Basic Approach

Corporate Governance Structure

NSG Group adopts “Company with Three Committees” governance structure, and has in place, as statutory corporate organizations, Board of Directors and —Nomination Audit and Compensation Committees, and an office of Executive Officer. Currently, the Chairman of the Board as well as chairpersons of all three Committee are all appointed from among the Independent External Directors.

Various steps have been taken to date so that NSG Group has enhanced management transparency by further separation of functions between business execution and its supervision and strengthened role of independent external directors. For example, according to the NSG Group Corporate Governance Guidelines, the roles of Chairman of the Board and CEO are clearly distinguished. In the event that Chairman of the Board is not an Independent External Director an Independent External Director who is entrusted to perform specified tasks such as making of contribution to communication, coordination and cooperation between the Independent External Directors and the Executive Divisions and rendering of support to the Chairperson of the Board in relation to any issues of corporate governance shall be appointed from among Independent External Directors. Independent External Directors meet on an as-needed basis, even without presence of executives, for discussion concerning matters such as corporate governance and businesses.

As regards executive function, the Group also has Management Committee, Sustainability Committee, and Strategic Risk Committee. Currently, fifteen(15) Executive Officers are responsible for the business execution. One(1) of them are Representative Executive Officer performing the duties of CEO.

Overview of Corporate Governance Structure (As of 26 December 2023)
Key items Description
Type of Governance structure Company with Three Committees
Number of Directors / term of office 6 / 1 year
Number of Independent External Directors 5
Chair of the Board Mr. Hiroshi Ishino (Independent External Director)
Chair of Three Committees Nomination: Mr. Hiroshi Ishino (Independent External Director),
Audit: Mr. Kunihito Minakawa (Independent External Director),
Compensation: Dr. Jörg Raupach Sumiya (Independent External Director)
Number of Executive Officers (Representative Executive Officers) /
term of office 		15(1) / 1 year
Compensation system Executive Officer (including those who concurrently serve as Directors) (1) Fixed salary(Basic salary)
(2) Performance-linked compensation
ⅰ Management Incentive Plan (annual bonus)
ⅱ Long- term Incentive plan
(3)Stock Compensation
External Director The level of compensation set at the appropriate level based on comparisons with other companies using benchmark data provided by specialist external advisers(Fixed salary)
Accounting Auditor Ernst & Young ShinNihon LLC
Corporate governance mechanism(As of 26 December 2023)

Supervisory Function

Diverse and highly independent in its structure, the Board of Directors is responsible for making decisions on the Group’s material matters and supervising the execution of business.

The members of the Board of Directors, Nomination Committee, Audit Committee and Compensation Committee are as follows (as of 26 December, 2023)

Name Position Board of
Directors		 Nomination
Committee		 Audit Committee Compensation
Committee
Hiroshi
Ishino		 External Director ◎ ◎ ○ ○
Jörg
Raupach
Sumiya		 External Director ○ ○ ○ ◎
Kunihito
Minakawa		 External Director ○ ○ ◎ ○
Shinji
Asatsuma		 External Director ○ ○ ○ ○
Eriko
Sakurai		 External Director ○ - - -
Munehiro
Hosonuma		 Representative Executive Officer, President and CEO ○ ○ - ○

◎ denotes the chair or chairperson and ○ denotes a member.

【Board of Directors】
Role Board of Directors is responsible for making decisions on the Group’s material matters such as basic policies for business management, internal control system and duty allocation among Executive Officers, and supervision over business execution by executives.
Composition
  • 5 Independent External Directors and 1 Director who concurrently serve as Representative Executive Officer
  • Chaired by Mr. Hiroshi Ishino, Independent External Director
Number of times met in FY2023 12
Secretariat Company Secretary Department
【Nomination Committee】
Role Nomination Committee is responsible for making decisions on the General Meeting of Shareholders agenda items regarding the appointment and removal of Directors. It also oversees the succession plans for key executives, including President and CEO, and provides advice and recommendations for the Executive Officer candidates.
Composition
  • 4 Independent External Directors and 1 Director who concurrently serves as Representative Executive Officer
  • Chaired by Mr. Hiroshi Ishino, Independent External Director
Number of times met in FY2023 6
Secretariat Company Secretary Department
Human resources Expert Human Resources Department
【Audit Committee】
Role Audit Committee is responsible for auditing the execution of duties by Directors and Executive Officers, preparing audit reports, and deciding details of proposals concerning appointment, removal or not reappointing the Accounting Auditor.
Composition
  • 4 Independent External Directors
  • Chaired by Mr.Kunihito Minakawa, Independent External Director
  • Mr. Kunihito Minakawa has the career and experiences of serving as Corporate Senior Vice President (in charge of accounting) and Corporate Auditor of RICOH CO.,LTD., currently, he is a member of the Financial Services Agency Certified Public Accountant and Auditing Oversight Board Commissioner.
Number of times met in FY2023 11
Secretariat and how to ensure its independence
  • Audit Committee Office
  • Any personnel affairs relating to staff of Audit Committee Office require a prior notice to Audit Committee and its consent.
  • The head of Audit Committee Office shall not concurrently hold any position that may be involved in the execution of businesses and affairs of the Group, and shall report only to Audit Committee.
Audit methodology and cooperation with others
  • Audit by Audit Committee is such that it interviews executives, attends material executive meetings such as Management Committee, and inspects business operations and financial status of the company and major subsidiaries, being assisted by Audit Committee Office, in accordance with its audit policy and plans, as well as periodically monitors and reviews status of development and operation of the Group’s internal control system.
  • Audit Committee meets with Accounting Auditor and internal audit function on a regular and as needed basis to receive reports on such as progress of audits, exchange views and gather information.
【Compensation Committee】
Role Compensation Committee is responsible for making decisions on a compensation policy for Directors and Executive officers as well as individual elements of compensation for Directors and Executive Officers.
Composition
  • 4 Independent External Directors and 1 Director who concurrently serves as Representative Executive Officer
  • Chaired by Dr. Jörg Raupach Sumiya, Independent External Director
Number of times met in FY2023 6
Secretariat Company Secretary Department
Remuneration Expert Human Resources Department

Board Effectiveness Evaluation

NSG Group started an annual evaluation process for the Board effectiveness since FY2016, in order to further and constantly improve performance and effectiveness of the Board of Directors and Nomination, Audit and Compensation Committees.

The overall summary of the results from the review made in relation to the fiscal 2023 is as follows:

[Our Effectiveness Review Process]
The annual evaluation for the fiscal 2023 was conducted by hiring an independent external organization that specializes in corporate governance-related consulting. All directors were asked to answer the questionnaire and also interviews were held by the external organization. Questions were asked about the composition of the Board of Directors and each committee, operational status, agenda setting, deliberation status, role fulfillment, communication the Executive team, and material agendas requiring further in-depth deliberation. The responses and opinions of each Director were evaluated by the external organization. Based on these evaluation results, Independent External Directors discussed and evaluated the effectiveness of the Board of Directors and each committee.

[Evaluation Summary]
The effectiveness review endorsed that the Board and the Committees were all properly and soundly operated to ensure their effectiveness during the fiscal year under review.

The entire process was led and supervised by the Independent External Directors under the leadership of the Chairman of the Board to ensure sufficient adequacy and independence.

[Overview of evaluation results]
In summary, evaluation by the external organization has confirmed that:

  • The Board of Directors and committees are generally functioning effectively
  • Each director works with a strong sense of commitment to improve the management situation.

Regarding the implementation items identified in the fiscal 2023, it was evaluated that a certain level of improvement was being achieved through various initiatives by the Board of Directors.

Priority Implementation Items
for the fiscal 2023		 Initiatives undertaken
  • In-depth discussions of the medium- to long-term management strategy and important management issues
  • Regarding key measures set forth in MTP (RP24), request the Executive Team to further specify implementation items to achieve the plan and monitor the progress to ensure their swift implementation in view of the ongoing changes in the business environment.
  • Set up a forum to discuss important management issues in addition to/ separate from the meetings of the Board of Directors and implemented intensive monitoring and discussion. (In FY2023, five offline director meetings were held)
  • Pursue the significance of diversity in the Board, work on realizing an appointment of a female Director, which is an ongoing issue.
  • Appointment of a new female director at the Ordinary General Meeting of Shareholders to be held in June 2023
  • In order to properly deal with medium- to long-term important management issues, promote in-depth discussions on the skills and experiences required for the Board and the current composition of the Board, and select Director candidates
  • Discussed the composition of the Board of Directors and the skills, experience, and diversity required of the Board of Directors at the Nomination Committee and the Board of Directors., and revised NSG Group Corporate Governance Guidelines and Director Selection Criteria. (In addition to clarifying the elements of skills, experience, and diversity required of the Board of Directors, the regulations have been revised so that the majority of members of the Board of Directors are composed of independent outside directors.)

On the other hand, it was pointed out that it would be desirable to work on the following four points in order to further improve the effectiveness of the board of directors.

  • Fostering of common understanding among directors on how the supervisory function should be
  • Promotion of mid- to long-Term strategic discussion under new leadership
  • Further enhancement of board composition and strengthening of Nomination Committee function
  • Upgrading operation of the board of directors

[Priority issues in the fiscal 2024]
Based on the evaluations and issues presented by the external organization, the Independent External Directors held discussions to further improve the effectiveness of the Board of Directors, and recognized the priority issues of the Board of Directors in the fiscal 2024 as follows.

  • It is necessary to foster a common understanding among directors regarding the roles that should be played by the board of directors and Independent External directors.
  • Diversification of the composition of the Board of Directors has progressed this year, but in order to further enhance and diversify the composition of the Board of Directors, it is necessary to deepen discussions on the skills and experience necessary for the Board of Directors of the Company and advance the sophistication of the process of appointing directors.
  • It is necessary to discuss the modalities and methods of monitoring that can support speedy efforts of the executive team to address management issues facing the NSG Group.
  • It is necessary to deepen discussions on the medium- to long-term strategy that the NSG Group is aiming for.
  • It is necessary to improve the operation of the board of directors in order to activate substantive discussions at the board of directors.

[Priority Implementation Items in the fiscal 2024 (what to do next)]
Based on the above priority issues, the following priority actions to be taken by the Board of Directors in the fiscal 2024 were confirmed.

Roles of the Board of Directors and Independent External Directors
  • In order to further improve supervisory functions, deepen discussions on the roles that the Board of Directors and Independent External Directors should play at a forum for discussion separate from the Board of Directors, and foster a common understanding among directors.
Board Diversity and Director Selection Process
  • At Nomination Committee meetings, deepen discussions on the skills and experience necessary for the Board of Directors and the diversity that should be there, and work to improve the process of appointing directors.
Monitoring as the Board of Directors
  • Discuss the modalities and methods of monitoring that the Board of Directors should conduct, and after sufficiently coordinating with the executive team, conduct monitoring that can support the speedy efforts of the executive team.
NSG Group's medium- to long-term strategy
  • Toward sustainable improvement of corporate value, deepen discussions on the medium- to long-term strategies that the Group is aiming for, and formulate a new medium-term management plan based on those discussions.
Sophistication of the operation of the Board of Directors
  • Efforts to enhance the operation of the Board of Directors in order to activate substantive discussions, including the enhancement of support for External Directors.

Through these efforts, the NSG Group will continue to strive to further improve the effectiveness of the Board of Directors.

In order to drive forward the management structure facilitating sustainable growth and enhancement of enterprise value of the Group in a medium to long term in light of establishing an appropriate corporate governance structure, these priority implementation items should be validated on a regular basis in terms of their implementation status and effects while their contents should be reviewed as appropriately. The plans are therefore anticipated to constitute a material part of the Board effectiveness evaluation process for the following year.

Executive Function

Fifteen Executive Officers (as of 30 June 2023), a professional group furnished with diverse backgrounds, are responsible for the business execution of NSG Group

【Executive Officer】
Role Business execution of NSG Group
Composition 1 Representative Executive Officer(Chief Executive Officer(CEO) ) and 14 Executive Officers
【Management Committee】
Role Management Committee leads the Group’s business operation and oversees the implementation status of businesses in order to realize the policies and targets set forth by the Board of Directors efficiently and appropriately.
Composition The Management Committee is composed of executive officers with executive officers and above, other executive officers who supervise major businesses and functions, and general manager of the Corporate Planning Department as permanent members.
Number of times met in FY2023 15
【Sustainability Committee】
Role Sustainability Committee builds the sustainability strategies, presides over all of the Group’s sustainability related activities, and ensures effective communication with various stakeholders.
Composition Group Sustainability Committee is chaired by CEO or a person who is nominated by CEO and composed of CEO, Chairperson of the Company, CFO, Chief Administration Officer (CAO) and Chief Risk Officer (CRO), Chief Legal Officer (CLO) and Chief Ethics&Compliance Officer (CE&CO), Chief Human Resources Officer (CHRO), Group Sustainability Director, the Heads of relevant Group Functions and the Heads of each Strategic Business Unit.
Number of times met in FY2023 2
【Strategic Risk Committee】
Role Strategic Risk Committee periodically reviews policies, strategies and frameworks concerning risk management throughout the Group, and appropriately take into account the results of such review in forming the organization strategy and goals, in order to promote efficiency of the Group's business management and to enhance the medium and long-term corporate value.
Composition Strategic Risk Committee is chaired by CRO and composed of CEO, Chairperson of the Company, CFO, CAO and CRO, CLO and CE&CO, CHRO, the Heads of relevant Group Functions and the Heads of each Strategic Business Unit.
Number of times met in FY2023 3

External Director

Criteria of Independency for External Director at NSG

An External Director is a director who has never been a director, executive officer nor employee of the company nor its subsidiary.

To enhance the transparency of business management, the Company has appointed five External Directors out of the six Directors, all External Directors are designated as Independent Directors under the TSE.

In addition to the criteria for independency defined by the TSE, the Company has established its own criteria of independency for External Directors, taking into consideration their relationship with the Group including such with its officers and major shareholders. All of the five External Directors satisfy the criteria of independency., its officers, major shareholders, etc. These all five External Directors meet the relevant criteria of independency.

Please refer to the Group's Criteria of independency for External Ddirectors.

Background , concurrent offices and activities of External Directors

Mr.Hiroshi Ishino
* Independent External Director		 Background
    Mr. Hiroshi Ishino was in charge of overseas operations at Mitsubishi Corporation, and since then has been promoting the Group's global strategy as president and CEO of Kansai paint Co.,Ltd. He has abundant experience and broad knowledge and perspectives with regard to business management.
Concurrent offices
    Senior Corporate Advisor,Kansai paint Co.,Ltd.
Activities
    Attended all 12 Board of Directors meetings, all 6 Nomination Committee meetings, all 11 Audit Committee meetings, and all 6 Compensation Committee meetings, held during the fiscal year under review, and made contribution to the deliberation mainly from a specialized viewpoint of an experienced business manager. At the board, he led discussions, especially on strategic marketing andsuply chain management, based on its in-depth knowledge of global management strategy. In FY2022, well performed as Chairperson of the Nomination Committee and led the committee about Group’s human resource strategy mainly based on deep knowledge from abundant international experience.
Dr.Jörg Raupach Sumiya
※Independent External Director		 Background
    Dr. Jörg Raupach Sumiya has international experience in the field of both business and academia, and is currently a professor at the collage of business administration, Ritsumeikan University, one of the Japan's famous private university. He has abundant experience and broad knowledge and perspectives with regard to an academic expert and business management.
Concurrent offices
    Professor at the college of business administration, Ritsumeikan University.
Activities
    Attended 11 out of 12 times Board of Directors meetings, all 6 Nomination Committee meetings, 10 out of 11 times Audit Committee meetings, and all 6 Compensation Committee meetings held during the fiscal year under review, and made contribution to the deliberation mainly from a specialized viewpoint of an experienced academic expert and business manager. At the board, he led discussions on sustainability (environment, climate change, etc.) , especially from the standpoint of management experience in a global company and academic experience. In FY2022, well performed as Chairperson of the Compensation Committee and led the committee about the design of the executive compensation system and evaluation system.
Mr. Kunihito Minakawa
* Independent External Director		 Background
    Mr. Kunihito Minakawa has been a Managing Executive Officer and an Audit & Supervisory Board Member at RICOH CO.,LTD., and has global experience, a wide range of insights and practical experience in finance and auditing. He has abundant experience and broad knowledge and perspectives with regard to business management and finance and accounting.
Concurrent offices
    External Director, Santen Pharmaceutical Co., Ltd.
    Financial Services Agency Certified Public Accountants and Auditing Oversight Board Commissioner
Activities
    Attended all 12 Board of Directors meetings, all 6 Nomination Committee meetings, all 11 Audit Committee meetings, and all 6 Compensation Committee meetings, held during the fiscal year under review, and made contribution to the deliberation mainly from a specialized viewpoint of an experienced business manager. At the Board, he led discussions on finance, accounting, auditing, internal control, etc., based on his deep knowledge of finance and accounting. In FY2021, well performed as Chairperson of the Audit Committee and led the committee about building a highly transparent governance system by appropriately auditing business execution and supervising executives.
Mr. Shinji Asatsuma
* Independent External Director		 Background
    Mr. Shinji Asatsuma has been in charge of the overall management division as a Director and Senior Executive Officer of Kansai paint Co.,Ltd., has promoted the formulation of business strategies and overseas business expansion and has global experience, a wide range of insights and practical experience in finance, accounting and risk management. He has abundant experience and broad knowledge and perspectives with regard to business management.
Concurrent offices
    n/a
Activities
    Appointed as a Director on June 29, 2022, and attended 9 out of 9 times of the Board of Directors meetings, 5 out of 5 times of the Nominating Committee meetings, 8 out of 8 times of the Audit Committee meetings, and 5 out of 5 times of the Compensation Committee meetings held during the fiscal year under review, and made contribution to the deliberation mainly from a specialized viewpoint of an experienced business manager. At the Board , he led discussions on global business management and risk management , based on his extensive experience and insight in overseas business, finance and accounting.

    *Note: Mr. Shinji Asatsuma was newly elected and assumed the position of Director at the 156th Ordinary General Meeting of Shareholders (held on June 29, 2022), so the above table shows the holding and attendance at the meetings of the Board of Directors and each committee since that date.
Ms. Eriko Sakurai
* Independent External Director		 Background
    Ms. Eriko Sakurai held important positions in marketing, operating, and corporate management of Dow Corning Corporation that is expanding its business globally, and since then, she has promoted business development and business transformation as the top management of its Japanese subsidiary for many years and has abundant management experiences as an international business executive and broad knowledge including sustainability promotion.
Concurrent offices
    External Director, Sumitomo Mitsui Financial Group, Inc.
    External Director, KAO Corporation
    External Director, Astellas Pharma Inc.
Activities
    29 June , 2023 Appointed as Director

Our actions to date aiming for an advanced level of corporate governance

2008
  • Changed the company's fundamental governance structure from the traditional StatutoryAuditor system to the current three-Committee structure
  • Four Independent External Directors were elected accordingly
2010
  • Created and adopted our original and stringent criteria for the independency of External Director, taking into account not only the standard of Tokyo Stock Exchanges but also those similar rules in other major jurisdictions
2012
  • All three (Nomination, Audit and Compensation) Committees became to be chaired by Independent External Directors respectively
2013
  • Board of Directors became to be chaired by an Independent External Director
2014
  • Made the independency criteria for External Directors more specific and publicly disclosed it
  • Incorporated the share purchase element into Long Term Incentive Plan
  • Set shareholding targets of Executive Officers
2015
  • Established NSG Group Corporate Governance Guidelines
2016
  • Started annual board effectiveness evaluation process
2018
  • Revised the "NSG Group Corporate Governance Guidelines" (December 2018) in response to the June 2018 revision of the Corporate Governance Code.
2019
  • Of the nine members of the Board of Directors(at that time), the majority of the Independent External Directors were five (5)
2021
  • Revised the "NSG Group Corporate Governance Guidelines" (December 2021) in response to the June 2021 revision of the Corporate Governance Code.

Corporate Governance Report

The Group has filed the Corporate Governance Report to TSE.

Please refer to the Group's Corporate Governance Report (as of 26 December 2023).

Disclosure based on the principles of the Corporate Governance Code

Compensation for Directors and Executive Officers

The Company adopts a company with three committees structure and the Compensation Committee, which holds a majority of Independent External Directors, decides the following matters.

  • The policy on compensation and perquisites to be offered to the Directors and Executive Officers of the Company
  • Individual compensation and perquisites to be offered to the Directors and Executive Officers of the Company.

Compensation Policy for Executive Officers

The objectives of the compensation policy are to ensure that packages of employment terms and conditions are market competitive and designed in such a way as to attract, retain and motivate Executive Officers of the highest world-class caliber in an international business.

The policy aims to ensure that each individual’s basic salary and incentives are aligned with the performance of the Group and the interests of shareholders as well as reflecting the commitment and achievements of the individuals concerned. While some elements of the packages of the Executive Officers may vary depending on the market conditions in the countries in which they are directly employed, annual bonus and long-term incentive plans follow a global policy and are structured, designed and coordinated at the Group level.

Compensation Policy for Independent External Directors

The role of Independent External Directors is to supervise all Group business from their independent and objective standpoint as well as to engage in the material decision-makings as members of the Board of Directors. In order for them to fulfill this role adequately and effectively, and for the Group to retain individuals with the capability and experience required, the appropriate compensation level of Independent External Director is set based on comparisons with other companies using benchmark data provided by external specialists.

Independent External Directors receive compensation for the performance of their duties. They are not eligible for performance-linked bonuses or awards under long-term incentive plans.

For details, please see the following.

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