directly or jointly within the scope of governing laws and regulations. In addition, the Audit Department works closely with statutory auditors, as well as external auditors, such as independent auditors, as necessary.

Accounting Audits

The accounting firm and back-up team members of the certified public accountants (CPAs) who acted as the accounting auditors of Sony Financial Holdings are as follows:

Accounting firm PricewaterhouseCoopers Aarata LLC*1
Breakdown: CPAs and the back-up team members*2 Five CPAs, Four others

*1 PricewaterhouseCoopers Aarata LLC changed its corporate name from PricewaterhouseCoopers Aarata on July 1, 2016.
*2 For the year ended March 31, 2016

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Nomination Advisory Committee and Compensation Advisory Committee

(As of July 1, 2016)

Sony Financial Holding has established two Committees as advisory bodies for the Board of Directors to ensure the transparency and objectivity of the decision-making process.
The Nomination Advisory Committee deliberates on the appointment and dismissal of Sony Financial Holdings' directors, statutory auditors and Group companies’ presidents, as well as on the succession planning of Sony Financial Holding and its Group companies' presidents. It reports the results of its deliberations to the Board of Directors.
The Compensation Advisory Committee deliberates the policy and total amount of compensation for Sony Financial Holdings' directors and Group companies' representative directors which are to be proposed at a General Meeting of Shareholders. The Committee also deliberates the amount of compensation, bonuses and retirement benefi ts for individual directors and Group companies' representative directors, within the limits set by a resolution at a General Meeting of Shareholders. It reports the results of its deliberations to the Board of Directors.
Each of the Committees consists of a small number of directors, including outside directors to reflect opinions from an objective and multifaceted perspective on its deliberations. A member of the Compensation Advisory Committee shall not participate in the resolution for determining his/her compensation.

Advisory bodies Members
Nomination Advisory Committee
Outside Director Isao Yamamoto(Chairperson)
Outside Director Shiro Kuniya
Chairman, Director Katsumi Ihara
President,Representative Director Shigeru Ishii
Director Shiro Kambe
Compensation Advisory Committee
Outside Director Shiro Kuniya(Chairperson)
Outside Director Isao Yamamoto
President,Representative Director Shigeru Ishii
Senior Managing Director Yuichiro Sumimoto

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Independence Standard of Outside Directors and Outside Statutory Auditors

Sony Financial Holdings has formulated the Basic Policy on the Selection of Director and Statutory Auditor Candidates and set the independence standard of outside directors and outside statutory auditors.
The Standard provides that a candidate is deemed to be independent if he/she: (1) satisfies the independence requirements of the Companies Act and the standards for independent directors provided by the Tokyo Stock Exchange; (2) has had no conflict of special interest with Sony Financial Holdings and its Group companies in the past three years prior to his/her taking office and currently has no such conflict; (3) has not been an executive or employee of Sony Financial Holdings' parent company or a subsidiary of Sony Financial Holdings' parent company in the past three years prior to his/her taking office and is not currently an executive or employee of these companies; and (4) is not a spouse of or related within two degrees of kinship to a person who does not satisfy either of items (2) and (3) above.
By appointing highly independent outside directors and outside statutory auditors, Sony Financial Holdings strives to ensure the transparency of corporate management and enhance their supervisory function.

Evaluation of Effectiveness of the Board of Directors

According to Sony Financial Holdings' Basic Policy on Corporate Governance, the Board of Directors conducts self-evaluations, evaluating the effectiveness of its own decision-making and oversight, as well as its operation of meetings at least once a year.

Evaluation Process

For fiscal 2015, an independent third-party evaluation company evaluated the effectiveness of the Board of Directors by interviewing all directors and statutory auditors.

Principal content of the interviews:
  • Quality and volume of the discussions at the Board of Directors’ meetings
  • Understanding of and responses to the businesses, strategies and risks
  • Evaluation, compensation and succession planning of management
  • Dialogue with shareholders
  • Composition of the Board of Directors and its expertise
  • Operating practices of the Board of Directors’ meetings
Summary of the Results of Evaluation
  • As a whole, a high level of effectiveness was achieved.
  • The Board of Directors consists of members with a wide variety of experience.
  • Each member has multifaceted opinions on respective management issues. They constantly and deeply consider how to improve corporate management from their own perspectives with strong desires to invigorate the Board of Directors and increase corporate value.
  • The agendas of the Board of Directors’ meetings were properly selected in terms of their quality and volume. There was an atmosphere where all members, including outside directors, could speak in a free and active manner. The deliberations were properly made under the leadership of the chairperson. The members trusted one another.
  • The members were well aware of the regulations and risks unique to the financial industry and held active discussions.

Meanwhile, some members pointed out: “We, as the members of the Board of Directors of a holding company, should discuss further on Groupwide business and executive development strategies from a medium- to long-term standpoint, in addition to the deliberations on the oversight of the corporate management of the Group companies.”

Issues to Address and Responses to Make Based on the Results of Evaluation

Based on the results of this evaluation, Sony Financial Holdings' Board of Directors judges itself to be wholly effective. That said, by focusing on a more in-depth review of the Group’s medium- to long-term business and executive development strategies, the Board will strive to further bolster its effectiveness through considering its role and involvement in addressing such issues.

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Compensation for Sony Financial Holdings' Directors and Statutory Auditors

(As of July 1, 2016)

Sony Financial Holdings sets the Policy for Determining the Compensation of Directors and the Policy for Determining the Compensation of Statutory Auditors. Sony Financial Holdings has created the Compensation Advisory Committee Regulations and established the Compensation Advisory Committee as its deliberative body. Compensation of individual directors is determined by the resolution of the Board of Directors, based on a report from the Compensation Advisory Committee. Directors with no executive duties, except outside directors, are paid no compensation. Compensation of individual statutory auditors is determined, within the limit set by a General Meeting of Shareholders, through discussions by statutory auditors.
Sony Financial Holdings has reviewed its compensation plan for directors and statutory auditors. Based on such review, Sony Financial Holdings abolished the existing plan of retirement benefits for directors and statutory auditors in line with the resolution adopted at the Ordinary General Meeting of Shareholders held in June 2016. At the same time, Sony Financial Holdings introduced a stock-type compensation stock options program for executive directors with the aim to motivate directors to contribute to the continuous growth in corporate value of the Group through sharing the benefits and risks of share price fl uctuations with its shareholders.

1. Executive Directors
Basic policy A balance between a fixed portion, a results-linked portion and a medium- to long-term incentive portion shall be considered. The objective of this is to secure talented executives for business execution and ensure that compensation serves as an effective incentive for improving the business performance and corporate value of the entire Group.
Compensation Compensation comprises a fixed portion depending on the position, a results-linked portion depending on the entire Group's performance for the year and individual responsibilities, and a medium- to long-term incentive portion in the form of a stock-type compensation stock options program.
The results-linked portion could range from 0% to 200% of the standard amount subject to achievement of management targets of the Group and fulfillment of responsibilities.
Stock options, in principle, account for 20% of total annual compensation.
Level A suitable level of compensation shall be paid in order to secure talented individuals. The level of compensation is determined in consideration of the results of third-party surveys on the compensation levels of corporate managers and other relevant information.
2. Outside Directors
Basic policy The main responsibility of outside directors is to enhance the transparency and objectivity of corporate management through the oversight and supervision of executive directors' execution of duties. Consequently, compensation shall be fixed with the objective of securing talented individuals and ensuring that the supervisory and oversight function is working effectively.
Compensation A fixed amount is paid according to the role.
Level A suitable level of compensation shall be paid in order to secure talented individuals. The level of compensation is determined in consideration of the results of third-party surveys on the compensation levels of corporate managers and other relevant information.
3. Statutory Auditors
Basic policy The main responsibility of statutory auditors is to ensure the transparency and objectivity of corporate management by conducting operational and accounting audits. Consequently, compensation shall be fixed with the objective of securing talented individuals and ensuring that the audit function is working effectively.
Compensation A fixed amount is paid according to the respective role of standing statutory auditors and non-executive statutory auditors.
Level A suitable level of compensation shall be paid in order to secure talented individuals. The level of compensation is determined through discussion of statutory auditors, in consideration of the results of third-party surveys on the compensation levels of corporate auditors and other relevant information.
Compensation for Sony Financial Holdings’ directors and statutory auditors for fiscal 2015

Details of compensation for Sony Financial Holdings’ directors and statutory auditors for fiscal 2015 are as follows:

Number of payees Total amount of compensation for directors and statutory auditors (Millions of yen) Total amount by compensation category
Basic compensation Provision for reserve for retirement benefits
Directors (internal) 5 259 210 48
Directors (outside) 2 18 18 -
Statutory auditor (internal) - - - -
Statutory auditor (outside) 3 27 26 1
Total 10 305 255 50

Notes:
1. Compensation categories refer to basic compensation, stock options, bonuses and retirement benefits and others. Sony Financial Holdings neither paid bonuses nor granted stock options as compensation for directors and statutory auditors prior to and including fiscal 2015.
2. The number of payees and amount of compensation stated above include those for two directors (internal) and one statutory auditor (outside), all of whom retired at the conclusion of the 11th Ordinary General Meeting of Shareholders held on June 24, 2015 due to the expiration of their terms. In addition to the compensation shown above, Sony Financial Holdings paid, as retirement benefits, a total of ¥9 million to two retired directors (internal) and ¥0 million to one retired statutory auditor (outside) during fiscal 2015. These benefits were not included in the provision for reserve for retirement benefits recorded in fiscal 2014.

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Relationship with Parent Company, Sony Corporation

(As of July 1, 2016)

As is described in the Basic Policy on Corporate Governance, Sony Financial Holdings is a listed subsidiary of Sony Corporation. Accordingly, Sony Financial Holdings maintains managerial independence from its parent company and strives to ensure a highly transparent management.

Capital Relationship

Sony Financial Holdings is a financial holding company, established in April 2004 as a corporate spin-off from Sony (Sony Corporation, hereafter “Sony”). In October 2007, Sony Financial Holdings' shares were listed on the First Section of the Tokyo Stock Exchange with the initial public offering conducted in Japan and overseas, after which Sony's shareholding became 60%. As a result of this capital relationship, Sony Financial Holdings may be subject to the influence of Sony, irrespective of the intentions and interests of other shareholders, with regard to all matters requiring shareholder approval. These matters include the appointment and dismissal of Sony Financial Holdings directors and statutory auditors, mergers and other organizational restructuring, material asset and business transfers, amendments to the Articles of Incorporation, and the payment of dividends.

Personnel Relationship

To obtain general management advice concerning the Sony Financial Group and to strengthen the audit function, Sony Financial Holdings appoints directors and statutory auditors from outside the Sony Financial Group. However, one of these Sony Financial Holdings directors and one statutory auditor serve concurrently as Corporate Executive Officer or Senior General Manager of the Sony Group. Moreover, Sony has seconded four employees to Sony Financial Holdings. Because the appointment of concurrent directors and statutory auditors comes at the request of the Sony Financial Group, Sony Financial Holdings believes that concurrent directors and statutory auditors are positioned to make independent management decisions. From the standpoint of further enhancing independence from the parent company, Sony Financial Holdings has appointed two outside directors who have no special relationship with the Sony Group, and have designated them as independent directors based on rules set forth by the Tokyo Stock Exchange.

Ensuring Independence in Business Activities

Because the Sony Financial Group's business operations have a tenuous connection with Sony Group's business domains except for Financial Services*, and because the Sony Financial Group operates its business primarily in accordance with the Insurance Business Act and the Banking Act of Japan, under the supervision of the Financial Services Agency of Japan, Sony Financial Holdings believes that the Sony Financial Group conducts its business with a certain degree of independence from the Sony Group.
In addition, Sony, which has obtained approval from the Financial Services Agency to remain a major Sony Financial Holdings shareholder, recognizes and respects Sony Financial Holdings corporate philosophy.

* The Sony Financial Group is included in Sony Group's Financial Services segment.

Using the "Sony" Trade Name and Trademark

Sony Financial Holdings and Group companies have entered into royalty agreements with Sony for the use of the "Sony" trade name and trademark. However, these agreements can be rescinded by Sony under certain conditions, such as Sony's share of voting rights in Sony Financial Holdings falling below a majority, or Sony Financial Holdings' percentage ownership of the voting rights of Sony Financial Group companies dropping. Furthermore, Sony Financial Group companies pay royalty fees to Sony based on these agreements. The amount paid in fiscal 2015 was ¥2,541 million and the amount of these royalty fees has no material impact on the management base of the Sony Financial Group.
The Sony Financial Group believes that the use of the “Sony” trade name and trademark confers certain advantages, including stronger brand recognition, enhanced trustworthiness, and higher employee motivation and awareness.

Policy Concerning Measures to Protect Minority Shareholders in Transactions with Sony Corporation (Controlling Shareholder)

Sony Financial Group's policy is to develop business while maintaining cooperative ties with the Sony Group. However, the Sony Financial Group believes that it has secured a certain degree of independence from the Sony Group, because it conducts independent business activities in line with its own management policies and strategies, and operates in different business fields than the Sony Group.
When entering into transactions with Sony (the controlling shareholder), the Sony Financial Group adequately confirms the necessity for such transactions, and ensures that the conditions of such transactions do not differ markedly from the terms of ordinary transactions with third parties.

Status of implementation of the aforementioned policy

With regard to transactions with Sony, Sony Financial Holdings confirms the necessity for such transactions and ensures that conditions do not differ markedly from the terms of ordinary transactions with third parties.

Information Pertaining to Controlling Shareholders