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.

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 in Fiscal 2023 was 97%.
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：As he was appointed at the Ordinary General Meeting of Shareholders held on 27 June 2023, his attendance covers the 11 Board of Directors meetings held since his appointment.

*4：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.

＜Board of Directors Department＞

The Board of Directors Department has been established as a dedicated organisation to support the operation of the Board of Directors, with the aim of enhancing the content of deliberations at Board of Directors meetings, strengthening the supervisory function and providing better support and information to the outside directors, who constitute the majority of the Board of Directors. In addition to organising and selecting the agenda for the Board of Directors meetings, formulating the annual schedule and liaising with relevant departments, the Board of Directors Office supports the smooth operation and effectiveness of the Board of Directors meetings by holding briefing sessions for outside directors in advance of the Board of Directors meetings, providing orientation for outside directors when they assume office and operating the Board of Directors effectiveness evaluation. The Board of Directors Office is also in charge of the Nomination Committee and Remuneration Committee and supports the operation of both committees.

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 sharing 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 forming opinions on these matters.

＜Audit and Supervisory Committee Office＞

To support the execution of duties by the Audit and Supervisory Committee, the Audit and Supervisory Committee Office has been established. 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. A summary of the evaluation results for the year 2023 is provided below.

＜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 2023. 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 recognises that addressing issues around sustainability, such as consideration of climate change and other global environmental issues and respect for human rights, is important from the perspective of increasing medium- and long-term corporate value, and confirms that management is actively working to address these issues under an appropriately established structure.
• • 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 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 2023 evaluation of the effectiveness,　the issue of "Improvement of information provision and explanations within the Board of Directors regarding medium- to long-term management strategies" was addressed in order to ensure sufficient information provision and deliberation time when discussing important issues affecting medium- and long-term strategies, and the Board of Directors discussed these issues multiple times from the consideration stage to the final decision-making stage. To ensure sufficient information and deliberation time when discussing important matters affecting medium- and long-term strategies, the Board of Directors discussed these issues several times, from the consideration stage to the final decision. In addition, new off-site meetings were held to discuss medium- and long-term strategies and other issues among the directors, and prior explanations were given to outside directors on important matters to be discussed at Board meetings, and progress reports on the medium-term management plan were provided on an ongoing basis. At the same time, the Board of Directors identified the need to further improve the presentation materials and content aiming to enhance the content of deliberations at Board meetings and improve operational efficiency. With regard to 'strengthening supervision of the management succession plan by the Board of Directors and the Nomination Committee', opportunities were provided for outside directors, who are members of the Nomination Committee, to observe the management human resources development programme and to confirm the status of management human resources development through their involvement in the promotion review process for executive officers. On the other hand, the need for regular opportunities to report and discuss the overall picture and progress of the Succession Plan was identified as an issue.
Based on the results of the current effectiveness evaluation, in addition to the issues mentioned above, the effectiveness assessment identified in-depth discussions on investment in human capital and human capital strategy as desirable items for further improving the effectiveness of the Board of Directors, and we will continue to work on maintaining and improving 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

The Board of Directors is proactively involved in the formulation and operation of succession plans aimed at identifying and developing future COOs and other business leaders.The members of the Board of Directors 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

In addition to checking the operation of the Succession Plan through the Nomination Committee, the representative director and other outside directors are actively involved in human resources development by participating in management human resources development programmes as lecturers and observers.

Details of human capital identification and development measures

In Fiscal 2023, the Management Sparring Dojo, a management human resources development programme, was implemented for the management team, with the aim of developing the competencies and perspectives required for management by the people who will be the next management team (Management Council members).
The programme aims to provide the knowledge (including ESG, science, geopolitics, etc.) that managers need to have, as well as the attitude and thinking required of managers.
In addition, through the global next-generation management human resources development programme 'HAGI' and the selective training 'Nittoku Business School', the programme aims to.
The programme is designed to help companies acquire the knowledge (including ESG, science and geopolitics) they need to succeed in the next generation.

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.
The Remuneration Committee deliberates on the appropriateness of remuneration and reports back to the Board of Directors.

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, employee satisfaction, an indicator reflecting increased employee engagement, and based on the qualitative evaluation of the individual performance of the person.　The indicator for company performance used in the calculation of the bonus amount is consolidated operating profit, which reflects the results of operating activities, with the aim of ensuring linkage with company performance and raising awareness of the need to contribute to improved performance. The amount of the bonus is calculated according to the percentage change in consolidated operating profit for the current financial year compared to the previous financial year and a qualitative assessment of individual performance.

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 in fiscal 2023

*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, 2022.

Separately from the above, a performance-linked stock compensation plan was established by resolution of the 122nd Ordinary General Meeting of Shareholders held on June 24, 2022, for directors of the Company (excluding directors who are Audit and Supervisory Committee members and outside directors) and executive/corporate officers (excluding officers with employment contract), for a maximum amount of 1,000 million yen over a period of four fiscal years from the fiscal year ended March 31, 2022 to the fiscal year ending March 31, 2025.

*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.

*4 The above includes remuneration for one external director (excluding those who are members of the Audit Committee) who retired at the conclusion of the 123rd Annual General Meeting of Shareholders.

For details of the calculation method, please see the Annual Securities Report.

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.