Alignment of People Strategy with Management Strategy

NSG Group is addressing "Human Capital" as one of material issues (materiality) defined based on Our Vision, the new management principles set forth in 2018 to attain sustainable growth of the Group and contribute to a sustainable society in the medium to long term. People are the "capital" indispensable for the company to maintain business activities. NSG Group considers having corporate culture, personnel system, and workplace environment in place so that employees can find opportunities to "grow" and "find joy in working" is the goal of "Human Capital Investment" and has instituted the office of Group CHRO to enhance the effectiveness and efficiency of such investment to keep driving its growth under the "Human Capital Management".

NSG Group has identified six pillars of the People Strategy in alignment with Our Vision, 'Strengthen the senior management layer as One Team', 'Conduct open, transparent and interactive organizational management', 'Provide development opportunities including re-skilling', 'Promote Diversity, Equity & Inclusion (DEI) as a "source of new ideas"', 'Foster a sense of community that strengthens the bonds to the Group' and 'Keep improving our evaluation / compensation scheme for better retention, development, and recruitment'.

Human Rights, Well-being

Among the six Core Values set forth as the basis on which we work and conduct ourselves, "Respecting others and unleashing their potential" is the value we are committed to first. NSG Group has always valued Sumitomo’s philosophy of "People are our most important asset" since its establishment in 1918.

Also, the second Core Values set forth "Exemplify trust and integrity". "NSG Group's Code of Ethics" which embodies it defines safety, respecting human rights, taking personal ownership for actions and communicating with openness and involvement as behaviors expected of all employees. NSG Group’s Code of Ethics acknowledges internationally proclaimed human rights explicitly. Our Equal Opportunities and Diversity policy prohibits discrimination based on race, color, creed, religion, beliefs, age, gender, sexual orientation, national origin, disability, union membership, political affiliation, or any other status protected by law.

We has also focused on Safety and Health as a top priority for NSG Group employees. Personal information about health must be handled with particular attention to privacy, which necessitates different ways of handling the matter not only culturally but legally between countries and regions. Thus, HR related actions concerning health are limited to Japan so far. We will provide further details in a separate section.

Respect for these human rights and wellbeing is the premise of the HR strategy, on which the six pillars have been formulated.

1. Strengthen the senior management layer as One Team

The first pillar of the HR Strategy is "Strengthen the senior management layer as One Team". In the Medium Term Management Plan "Revival Plan 24" announced publicly in May 2021, NSG Group explained to realize Corporate Culture Reform as one of "Three Reforms". But in our Employee Survey "Your Voice" conducted in January 2022, its result showed that one third of respondents are not satisfied with the current company culture and the way leaders behave.

The Group senior management team got together in the UK for a leadership workshop in October 2022. They spent time discussing how they can support the Company's culture reform. Based on the idea that to change the culture we should change our own behavior not just say we will change it , and that any changes in the Group should start from the top, the senior leadership team agreed the Leadership Behavior Charter which declares that 'the senior team will change their own behavior'.

The Leadership Behavior Charter comprises the following ten declarations of action.

In the process of discussion, various opinions were expressed from various viewpoints and the discussion was heated, but, in the end, the Senior management team agreed with the Charter. And we believe that this process is also linked to the 'One Team approach'. We plan to hear from employees in the next "Your Voice" in 2023 to see if the Senior management is taking the initiative in adopting behaviors to deliver culture change.

It is important that succession plans for Senior management members are developed and realistic. The plan is discussed annually by the Nomination Committee chaired by External Director with regard to options and activities likely to be taken to improve the quality of the plan, including promotion of candidates’ readiness, development of potential, clarification of concerns and gaps.

2. Conduct open, transparent and interactive organizational management

NSG Group defines 'corporate culture' as the culmination of the tendencies of each employee's thinking and behaviors, and believes that a robust corporate culture can be fostered by encouraging changes in thinking and behaviors through 'dialog' between management and the fields, superiors and subordinates as well as among colleagues.

The prerequisite for this is that employees have access to the necessary information and are open about their thoughts, which improves the quality of dialog, leads to improved performance, growth and satisfaction for employees, and improves the NSG Group's output. We have set ourselves the challenge of creating such a highly engaged environment.

Munehiro Hosonuma, CEO since April 2023, shows his philosophy 'Flat', 'Frank' and 'Fast' which means Flat organization, Frank communication Fast decision making. And he also highlights the importance of 'Fun' at our workplace. 'Flat' and 'Frank' are particularly important elements in promoting to 'Conduct open, transparent and interactive organizational management'.

NSG Group launched the "NSG Listening Strategy" since 2022. We have set 'Let's Focus' and 'Let's Talk' sessions in our 'Your Voice' employee survey. The survey results which were circulated to Global SBU/Function Leaders were shared with their managers in all 28 countries during the 'Let's Focus' session, and managers discussed necessary actions with their own team members during the 'Let’s Talk' session. We are encouraging employees to change mindset and behaviors through the dialogs in 'Let’s Talk' sessions hosted by each department and workplace. In addition, ideas and suggestions for the reform presented by team members have led to improvements in the working environment. The new HR Strategy in FY2024/3 also reflects the voices from the dialog of 'Let's Talk' session.

After the formulation of the Medium Term Vision and the Medium Term Management Plan RP24, we have continued to hold dialog sessions with our employees such as a number of NSG Summits to improve communication with our global leaders and Town Hall meetings for middle managers around the world to understand and share about the direction NSG Group should take.

To realize efficient dialog between superiors and subordinates, we have been helping managers develop competency for coaching and feedback to their subordinates.

We believe that through these activities, we can boost employees’ self-esteem and self-efficacy for culture reform and improve our work environment.

3. Provide development opportunities including re-skilling

In 2018, we introduced Talent Management as part of our wider Talent Strategy supporting the Group’s Vision and Values. We migrated key global talent records and data to a group-wide talent management system, while at the same time providing all managers with comprehensive training on talent development processes. We introduced of our NSG behavioral Competency model with the aim of deepening the Performance Review discussions for employees in 2019. These initiatives have led to an increased transparency of employees' performance reviews and succession plans with the management sharing talent data irrespective of countries, regions or business units.

Our goal toward 2024 is to embed the knowledge and application of Talent Management practices in the workplace and to develop leaders at all management levels, who have the ability to realize the Medium Term Plan 'RP24'. We invest in Human Capital in specific areas of the NSG Competency Model, which align with the RP24 Corporate Culture reform - 'Customer Focus', 'Swift decision making and action' and 'Overcoming difficulties'. At the same time, we will also provide employees with reskilling training in areas such as digitalization, marketing, and new business development necessary for the reform. Through on going training, we have been promoting the transition of our Group programs from face to face learning events to appropriate mix of 'Blended Learning', which includes virtual class rooms, action learning sets and coaching.

In terms of hierarchical talent development, our particular focus will be on accelerating Regional Talent pool, the population below Global Talent. By holding regular Global Talent Meetings, we aim to strengthen the identification and development of talent who will evolve into Global leaders in the future. Especially in Japan, where our headquarters is located, the number of candidates for global management positions registered in Succession Plans is currently declining. To address this issue, AP (Acceleration Pool) meetings will be launched in Japan in 2022 with a view to accelerating the identification and development of younger talent in their 20s and 30s who will be ready to assume Regional or Global management roles beyond national borders in the next 10-15years. We will also create individual development plans (IDP) for the target group and implement measures such as cross-department transfers, special trainings, and assignments to project teams.

4. Promote Diversity, Equity & Inclusion (DEI) as a "source of new ideas"

Fostering a culture that recognizes and embraces diversity is essential to reforming the NSG Group's corporate culture. In 2023, NSG Group has announced that we formulated the Diversity, Equity & Inclusion (DEI) Policy that develops and evolves Equality into Equity to enhance and accelerate the Group’s current State of Intent to promote Inclusion & Diversity. We will discuss and respond to diversity from various perspectives, including not only the promotion of female advancement and employment of persons with disabilities, but also generational diversity and diversity in individual careers.

NSG Group is developing its business globally and sees its great strength as having human resources from diverse countries, regions and cultures. In order to integrate them and make them a "source of new ideas", we will fully support activities in each region, as described below.

5. Foster a sense of community that strengthens the bonds to the Group

The spread of Covid 19 has promoted diverse ways of working, including remote working. This has also triggered a renewed awareness of the importance of communication and interaction with people in traditional ways of working. Now that the restrictions on face-to-face events have been greatly relaxed, we will revive and enhance those events and promote communication across departments. We believe that through experiences that differ from daily work, a sense of belonging to NSG Group will be heightened, and this will lead to individual employees taking more responsibility and initiative in their own work. It also provides an opportunity to interact not only with employees, but also with their families and communities. Online communication has the great advantage of enabling employees who are far away from each other to connect easily, and we will combine the two effectively to realize a variety of communication. In FY2022, nearly 300 events will be held across the NSG Group.

6. Keep improving our evaluation / compensation scheme for better retention, development, and recruitment

In 2018, NSG Group switched its performance appraisal system from a five-point relative rating scale to a four-point absolute rating scale. As we approach the fifth year since the introduction of the system, we are reviewing its operation with the aim of further promoting employee development and increasing engagement in the reform process, in light of the changes in the current situation and the business environment at the time of its introduction. Specifically, we will review the institutional wording of the employee's evaluation of areas that need improvement so that the employee perceives it positively, and we will also work on a set of measures to improve the communication skills of the employee from his/her supervisor.

We will also discuss career tracks and incentive schemes for professionals who despite their skills and experience indispensable to the Group are currently delayed in their promotion or pay raise because they are not on the management track, with a view to rewarding them in a fair manner for their contributions and increasing their retention.

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