Corporate Governance

Basic Approach

Strengthening and enhancing our corporate governance is one of our top management priorities. We take steps to make management more efficient and robust while working to increase management transparency by disclosing information to shareholders and investors in a prompt and accurate manner.
We made a transition from a Company with a Board of Company Auditors to a Company with a Nominating Committee, etc. in June 2019 with the aim of establishing a prompt decision-making structure and operational execution organization, strengthening the supervision of management, and improving management transparency and fairness.
Under this structure, we will work on further improvement of corporate value over the medium- and long-term.

■Corporate governance structure (as of June 21, 2022)

Board of Directors

The Board of Directors decides the basic management policies, and supervises the execution of duties of Directors and Executive Officers. Except matters stipulated by laws and regulations or the Articles of Incorporation to be resolved at the Board of Directors, the Board of Directors delegated substantial authority to Executive Officers with the aim to strengthen the supervision of management, and make decisions more promptly.
The Board of Directors is held once a month in principle, but it is also held flexibly as needed.
The Articles of Incorporation specify that the term of office of Directors shall be one year, and the number of Directors shall be within 15. The number of Directors is 12 as of June 21, 2022, and six of them are Outside Directors. The Board of Directors is chaired by Outside Director.

Nominating Committee

The Nominating Committee decides on the content of a proposal regarding appointment/ removal of Directors, which is submitted to the General Meeting of Shareholders. The majority of the members are Outside Directors. Three out of the five members of the committee are Outside Directors, and the committee is chaired by an Outside Director.

Compensation Committee

The Compensation Committee decides on the policy for compensation for Directors and Executive Officers, and details of compensation for individual persons. The majority of the committee are Outside Directors. Three out of the five members of the committee are Outside Directors, and the committee is chaired by an Outside Director.

Audit Committee

The Audit Committee audits the execution of duties of Directors and Executive Officers, and decides on the content of a proposal regarding appointment/removal of the accounting auditor, which is submitted to the General Meeting of Shareholders. The majority of the members are Outside Directors. Three out of the four members of the committee are Outside Directors, and the committee is chaired by an Outside Director.
Also, assistants, including the Audit Preparation and Support Office, are appointed from the Internal Audit Divisions to support the duties of the Audit Committee. Regarding matters relating to appointment, personnel relocation, disciplinary punishment, evaluation, etc. of assistants, the approval from the Audit Committee shall be required for decision.

■Members composing Nominating Committee, Compensation Committee, and Audit Committee Fiscal year ending March 31, 2023 (As of June 21, 2022)

＊ Please note that persons with ★ are Outside Directors, persons with ◎ are Chairpersons of committees, and persons with 〇 are members of committees.

Management Meeting

The Management Meeting discusses important matters relating to operational execution, as a supporting body for decisionmaking of President, Executive Officer. The meeting is composed of President, Executive Officer, and Executive Officers who are designated by him, and held twice a month in principle.

Executive Officers Meeting

The Executive Officers Meeting is held by President, Executive Officer under the attendance of all Executive Officers. Matters resolved at the Board of Directors are instructed, and each Executive Officer reports about the status of operational execution. This meeting is held once a month in principle, to make operational execution more efficient and effective by sharing information among Executive Officers.

■Basic information

■Directors①

Responsibilities of Executive Officers(as of July 1, 2022)

＊ Executive Officers concurrently serving as Directors

The appointment of Executive Officer

The appointment of an Executive Officer shall be determined after careful deliberation by the Board of Directors, comprehensively considering whether they possess personalities, insights, capabilities, experience/performance, etc. that are appropriate for fulfilling their duties. In addition, if it becomes clear that an Executive Officer lacks the required qualifications, he/she will be promptly dismissed by the Board of Directors.

Flattening of the system and compensation

Since June 25, 2021, the Company has removed the Managing Executive Officers and eliminates hierarchical relationships among Executive Officers and makes them one team. It enables all Executive Officers to activate discussions and respond to various issues quickly toward further enhancement of its corporate value.
In line with the flattening of the system, in April 2022 we abolished the conventional system of compensation by position and shifted to a system of compensation for Executive Officers based on the responsibilities of the division to which they are in charge.

Introduction of ESG evaluation

Since April 2022, ESG items have been set as key individual target measures for Executive Officers involved in the calculation of annual incentives (bonuses). The degree of achievement of these ESG items is one of the evaluation indicators. By introducing ESG items into the evaluation system, Executive Officers are promoting active ESG initiatives.

Approach of Board of Directors

Directors other than Outside Directors are appointed from a wide range of fields, including manufacturing, marketing, technology, and administrative divisions. In addition, Outside Directors are appointed after considering diversity and balance, such as being a person with knowledge of finance, experienced management, and being a lawyer. We believe that the current number of Directors is an appropriate size for strengthening corporate governance and expanding our global businesses.

Diversity of Directors

Upon the approval of the General Meeting of Shareholders in the fiscal year ended March 2020, a female Director (Outside Director) was newly appointed for the first time at the Company. The female Director with experience in a different industry than ours supervises management. This will enable us to integrate diverse values and accelerate transformation aimed at achieving sustainable growth.

Assessment of effectiveness of the Board of Directors

We conducted a self-assessment of the Board of Directors by sending out questionnaires to Directors from the viewpoints such as role/structure/management of the Board of Directors and management of committees. We asked a third-party organization to conduct the survey, received support for making the questionnaire, and obtained third-party opinions on the results of the questionnaire. Although this evaluation was generally positive, there were comments regarding the mechanism and operation of the performance evaluation of Executive Officers and other factors. Consequently, the Board of Directors discussed future measures and other matters based on the third-party opinions. We will continue to analyze and evaluate the effectiveness of the Board of Directors on a regular basis to make improvements.

Members, the number of meetings, and attendance

(April 1, 2021 to March 31, 2022)

＊ The number of attendance after becoming as a member of the committee.

Discussions at the Compensation Committee

The Compensation Committee met eight times from April 2021 to March 2022.
The Compensation Committee aims to improve fairness, transparency, and objectivity of procedures regarding the decision making of compensation for Directors and Executive Officers and enhance corporate governance. Also, the committee passed resolutions regarding the details of compensation (such as compensation specified for each individual) of Officers.

■Compensation Committee (April 1, 2021 to March 31, 2022)

Basic policy for determining compensation

The system and level of compensation for Officers, compensation specified for each individual, etc. are determined in the Compensation Committee chaired by an Outside Director using objective information including the level and trends of other companies as reference. Compensation for Executive Officers and compensation for Directors are determined separately, and if a Director also serves as an Executive Officer, those compensations are added up.

Compensation for Executive Officers

Compensation for Executive Officers consists of fixed compensation and performance-linked compensation, which fluctuates according to performance. The ratio of fixed compensation to performance-linked compensation is approximately 6:4 as a standard.

Fixed compensation consist of basic salary, representation and CxO fees.

■Annual incentives

For Executive Officers, the Company determines whether or not to provide payment of monetary compensation that reflects the performance of a single fiscal year, based on consolidated financial results indicators, etc. of the previous fiscal year and, in the case of providing such payment, the total amount. The payment or non-payment to each Executive Officer, and in the case of payment, the amount, is determined within the total amount of provision by considering the Executive Officer's progress on priority target measures. Indicators related to the calculation of bonuses are based on consolidated financial results: net sales, operating income and net income from the perspective of emphasizing the achievement of earnings growth. The provision is made once a year in June after the determination of the Compensation Committee.

■Medium-to long-term incentives

The Company's shares shall be issued based on the achievement level of major target figures in the Medium-term Management Plan (money equivalent to the converted amount of shares shall be paid for a certain portion) as incentives to motivate them to achieve the targets in the Medium-term Management Plan and contribute to raising shareholder value, and in order to promote the holding of the Company's shares.
Medium- to long-term performance targets include key performance indicators (consolidated operating margin, consolidated net sales, etc.) that take into account the Company's management policies.

Compensation for Directors

Compensation for a Director consists only of fixed compensation. Fixed compensation shall be calculated by increasing basic compensation (which is determined based on his/her concurrent duties as an Executive Officer and whether he/she works full-time or part-time), taking into account a committee to which a Director belongs and his/her role at the committee.

Members, the number of meetings, and attendance

(April 1, 2021 to March 31, 2022)

Discussions at the Audit Committee

Major items to be discussed at the Audit Committee include the formulation of the Audit Committee's auditing standards, the formulation of auditing policies and auditing plans, the evaluation of the content of auditing plans of the independent auditors, the assessment of the selection of independent auditors, and the assessment of the status of development and operation of internal control systems.

Audit Status

The Audit Committee members attend meetings of the Board of Directors and other major meetings in accordance with auditing standards, policies, and plans determined by the Audit Committee. The Audit Committee receives reports or hears from Directors, Executive Officers, employees, etc. on the status of the execution of their duties, and audits the execution of duties by Directors and Executive Officers. In addition to the Board of Directors and Executive Officers Meeting, members of the Audit Committee attend and monitor the Sustainability Committee, the Risk Management Committee, the Compliance Committee, and the Fair Trade Monitoring Committee, which operate internal control systems.

Sustainability Committee

The Sustainability Committee is chaired by the Executive Officer in charge of the ESG Promotion Department (Chief Management Officer of sustainability activities), and consists of the head of department related to ESG. In principle, this committee meets once a year to discuss issues and initiatives related to the Group's sustainability activities, and to report on these activities to the Board of Directors as appropriate. The Committee met three times in the fiscal year ended March 31, 2022. The main activities are as follows.

Spread of ESG management within the company

We have created a roadmap that shows the specific measures that the Group is taking to realize a "NAMERAKA Society." In the process of preparing the roadmap, we have held numerous meetings with the President, Executive Officer, and we are deploying it in-house as an overview of management to ensure that our Group continues to grow as a company that contributes to society.

Materiality measures and KPI discussions

The committee deliberated on the appropriateness of the measures and goal setting that were studied mainly by the departments that manage each of the 13 items of materiality. In particular, for the materiality related to climate change, the committee confirmed that it will be linked to initiatives in line with TCFD recommendations and deployed in business activities.

Initiatives for TCFD Recommendations

A cross-functional scenario analysis team was established under the Sustainability Committee to conduct the scenario analysis. In the scenario analysis, two cases of temperature increase of 4°C and less than 1.5°C during the 21st century were assumed, and the risks and opportunities posed to our business were identified and countermeasures were considered for each.

Risk Management Committee

To respond to various risks surrounding the businesses of the Group, we have established the Risk Management Committee, chaired by the Executive Officer (Chief Management Officer of risk management), who is in charge of the ESG Promotion Department, as an advisory body on risk management to prevent risks from occurring and to minimize damage in the event of a crisis. The committee mainly consists of the general managers of the promotion departments of the risk management. The committee regularly checks activities including identification, analysis, evaluation, and treatment with regard to risks that have a major impact on the management of the NTN Group. The result of discussion at the Risk Management Committee is reported to the Board of Directors and instructions are fed back to the relevant departments.

Compliance Committee

The Compliance Committee, chaired by the Executive Officer in charge of Legal Department (Overall Control Administrator of Compliance Promotion Activities), handles global compliance risks, excluding violation risks of the Anti-Monopoly Act and the Subcontracting Act. The committee members are comprised primarily of the heads of related risk management divisions. The committee members formulate and implement risk mitigation measures in cooperation with the Compliance Promotion Activity Supervisors appointed at each business site in Japan and the Administration & Internal Control Department established at each Office of General Manager in five overseas regions, and report to the committee on action plans and the status of implementation. The committee deliberates on the contents of such reports and then reports the findings to the Board of Directors.

Fair Trade Monitoring Committee

The Fair Trade Monitoring Committee is chaired by the President and Executive Officer and consists of Executive Officers in charge of sales and procurement divisions, an Outside Director, external lawyer and so on. In principle, this meeting is held twice a year to discuss the implementation plans and the performance reports for compliance with the Antimonopoly Act and the Subcontracting Act, and to provide supervision and guidance on effective control for fair trade practices along with education and awareness-raising activities. In addition, we have established the Fair Trade Promoting Group in Legal Department as an overall supervisory department for compliance with antimonopoly law. Under the direction of the Fair Trade Monitoring Committee, the department conducts various activities (such as education, instruction and audit) for relevant divisions. Furthermore, overseas subsidiaries are monitored for the implementation status of compliance with antimonopoly law in cooperation with the Administration & Internal Control Department in each region.

Under the provisions of the Management Rules for Subsidiaries, we maintain a system for subsidiaries management by concluding a letter of confirmation concerning management control with subsidiaries. Under the system, subsidiaries will report the execution status of duties of their directors, and request the Company's approval for certain matters. In addition, based on the letter of confirmation, we develop systems for internal control, promotion of CSR activities, risk management, promotion of compliance activities, security trade control, and compliance of laws on competition. We also widely notify and operate a helpline (whistle-blower system) to subsidiaries as a contact point for various concerns.

Clarification of control structure by concluding a letter of confirmation concerning management control

• Report the status of execution of duties by subsidiaries'directors
• Application from subsidiaries for the headquarters'approval for certain issues, on the basis of authorization rules
• Development of internal control system
• Development system for promotion of CSR activities
• Compliance of basic policy of risk management
• Development system for promotion of compliance activities
• Development system for security trade control
• Instruction and audit of compliance of laws on competition

We take active measures to strengthen our corporate governance while securing responsiveness to the purport of the Corporate Governance Code, including the transition to a Company with Nominating Committee, etc. in June 2019. We have implemented all of the general principles of the Corporate Governance Code. We will continue to work on strengthening our corporate governance while adapting to changes in our business environment.