Basic Philosophy

Guided by our corporate philosophy under the slogan “With established trust and confidence inside and outside the company, we aim to contribute to the peoples of the world by creating and putting at their disposal new values for the future”, we have established, and are working to enhance, our corporate governance system to promote management aimed at increasing our corporate value over the medium to long term. Our basic view on corporate governance is to build relationships of trust with our shareholders, customers, business partners, employees, local communities, and other stakeholders through management that ensures fairness and a high degree of transparency, and to develop and operate management framework and internal control system to achieve sustainable growth through efficient and sound management.

Corporate Governance System

The Company has selected a company with an Audit and Supervisory Committee for the purpose of further enhancing discussions on management policies and strategies at the Board of Directors, strengthening the supervisory function, and further speeding up management decision-making and execution of business. Each organization is set up within the framework of a company with  an Audit and Supervisory Committee.

* With the resolution of the 122nd Ordinary General Meeting of Shareholders (held on June 24, 2022), the Company has transitioned to a company with an Audit and supervisory committee.

Board of Directors

The Board of Directors comprises eleven members (of which seven are outside directors), which　meets regularly once every month and holds ad hoc meetings when necessary. In principle, directors are required to attend all Board of Directors meetings, and the average attendance rate last year was 99%.
The Board of Directors deliberates and makes decisions on matters specified in laws and regulations and other important management issues, receives reports from each member and supervises the status of business execution. A majority of independent outside directors are appointed in order to strengthen the supervisory functions of the Board of Directors and secure transparency of management.

＜Views on Balance and Diversity of Knowledge, Experience, and Skills within and Size of the Board of Directors as a Whole＞
The Company’s Board of Directors believes that it is important for the Board to comprise diverse human resources with different backgrounds, including specialized knowledge and experience, in order to achieve sustainable growth and increases in corporate value over the medium to long term. The Board is made up of human resources with extensive experience, high levels of knowledge, and advanced specialization, with consideration given to gender, nationality, work experience, and age, to achieve a good balance according to the business environment at a given time.
In addition, by making up the majority of the Board of Directors with outside directors who have experience and specialized knowledge agained under environments that differ from the Company, the Board can strengthen its supervisory function and engage in deliberations from various perspectives in an effort to ensure transparency and objectivity in decision making.
Director candidates are not excluded from consideration on the basis of their race, ethnicity, nationality, country of birth, cultural background, etc.

 

＜Skill Matrix of Directors＞
Based on the above views, considering the business and management system of the Group, the Board of Directors identified the knowledge and experience which it should possess from “Basic areas from the perspective of important management decision-making and business execution supervision” and “Areas that need to be particularly promoted and supervised to realize the medium-term management plan”. According to this, Directors are assigned in well-balanced manner with consideration for diversity.

*1：Basic areas from the perspective of important management decision decision-making and business execution supervision

*2：Areas that need to be particularly promoted and supervised to realize the mediummedium-term management plan

*3：The skill matrix above shows the areas of expertise particularly expected for each director / audit and supervisory board member, and does not indicate all of the knowledge and experience held by each director / audit and supervisory board member.

Audit and Supervisory Committee

The Audit and Supervisory Committee comprises four members (of which three are outside members) and as an independent body entrusted by the shareholders, audits and supervises the execution of business by the directors. Full-time Audit and Supervisory Committee members are selected from the perspective of maintaining the audit environment, gathering information from within the Company, and monitoring and verifying the establishment and operation of internal control systems on a daily basis and share such information with other members to ensure the effectiveness of organizational audits. The Audit and Supervisory Committee also confirms the appropriateness and suitability of the nominations and remuneration of directors (excluding directors who are Audit and Supervisory Committee members) by attending Nomination Committee and Remuneration Committee meetings and receiving explanations from the representative directors and forms opinions on these matters.

＜Establishment of the Audit and Supervisory Committee Office＞

To support the execution of duties by the Audit and Supervisory Committee, the Audit and Supervisory Committee Office was established, and four employees were assigned to the office full-time. These employees receive instruction from the Audit and Supervisory Committee members, liaise and coordinate internally, and gather and provide the necessary information. The Audit and Supervisory Committee Office works under the supervision and direction of the Audit and Supervisory Committee and their independence in relation to supervision and direction from directors (excluding directors who are Audit and Supervisory Committee members), corporate officers and employees is ensured. In addition, transfers, personnel evaluations, etc. require the prior consent of the Audit and Supervisory Committee.

Nomination Committee

To ensure reasonableness and transparency and conduct efficient and fulfilling discussion with regard to director nomination and determination of remuneration, a Nomination Committee was established as advisory bodies to the Board of Directors.
Based on the Board of Directors’ request for opinion, the Nomination Committee deliberates on matters including proposals on the appointment of directors to be submitted to the General Meeting of Shareholders, the appointment and dismissal of executive officers, the Company’s performance evaluations, and, based on such evaluations, evaluation of the management’s performance, and then delivers its opinions to the Board of Directors.
In addition, directors who are Audit and Supervisory Committee members also attend a Nomination Committe as observers.

Remuneration Committee

To ensure reasonableness and transparency and conduct efficient and fulfilling discussion with regard to director nomination and determination of remuneration, a Remuneration Committee was established as advisory bodies to the Board of Directors.
Based on the Board of Directors’ request for opinions, the Remuneration Committee deliberates on matters related to remuneration of directors (excluding directors who are Audit and Supervisory Committee members) and executive officers, including the appropriateness of policies, procedures, and systems, as well as the appropriateness of the proposed remuneration of each director (excluding directors who are Audit and Supervisory Committee members) and executive officer, and delivers its opinions to the Board of Directors.
In addition, directors who are Audit and Supervisory Committee members also attend a Remuneration Committee as observers.

CSR and Sustainability Committee

To ensure sustainable growth for our group and society, we have established the CSR and Sustainability Committee, chaired by an outside director, as an advisory committee to the Board of Directors, to identify priority issues in each area of ESG (Environment, Society, and Governance) area and promote actions to resolve these issues.

Members of the Committees

Management Meeting

The Management Meeting, comprising representative directors and some executive officers, was established to make decisions on and supervise important matters relating to business execution in accordance with the basic management policies determined by the Board of Directors, to discuss and understand in advance management issues to be addressed and risks that the Group is facing, and to promptly respond to changes in the management environment. The Management Meeting addresses management strategy and other important matters relating to overall management and also focuses its deliberations on important human resource strategies and measures relating to the assignment and development of human resources as well as significant investments including capital expenditures, equity contributions, acquisitions, and capital tie-ups.

Corporate Officers and Company Presidents Meeting

The Company adopts the Corporate Officer framework, the objective of which is to expedite execution of business operations based on policies determined by the Board of Directors and clarify responsibilities for the results. The corporate officers are elected by the Board of Directors, and meet monthly at Corporate Officers and Company Presidents Meeting to report on the status of business execution for cross-divisional sharing and exchange of information.

Cooperation among Audit and Supervisory Committee, Independent Auditors and Internal Audit Departments

The Company strives to improve the effectiveness of audits by having Audit and Supervisory Committee members attend audits conducted by the independent auditor and by having the Audit and Supervisory Committee, independent auditor, and Internal Audit Department meet regularly and as necessary to exchange information on audit policies, audit plans, audit implementation status, accounting system revisions, etc. and to work in close collaboration with one another.
The Audit and Supervisory Committee and Internal Audit Department meet regularly and as necessary to provide direct reports and exchange information on audit policies, audit plans, audit implementation status, and other matters and to work in close collaboration with one another.
In addition, Audit and Supervisory Committee members attend audits conducted by the Internal Audit Department when necessary, and the Internal Audit Department conducts investigations and makes reports as requested by the Audit and Supervisory Committee, improving the quality of audits by both bodies.

Evaluation of the effectiveness of the Board of Directors

The company conducts an evaluation on the effectiveness of the Board of Directors once a year.

＜１.Method of evaluation＞

The Company conducted a questionnaire survey of Directors with evaluation items on the composition and operation of the Board of Directors, review of management strategies, etc., the status of supervision of the execution of business, and other topics relating to fiscal year 2022. Based on the survey results and other data, we evaluated the effectiveness of the Board of Directors.

＜２.Overview of evaluation results＞

As a result, we confirmed that the Company’s Board of Directors is sufficiently effective and that effective measures are implemented with respect to the following matters in particular

• • The roles and functions of the Board of Directors and the management team responsible for business execution are clearly defined, and the Board of Directors composition is appropriate in terms of knowledge, capabilities, experience, and diversity of background necessary to perform its roles and functions.
• • The Board of Directors has established appropriate internal controls and risk management structure to ensure proper compliance and support risk-taking, and supervises the status of operations through the Internal Audit Department, the Sustainability Committee, and the committees that are established under the Sustainability Committee.
• • To ensure that appointment and dismissal of the management team members are conducted appropriately, the Nomination Committee appropriately evaluates whether execution of duties by the management team is performed from the perspectives of sustainable growth and corporate value.
• • The Board of Directors has confirmed that the design of the compensation scheme for the management team is consistent with the Company’s management and business strategies, and maintains a good balance between short- and long-term targets and non-financial metrics and targets.
• • To ensure that compensation is set in a manner that provides appropriate incentives, the Remuneration Committee appropriately evaluates whether execution of duties by the management team is performed from the perspectives of sustainable growth and enhancement of corporate value.
• • The Board of Directors implements appropriate improvement measures regarding the key issues identified through evaluation of the effectiveness of the Board of Directors, and strives to enhance its effectiveness.

Among the issues identified in the fiscal 2021 evaluation of the effectiveness, the issue of “further enhancement of deliberation within the Board of Directors regarding medium- to long-term management strategies and monitoring of Medium-term Management Plan” was addressed in fiscal 2022 by introducing a new category of matters for discussion by the Board of Directors, aside from the existing categories of matters to be resolved and matters to be reported. This is the matters for consultation category that was introduced in conjunction with the transition to a company with Audit and Supervisory Committee, for the purpose of deliberating on medium- to long-term management policies. Another action taken was revision of the approval criteria for delegation of decision-making authority to the business execution side on individual business execution matters. Additionally, a regular status report on the progress of the Medium-term Management Plan is provided at the Board of Directors meetings. As a result of the foregoing, deliberation within the Board of Directors on medium- to long-term management strategies has been enhanced. However,　the manner in which information is provided and agenda items are explained to reflect changes in deliberation matters has been identified as an issue that needs to be addressed going forward. With respect to “improvement of the prior distribution of materials and provision of explanations to outside directors,” the Company concentrated its efforts on providing prior explanations to outside directors on important agenda items of the Board of Directors meetings, which led to enrichment and improved efficiency of discussions at the Board meetings.
Based on the results of the current effectiveness evaluation, items that are identified as being desirable for further improvement of the effectiveness of the Board of Directors include improvement of information provision and content of explanations relating to discussions by the Board of Directors on medium to long-term management strategies, and strengthening of supervision by the Board of Directors and the Nomination Committee on the management team’s succession plans. Going forward, the Company will continue to maintain and enhance the effectiveness of the Board of Directors by addressing these issues.

Roles and Independence of Outside Directors

To enhance the supervisory function of the Board of Directors and to ensure the transparency and objectivity of decision-making through discussions from multifaceted viewpoints, outside directors make up the majority of the Board of Directors, which comprises diverse talent who have abundant experience, tremendous insight and a high degree of professionalism. We appoint all the independent outside directors as independent officers and notify the Tokyo Stock Exchange and the Nagoya Stock Exchange of their appointment. In order to ensure that candidates have neither special relationships with the management team and major shareholders nor conflicts of interest with general shareholders, we designate those who meet all the followings as independent officers: our own criteria for the appointment of independent officers; the requirement of independent officers set by the Companies Act; and the rules and regulations stipulated by the financial instruments exchanges.
Outside directors attend the Board of Directors meetings and non-statutory advisory bodies to demonstrate their supervisory function by becoming involved in the important decision-making of the company from an independent standpoint, while providing advice from an overall perspective based on their abundant experience and insight when formulating and confirming the progress of medium- to long-term management policies at the Board of Directors meetings. Outside directors who are Audit and Supervisory Committee members serve as a supervisory and auditing function based on their independence and expert knowledge.

Succession Plan

Niterra’s Board of Directors engages in the formulation and implementation of the succession plan, which includes programs such as that to develop global managerial human resources (“HAGI Program”), such as future CEOs and other business leaders. The members of the Board see to it that sufficient time and resources are committed to developing their successors in a planned manner.

Specific involvement by the Board of Directors

Representative directors as well as outside directors proactively participate in the development of managerial human resources, including serving as lecturers for the HAGI Program.

Details of human resource development for CEO candidates

We are implementing the HAGI Program and a training program in which internal directors and corporate officers participate. These programs are designed to develop future CEO candidates in a planned and strategic manner by devoting adequate time and resources to the task.

Training for officers

We provide the directors with sufficient assistance to fulfill their expected roles and responsibilities where applicable. For the internal directors, we encourage them to take external seminars to acquire additional knowledge to meet their obligations, while the internal directors and corporate officers are required to attend an executive training session to share the managerial issues and seek out the solution. In order for the outside directors to deepen understanding of the Group, each department explains the businesses and operations in addition to providing them with opportunities to visit major sites of the businesses.Directors who are Audit and Supervisory Committee members periodically take external sessions to gain understanding of what roles the Audit and Supervisory Committee members fulfill, the audit methods, the relevant laws and regulations, and financial accounting knowledge required for the accounting audit.

Remuneration for Director

Officer remuneration comprises fixed remuneration paid in cash, bonuses linked to the degree of achievement of the Company’s performance over the course of a single year and other factors, and performance-linked, stock-based remuneration that is determined according to rank and the degree of achievement of performance targets set forth in the Medium-Term Management Plan and so on.
This structure is intended to raise awareness regarding the contribution to improving corporate performance and maximizing corporate value over the medium- to long-term and is based on a fundamental policy of officers sharing interests with shareholders through ownership of Company shares. However, remuneration for director who is an Audit and Supervisory Committee members comprise only fixed remuneration.

Fixed remuneration

Fixed remuneration is determined holistically according to the position and responsibilities, by taking into account peers’levels, the company performance, and the level of employee salaries, and then paid.

Policy on the payment of bonus

As for bonuses, in addition to the base amount set for each position, an amount to be decided as follows is paid to each person: decided comprehensively in consideration of the quantitative targets set for corporate performance such as consolidated revenue and consolidated operating income ratio, which reflect the results of sales activities, and based on the qualitative evaluation of the individual performance of the person. For FY2021, the numerical targets for consolidated revenue and consolidated operating income ratio were 492.0 billion yen and 10.2%, while the actual results were 491.7 billion yen and 15.4%.

Performance-linked stock remuneration system

We introduced the performance-linked stock remuneration for directors (excluding directors who are Audit and Supervisory Committee members and outside directors) and corporate officers (excluding employment-type corporate officers) to further clarify the link between the compensation of directors and the value of the Company’s stock, and to have them share interests with shareholders, so as to incentivize them to contribute to the improvement of the Company’s medium- to long-term performance and to increasing corporate value. Under the system, the Board Incentive Plan (BIP) is adopted, where points are given to directors based on their position and the level of achievement against the targets set in the Medium-term Management Plan. Points are calculated according to the method stipulated in share granting regulations, which were determined by the Board of Directors after the deliberation of the Remuneration Committee. After the end of the period, shares of the company and money in the amount equivalent to the value of the shares are to be given or granted based on granted points.
Indicators against which the achievement of the performance targets is assessed are set based on single-year performance goals, medium-term performance goals, and non-financial measures goals. The single-year performance goals are based on consolidated revenue and consolidated operating income, which reflect the results of sales activities. The medium-term performance goals are based on the targets set in the Medium-term Management Plan, which are consolidated revenue, consolidated operating income, and ROIC, an indicator of whether we have efficiently earned profits relative to invested capital. For non-financial measures goals, sales from non-ICE business and rate of reduction of CO₂ emissions are used as indicators to reflect the results of efforts for sustainable growth and corporate value enhancement, and to facilitate the transformation of our business portfolio.

Remuneration and bonus paid to directors and auditors in fiscal 2022

*1 The following limits are set on the remuneration paid to directors (excluding Directors who are Audit and Supervisory Committee Members) according to the resolution made at the 122th general meeting of shareholders held on June 24, 2012.

According to the resolution made at the 122th general meeting of shareholders, a performance-linked stock remuneration system is to be implemented for four fiscal years from FY2020, targeting the company’s directors and corporate officers, with the upper limit on the total payment amount set at 1,000 million yen.

*2 The following limits are set on remuneration paid to Directors who are Audit and Supervisory Committee members according to the resolution made at the 122th general meeting of shareholders held on June 24, 2022.

The following limits are set on remuneration paid to Audit and Supervisory Board members according to the resolution made at the 106th general meeting of shareholders held on June 29, 2006.

*3 “Bonus” corresponds to “performance-linked remuneration, etc.”, and “performance-linked, stock-based remuneration, etc.” corresponds to “performance-linked remuneration, etc.” and “non-monetary remuneration, etc.” The total amount of “bonuses” and “performance-linked, stock-based remuneration” shown in the table was recorded as an expense for FY2022.

Stocks Held for Reasons Other than Pure Investment Purposes

Policy on the stocks held for reasons other than pure investment purposes

Niterra holds the stocks of its suppliers and others basically to maintain and enhance stable business relationships with them, when the company decides that holding the stocks will help increase its corporate value after verifying the economic rationality from medium- to long-term viewpoints. The Board of Directors annually checks whether it is rational and useful in terms of enhancing its corporate value to keep the stocks individually for each of the investee companies, in consideration of the capital cost and comparing the related risks and returns on a medium- to long-term basis. When the Board decides that the company should not continue to hold any of the stocks, the company will sell them as appropriate, in consideration of the market trend.

Criteria for the exercise of voting rights

For the exercise of voting rights for the stocks owned by our company, we will decide whether to exercise the rights for each item of the agenda, considering whether it will contribute to increasing the corporate value of the investee company and of our own company. In particular for the selection of directors, appropriation of retained earnings and other items that have a large impact on shareholder value, we will exercise the voting rights according to the criteria set for the rights.

Enhancement of Group Governance

Niterra has corporate officers who were locally recruited at its regional headquarters (RHQs) for the Americas and EMEA in order to ensure that speedy and accurate managerial decisions are made at bases closer to the markets they serve in view of the company’s globally expanding business environment. We have also formed unique governance teams at the RHQs to build an optimal decentralized system on a group-wide basis and enhance corporate governance as the entire Group.
Moreover, the Global Group Governance Division is in place as an organization that audits the effectiveness of the Group’s governance as an entity that is separate from its business execution. This organization formulates and implements measures to carry out audits on the management of Group companies and RHQs and on the core business operations of each department. It also formulates and implements measures to enhance internal control across the Group and thus plays an important role for the enhancement of the Group’s governance.