Corporate Governance

Basic Approach to Corporate Governance

Nissha, since its foundation, has been executing strategies that promptly address external challenges, under committed leadership. The Company believes that strengthening corporate governance along with such leadership will promote agile and decisive decision making, as well as ensuring management transparency and fairness. Based on this recognition, the Company places corporate governance as one of the key management issues, strives to maintain and improve it, and seek out sustainable corporate growth and an increase in corporate value over the medium- to long-term.
In an effort to clarify the Nissha Group’s basic approach to and policy for implementing corporate governance, in October 2015 we established a Corporate Governance Policy.

Overview of Corporate Governance

We have established a corporate governance structure as shown in the figure below.
*as of April 1, 2017

Corporate Governance Structure

Nissha’s Management and Business Execution System

We make major business judgments and oversees the execution of the duties of the Directors, Members of the Board at meetings of the Board of Directors, and as a company with an Audit and Supervisory Board, will strive to maintain and improve the oversight and checking functions by Audit and Supervisory Board Members and an Audit and Supervisory Board which are independent from the Board of Directors.
We adopt a corporate officer system in an effort to clarify the powers and authority in the speedy decision making and the implementation of decisions, under which the Board of Directors will be in charge of the formulation of strategies and business oversight, and the Corporate Officers will be in charge of the execution of business. In addition, we also establish a Nomination and Remuneration Committee as an advisory panel for the Board of Directors.

The Board of Directors formulates our Policy for Internal Control, and prepares and oversees the operation of systems designed to ensure appropriate business execution in the Nissha Group.
The President and CEO, Chairman of the Board chairs the following meetings toward appropriate and efficient business execution.

● Management Meeting: Comprises inside directors as core members. Deliberates on matters relating to the direction of important managerial issues within the scope of the President’s authority.
● Monthly Business Review (MBR): Reviews the progress of business strategies based on key performance indicators (KPI) and determines actions to take over the short term. The purpose of the MBR is to monitor business execution by Corporate Officers and quickly respond to changes in the business environment.
●  Investment Committee: Reviews particularly important investment matters prior to submission to the Board of Directors for approval.

We also have in place the following organizations in order to enhance the management monitoring function, ensure that business execution complies with laws and regulations as well as our Articles of Incorporation, and to manage risks.

●  CSR Committee: Chaired by the President and CEO, Chairman of the Board. Comprises eight corporate-wide subcommittees, namely Corporate Ethics and Compliance; BCM (Business Continuity Management); Labor and Human Rights; Environment Health and Safety; Information Security; Trade Administration and Control; Quality; and Customer Satisfaction. Demonstrates leadership in dealing with risks to legal and appropriate business execution.
● Disclosure Control Committee: Chaired by the President and CEO, Chairman of the Board. Discusses the necessity of timely disclosure of corporate information and the contents of disclosure, and discloses important information on the Nissha Group in a timely, proper manner.
●  Internal Audit: Under the direct control of the President and CEO, Chairman of the Board, audits the internal control systems of the Nissha Group, analyzes and evaluates their status of establishment and operation, and offers suggestions for improvement.

Directors, Members of the Board and the Board of Directors

Policy and Procedure for Electing Directors, Members of the Board

Our Board of Directors comprises an appropriate number of 12 or fewer members, taking into account diversity and balance between the knowledge, experience, and skills of the individual to ensure that the board fulfills its role of making important management decisions and overseeing the execution of duties by Directors, Members of the Board, and Corporate Officers.
Inside Directors, Members of the Board are elected for their acquaintance with our operations and suitability for creating a growth strategy and overseeing business execution. Several Independent Directors, Members of the Board are elected who satisfy the requirements of not only the Companies Act but also the “Standards for Independence of Independent Officers”, established by our Board of Directors.
To ensure clarity in management responsibilities for each fiscal year, the term of office of Directors, Members of the Board is set at one year.
Candidates for Directors, Members of the Board are determined in line with the above policies and in consultation with the Nomination and Remuneration Committee.

Diversity of the Board of Directors *as of June 16, 2017

Diversity of the Board of Directors

Diversity of the Board of Directors

At present, our Board of Directors consists of eight members, of which four are Independent Directors, Members of the Board with one being a woman.
The Board includes individuals with experience abroad or at another company, or holding a master’s degree in business administration. Each of our four Independent Directors, Members of the Board have experience and insight into general corporate management, specialized knowledge in corporate governance, management and business strategies, and information technology, and broad insight into monetary economics.

Role of the Board of Directors

Our Board of Directors convenes for regular meetings once a month and for extraordinary meetings as needed. The meetings are chaired by the President.
The Board makes decisions on matters that require resolution by the Board as stipulated by legislation and our Articles of Incorporation, as well as on important managerial matters as stipulated by the Regulations of the Board of Directors and other internal regulations, and overseas business execution by Directors, Member of the Board and Corporate Officers.

Initiatives to Enhance the Content of Discussions

Our Board of Directors meetings involve brisk, substantive discussions. Independent Directors, Members of the Board draw on deep insight into their respective fields of specialty to provide accurate advice and opinions, contributing to the enhancement of both management transparency and the Board’s oversight functions.
Toward improving the quality of discussions, we distribute a meeting agenda and related materials in advance, and explain particularly important matters to independent directors and auditors beforehand. Toward thoroughness, important issues such as the medium-term business plan and major M&A deals are discussed once or twice as matters to be reported prior to being listed as matters to be resolved. By allotting times for briefing and discussion in accordance with the degree of importance of the matter, we aim for sharp, focused meeting operation.
In an effort to enhance the Board’s monitoring function, the status of matters such as major M&A deals and establishment of subsidiaries and joint ventures are reported in meetings after a certain amount of time has passed since the resolution at the Board.
To secure attendance by as many Directors, Members of the Board and Audit and Supervisory Board Members as possible, the secretariat of the Board of Directors creates an annual schedule of board meetings and notifies members in advance.

Evaluation of Effectiveness of the Board of Directors

Once a year since April 2016, our Board of Directors analyzes and evaluates board membership and operation in the previous fiscal year toward continuous improvement in the effectiveness of corporate governance.
In May 2017, we distributed a questionnaire covering all board meetings held in FY2017, and disclosed an outline of the results in a Corporate Governance Report submitted to the Tokyo Stock Exchange in June.

Nissha Corporate Governance

Nomination and Remuneration Committee

Purpose

We have in place a Nomination and Remuneration Committee as an advisory panel for the Board of Directors to ensure objectivity and fairness in the election of directors and auditors, and in determining remuneration of the Directors, Members of the Board. The chair and at least half of the members are selected from Independent Directors, Members of the Board.

Role

With consultation from the Board of Directors, the Nomination and Remuneration Committee deliberates on and provides a response regarding the following matters.
(1) Criteria for electing Directors, Members of the Board and Audit and Supervisory Board Members
(2) Proposals of candidates for Director, Member of the Board and Audit and Supervisory Board Member
(3) Policy on remuneration of Directors, Members of the Board
(4) Remuneration of Directors, Members of the Board

Membership *as of June 16, 2017

(1) Four independent members: Tamio Kubota (Independent Director, Member of the Board and Committee Chair), Kenji Kojima (Independent Director, Member of the Board), Sawako Nohara (Independent Director, Member of the Board), Kazuhito Osugi (Independent Director, Member of the Board)
(2) Two inside members: Junya Suzuki (President and CEO, Chairman of the Board), Hayato Nishihara (Director, Member of the Board and Senior Executive Vice President)

Audit and Supervisory Board Members and the Audit and Supervisory Board

Policy and Procedure for Electing Auditors

Our Audit and Supervisory Board comprises an appropriate number of four or fewer members.
Inside Audit and Supervisory Board Members are elected for the wealth of experience required in auditing. Independent Audit and Supervisory Board Members are elected from attorneys and certified public accountants with a focus on specialized knowledge in legal affairs, financial matters, and accounting, who satisfy the requirements of not only the Companies Act but also the “Standards for Independence of Independent Officers”, established by our Board of Directors.
Candidates for Audit and Supervisory Board Members are determined in line with the above policies, in consultation with the Nomination and Remuneration Committee, with consent from the Audit and Supervisory Board. At present, our Board consists of four members, of which two are Full-time Audit and Supervisory Board Members and two are Independent Audit and Supervisory Board Members.

Role of the Audit and Supervisory Board

Our Audit and Supervisory Board Members and Audit and Supervisory Board audit the execution of duties by Directors, Members of the Board and Corporate Officers as stipulated by legislation, our Articles of Incorporation, and internal regulations, and make appropriate decisions from an independent, objective standpoint on electing and dismissing accounting auditors and exercising their authority relating to audit fees, etc. Independent Audit and Supervisory Board Members draw on their highly specialized knowledge as attorneys and certified public accountants to contribute to the maintenance and improvement of our corporate governance structure.
Our Audit and Supervisory Board determines the duties of Audit and Supervisory Board Members, the audit structure, and the audit standards that describe the evaluation basis for audits and the action guidelines. In accordance with these, the Board develops auditing policies and Nissha Group's Corporate Governance auditing plans.
Complying with these, each Audit and Supervisory Board Member attends the meetings of the Board of Directors and other important meetings, reviews approval documents and other important documents, performs visiting audits at major offices and affiliated companies, and conducts audits by exchanging opinions regularly with the President and CEO, Directors, and General Managers. The Audit and Supervisory Board holds regular meetings with the Accounting Auditor, Internal Audit, and corporate division including the Corporate Finance and Corporate Legal Affairs to closely cooperate with each other and increase the audits’ efficiency. In addition, the Board regularly holds the Group Meeting of Audit and Supervisory Board Members, consisting of full-time Audit and Supervisory Board Members of the Company and Audit and Supervisory Board Members of its affiliated companies, in order to strengthen and enhance audits throughout the whole Nissha Group.

Policy on Determining Remuneration of Directors, Members of the Board and Audit and Supervisory Board Members

As a rule, officer remuneration (for Directors, Members of the Board and Corporate Officers responsible for business execution) follows a system corresponding to degree of contribution to the enhancement of our corporate performance and corporate value. A breakdown of officer remuneration and the procedure by which it is determined are as follows.

Remuneration of Directors, Members of the Board

●  Inside Directors, Members of the Board
Remuneration of Directors, Members of the Board consists of basic compensation, bonuses, and stock compensation. Basic compensation is set according to the individual’s position and the significance of his or her role, and reflects evaluation of the individual’s degree of contribution and performance. Bonuses are based on consolidated business results (net sales, operating margin, performance of the business for which the individual is responsible, etc.) in the relevant fiscal year, and reflect evaluation of the level of target achievement.
The stock compensation program we have in place is called the Board Benefit Trust (BBT). This is a system linked to business results in which Nissha’s shares are acquired through a trust using funds contributed by Nissha, and these shares are paid to Directors, Members of the Board through the trust in accordance with a Policy on Directors’ Stock Compensation, established by our Board of Directors. By further clarifying the link between Directors’ compensation and the value of the company’s shares, and having our Directors, Members of the Board experience together with our shareholders not only the benefits of a rise but also the risks of a decline in share prices, the system aims to increase awareness in Directors, Members of the Board of the importance of improving business results and enhancing the Nissha corporate value over the medium to long term.
The program awards points based on the individual’s position, points calculated according to consolidated net sales and operating income each fiscal year, and in the closing year of a medium-term business plan, points calculated according to the level of achievement of target management indices such as return on investment (ROE) and return on invested capital (ROIC). On a fixed day in the closing year of the medium-term business plan, the points are converted into Nissha shares, and Directors, Members of the Board are paid a cash equivalent of these shares at market value.

●  Independent Directors
Remuneration of Independent Directors, Members of the Board consists of basic compensation only, based on factors such as the individual’s career. Remuneration linked to business results is not provided, as the role of Independent Directors, Members of the Board is separated from business execution.

Procedure

Remuneration is determined by the Board of Directors, in consultation with the Nomination and Remuneration Committee to ensure objectivity and fairness, within the scope of total remuneration approved at the General Meeting of Shareholders.

Remuneration of Audit and Supervisory Board Members

Remuneration of Audit and Supervisory Board Members is determined through discussion with the individual within the scope of total remuneration approved at the General Meeting of Shareholders.
 
Title Total Remuneration
(Million yen)
Remuneration by Category
(Million yen)
Number of
Board Members
Basic Remuneration Bonuses Stock
Directors
 (Excluding Independent Directors)
248 150 57 40 4
Audit and Supervisory Board Members(Excluding Independent Audit and Supervisory Members)  28 28 - - 2
Independent Directors and Independent Audit and Supervisory Board Members
 
41 41 - - 6

Corporate Officers

In order to adapt flexibly to changes in the business environment, we appoint Corporate Officers also taking into account diversity and balance between the knowledge, experience, and skills of the individual. The term of office of Corporate Officers is set at one year.

Nissha Corporate Officers

Nissha Corporate Officers

At present, we have 17 Corporate Officers, of which two are foreign nationals.
These include individuals with experience abroad or at another company, or holding a master’s degree in business administration.

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