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Corporate Governance

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The corporate governance of GMO Payment Gateway, Inc. (“Company”) is described below.

I.Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1.Basic Views

The GMO Payment Gateway group (the “GMO-PG group”) upholds the management principle of “Pursue both material and spiritual prosperity through our contributions to the progress and development of society;” and we implement governance systems that can effectively and efficiently realize these principles. We have strengthened the corporate-wide governance structure by establishing the rules to be adhered to by all of the group companies and employees in managerial positions in the Employee’s Code of Conduct which stipulates the principles and the basic views on compliance and the Group Company Rules that stipulates the administrative and managerial policies and structure for group companies.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]
[Supplementary principle 4.1.2 Medium Term Management Plan] [Principle 5.2 Targets for profitability and capital efficiency]

GMO-PG group carries out its businesses in the rapidly evolving Internet domain, which makes formulating an effective medium-term management plan less effective even if we were to attempt to make such a plan. In addition, we believe that publicly disclosing numerical targets would risk misleading shareholders and investors etc. Hence, the Company does not formulate and disclose a medium-term management plan.
GMO-PG group implements appropriate business execution by clearly defining the departmental responsibilities of Directors and setting clear targets for each department, which is overseen at the monthly Board meeting and Executive Committee meeting, that conducts a review of the achievements and targets as well as provide feedback.

[Supplementary principle 4.11.3 Analyzing and evaluating the effectiveness of the Board as a whole]

The Audit Committee is the main body that conducts an analysis and evaluation of the effectiveness of the Board once yearly to ensure the improvement of the Board’s functioning at GMO-PG group. The disclosure method of the overview of the results of these analyses and evaluations are under consideration.

[Disclosure Based on the Principles of the Corporate Governance Code]
[Principle 1.4 Cross-Shareholding]

The Company may own so-called cross-shareholding shares if it is deemed to improve the medium-to-long-term enterprise value such as through potential business alliances and business synergies. The Company verifies the economic rationality of each of the cross-shareholding share by weighing the business rationale and the benefits of ownership (be it dividends, commercial deals and/or returns from business synergies) against the capital cost of ownership. Investment decision is authorized by the Board or Executive Committee through careful consideration of the qualitative and monetary implication, depending on the importance of each transaction that are screened by the relevant department.
The exercise of voting rights of these cross-shareholdings is determined by comprehensively evaluating whether the proposal is accretive to the issuer’s enterprise value as well as its potential effect to the shareholder, i.e. GMO-PG group. Depending on the proposal, we will endeavor to reach a decision conducive to both the issuer and shareholder by holding discussions with the issuer where necessary.

[Principle 1.7 Related Party Transaction]

Transactions conducted between GMO-PG group and its Directors and major shareholders (i.e. related party transactions) must be approved by the Board that includes several External Directors, following due discussion on the appropriateness of the terms and conditions and comparison with other third-party transactions, in order to ensure that such transactions do not harm the interests of the company nor the common interests of shareholders.
When the Board is deciding on such related party transaction, the Director related to the transaction will be excluded from the vote and will not be counted in the quorum of the Board.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

GMO-PG group mainly implements the defined contribution corporate pension plan.

[Principle 3.1 Full Disclosure]
(i) Company Objectives, etc.
GMO-PG group’s management principle is “Pursue both material and spiritual prosperity through our contributions to the progress and development of society.” This management principle is founded on the Venture Spirit Declaration. Under our parent company GMO Internet, Inc.’s Corporate Slogan of “Internet for Everyone,” GMO Internet, Inc. is engaged in the Internet Infrastructure Business, Online Advertising & Media Business, Internet Finance Business, Cryptocurrency Business and the Incubation Business. The Venture Spirit Declaration embodies the spirit held since the founding of the company and is made aware and shared through various means to/with all GMO Internet, Inc. group companies and the partner employees.
For further information on the Venture Spirit Declaration, please refer to GMO Internet Inc. website ( https://www.gmo.jp/en/brand/#philosophy )
(ii) Basic views and guidelines on corporate governance
For our basic views on corporate governance, please refer to this document’s 1. Basic Views, found under the “I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information.”
(iii) Board policies and procedures in determining the remuneration of the senior management and Directors
The basic policies and procedures in determining the remuneration of senior management and Directors are as follows:
①Functions as an appropriate incentive to enable the medium-to-long-term improvement in enterprise value and sustainable growth
②Remuneration structure reflects the level of contribution in value creation to the stakeholders and reflects GMO-PG group’s business environment and short-and-medium-term financial performance.
③Reflects the performance results and roles and responsibilities of each individual Director and does not overly encourage risk-taking.
④Remuneration must be deemed appropriate based on third party surveys of executive compensation levels in addition to reflecting the prevailing socioeconomic conditions.
⑤Must consider the regulations over director remuneration of both Japan and overseas as well as the group companies’ financial results and financial soundness.
⑥Must be determined in accordance with sound corporate governance and revised appropriately and in a timely manner to reflect socioeconomic conditions and the business environment.
In order to secure the transparency of the remuneration determination process and the appropriateness of the remuneration, the company has instituted the Nomination and Remuneration Committee that is chaired by an External Director, to act as the advisory body to the Board etc. The remuneration of auditors is determined by discussions in the Audit Committee.
GMO-PG group’s payment policy for Director’s that hold concurrent positions at group companies is for the main company to be the payer of remuneration to that Director.
(iv) Board policies and procedures in the appointment/dismissal of the senior management and the nomination of Directors and auditor candidates
For the policies and procedures in the appointment/dismissal of the senior management and the nomination of Directors and auditor candidates, please refer to 2. Matters on Functions of Business Execution, Audition, Oversight, Nominating and Compensation Decisions (Overview of Current Corporate Governance System) under “II. Business Management Organization and Other Governance Systems regarding Decision-making, Execution of Business and, Oversight in Management.”
(v) Explanations with respect to the individual appointments/dismissals and nominations
For the explanation with respect to the individual appointments/dismissals and nominations of External Directors and External Auditors, please refer to 1. Organizational Composition and Operation under “II. Business Management Organization and Other Governance Systems regarding Decision-making, Execution of Business and, Oversight in Management.”
The reasons for appointment of Director candidates and Auditor candidates are disclosed in the reference material of the Notice of General Meeting of Shareholders.
[Supplementary Principle 4.1.1 Scope and Content of the Matters Delegated to the Management]

The Board makes decisions on matters of important management issues and on legal issues. The Board also oversees the execution of business responsibilities by the Directors.
The Executive Committee and Representative Director etc. are delegated to make decisions on matters other than the Board decisions and must comply to the standards set in internal rules and Executive Committee Rules.

[Principle 4.9 Independence Standards and Qualification for Independent Directors]

The Company stipulates the independence standards for External Directors in the Independence Standards and Rules for External Directors.

[Supplementary Principle 4.11.1 Views on the Appropriate Balance of Knowledge, Experience and Skill of the Board and its Diversity and Appropriate Board Size]

The Board elects the candidates for Directors who are equipped with the knowledge, experience and skill to effectively carry out their role and responsibility, and also holistically considers the results of the 360-degree evaluation by management and peer reviews. The Board will be mindful to achieve the appropriate size and diversity of the Board.
Candidate for Directors and Auditors will be selected on these policies and following the deliberations at the Nomination and Remuneration Committee, will be formally proposed to the Board for the decision.

[Supplementary Principle 4.11.2 Status of Concurrent Positions of Directors and Auditors at Other Listed Companies]

The concurrent positions held by Directors including External Directors and Auditors including External Auditors are disclosed yearly in the reference material of the Notice of General Meeting of Shareholders, Business Report and the Annual Securities Report.

[Supplementary Principle 4.14.2 Training policy for Directors and Auditors]

In principle, our training policy for Directors and Auditors is based on each individual Director’s decision as a professional of management to acquire the necessary knowledge and to endeavor to refine their skills. Through the thorough discussions held at the Board meetings, we strive to deepen and share the knowledge and skills base among Directors.
Additionally, we may employ external training agencies where appropriate for newly appointed Directors to acquire the requisite knowledge for their role.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]
(1) Basic Views
The Company considers it important not to create inconsistencies or distortions between the understanding of the capital markets towards the Company and the top management’s understanding of the capital markets’ views of the Company, through constructive and continuous dialogue with shareholders and investors, for the purpose of improving the medium and long term enterprise value and for sustainable growth.
The Investor Relations (“IR”) headed by the Director in charge of IR is established to conduct such dialogues and hold several venues to communicate with shareholders and investors. In addition, it is our policy that that the top management must directly explain, in their own words, and also directly answer the questions posed.
(2) Appointing a member of the management or a director who is responsible for overseeing and ensuring that constructive dialogue takes place and, measures to ensure positive cooperation between internal departments
The Director in charge of IR manages the shareholder and investor dialogues, as well as the oversees the IR Department under the Corporate Value Creation Strategy Division, and also liaises with other internal divisions and departments on a daily basis.
(3) Measures to promote opportunities for dialogue aside from individual meetings
The Company’s basic policy is to convene results briefing on a quarterly basis for analysts and institutional investors, with the top management as the speaker including for the question and answer session.
(4) Measures to appropriately and effectively relay feedback from shareholders
The Director in charge of IR regularly reports to the senior management and related parties on the opinions and concerns expressed by shareholder gathered through the dialogues and respond as appropriate.
(5) Measures to control insider information when engaging in dialogue
Close attention is paid not to relay insider information in the dialogues with shareholders through appropriate information management based on the information disclosure policy. ( https://corp.gmo-pg.com/en/ir/policy/release-policy/ )

2. Capital Structure

Foreign Shareholding Ratio From 20% to less than 30%
[Status of Major Shareholders]
Name/Company Name Number of shares owned(shares) Percentage (%)
GMO Internet, Inc. 31,172,200 41.95
Japan Trustee Services Bank, Ltd. (Trust account) 5,013,500 6.74
The Master Trust Bank of Japan, Ltd. (Trust account) 3,118,900 4.19
Sumitomo Mitsui Banking Corporation 2,501,600 3.36
J.P.MORGAN BANK LUXEMBOURG S.A. 385576 1,255,500 1.68
Issei Ainoura 1,000,200 1.34
SSBTC CLIENT OMNIBUS ACCOUNT 992,801 1.33
STATE STREET BANK WEST CLIENT - TREATY 505234 976,248 1.31
STATE STREET BANK AND TRUST COMPANY 505103 894,008 1.20
STATE STREET LONDON CARE OF STATE STREET BANK AND TRUST, BOSTON SSBTC A/C UK LONDON BRANCH CLIENTS- UNITED KINGDOM 816,947 1.09
Controlling Shareholder (except for Parent Company)
Parent Company GMO Internet, Inc. (Listed on Tokyo Stock Exchange, First Section), Securities code: 9449
Supplementary Explanation

The above Status of Major Shareholders is based on the information in the Shareholder Register as of September 30, 2019.
GMO Internet, Incl. partially divested the Company’s shares on December 18, 2018 and the share of voting rights stands at 41.95% as of December 2019. GMO Internet, Inc. remains as our parent company given the composition of Board of the Company.

3. Corporate Attributes

Listed Stock Market and Market Section Tokyo Stock Exchange, First Section
Fiscal Year-End September
Type of Business Information & Communication
Number of Employees (consolidated) as of the End of the Previous Fiscal Year From 500 to less than 1,000
Sales (consolidated) as of the End of the Previous Fiscal Year From \10 billion to less than \100 billion
Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 10 to less than 50 companies

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

The commercial transactions that GMO-PG group engages in with the parent and the parent company group is low, and the bulk of these transactions, excepting a few, are carried out with companies with no capital relation to GMO-PG group. It is our policy not to conduct other types of transactions with the parent and the parent company group in order to protect minority shareholders, in principle.
In the event we engage in transactions with the parent and the parent company group, regardless of whether the transaction is new or recurring, we pay particular attention on the rationality of the terms and conditions of the transaction and on comparing the terms and conditions of the transactions with external transactions. Specifically, the suitability of the conditions of the transactions and comprehensive comparisons with third-party transactions are conducted regularly and is reported to the Board that must be participated by an External Director who is independent from the parent and parent company group.

5. Other Special Circumstances which may have Material Impact on Corporate Governance

Matters regarding business expansion is decided independently and not subject to the direction or approval of the parent company etc., and the decision is reached independently by the majority of senior management, including Directors and independent Directors with no conflict of interest with common shareholders.

(Excerpted from ”2019/12/20 Corporate Governance Report”)

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