Correspondence to Corporate Governance Code

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

Supplementary Principle 1.2.4
MarketEnterprise is not yet to using the Electronic Voting Platform but uses the Internet for the exercise of voting rights. The document commonly called the “convocation notice in a narrow sense” is translated into English and posted on the MarketEnterprise investor relations website. Going forward, MarketEnterprise seeks to enhance this system by using the Electronic Voting Platform and preparing an English-language version of the convocation notice, taking into account changes in the shareholding ratio of institutional and foreign investors.

Supplementary Principle 2.4.1
MarketEnterprise understands that its employees are essential to the ability to continue growing. This is why there are many activities for providing workplaces and fostering a corporate culture that enable people to realize their full potential. These activities are also aimed at enabling a diverse workforce to do their jobs while maintaining a proper work-life balance.
When promoting people to management positions, there is no categorization based on age, gender, past experience or other characteristics. Employees are evaluated by giving everyone an equal opportunity, resulting in promotions for people with the necessary motivation and skills. We also help employees create career plans and goals. Due to these policies, MarketEnterprise does not establish numerical targets for percentages or numbers of people in management positions who are women, foreigners or other specific types of individuals. We will continue this policy of not establishing these numerical targets as we provide the workplaces and corporate culture that allow all employees to fully utilize their skills. The goal is to foster a team of employees who are motivated and skilled and promote people with the proper characteristics to management positions.

Supplementary Principle 3.1.3
MarketEnterprise is dedicated to the consistent, long-term growth of corporate value backed by sound relationships with stakeholders. Accomplishing this goal requires rigorous compliance and risk management frameworks, a commitment to fulfilling corporate social responsibilities, and maintaining and upgrading a suitable framework of internal controls. Based on this stance, there are many activities concerning the environment, society and governance. We believe that making contributions to creating a recycling-based society by further enlarging the scope of business activities based on the concept of “reuse” will allow us to play a role in protecting the environment. Activities place priority on responsible consumption and production, which is the twelfth of the 17 Sustainable Development Goals (SDGs) and make contributions to accomplishing the other goals as well. The MarketEnterprise website has more information about this subject. MarketEnterprise uses its business activities to help achieve the SDGs adopted by the United Nations in September 2015. The SDGs consist of 17 goals and 169 targets for the purpose of achieving a sustainable world. The global target is to have no one left behind by 2030. Since its inception in 2006, MarketEnterprise has operated as an “optimized trading company” that has the goal of helping create a society in which a diverse array of consumers can make the best selections that match their respective life styles. In addition to serving consumers, we believe that we have an obligation to be a source of the best possible sustainable options for education, peace, the environment and other components of society. The second-hand online business, which is our core business, makes contributions to SDG number 12, responsible consumption and production, and 17, partnerships for the goals. We will continue to focus on activities involving these SDGs while working in numerous ways with many types of partners outside the MarketEnterprise Group.

Supplementary Principle 4.1.3
The Board of Directors of MarketEnterprise has yet to concretely discuss a plan for developing succession candidates of CEO as an urgent issue, given the history of MarketEnterprise and the age of the current CEO. Going forward, concrete discussions will be held on what the succession plan should be.

Supplementary Principle 4.2.1
Remuneration of Directors of MarketEnterprise is determined exclusively by the Representative Director in accordance with a resolution of the Board of Directors and within the scope of the total amount of remuneration approved at the General Meeting of Shareholders.
The distribution of earnings to shareholders is one of the most important management issues at MarketEnterprise. When determining remuneration of Directors, MarketEnterprise places emphasis on matters such as the balance between the remuneration and retained earnings necessary for a medium- to long-term growth. In addition, evaluation results are reflected in the remuneration according to the scope of duties of each Director (contribution to business performance over the medium to long term), group-wide performance, and the degree to which group-wide target were achieved, while also considering common practices, business performance, the economic environment, employee compensation, and other factors. Before determining the remuneration, the Representative Director explains the reasons for each remuneration decision to the Independent External Directors and obtains advice from them.
MarketEnterprise considers the adoption of performance-linked remuneration and stock-based remuneration for the medium to long term to be an issue for examination in the future as it is difficult for MarketEnterprise that operates relatively novel business to identify the correlation between accomplishments and remuneration (incentive) to the extent reasonable.

Supplementary Principle 4.3.2
The Board of Directors deems that appointment/dismissal of the CEO is the most important strategic decision for the Company. Based on this perception, the Board of Directors appoints the Representative Director considering sense of value, capability, behavioral characteristic, and other factors required for the CEO, with attendance of Independent Directors/Audit & Supervisory Board Members (consisting of two External Directors and four External Audit & Supervisory Board Members). In addition to the above, such appointment is made taking into account the changes in the environment and circumstances surrounding MarketEnterprise as well as the progress of strategies laid out.
Establishment of a plan for developing succession candidates of CEO has yet to be concretely discussed as an urgent issue, considering the history of MarketEnterprise and the age of the current CEO. Going forward, concrete discussions will be held on what the succession plan should be.

Supplementary Principle 4.3.3
Rules on Officers of MarketEnterprise prescribe that if an Officer of MarketEnterprise commits any wrongdoing or breach of duty or is ineligible to be an Officer, the Board of Directors may urge the Officer to resign his/her office. MarketEnterprise has yet to define the evaluation criteria or specific procedures for dismissal of the CEO. In contrast, dismissal of Officers of MarketEnterprise is made based on fair reasons for dismissal pursuant to a resolution at the General Meeting of Shareholders with approval from the Board of Directors.
MarketEnterprise appoints two External Directors and four External Audit & Supervisory Board Members, and designates all External Directors/Audit & Supervisory Board Members as Independent Directors/Audit & Supervisory Board Members. In addition, MarketEnterprise builds the framework to facilitate cooperation among Independent External Directors/Audit & Supervisory Board Members by semiannually holding External Directors/Audit & Supervisory Board Members meetings consisting of only External Directors/Audit & Supervisory Board Members, where External Directors/Audit & Supervisory Board Members exchange information and opinions as well as develop a shared awareness from an independent and objective standpoint. They also conduct the evaluation of MarketEnterprise, and as part of this, evaluate whether the Representative Director is adequately fulfilling his responsibilities. Through those activities, effective oversight of the management is achieved. As a result, MarketEnterprise believes that objective, timely, and transparent procedures to dismiss the Representative Director is ensured through the oversight by External Directors and the audit by External Audit & Supervisory Board Members.

Supplementary Principle 4.8.2
MarketEnterprise appoints two External Directors and four External Audit & Supervisory Board Members, and designates all External Directors/Audit & Supervisory Board Members as Independent Directors/Audit & Supervisory Board Members. MarketEnterprise builds the framework to facilitate cooperation among Independent External Directors/Audit & Supervisory Board Members by semiannually holding External Directors/Audit & Supervisory Board Members meetings consisting of only Independent Directors/Audit & Supervisory Board Members, where Independent Directors/Audit & Supervisory Board Members exchange information and opinions as well as develop a shared awareness from an independent and objective standpoint, and provide effective oversight of the management. At the Board of Directors meetings, the Independent External Directors express their candid opinions and proactively contribute to discussions on the meetings.
The management of MarketEnterprise develops the environment so that Independent External Directors can fulfill their responsibilities. As part of this, the management provides Independent External Directors with detailed explanations on agendas and matters to be reported at the Board of Directors meetings in advance. Thanks to the External Directors/Audit & Supervisory Board Members meetings, good coordination has been maintained between Independent External Directors and the Audit & Supervisory Board. Therefore, MarketEnterprise does not consider that an election of a lead independent external director is suitable given the current situation.

Disclosure Based on the Principles of the Corporate Governance Code

Principle 1.4
At present, MarketEnterprise does not hold any shares of other listed companies for cross-shareholding purposes. However, we have a policy that allows us to hold such shares if it is determined from a comprehensive standpoint that strengthening relationship with companies with relevant technologies and know-hows through cross-shareholdings is strategically important because it helps enhance its corporate value and medium- to long-term growth potential. Determination of holding such shares is made through discussions at the Board of Directors meetings regardless of the investment amount. At the Board of Directors meetings, multi-faceted verification is made including the validity of the amount to be invested and interests as well as conformity to the policy described above. If cross-shareholdings are determined to be invalid due to changes in conditions of MarketEnterprise and the investee company, MarketEnterprise will reduce such shares or conduct a review in accordance with the discussion at the Board of Directors meetings. MarketEnterprise appropriately exercises voting rights for such shares by determining, on a proposal to proposal basis, whether voting for a proposal will contribute to medium- to long-term improvements in corporate value of the investee company.

Principle 1.7
In principle, MarketEnterprise has a policy of not engaging in transactions with related parties. However, if a transaction is considered to contribute to an increase in corporate value of MarketEnterprise, less substitutable, and highly economically reasonable, MarketEnterprise engages in such a transaction after thorough deliberation and resolution of the Board of Directors. At the deliberation, careful consideration is given on matters such as whether the transaction may damage the soundness of management of the MarketEnterprise Group, whether the transaction is determined to be valid in a rational manner, or the conditions of the transaction are appropriate compared to other external transactions. The Audit & Supervisory Board Members monitor and assess competition, conflict-of-interest, and other translations in accordance with Standards of Audit by Audit & Supervisory Board Members to ensure that no violation is made on duties of Directors.

Supplementary Principle 2.4.1
Described in [Reasons for Non-compliance with the Principles of the Corporate Governance Code].

Principle 2.6
MarketEnterprise does not have a corporate pension fund system.

Principle 3.1
(i) MarketEnterprise has posted its business principles and vision on its website.
(ii) MarketEnterprise has posted basic views on corporate governance on its website, the Corporate Governance Report, and the Annual Securities Report.
(iii) Remuneration of Directors is determined exclusively by the Representative Director in accordance with a resolution of the Board of Directors and within the scope of the total amount of remuneration approved at the General Meeting of Shareholders.
The distribution of earnings to shareholders is one of the most important management issues at MarketEnterprise. When determining remuneration of Directors, MarketEnterprise places emphasis on matters such as the balance between the remuneration and retained earnings necessary for medium- to long-term growth. In addition, evaluation results are reflected in the remuneration according to the scope of duties of each Director (contribution to business performance over the medium to long term), group-wide performance, and the degree to which group-wide target were achieved, while also considering common practices, business performance, the economic environment, employee compensation, and other factors. Before determining the remuneration, the Representative Director explains the reasons for each remuneration decision to the Independent External Directors and obtains advice from them.
(iv) MarketEnterprise’s policy for nomination of Directors and Audit & Supervisory Board Members is to select suitable people who can fulfill their duties and responsibilities. This is done by thoroughly considering each person’s character and expertise. For nomination of External Directors and External Audit & Supervisory Board Members, MarketEnterprise selects candidates in accordance with the independence standards of the Tokyo Stock Exchange. In addition, MarketEnterprise examines whether each candidate can maintain an independent status and a fair and unbiased attitude, as well as he/she can attend the Board of Directors meetings. When selecting candidates for election as Audit & Supervisory Board Members, MarketEnterprise ensures that there is at least one person who has finance and accounting expertise. The Representative Director and Directors nominate Director candidates and the nominations are approved or rejected pursuant to resolutions of the Board of Directors. The Representative Director and the General Manager of Administration Department nominate candidates of Audit & Supervisory Board Members, and the Board of Directors determines the matters to be reported and proposed at the General Meeting of Shareholders with the consent of the Audit & Supervisory Board. Appointment/dismissal of Executive Officers and senior managers are determined by the Board of Directors and at the evaluation meeting held by full-time Directors, respectively.
When there is fraud or some other activity of an Officer that requires the dismissal of that individual or when the Board of Directors dismisses an Officer because the individual is not suitable for performing his/her duties, the Officer is terminated by a resolution at the General Meeting or Shareholders following approval by the Board of Directors for a legitimate reason for dismissal.
(v) In the notices to shareholders’ meetings, information about Director and Audit & Supervisory Board Members (for External Director/Audit & Supervisory Board Member candidates, background information including job titles and significant concurrent jobs) and the reasons for the selection of individuals shall be stated and disclosed.

Supplementary Principle 3.1.3
Described in [Reasons for Non-compliance with the Principles of the Corporate Governance Code].

Supplementary Principle 4.1.1
MarketEnterprise sets the Board of Directors as the management decision-making and supervision organization on matters including management policies and business strategies, and sets the Management Committee as the business execution function based on this decision-making. At the Management Committee, agile decision-making is made on business execution.
The Board of Directors decides matters stipulated in laws, regulations, and the Articles of Incorporation. In addition, other important matters related to business execution are determined such as approval and changes of company-wide operation policies, budget, personnel plans, medium- to long-term management plans, issues of organizations and human resources. The Management Committee is chaired by the President and composed of the full-time Directors, the full-time Audit & Supervisory Board Member and managers of business units. This committee determines concrete business strategies in accordance with the policies determined by the Board of Directors, checks progress involving these strategies (including revisions as needed), facilitates the sharing of information among business units and departments, and performs other roles. The Management Committee is also functioning as a committee that has the goals of identifying important issues and providing information about these matters and of ensuring that everyone at MarketEnterprise has the same information and understanding regarding important issues. The important issues shared and discussed at the Management Committee are reported to the Board of Directors. With this, the Board of Directors learns and supervises the situation of MarketEnterprise appropriately.
The matters that should be determined and resolved at the Board of Directors are clearly stipulated by the “Rules for the Board of Directors” of MarketEnterprise. Matters other than those are delegated to the Representative Director, Directors, Executive Officers or other officers in accordance with the “Division of duties” and “Authority Delegation Rules.”

Principle 4.9
MarketEnterprise uses the independence standards stipulated by the Tokyo Stock Exchange as MarketEnterprise’s independent standards. In addition, MarketEnterprise appoints persons as Independent External Directors who are determined to have substantial independence, track records, experience, and insight to be Independent External Directors, and who can contribute to candid, proactive and constructive discussions at the Board of Directors meetings.

Supplementary Principle 4.10.1
Of five Directors of MarketEnterprise, two Directors are Independent External Directors. Independent External Directors utilizes their specialized knowledge and abundant experience as a corporate manager to state opinions and provides advice as necessary at the Board of Directors meetings and to each Director.
At present, before holding Board of Directors meetings to discuss matters on nomination and remuneration of Directors, the Representative Director explains the reasons for the decision on each remuneration to Independent External Directors and obtains their advice. Based on the recognition that appropriate involvement and advice of Independent External Directors have been obtained at the Board of Directors meetings, any committee as an optional advisory body has yet to be established. Going forward, however, MarketEnterprise will consider such establishment as necessary to strengthen the governance structure.

Supplementary Principle 4.11.1
Described in [Reasons for Non-compliance with the Principles of the Corporate Governance Code].

Supplementary Principle 4.11.2
Rules on Officers of MarketEnterprise prohibits Directors and Audit & Supervisory Board Members from operating his or her own business or concurrently serving as other external duties during the term of office of them without consent from the Board of Directors. While two Directors and three Audit & Supervisory Board Members concurrently serve as officers of listed companies, MarketEnterprise has judged that this does not hinder them from performing roles and responsibilities of Directors or Audit & Supervisory Board Members. This was approved by the Board of Directors. The attendance at the Board of Directors meetings has been high, and therefore, MarketEnterprise deems that sufficient time is secured to fulfill their roles and responsibilities.
The status of important concurrent service by Directors and Audit & Supervisory Board Members is disclosed every year through the convocation notice for the General Meeting of Shareholders and the Annual Securities Report.

Supplementary Principle 4.11.3
MarketEnterprise uses surveys by external organizations to maintain the effectiveness of the Board of Directors and Audit & Supervisory Board. Objective assessments are used for measures to strengthen the functions of these two boards.

Supplementary Principle 4.14.2
MarketEnterprise provides the newly elected Officers with explanations about important matters to be known as Directors and Audit & Supervisory Board Members. As necessary, opportunities of visits to offices of MarketEnterprise are also provided. MarketEnterprise covers the costs for external seminars that the Officers attend to acquire knowledge necessary for fulfilling roles and responsibilities of the Directors and Audit & Supervisory Board Members. With these opportunities, Officers have been advancing knowledge in their expertise while developing knowledge in basic fields such as law and finance.

Principle 5.1
MarketEnterprise recognizes the importance of holding active dialogues with shareholders at all times in order to achieve sustainable growth and medium- to long-term improvements in corporate value. Therefore, MarketEnterprise incorporates the opinions and requests of shareholders received at dialogues in management for the growth of business operations with shareholders.
The President has established an IR structure centered on the Managing Director, General Manager of Administration Department for overseeing and ensuring that constructive dialogue takes place. MarketEnterprise responds to questions from individual investors and requests for information from institutional shareholders so that they can gain an understanding of MarketEnterprise’s strategies and plans. MarketEnterprise facilitates dialogues by holding meetings with individuals, financial results briefings and presentations for individual investors, by participating in IR events held by securities or other companies, and by setting opportunities for dialogues with institutional investors.
Subjects covered by investor dialogues and feedback at these meetings are reported as needed to the Board of Directors. All opinions, concerns and other feedback from investors are carefully examined for incorporation in the management of business operations.
To prepare for constructive dialogue with shareholders, information about business operations is shared once a week in principle with the Managing Director, General Manager of Administration Department (in charge of information handling) and with people in charge of internal departments (general affairs, financing, accounting, legal affairs, and public relations departments). This ensures positive cooperation between internal departments and appropriately provides useful information that contributes to rational investment decisions by shareholders and other investors. At the same time, MarketEnterprise takes the utmost care to prevent insider trading and leakage of confidential information such as by making explicit rules on whether information is disclosed or not before publishing the information.