Sony Financial Holdings

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Corporate Governance

Management System

Outline of Sony Financial Holdings' Corporate Governance Structure

(As of July 1, 2017)

Type of structure Company with a Board of Directors and a Board of Statutory Auditors
Number of directors 9 (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 4
Outside directors’ involvement in determination of compensation Involved
Results-linked compensation system Adopted
Number of meetings of the Board of Directors held during fiscal 2016 14 times
Advisory bodies for the Board of Directors Nomination Advisory Committee; Compensation Advisory Committee

Board of Directors

(As of July 1, 2017)

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 nine 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 Corporation, 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 two 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 2016

Name Board of Director’s meeting
Isao Yamamoto Attended all 14 meetings
Shiro Kuniya Attended 11 out of 14 meetings

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Statutory Audits, Internal Audits and Accounting Audits

(As of July 1, 2017)

Statutory Audits

Sony Financial Holdings' Board of Statutory Auditors has three members, two of whom are outside statutory auditors and deemed as independent directors based on Tokyo Stock Exchange regulations. 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, internal audit division and other relevant persons.

Attendance of Outside Statutory Auditors in meetings of the Board of Directors and the Board of Statutory Auditors for fiscal 2016

Name Board of Director’s meeting Board of Statutory Auditor’s meeting
Yasuyuki Hayase Attended all 14 meetings Attended all 13 meetings
Yoshimichi Makiyama Attended all 14 meetings Attended all 13 meetings

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
Breakdown: CPAs and the back-up team members* 6 CPAs, 3 others

* For the year ended March 31, 2017

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Nomination Advisory Committee and Compensation Advisory Committee

(As of July 1, 2017)

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 benefits 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
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

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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 2016, an independent third-party evaluation company evaluated the effectiveness of the Board of Directors by questionnaire to all directors and statutory auditors.

Principal content of the questionnaire:
  • Composition of the Board of Directors
  • Quality and volume of the discussions on the Group’s businesses, risks, strategies, etc.
  • Degree of understanding, opportunities for traning
  • Operating practices of the Board of Directors’ meetings
  • Incentive compensation
  • Advisory committees
  • Support system for outside directors and statutory auditors
  • Dialogue with shareholders

In addition, an evaluation was conducted regarding responses to items that were raised as issues in the previous year's evaluation of effectiveness.

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.
  • The members of the Board of Directors agree in recognizing never to be satisfied with current conditions and that further improvement and enhancement of the Board’s function are necessary. The Board of Directors is united in an effort to improve its function.
  • 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 meetings proceeded smoothly under the leadership of the chairman. Members of the Board of Directors are provided regular opportunities for communication, and mutual trust is high.
  • Comments from shareholders are appropriately provided as feedback to the Board of Directors.

While various improvements have been made with respect to the issues raised in the previous year’s evaluation of effectiveness (discussion of medium- to long-term Groupwide business strategies and executive development strategies), the Board of Directors agrees that continuous discussion is needed. In addition, some members expressed a desire for more opportunities for study or training sessions related to the Group’s management and businesses.

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 at this time. That said, the Board will strive to further enhance its effectiveness through improving its understanding of the Group's management and business environment and continuous discussions on the Group's medium- to long-term business strategies.

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Compensation for Sony Financial Holdings' Directors and Statutory Auditors

(As of July 1, 2017)

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.

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.
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.
The medium- to long-term incentive portion is based on restricted stock compensation and stock-type compensation stock options. The stock-type compensation 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 2016

Details of compensation for Sony Financial Holdings’ directors and statutory auditors for fiscal 2016 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 Stock option Provision for reserve for retirement benefits
Directors (internal) 4 297 239 49 8
Directors (outside) 2 20 20 - -
Statutory auditor (internal) - - - - -
Statutory auditor (outside) 2 30 30 - 0
Total 8 348 290 49 9

Notes:
1. Compensation refers to compensation, bonuses, and other financial benefits received from the Company in consideration of execution of duties.
2. Compensation categories refer to basic compensation, stock options, bonuses and retirement benefits and others. Sony Financial Holdings did not pay bonuses as compensation for directors and statutory auditors prior to and including fiscal 2016.

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Relationship with Parent Company, Sony Corporation

(As of July 1, 2017)

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 Corporation. 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. Sony Corporation later made additional purchases of Sony Financial Holdings shares, bringing its shareholding to 63% as of March 31, 2017. As a result, regardless of the intentions and interests of other shareholders, Sony Corporation may have an impact on all matters requiring shareholder approval such as 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 Corporation has seconded five 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 Corporation, 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.

Using the "Sony" Trade Name and Trademark

Sony Financial Holdings and Group companies have entered into royalty agreements with Sony Corporation for the use of the "Sony" trade name and trademark. However, these agreements can be rescinded by Sony Corporation under certain conditions, such as its 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 Corporation based on these agreements. The amount paid in fiscal 2016 was ¥1,617 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.

Transactions with Sony Corporation

Sony Financial Holdings is a listed subsidiary of Sony Corporation. For this reason, Sony Financial Holdings has set out a Policy Concerning Measures to Protect Minority Shareholders in Transactions with the Controlling Shareholder to protect the interests of minority shareholders.

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 Corporation (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
With regard to transactions with Sony Corporation, 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