Corporate Governance

Overview of the Corporate Governance Structure and Reasons for Adoption

As a holding company, Benesse Holdings, Inc. and the Benesse Group operate under the corporate philosophy, Benesse = "Well-Being," through the following management structure, aiming to create a legal and appropriate structure required for sound and continuous development.

Chaired by the director and chairman, the Board of Directors meets once a month, in principle, to make important management decisions and to supervise the business execution of the operating companies.

The Company has established the Nomination and Compensation Committee to serve as an advisory body to the Board of Directors. The Nomination and Compensation Committee comprises directors, with a majority of outside directors. The committee examines the candidate selection and dismissal of directors and the director and president and submits its opinion to the Board of Directors. The committee also resolves the individual compensation amounts for directors based on their assigned responsibilities within the Board of Directors, as well as examining the compensation system for directors and submitting its opinion to the Board of Directors. To conduct impartial activities, members of the Nomination and Compensation Committee are not permitted to participate when they themselves are the subject of discussion or proposal.

The Management Council is chaired by the president and attended by the vice chairman, executive vice presidents, directors in charge, heads of companies, vice heads of companies, those responsible for administrative divisions, as well as people designated by the president. The council examines and decides on matters to be brought before the Board of Directors and matters decided on by the president.

The Benesse Group's Oversight of business execution

Based on the holding company structure, Benesse has created mechanisms for collecting, sharing and controlling information related to management of the Group as a whole, using the following methods in accordance with the regulations for supervision of Group company management. In doing so, Benesse aims to realize the management policy, long-term vision and management targets for the entire Group.

The Company has set up in-house companies for each of its strategic business domains, and a company head is appointed to take responsibility for each company, which supervises the subsidiaries for its respective business domain. The company head formulates growth strategies for the entire in-house company and executes them, strengthening the coordination between the Company and its subsidiaries. Moreover, the Company regularly checks on business performance and progress on key matters.

Moreover, the Company appoints people in charge of administrative divisions to assist the directors in supervision of the Group's business execution. They are appointed for each field, including Group growth strategies; personnel; Group governance; public relations and branding; finance and accounting; business planning and budgeting; IT; procurement, purchasing, and other business infrastructure; personal information protection; information security; risk management; and compliance, among others. The people in charge of administrative divisions, help to advance the Group's management and administration as well as identify and solve management issues.

Subsidiaries must consult with the Company before making any administrative decisions on important matters that could impact the Group's management. The in-house company heads discusses these matters with people in charge of each administrative division from the perspective of ensuring the Group's growth and legal compliance. Then decisions are made through a process such approval from the representative director, or a resolution of the Company's Board of Directors.

Implementation of Internal Control System

The Benesse Group established the basic policies of its Internal Control System and other necessary systems stipulated by the Ordinance for Enforcement of the Companies Act, by a resolution of the Board of Directors' meeting held in May 2006, in accordance with Article 362, Paragraph 5 of the Companies Act. Subsequently, a decision was taken to review this resolution at the Board of Directors' meeting held on March 31, 2017.

A project team has also been established in Benesse Holdings with the purpose of creating internal controls and other measures relating to financial reporting, based on Japan's Financial Instruments and Exchange Act. The team's activities cover the entire Group.

Implementation of Risk Management System

In October 2010, we established the Benesse Group Principles. Rooted in the Group's corporate philosophy, the principles lay down the correct behavior for each executive officer and employee, to ensure that they perform their duties appropriately and ethically. Following the Benesse Group Principles, each operating company will observe societal rules, corporate ethical principles and laws and regulations, while continuing to create value for society. In this way, we are building a management structure to facilitate continuous growth and development.

Benesse Holdings has formulated the Benesse Group Risk Management and Compliance Rules for responding to a crisis. Covering the entire Group, the rules create a simple, clear response structure for transmitting information to the Company quickly in times of crisis.
In the event of a crisis, we consider it important to respond swiftly and appropriately through this structure.

Since 1999, the Benesse Group has operated an internal whistleblower system, that was set up to give employees a means of reporting violations of standards and principles, and has made such reporting an obligation of all our employees. To avoid any potential disadvantage to whistleblowers, reports can be made anonymously and confidentially. Since 2005, we have also operated a Group Ethics Compliance line via a third party organization, to provide a contact point for employees at Group companies in Japan. The mechanism was extended to include overseas companies in March 2009.

Liability Limitation Agreements with Directors (Excluding Directors Serving Concurrently as Executive Directors) and Audit & Supervisory Board Members

Benesse signed agreements with Outside Directors Shinjiro Iwata, Kiyoyuki Tsujimura, and Hideaki Fukutake, in June 2014, and Ryuji Yasuda, in June 2015, and Nobuo Kuwayama, in June 2016, and with Audit & Supervisory Board Members Yoshinori Matsumoto, Kimie Sakuragi and Eiichi Izumo, in June 2015, and Miyuki Ishiguro, in June 2017, limiting their liability for damages. Based on these agreements, in cases where the officers act in good faith and there is no gross negligence of duty, liability for damages is limited to the higher of either ¥10 million or the minimum amount prescribed by Article 425, Paragraph 1 of the Companies Act. Furthermore, in regard to exemption of liability of Directors and Audit & Supervisory Board Members, the Company's Articles of Incorporation provide that the liability for damages of Directors and Audit & Supervisory Board Members (including former Directors and Audit & Supervisory Board Members) resulting from negligence of duty may be exempted up to the statutory limit by a resolution of the Board of Directors in accordance with Article 426 Paragraph 1 of the Companies Act of Japan. This is to ensure that Directors and Audit & Supervisory Board Members can perform their expected roles to the fullest.

Organization, Personnel and Procedures for Internal Audit and Corporate Audit

With regard to internal audits, the dedicated internal auditing department monitors the Company and each operating company with respect to the status and operation of their internal controls and the status of their risk preparation. The departments then perform operational audits based on the assessment of risks and other factors, and report the results of the audits to senior management and the Audit & Supervisory Board members. The departments respond to the “internal control and reporting systems,” assessing the Company and its operating companies on their internal controls and creating internal control reports.

The Audit & Supervisory Board meets once a month in principle, and the Audit & Supervisory Board members share an awareness of key management issues by attending important management meetings, such as the Board of Directors and the Nomination and Compensation Committee, and by exchanging opinions with senior management. They also hear business reports from the persons in charge of operating companies and actively investigate the status of operations.

In February 2015, the Company appointed dedicated staff to assist the Audit & Supervisory Board members, and in the year ended March 31, 2016 the Group enhanced its audit system by establishing the Benesse Group Audit Committee with the addition of standing Audit & Supervisory Board members for subsidiaries, and strengthening cooperation.

The Audit & Supervisory Board Member Hotline was set up in May 2007, specifically as an internal channel for all executive officers and employees of the Group to provide information about issues concerning directors and other senior managers of the Company. The hotline allows this information to be reported directly and even anonymously to the Company's standing Audit & Supervisory Board members. With this system, the Group aims to ensure the efficacy of its supervision functions.

Coordination between Corporate Audit, Internal Audit and Independent Audit, and the Relationship between These Audits and Internal Control Departments

The Audit & Supervisory Board Members, internal auditing departments and the independent auditors strive to increase cooperation by exchanging information as necessary on topics including operational reports and other matters at regular joint conferences.

The Audit & Supervisory Board coordinates with internal auditing departments and the independent auditors to enhance management oversight by proactively expressing its views from an auditing standpoint and other means.

Number of Outside Directors and Outside Audit & Supervisory Board Members and their Relationships with the Company

As of June 26, 2017, five of the ten directors are outside directors and two of the four Audit & Supervisory Board members are outside Audit & Supervisory Board members.

Outside director Hideaki Fukutake is the representative of asset management and investment corporation efu Investment Limited, which has 7,858 thousand shares of the Company's stock. Of these, 6,809 thousand shares have been contributed as trust assets to the Master Trust Bank of Japan.Furthermore, the Company has art sale transactions with FUKUTAKE FINE ART PTE. LTD., which is a wholly owned subsidiary of efu Investment Limited. The other outside officers, namely outside directors Shinjiro Iwata, Kiyoyuki Tsujimura, Ryuji Yasuda, and Nobuo Kuwayama, and outside Audit & Supervisory Board members Miyuki Ishiguro and Eiichi Izumo, have no special interest relationships of interest with the Company, either personal relationships, capital relationships, trading relationships, or in any other relationships of note.

Outside director Hideaki Fukutake is a non-executive officer of the Company's subsidiary Berlitz Corporation, and in the past he has been a non-executive officer of subsidiary Benesse Corporation. Outside Audit & Supervisory Board member Eiichi Izumo has in the past been a partner of Deloitte Touche Tohmatsu LLC, with which the Company has concluded an audit agreement. Outside Audit & Supervisory Board member Miyuki Ishiguro is a partner of Nagashima Ohno & Tsunematsu, with which the Company has concluded a consulting contract. The other outside officers, namely outside directors Shijiro Iwata, Kiyoyuki Tsujimura, Ryuji Yasuda, Nobuo kuwayama, are not currently, nor have they been in the past, executives or employees of another company or entity that has a special relationship of interest with the Company, either a personal relationship, capital relationship, trading relationship, or any other relationship of note.

Furthermore, the Company has determined that Shinjiro Iwata, Kiyoyuki Tsujimura, Ryuji Yasuda, and Nobuo Kuwayama among the five outside directors present no risk of causing a conflict of interest with ordinary shareholders in light of the Criteria for Independence of Outside Directors and Outside Audit & Supervisory Board Members shown below. Accordingly, the Company has designated them as independent officers as stipulated by the financial instruments exchanges, and has provided notice to the exchanges to this effect.

Criteria for Independence of Outside Directors and Outside Audit & Supervisory Board Members

Benesse Holdings, Inc. (the Company) shall determine that the Company's Outside Directors, Outside Audit & Supervisory Board Members and the respective candidates for those posts possess a high degree of independence when all of the following criteria are satisfied:

1. The individual has not served as business personnel*1 of the Company or its Group companies (hereinafter, "the Benesse Group") in the current fiscal year or the past 9 fiscal years.
2. Individuals who have satisfied all of the following conditions (A) through (H) for the past three fiscal years:
   • The individual is not an entity for which the Benesse Group is a major client*2 and does not serve as business personnel thereof.
   • The individual is not a major client of the Benesse Group*3 and does not serve as business personnel thereof.
   • The individual is not a major shareholder (directly or indirectly holding a voting interest of 10% or more) of the Company and does not serve as business personnel thereof.
   • The individual does not serve as business personnel of an entity that is a major investee of the Benesse Group (in which the Benesse Group directly or indirectly holds a voting interest of 10% or more).
   • The individual is not a consultant, accounting expert or legal expert who has received compensation in the form of a large amount of money or other assets*4, other than officer's compensation from the Benesse Group (or an individual belonging to an entity such as a corporation, association, or other group that has received such assets).
   • The individual has not received a large charitable donation or subsidy*5 from the Benesse Group and does not serve as business personnel of such a recipient.
   • The individual is not an independent auditor of the Benesse Group and does not belong to a corporation, association or other group that serves as an independent auditor of the Benesse Group.
   • In cases where the business personnel of the Benesse Group have been appointed as outside officers of other companies, the individual does not serve as business personnel of the other company.
3. The individual is not a relative*6 of a person who meets either of the following conditions "a." or "b."
   • An individual who does not satisfy any of the foregoing conditions (A) through (H) in (2) above for one of the past three fiscal years. However, the business personnel stipulated in conditions (A) through (D) and (F) and (H) shall refer only to key business personnel*7. Condition (E) shall apply only to persons with specialized qualifications, such as certified public accountants and lawyers. Condition (G) shall apply only to key business personnel and persons with specialized qualifications, such as certified public accountants and lawyers, in the individual's organization.
   • Key business personnel of the Benesse Group in the current fiscal year or any of the past 3 fiscal years.

Appointment of Outside Officers, Functions and Roles to be Fulfilled within Benesse's Corporate Governance Structure

The Company has continuously appointed multiple outside directors since 2003. An outside director currently serves as the chair of the Board of Directors and outside directors make up the majority of members in the Nomination and Compensation Committee, forming a structure that enhances supervision over management. Going forward, Benesse will continue to make effective use of the abundant experience and insight of Outside Directors in corporate management and related areas, as well as their international experience, in the management of the Group.

Furthermore, for its outside Audit & Supervisory Board members, the Company has appointed a qualified attorney and a certified public accountant. From their independent perspective, they will apply their abundant respective experience and insight to serve as a supervision function for management, striving to enhance their function by coordinating with other Audit & Supervisory Board members, the internal audit division, and the independent auditor.

Cooperation by Outside Directors and Outside Audit & Supervisory Board Members on Oversight and Audits, Internal Audits, Corporate Audits and Independent Audits, and Relationship with Internal Control Departments

Outside Audit & Supervisory Board Members cooperate with internal auditing departments and the independent auditors to enhance management oversight by exchanging opinions as necessary in addition to regularly expressing their opinions at Audit & Supervisory Board meetings.

Attendance at Meetings of the Board of Directors and Board of Corporate Auditors by External Directors and ExternalCorporate Auditors (Year ended March 31, 2017)

Amount of Officer Compensation and Benefits (Year ended March 31, 2017)

Basic Policy on Determining Officer Compensation

Directors

• (1) Method of Determining Policy
  All matters concerning directors' compensation are deliberated and reported to the Board of Directors by the Nomination and Compensation Committee, which comprises a majority of three or more outside directors, the director and chairman, and the director and president. The Company ensures transparency, fairness, and objectivity through this structure.
• (2) Basic Policy
  The Group aims to achieve sustained medium- to long-term growth for the entire Group. The Group therefore has a compensation structure for directors' compensation that emphasizes medium- and long-term performance in conjunction with short-term business results. Furthermore, the Group has adopted competitive compensation standards commensurate with the roles, abilities, and responsibilities required of the Group's directors in the course of promoting Group management.
• (3) Compensation Structure
  Compensation for directors (excluding outside directors) comprises basic compensation, bonuses and restricted stock compensation.
  Basic compensation is established based on expectations for the director's role in each fiscal year. The basic compensation level is reviewed for every term of office.
  The restricted stock compensation plan was introduced in fiscal 2017 as an incentive for directors to improve share price and performance. Restricted stocks are granted based on each director's annual salary.
  Bonuses comprise performance-linked bonuses that are paid taking into account the Company's business results for each fiscal year. Compensation for outside directors comprises basic compensation only. There are no plans for new allocation of stock options.

Audit & Supervisory Board Members

• Compensation for Audit & Supervisory Board members is decided by discussion among the Audit & Supervisory Board members, and comprises basic compensation only.
  There are no plans for new allocation of stock options.