Pasona : Corporate Governance Report

Note : This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Last update: April 13, 2022

Pasona Group Inc.

Representative: Yasuyuki Nambu, Group CEO and President

Inquiries: Investor Relations Department

TEL: +81-3-6734-0223

Listing Code No.: 2168www.pasonagroup.co.jp/english/

The corporate governance of Pasona Group Inc. (hereinafter referred to as "Pasona Group" or the "Company"), including its corporate governance policies, structure, systems, and initiatives, are outlined below.

I Basic Stance Concerning Corporate Governance and Basic Information on Capital Structure and Corporate Attributes and Other Matters

1. Basic Stance

Based on its corporate philosophy of providing "Solutions to Society's Problems," which has been unchanged since its founding, Pasona Group has always been a social solutions company dedicated to its mission of assisting all aspects of life for all those around us. Our mission is contributing toward a sustainable society and working toward a society capable of achieving a "Smart Life Initiative" to create lives of abundance for people.

Underpinned by this philosophy and the Company's mission to society, Pasona Group is committed to continuously enhancing its corporate value and securing benefits for all shareholders and stakeholders (interested parties) with whom our values resonate.

Going forward, Pasona Group must maintain its presence as a company needed by society, a company that offers true "Social Work-life Balance" to working people, a company that invokes a feeling of trust and security in its clients, and a company whose employees can take up challenges with confidence and pride.

To aid its mission, Pasona Group continues to strengthen the corporate governance function and to ensure that management maintains the highest respect for legal compliance and ethical standards.

As a leading company in the human resources sector, Pasona Group recognizes the need to consistently enhance the Company's and the industry's credibility as a means to not only fulfill its responsibilities to all stakeholders but also to reinforce its business platform and elevate its corporate value.

Reasons for Non-compliance with the Principles of the Corporate Governance Code

Applicable Code

This information is based on the Corporate Governance Code, which was revised in June 2021.

Principle 5-2 Establishing and Disclosing Business Strategies and Business Plans, and Supplemental Principle 5.2.2 Basic Policy on Business Portfolio and Status of Review

The board of directors discusses medium-term business plans and tracks progress. It reviews and revises medium- and long-term business strategies in addition to policies, business plans, and the business portfolio as appropriate.

In a rapidly changing business environment in which the Company needs to make quick and appropriate business decisions, the Company does not prepare medium-term business plans for disclosure purposes lest investors be misguided or prejudiced by information containing uncertainties that may prevail during the planning stage.

The Company will continue to look into the possibility of preparing medium-term business plans that may be available for external disclosure.

Disclosure Based on the Principles of the Corporate Governance Code

Principle 1.4 Cross-shareholdings

The Company may hold shares in listed companies for cross-shareholding when such shareholding is warranted from medium- and long-term perspectives so as to strengthen and maintain relationships with clients and business partners, to expand its business, or to start a business alliance from which the Company expects to gain business benefits with theultimate goal of increasing its corporate value.

If the Company holds shares in listed companies for cross-shareholding purposes, it reviews and verifies whether desired results have been accomplished or expected business benefits have been obtained as a result of the Company holding such shares, and the board of directors decides whether it is appropriate to continue holding the shares. It disposes of such shares when it considers that the rationale for holding them no longer exists.

The Company will exercise its voting rights appropriately by deciding whether the resolution is consistent with the Company's shareholding policy and whether it contributes to the sustainable growth of the invested company and enhancement of its shareholders' interests, in addition to contributing to the enhancement of the interests of the Company's investors and shareholders.

Principle 1.7 Transactions with Related Parties

The rules of the board of directors, as set forth by said board of directors, expressly stipulate that any and all transactions by a director that compete with the Company's business or that involve any conflicts of interest between the director and the Company are subject to a resolution of the board of directors. Such transactions, if any, are submitted to the board of directors, including the independent outside directors, on a case-by-case basis for approval, and post-transaction reports are also required. A mechanism is also in place to ensure that the terms of trade to be agreed on with respect to such transactions will not disadvantage the Company.

Supplementary Principle 2.4.1 Ensuring Diversity in the Appointment of Core Human Resources

Regarding the promotion of female participation in the workforce, since the establishment of the Company, all employees have joined the Company in career-track positions, and we have been promoting human resources development and the placement of the right people in the right jobs without any distinction between men and women. Female employees accounted for 64.3% of the total number of employees, and 56.3% of all management positions are currently occupied by women. We have also established a broad range of employment options, such as telecommuting, reduced hours, and flextime, so that employees can continue to play an active role at different stages of their lives, including during times of childbirth, childcare, and nursing care. We established an on-site daycare center at the Pasona Group head office, and the Pasona Family Office on Awaji Island provides an environment where employees can work in the same space as their children. As a result of these initiatives, the percentage of female employees who have returned to work after the birth of their first child has been 100% every year.

Programs for human resources development and career development support for women are available, including career training specific to length of service, function, and rank, in addition to specialist training.

Of the graduates of the Wonder Woman Training program, which is a next-generation female leadership development program launched in 2014, two have been promoted to president, 18 to executive officer, and 27 to senior-level supervisor. In recognition of these efforts, the Company was certified in 2017 by Japan's Minister of Health, Labour and Welfare as a Level 3 Eruboshi company-the highest level of the Eruboshi system-as a company that is particularly outstanding in its efforts to promote female participation in the workforce.

・Percentage of female directors and executive officers: 34.5%

・Percentage of female managers in all management positions: 56.3%

・Percentage of female employees: 64.3%

・Percentage of female employees to non-Japanese human resources: 73.4% ・Percentage of female employees returning to work after giving birth: 100% every year

The Company actively recruits human resources regardless of nationality, and the percentage of non-Japanese personnel in managerial positions, which form the core of business operations, is 1.3% (5.4% on a consolidated basis including overseas subsidiaries), which is the same level as the ratio of non-Japanese personnel to all employees. The percentage of mid-career hires in the Company's management ranks is 61.3%, and the Company will continue to focus on ensuring diversity by actively promoting the appointment of non-Japanese and mid-career hires to management positions.

Since its establishment, the Company has been promoting diversity by providing a variety of ways in which our employees can play active roles regardless of their age, gender, nationality, employment status, timing of employment, or disability and by planning and implementing various personnel policies to maximize the abilities and potential of each individual. The Company believes that it is not necessary for the Company to set numerical targets for the appointment of women, non-Japanese, and mid-career hires to management positions because the Company is already beyond the stage of setting numerical targets and promoting initiatives to achieve them.

Looking ahead, we will continue to practice diversity management and will make every effort to create jobs and serve as "Life Producers" for all employment seekers.

Note: Figures are calculated based on the combined total of Pasona Group Inc. and Pasona Inc. as of October 1, 2021.

Principle 2-6 Fulfilling Roles of Corporate Pension Funds as Asset Owners

In an effort to improvement professional management provided for the pension funds and to fulfill the roles expected of an asset owner, the Company fills pension management-related positions with the personnel previously associated with human resources, finance, and accounting departments so as to take advantage of their expertise and knowledge in these fields.

A pension management committee is also in place to deliberate and decide on important matters so as to ensure the safeand efficient management of pension assets. It also dispenses appropriate advice as needed to the administrative unit responsible for performing day-to-day operations relating to fund management.

Principle 3.1 (i) Management Philosophy and Business Strategies

Please refer to "Pasona Group Corporate Philosophy" on the Pasona Group website.www.pasonagroup.co.jp/english/company/philosophy_e.html

Regarding business strategies, please refer to the presentation material for the financial results meeting held on July 21, 2021.

www.pasonagroup.co.jp/Portals/0/resources/ir/data/presentation/2105_presen.pdf

Principle 3.1 (ii)Basic Views and Guidelines on Corporate Governance

Please refer to "I 1. Basic Stance" in this report.

Principle 3.1 (iii) Policies and Procedures for Determining the Remuneration of Directors

Please refer to "II 1. Composition of Internal Organizations, Management, and Other Structures - Directors' Compensation" in this report.

Principle 3.1 (iv) Policies and Procedures for Nominating Director Candidates and Dismissing Directors

The basic policy is to select candidates who are superior in personality, possess insight suitable, and who are desired as part of the board of directors, taking into consideration the balance and diversity of knowledge, experience, and ability of the board of directors as a whole. For outside directors, the Company particularly looks for persons with strong expertise in management, finance, accounting, law, or other disciplines needed to drive the sustainable growth of the Company and to elevate its corporate value over the medium and long terms.

Prior to the official nomination of candidates by a resolution of the board of directors, the nomination and compensation committee, which is composed of a majority of independent outside directors who meet the Company's criteria for independence, submits a report on prospective candidates based on the above basic policy to the board of directors.

Mr. Haruo Funabashi, Mr. Kazuo Furukawa, and Mr. Ryohei Miyata, who are qualified as independent outside directors, are expected to provide invaluable insight and opinions from an independent perspective at the board of directors meetings. If, in the opinion of the Company, a director fails to sufficiently fulfill his or her function, the nomination and compensation committee deliberates the dismissal before the matter is brought to the board of directors. After the board of directors reaches a decision, the issue is forwarded to the General Meeting of Shareholders for its approval.

Principle 3.1 (v) Reasons for the Nominating of Individual Director Candidates

In the reference documents attached to the "Notice of the Ordinary General Meeting of Shareholders," the Company discloses the reasons for nominating individual candidates for director positions. For details, please refer to said reference documents posted on our website.

Supplemental Principle 3.1.3 Initiatives for Sustainability

Based on the Pasona Group's Corporate Philosophy, its Corporate Mission, and the Pasona Way, the Pasona Group will contribute to the creation of a sustainable society through the realization of its "Smart Life Initiative," which aims to create a comfortable lifestyle for people everywhere.

For details on our sustainability activities, including human assets, please refer to "Sustainability Activities" on our website. (https://www.pasonagroup.co.jp/koken/)

The Company has expressed its support for the Task Force on Climate-Related Financial Disclosures (TCFD) in July 2021, based on the recognition that addressing environmental issues, including climate change, is an important management issue.

The Company will consider expanding its disclosure based on the TCFD framework in a phased manner.

Supplementary Principle 4.1.1 Scope of Matters Delegated to Management

The board of directors is responsible for making decisions on matters required by law and by the articles of incorporation, in addition to important matters of Pasona Group and the Pasona Group companies. The rules of the board of directors, which said board of directors have adopted via its own resolution, stipulate that M&As, reorganization, the disposal and acquisition of significant assets, and substantial investments and loans are subject to a resolution of the board of directors.

Having elected and shifted to a corporate governance structure known as a "company with a supervisory committee" under the amended Companies Act, Pasona Group may delegate authority from the board of directors to the individual directors for decisions on certain matters involving important business execution. Further, an executive officer system was created in an effort to accelerate decision-making through the delegation of individual business execution decisions to the representative director and other senior management members and to executive officers. The details of such delegation are stated in the organizational rules and regulations, etc., which were adopted by a resolution of the board of directors.

Principle 4.9 Independence Criteria and Qualifications for Outside Directors

The Company considers that an outside director or an outside director candidate is "independent" if he or she satisfies the following independence criteria set forth by the Company:

• - No relative within a second degree of kinship is or has been an executive director of the Company or any of its subsidiaries.

• - No business transaction exceeding 2% of the Company's consolidated net sales was conducted in the last three business years between Pasona Group and the company where he or she currently serves in the capacity of executive officer or employee.

• - He or she never received compensation exceeding 10 million yen on an annual basis directly from Pasona Group in the last three business years for services rendered as a legal, accounting, or taxation professional or as a consultant (except for payments in the form of compensation for services rendered as the Company's officer or in the form of fees paid to the organization or firm of his or her affiliation).

• - He or she is not an executive officer of an organization that has received donations from Pasona Group in excess of 10 million yen on an annual basis in the last three business years.

Supplementary Principle 4.11.1 Composition of the Board of Directors

When nominating candidates for the positions of director, the Company takes into account the balance, diversity, and size of the board of directors as a whole. The policies and procedures for the selection of director candidates are shown in Principle 3-1 (iv) above. In the opinion of the Company, the maximum numbers of directors who are not Supervisory Committee members and of directors who are Supervisory Committee members should be 15 and five, respectively, to ensure appropriate, speedy, and fair decision-making on important matters and to administer proper supervision over business execution.

Please refer to the last page of this report for the skills matrix of the Company's board of directors.

Supplementary Principle 4.11.2 Concurrent Posts Held by Directors

The names of directors, including independent outside directors, who concurrently hold positions elsewhere as officers of other listed companies, are disclosed each year in reference documents for the General Meeting of Shareholders and in business reports.

Supplementary Principle 4.11.3 Effectiveness Evaluation of the Board of Directors

Each year, the Company sends out a questionnaire survey to directors in order to evaluate the effectiveness of the entire board of directors. The evaluation and analysis results, which are reported to the board of directors, may lead to an operational review and other actions on the board, if necessary, to further enhance the board's effectiveness.

Outline of the evaluation results of the board of directors' effectiveness in FY2020

In April 2021, a questionnaire survey for FY2020 was sent out. The directors were requested to perform an assessment (including a self-assessment) on the following matters:

• (1) Matters concerning his or her execution of professional duties

• (2) Matters concerning the effectiveness of the entire board of directors

• (3) Matters concerning the organization of the board of directors

• (4) Matters concerning the operational state of the board of directors

• (5) Matters concerning deliberation by the board of directors

• (6) Matters concerning support, etc., for directors

An evaluation of the latest questionnaire's results and analysis results was reported to the board of directors meeting held in May 2021, at which issues that surfaced from the evaluation and others matters on the agenda were discussed. Given the active engagement by the directors in open and lively discussions where their respective expertise was well presented, along with the proper manner in which the board proceeded with the deliberation, the Company believes that the effectiveness of the board of directors is being ensured. The Company will continue to look into and take action as appropriate to further enhance the effectiveness of the entire board of directors.

Supplementary Principle 4.14.2 Training Policy for Directors

The Company's directors and executive officers receive the legal and compliance training necessary to perform their audit and supervisory duties and functions. In addition, they visit business subsidiaries as appropriate to develop a better understanding of the Pasona Group companies and their businesses.

To help outside directors perform their expected roles in full, the Company continuously provides them with opportunities to learn the corporate group's business, finances, organizations, and other matters upon their appointments and throughout their tenures.

Principle 5.1 Policy for Constructive Dialogue with Shareholders

In an effort to encourage all stakeholders, including shareholders, investors, and local residents, to develop a greater understanding of the Company, a policy of fair, timely, and appropriate disclosure of important information pertaining to the Company (including management, business, and financial matters) is in place, with the goal of earning due recognitionand trust from society.

(i) The Investor Relations Department is responsible for communication with shareholders in general, with the titled executive officer in charge of the Investor Relations Department exercising oversight.

• (ii) To enhance communication with shareholders, the head of the Investor Relations Department works organically with the respective heads of departments related to finance and accounting, corporate planning, administration, legal, and other functions and of operating divisions to ensure prompt information-sharing and fact verification.

• (iii) Twice a year, the Company organizes presentation meetings for institutional investors and security analysts to discuss the Company's interim and full-year results, in addition to individual meetings and interviews and small-group meetings, which are scheduled from time to time. The Company proactively communicates with shareholders and investors by posting news and information on the pages dedicated to investor relations on the Company's website.

• (iv) The opinions and concerns voiced by shareholders while engaged in such dialogue as above are reported to the management meeting and to the board of directors by the titled executive officer in charge of the Investor Relations Department.

• (v) When communicating with shareholders, special care is taken to ensure compliance with the Company's anti-insider trading regulations, which govern the Company's handling of material facts. The Company refrains from making any comments regarding business results or answering any inquiries related thereto in the two-week period prior to the announcement of business results, known as the "quiet period."

For more details on our disclosure policy, please refer to "Disclosure Policy" on our website.www.pasonagroup.co.jp/english/ir/disclosure_e.html

As for the Company's structure and details regarding IR activities, please refer to "III 2. Status of IR Activities" and "V 2. Other Matters Concerning Corporate Governance Structure" in this report.

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