Corporate Governance

In the core auto auction business, the USS Group management goal is to increase corporate value through continuous business expansion in a domain distributing used vehicles. The growth of shareholder value is clearly our most important objective as a publicly owned company. But corporate value is the result of fulfilling our responsibilities to all our stakeholders. This stance is embodied in the six core elements of our management philosophy: creating a fair market, serving members better, providing services for consumers, passing profit on to shareholders, respecting employees, and contributing to local communities. This is why we manage our operations on the basis of the recognition that shareholder value is achieved through corporate value.
In addition, as members of society, companies have an obligation to comply with social norms. Therefore, it is essential to comply with and to fully satisfy the requirements of both the Basic Policy on Corporate Governance and the Corporate Governance Code. By performing thorough evaluations of our operations and formulating an improvement plan for the next fiscal year at the Board of Directors meeting at the end of each business year, we make every effort to achieve outstanding performance in terms of our accountability (duty to explain and account for our activities) and management transparency, and to improve our corporate governance.

• Fundamental Policy for Corporate Governance USS246KB

Simplified Chart of Corporate Governance

(As of June 30, 2024)

The Board of Directors is made up of seven Directors, three of whom are Outside Directors. These members discuss management plans and a wide range of other important matters. The Outside Directors hold regular meetings with the Board of Corporate Auditors and the Internal Audit Office. These offer insight into the progress of audits as well as provide other information to the Outside Directors. The Board of Directors also receives reports from the Supervisory Office when working to tackle risks or other issues which arise.

The Board of Corporate Auditors consists of three outside auditors. Each Corporate Auditor not only attends meetings of the Board of Directors but also surveys and audits Directors in the execution of their duties as well as the operational progress and assets of Group companies. Furthermore, this board works with the Internal Auditing Office, which conducts audits of all divisions and offices (including at USS subsidiaries).

The Company has appointed three Outside Directors to ensure management transparency and fairness. We consider all three Outside Directors to be Outside Executives in relation to whom there is no concern of any possibility of conflicts of interest arising with our ordinary shareholders, and have filed a report about their status as independent officers at the Financial Instruments Exchange on which the Company is listed. It is expected that, in relation to such independent directors, actions can be taken, such as stating such opinions as need to be taken into consideration at the decision phase etc. regarding execution of business by the Board of Directors etc. to safeguard the interests of our ordinary shareholders. Furthermore, the Company's three Corporate Auditors are Outside Corporate Auditors and have been reported as being independent officers because they all are possessed of a high degree of independence. These independent Corporate Auditors attend the meetings of the Board of Directors and conduct thorough investigations and audits of directors' execution of their duties and of other business operations and asset conditions.
Although there is no special provision stipulated in relation to the independence of the Company in its selecting Outside Directors and Outside Corporate Auditors, the Company is expected to maintain an objective and appropriate oversight or audit function and role, and one that is based on a wide range of experiences and professional insights, and so they have been appointed in accordance with the basic idea that there is no risk of any conflicts of interest arising with our ordinary shareholders.
Outside Directors and Outside Corporate Auditors regularly hold meetings to exchange information, share views among themselves, and work together. Furthermore, the Outside Corporate Auditors, the Internal Audit Department and the Accounting Auditors also exchange views and work together in a similar manner.

Significant Concurrent Posts

The Nomination and Compensation Committee is made up of five Directors, three of whom are Outside Directors. The Chairman, Representative Director, and Chief Executive Officer (CEO) acts as the chair of this committee. As an advisory body to the Board of Directors, the Nomination and Compensation Committee evaluates and gives the Board of Directors input on the appropriateness of the proposals below.
(1) Nominations of director candidates and the appointment of executive officers
(2) Policy for the remuneration of directors and executive officers
(3) The selection and dismissal of representative directors and directors who are also USS executives
(4) The termination of directors and executive officers
(5) Details of director succession plans
The Nomination and Compensation Committee also makes decisions on all Director and Executive Officer remuneration matters on an individual basis according to detailed compensation policies.

To evaluate the effectiveness of the Board of Directors, USS asks all directors and corporate auditors to complete questionnaires. The results of this survey are reported to the Board of Directors.

1. Evaluation process

   Time:February 2024
   Participants:All directors and corporate auditors (including outside directors and corporate auditors)
   Method:Self-assessment using a questionnaire

   (1) All directors and corporate auditors complete a self-evaluation questionnaire

   (2) Responses to the questionnaire are compiled and analyzed by the secretariat of the Board of Directors

   (3) Results and issues are reported to the Board of Directors, which then discusses these subjects

2. Items evaluated

   (1) Role, function and composition of the Board of Directors

   (2) Operation and Discussion of the Board of Directors

   (3) Evaluation of Nominations and Remuneration Committee

   (4) Evaluation of the activities regarding major issues of the previous fiscal

   (5) Relationship with Investors and Shareholders

   (6) Self-evaluation

3. Summary of evaluation results

   The use of this evaluation process confirmed that all questionnaire items are generally appropriate and that the Board of Directors is effective. The evaluation also showed that there were activities to deal with the two issues identified by the last year's evaluation and that improvements have been made.

   (Major issues identified by the last fiscal year's questionnaire and subsequent actions)

   (1) More thorough discussions at meetings of the Board of Directors about medium to long-term management strategies
   While the fact that numerical targets for business strategy were set out in the integrated report was evaluated to a certain degree, there is room for improvement in terms of enhancing the discussion on the growth strategy story, and this is an issue that needs to be continued.

   (2) More thorough discussions about activities involving sustainability, particularly carbon neutrality and strengthening the Company's human resources
   In the area of sustainability, the acquisition of SBT certification and third-party assurance of GHG emissions (Scope 1, 2, and 3) for climate change led to improvements in external evaluations such as CDP. On the other hand, the need to accelerate discussions on medium- and long-term visions and strategies for strengthening human capital is an issue that we must continue to address. We have decided to continue to work on this issue.

4. Upcoming activities

   Based on the results of the effectiveness evaluation in FY2023, we have decided on issues to be addressed in FY2024 and established a project team to study medium- to long-term management strategies in order to accelerate specific initiatives.
   In FY2024, we will focus on the activities of the project team to further enhance the effectiveness of discussions at the Board of Directors meetings.

   (Goals for the next fiscal year based on the results of this questionnaire)

   (1) More thorough discussions by the Board of Directors about medium and long-term business strategies

   (2) More thorough discussions about human resources strategy and human resources development policy to ensure diversity

When a resolution submitted by USS at a shareholders meeting passes with an approval percentage of less than 80%, the Board of Directors follows up by examining the reasons for opposition to the proposal and the causes of the large number of opposing votes. The directors then hold discussions to consider any actions that are needed.
At the shareholders meeting held on June 25, 2024, "Item 2 Election of seven (7) directors" was approved. There was no significant opposition to the election of any director.

Remuneration in FY2023

（1）Basic policy for remuneration of officers

USS will maintain a competitive level of remuneration for the purpose of attracting and retaining talented managers with the skills needed for the sustained growth of the USS Group and medium to long-term growth of corporate value.

In addition to receiving fixed remuneration, officers receive as performance-linked remuneration bonuses as a short-term incentive, performance-linked stock remuneration (performance share units) as a medium-term incentive, and restricted stock remuneration as a long-term incentive. The policy is to properly determine percentages of total remuneration for each of these remuneration categories with the aim of having these remuneration plans function as sound incentives for achieving sustained growth.

（2）Explanation of remuneration for officers

Based on the basic policy in the preceding section, USS plans to use the following remuneration plans for directors. A black circle indicates eligibility for each category of remuneration.

Composition of remuneration for executive officer directors

Note: Composition when the performance-based evaluation coefficient is all 100% for all KPIs.

（3）Basic remuneration

Basic remuneration is paid in fixed amounts every month and is based on the roles, responsibilities and other characteristics of each director's executive position at USS.

（4）Bonus

Bonuses are performance-linked remuneration that is paid in cash as a short-term incentive. The bonus for each fiscal year is linked to results of operations and calculated as follows.
The basic amount used to calculate bonuses (i) and bonus payment ratio (ii) are multiplied to obtain the bonus paid to each individual.

Bonus = Basic bonus calculation amount (i) x Bonus payment ratio (ii)

(i) Basic bonus calculation amount

This figure is determined by the Nominations and Remuneration Committee, where the majority of members are independent outside directors, which has been authorized by the board of directors to perform this task.

(ii) Bonus payment ratio

This ratio is calculated by using the sales evaluation coefficient, operating profit evaluation coefficient, net income evaluation coefficient (using profit attributable to owners of parent, same hereafter) and ROE evaluation coefficient, which are financial indicator evaluation coefficients (all using consolidated financial data, same hereafter), and applying the applicable weighting (20% for the sales coefficient, 40% for the operating profit coefficient, 20% for the net income coefficient and 20% for the ROE coefficient).
These financial indicator evaluation coefficients are between 0% and 200% depending on the degree to which performance targets for the applicable fiscal year were achieved. The initial forecast for the fiscal year is used as the targets for determining the sales, operating profit and net income coefficients. For the ROE coefficient, 15% is used because this is one of the medium-term targets of USS.

Bonus payment ratio =
Sales evaluation coefficient x 20% + Operating profit evaluation coefficient x 40%
+ Net income evaluation coefficient x 20% + ROE evaluation coefficient x 20%

(Financial indicators and evaluation coefficients in the bonus payment ratio)

（5）Performance-linked stock remuneration

The purpose of this stock remuneration is to increase the medium-term incentive for executive officer directors to achieve the consistent growth of USS's corporate value. This remuneration accomplishes this by further clarifying the link between each director's remuneration and results of operation and the value of USS stock. For the period beginning after an annual shareholders meeting and ending with the annual shareholders meeting in the following year, this remuneration distributes to eligible directors a number of shares of USS common stock based on the degree to which performance targets have been achieved for the applicable period of three consecutive fiscal year. Shares are distributed at the end of this three-year period.
The number of shares of USS common stock an eligible director receives is calculated by multiplying the number of stock units (i) and the stock distribution ratio (ii).

Shares distributed = Number of stock units (i) x Stock distribution ratio (ii)

As the organization responsible for the Company's Internal Audits and Corporate Auditor Audits, the Internal Audit Office (2 members) is an independent organization and strives to strengthen and enhance the quality of the discharge of its functions, including the operation and evaluation of the internal controls related to financial reporting. The Corporate Audit involves, three Corporate Auditors, including Tax Accountants, in addition to Certified Public Accountants and lawyers, attending the meetings of the Board of Directors and auditing the Directors' business execution and financial conditions. Moreover, the Corporate Auditors collaborate with the Internal Audit Office and the Accounting Auditors to further improve internal control, including on-site audits of subsidiaries.

At the 27th Ordinary General Meeting of Shareholders held on June 26, 2007, the Azusa Audit Corporation (now the Azusa Limited Liability Audit Corporation) was appointed as the Accounting Auditor and has remained so to the present. The following persons are the Certified Public Accountants who have conducted accounting audits.