Rhythm CO., LTD | Our Corporate Governance Position

Corporate Governance

(A) Outline of the Corporate Governance System

We adopt a form of a company with Audit and Supervisory Committee based on the resolution of general shareholders meeting held on June 20, 2018.

February, 2024

A. Board of Directors

The board of directors consist nine directors including five audit and supervisory committee members and four outside directors who are also audit and supervisory committee members. We adopt a form in which a person appointed by the board of directors to attend the meeting as necessary. The board of directors is enhancing the soundness of management by ensuring management efficiency through the establishment of directors who are conversant in business of Rhythm group, and by enhancing the audit/supervisory (monitoring of director's business execution, etc.) function through outside directors with expertise knowledge and wealth of experiences.

Also note that the entire board of directors are comprised of male directors.

For important matters pertaining to the management of Rhythm and Rhythm Group, the members of the board of directors meet (in principle, once a month or more) to make decisions on the matters stipulated in laws and regulations and the Articles of Incorporation and the matters on the business execution under the board of directors regulations. Business execution based on the resolutions adopted by the board of directors are quickly executed by directors in charge of the businesses concerned and respective operating officers under the leadership of a person serving as the representative director and president.

Furthermore, we are able to make quick managerial decision, flexible business execution, and management oversight concerning the role of the board of directors, by preparing a system in which all or part of important business execution is entrusted to a specific director, based on the provisions of the Articles of Incorporation and decision made by the board of directors.

B. Audit and Supervisory Committee

The audit and supervisory committee consist five directors (audit and supervisory committee members including four members of outside directors). We adopt a form in which a person appointed by the audit and supervisory committee.

We strive to further enhance our corporate governance by promoting quick decision-making at the board of directors, and by further strengthening the supervisory function of the board of directors. In addition to the matters stipulated in laws and regulations, we also discuss and vote on the important matters relating to audit based on our report.

In principle, the audit and supervisory committee meet on the day of ordinary meeting of the board of directors held once a month or more. The meeting is also held as necessary.

C. Governance Committee

The governance committee consist a total of seven members with three internal directors (one of them is an audit and supervisory committee member), and four outside directors (all four of them are audit and supervisory committee members) appointed by the board of directors. In order to secure independence/objectivity of function of the board of directors, we are enhancing governance pursuant to the basic policy of Rhythm Group Corporate Governance. For the sake of enhancing fair and impartial management supervisory function, we provide advice/proposal on important problems, etc. pertaining to management by focusing on appropriateness and legality from independent perspective. The "governance committee" meets twice a year on a regular basis and as necessary pursuant to the governance committee regulations.

D. Management Committee

The management committee consist internal directors and executive officers. In order to ensure prompt and efficient business execution, the members of the management committee discuss the matters stipulated in lows and regulations and the Articles of Incorporation and the matters on the business execution stipulated in the board of directors regulations under the management committee regulations. Furthermore, other matters on the business execution are resolved within the scope of authority delegated by the board of directors . The management committee is hold once a month or more in principle.

(B) Reason for Adopting Corporate Governance System

We are adopting current system since we recognize that enhancing management supervisory system and securing effectiveness is vital from the perspective of improving the transparency of management, together with establishing the management system that can respond quickly to changes in the management environment.

(C) Status of Internal Control System

We have established the codes of conduct for compliance for both Rhythm and Rhythm Group, and adopted a corporate vision stipulating that we should not only comply with applicable laws and regulations but also respect societal ethics and be engaged in a variety of activities as a good corporate citizen. We also provide compliance training for officers and employees of Rhythm and Rhythm Group member companies to make them become fully aware of the compliance matters.

In pursuit of business execution, respective department heads have an obligation to quickly report illegal operating misconduct or any acts from which doubts may arise in terms of legal compliance to the compliance/risk management office if they come to know such acts. This compliance/risk management office provides compliance training to permeate and improve the awareness of legal compliance, and on top of that, such office has established an internal whistle-blowing system and offices of contacts to accept consultation inside and outside the company.

In order to meet the requirement of internal control and auditing system under the Financial Instruments and Exchange Act, its construction and operation are conducted by the internal control administrative office, and its validity is evaluated by the internal audit office.

(D) Status of Risk Control System

Compliance /risk management office will compile the extraction and evaluation of risk based on the risk assessment implemented by the Rhythm group. The "important group risk" arising in Rhythm group is selected based on such result. Accordingly, we are making efforts to improve risk management system so that we can reduce important group risk and respond quickly in the event of such risk. We are also taking measures to respond properly to risk management, by improving report system in the event of an incident.

(E) Status of System to Secure Proper Operation of Subsidiary of Rhythm

Rhythm group have stipulated the codes of conduct for compliance applicable to Rhythm to individual companies by establishing autonomy and independence in their management, and adopted a corporate vision stipulating that we should not only comply with applicable laws but also respect societal ethics and be engaged in a variety of activities as a good corporate citizen. In the event that a content required from Rhythm is in potential violation of laws and regulations, and in the event of occurrence of other compliance problems, Rhythm Group have established a system in which employee, etc. can report such incidents to each company and internal/external consultation counters through whistle-blowing system.