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, fourteen(14) 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 June 2024)
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 		14(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 June 2024)

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 June, 2024)

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 FY2024 10
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
  • 5 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 FY2024 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
  • 3 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 FY2024 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 FY2024 7
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 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.

Initiatives for the Priority Implementation Items for the fiscal 2024, as well as Effectiveness Review Process and results in the fiscal 2024, are as follows.

[Initiatives for the Priority Implementation Items for the fiscal 2024 (Review)]
As for the Priority Implementation Items for the fiscal 2024, we believe that certain progress has been made through various initiatives and discussions at meetings of Independent External Directors, Board, Nomination Committee, etc.

FY2024 Priority Implementation Items Initiatives Undertaken
①In order to further improve supervisory functions, deepen discussions on the roles that the Board and Independent External Directors should play and foster common understanding among Directors using meetings of Independent External Directors and offline mtgs.
  • As a follow-up to the evaluation of the effectiveness of the Board of Directors for FY2023, multiple discussions among External Directors were held at the Independent External Directors Meeting (five times in total) with the cooperation of Board Advisors, Inc., the External organization responsible for the evaluation of the effectiveness of the Board of Directors for FY2023
  • Drew up the "Board Charter" for each Director to perform oversight based on common understanding, and reviewed the Board operation.External Directors identified "key management issues" and requested the Executive members to present monitoring items.
(The detailed discussion process and the contents of the Board Charter are as follows)
②Discuss an ideal form/method of monitoring by the Board, and after sufficiently coordinating with the Executive Team, perform monitoring in a way that will support speedy execution of initiatives by the Execs.
③Mainly at the Nomination Committee meetings, deepen discussions on the skills/experiences and diversity necessary for the Board, and work to improve the appointment process of Directors.
  • At the meetings of Independent External Directors and the Nomination Committee, skills/experiences and diversity necessary for the Board were discussed towards implementation of the new MTP.
  • Discussion was held at the Nom. Com. based on widely shared candidate information aiming to increase transparency of the appointment process in the succession of External Directors.
④Towards 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.
  • In preparation for the new medium-term management plan, discussions were held multiple times at Board(6 times) and Offline meetings that are distinct from formal Board (hereafter referred to as "Directors Offline Meetings")
⑤Strive to enhance the sophistication of the Board operation in order to stimulate substantive discussions.
  • Initiatives were undertaken to improve the Board operation, including briefing prior to the Board mtgs, enhanced information sharing with External Directors, introduction of rules for the Board materials.

In particular, for the purpose of (1) "fostering common understanding among directors regarding the roles to be played by the Board and Independent External Directors," meetings of Independent External Directors was held and Independent External Directors discussed from October 2023 to April 2024.

Schedule Meeting Theme
October 2023 Meeting of Independent External Directors Roles and Legal Responsibilities of Independent External Directors in a Company with Three Committees
December 2023 Roles and responsibilities of the Board of Directors
January 2024 Roles and responsibilities of the Board of Directors
March 2024 Board composition and culture
April 2024 Review of discussions and development of Board Charter
May 2024 Board of Directors Meetings Development of Board Charter

Through the above discussion, the "Board of Directors Charter" was developed and adopted by the Board of Directors in May 2024, setting forth the basic stance and expectations which are necessary for the Board of Directors to address to the current situation of the Group, with the aim that each Director will exercise his/her supervisory function based on a common understanding.

Going forward, the Board of Directors will strive to ensure that each Director fulfills the expected supervisory functions and roles in accordance with the "Board of Directors Charter". Also, the Board of Directors will make effective use of this "Board of Directors Charter" in the process of selecting candidates for the Board of Directors and in the evaluation of the effectiveness of the Board of Directors in assessing their endorsement of and commitment to the aims of this Charter.

In addition, the Board of Directors has reviewed the operation of the Board of Directors by reorganizing the positioning of the Board of Directors Meeting and Directors Offline Meeting to focus on discussion of "Key management issues".

(Major revisions to the operation of the Board of Directors)

  • The Board of Directors Meeting is positioned as meetings to identify and focus discussion on "Key management issues", and in principle, monitoring (oversight) and discussion of "Key issues" are conducted at every the Board of Directors Meetings.
  • Directors Offline Meeting is positioned as meetings for deepening understanding of the status of initiatives in each business unit and for exchanging opinions between Directors and Executive Officers, and the number of Directors Offline Meeting held and agenda items expanded.

As "key management issues" for the FY2025, issues related to cash generation and strengthening of the organization and human resources were identified through discussions among the Independent External Directors.

[Effectiveness Review Process in the fiscal 2024]
For the annual evaluation for the fiscal 2024, all Directors were evaluated through Questionnaire survey (four-grade evaluation and open-ended questions) and Individual follow-up interviews conducted by the Board of Directors Secretariat. Questions were asked about the composition of the Board of Directors and each committee, the operational status, agenda setting, deliberation status, role fulfillment, communication the Executive team, and material agendas requiring further in-depth deliberation. Based on the responses and opinions of each Director, Independent External Directors discussed, and the Board evaluated the effectiveness of the Board of Directors and each committee.

[Board Priority Issues and Board Priority Implementation Items in the fiscal 2025]
Based on the above process, the Board of Directors have confirmed the following Board Priority Issues and Board Priority Implementation Items in the fiscal 2025.

FY2025 Board Priority Issues FY2025 Board Priority Implementation Items
More in‐depth deliberation on key management issues
  • Further improvement of the supervisory function of BOD as a monitoring board through implementation of "Basic Stance" and "Expected Conduct" by each Director as provided by the "BOD Charter".
  • Monitoring (oversight) and focused discussion of identified "key management issues" and providing appropriate support to the management team as the situation requires (enhance decision-making, make suggestions, etc.)
Enhancement of responsive capability and speed of the Executive Team to solve management issues
Further improvement in the process and contents of the Board agenda setting, time allocation, and preparation of papers
  • Further enhancement of the Board meeting operation to contribute to invigoration of discussions at the Board meetings.
Assuring sufficiency of personnel information incl. performance appraisal to be shared in the course of executive succession or recommendation agenda
  • Implementation of initiatives contributing to the enhancement of the Executive succession and the candidate recommendation process.
Reviewing Current Management Incentive Plan with a view to effective executive incentivization when addressing and delivering key management issues.
  • Continued and more in-depth discussions with a view to more appropriate Management Incentive Plan in terms of incentivization.

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

Executive Function

Fourteen Executive Officers (as of 26 June 2024), 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 13 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 FY2024 14
【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 Sustainability Committee is chaired by CEO or a person who is nominated by CEO and composed of CEO and other Executive Officers, the Heads of relevant Group Functions and the Heads of each Strategic Business Unit.
Number of times met in FY2024 3
【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 and other Executive Officers, the Heads of relevant Group Functions and the Heads of each Strategic Business Unit.
Number of times met in FY2024 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
    Honorary Advisor, Kansai paint Co.,Ltd.
Activities
    Attended all 10 Board of Directors meetings, all 6 Nomination Committee meetings, all 11 Audit Committee meetings, and all 7 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 FY2024, 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 all 10 Board of Directors meetings, all 6 Nomination Committee meetings, all 11 Audit Committee meetings, and all 7 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 FY2024, 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, Mitsubishi Electric Corporation
    Financial Services Agency Certified Public Accountants and Auditing Oversight Board Commissioner
Activities
    Attended all 10 Board of Directors meetings, all 6 Nomination Committee meetings, all 11 Audit Committee meetings, and all 7 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 FY2024, 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
    Attended all 10 Board of Directors meetings, all 6 Nomination Committee meetings, 10 out of 11 times of the Audit Committee meetings, and all 7 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 financial and capital measures, based on his extensive experience and insight in overseas business, finance and accounting.
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
    Appointed as a Director on 29 June, 2023, and attended 7 out of 8 times of The Board of Directors 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, she led discussions on global business strategy, human resources and diversity, based on her extensive experience and insight in global business management and business transformation.

*Note: Ms. Eriko Sakurai was newly appointed as Director at the 157th Ordinary General Meeting of Shareholders held on 29 June 2023 therefore it shows the total number of the Board of Directors meetings held and attended after her assumption.

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

2008
  • Changed the company's fundamental governance structure from the traditional Statutory Auditor 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 28 June 2024).

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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