(as of July 19, 2011)

Fundamental approach

The Avex Group is currently focusing resources on achieving the goals of the Next Era 2014 medium-term management plan, which is structured to generate more growth. To accomplish these goals, the group is improving the efficiency and transparency of business operations. In addition, the group believes that strengthening corporate governance is vital to conducting business operations properly. The fundamental policy concerning corporate governance is to preserve and upgrade compliance systems while taking steps to share information, primarily by reinforcing monitoring functions. Monitoring the group's diversifying business activities and facilitating collaboration among these activities allows identifying management issues and responding swiftly to changes in the operating environment. Management believes that these benefits will ultimately contribute to further growth of the group's businesses.

Corporate governance framework

(1) Summary of corporate governance and reason for selection of the current framework

Avex Group Holdings adopts the corporate auditor system. There is a Board of Auditors with four members, including two external auditors, who oversee the performance of the directors. In addition, there is a Board of directors with 7 members, including two external directors, which meets once a month, as a general rule, to decide on the main issues facing the company and its group subsidiaries with the aim of making the management of the group more flexible and better able to respond to change. There is also an Executive Board Committee, which consists of the four representative directors, for the purpose of upgrading the oversight and agility of the group's management. This committee meets once each week, as a rule, to discuss important matters concerning Avex and companies belonging to the Avex Group. Moreover, for the sake of guaranteeing the suitability of the business operations of the company and its group subsidiaries, the Internal Affairs Department conducts monitoring in the form of operational audits and management control staff are despatched to all group companies to carry out appropriate monitoring of the state of their business activities and to further the evolution of the group's governance system. Furthermore, with the aim of ensuring the effectiveness and efficiency of business operations, the Avex Group has established the following facilities. (Compliance Committee) The Compliance Committee consists of the members that include external directors and external corporate auditors. Members of this committee discuss significant problems at Avex involving compliance. Examining reports received through the internal compliance help line and making improvements in response to these reports is another role of the committee. (Investment Advisory Committee) The members of this committee are the general manager of the Management Information Administration, general managers of other divisions and other individuals. This committee performs objective examinations of the pros and cons of investment decisions and studies the results of investments after they have been made. By performing these duties, the committee helps ensure the effectiveness and soundness of investments made by Avex and its subsidiaries. (Production Ethics Committee) The members of this committee are the same as for the Executive Council. The committee meets when there are suspicions or problems concerning ethical issues regarding expressions and images used in music, visual and other content handled by the Avex Group. Committee members examine these subjects and determine the proper course of action. (Compensation Committee) Consisting mainly of external directors, this committee examines the suitability of compensation of directors and corporate auditors from an objective standpoint.

(2) Structure of corporate governance units and internal control system

(3) Other items concerning corporate governance

The Avex Group has an internal control system for the purposes of ensuring the reliability of financial reports and improving the effectiveness and efficiency of business operations. Furthermore, in accordance with the Fundamental Policy for Internal Controls, the group confirms the status of internal controls in each fiscal year. There is also a Compliance Policy that forms the basis for the group's ethical guidelines. To maintain and upgrade internal control systems, the group has training programs concerning compliance with laws and regulations for all executives and employees and other activities. The group has a Help Line that gives employees direct access to an external attorney for matters involving compliance. In addition, there are industrial counselors and other programs with the aim of preventing violations of laws and regulations, improper behavior, and unethical activities. For risk management, the Avex Group has established risk management regulations and designates departments that are responsible for overseeing risk. There is a director who is responsible for the broad and comprehensive supervision of risk for the entire group. The Legal Department, which was established in April 2010, strengthens compliance programs and the ability to deal with risks involving legal matters. The department makes legal decisions about business activities, helps ensure the legality of these activities and performs other duties. The Group Internal Affairs Department performs audits concerning risk management operations at Avex and all group companies. Results of these audits are submitted to the CEO and the corporate auditors. If audits reveal any problems, this department works with departments involved with the problem to devise a solution. Overall, the department's audits are intended to ensure that the group's risk management system functions properly at all times and to make improvements.

Internal auditing and audits by corporate auditors

The Group Internal Affairs Department, which is supervised directly by the company president and CEO, is responsible for performing internal audits. This department has a staff of three that includes a manager. Members of the department are certified public accountants or other individuals, such as individuals who have served in important posts at Avex or its subsidiaries, who have the knowledge and experience required to perform internal audits. The department audits the business operations of Avex and its subsidiaries. In addition, the department checks the status of controls that have been established for each business task while cooperating with departments associated with internal control systems. If a problem is identified, the department provides suggestions for making improvements and confirms that the improvements have been implemented. Members of the Group Internal Audit Department hold meetings with the financial auditor as required to share information. The department also submits reports to the company president and CEO and corporate auditors, makes information about internal controls accessible and solves problems quickly

Corporate auditor audits are performed by the two full-time corporate auditors and two external corporate auditors. The full-time auditors are individuals who have the knowledge required to perform the duties of the corporate auditors. These individuals include people who have served in important posts at Avex or its subsidiaries and people have been representative directors at subsidiaries. In addition to conducting audits, corporate auditors attend Board of Directors meetings at Avex and its subsidiaries as well as other important meetings. This provides for the objective oversight of management from a fair perspective. The Board of Auditors meets once each month, in principle. There are also meetings with the financial auditors and other activities in order to further improve auditing activities.

Relationships with external directors and corporate auditors

Avex has two external directors and two external corporate auditors. These individuals were selected for the purpose of reinforcing the management and corporate governance of the Avex Group. All of these individuals have the knowledge and experience required to perform their duties along with the necessary character and insight. The current external directors and external corporate auditors also include certified public accountants, attorneys and other individuals with specialized skills associated with their duties. Avex believes that these skills will further improve the quality of the group's management and corporate governance.

External directors attend meetings of the Board of Directors, which are held monthly in principle, where they monitor the group's management, make decisions about business operations, and submit opinions and suggestions as required. External corporate auditors attend meetings of the Board of Directors and the Board of Auditors, both of which are held monthly in principle. This allows these auditors to check the performance of directors of Avex and its subsidiaries. Other duties include checking internal audits performed by the Group Internal Affairs Department, financial audit reports submitted by the financial auditor, and the status of internal control systems. Furthermore, external corporate auditors work with associated departments as required to ensure that business operations are conducted properly.

In accordance with Article 427-1 of the Company Law, Avex has contracts with its external directors and external corporate auditors that limit their liability as prescribed in Article 423-1 of the Company Law. Monetary liability is limited to the minimum amount prescribed in Article 425-1 of the Company Law. The liability limitation is applicable to tasks performed in association with the responsibilities of external directors and external corporate auditors and does not apply to behavior associated with a severe lapse of good faith or serious negligence. In addition, the external directors and external corporate auditors have no financial, personal or other relationships with other Avex directors and corporate auditors.