Looking from the Outside In

With the establishment of a Corporate Governance Policy in October 2015, we at Nissha have undertaken to enhance corporate governance and further improve the functions of our Board of Directors.
From June 2016, Nissha have increased one Independent Director, which makes the number of Independent Directors four, accounting for a half of eight Directors being Independent Directors.
Here, we asked our three existing independent directors—Tamio Kubota, Kenji Kojima, and Sawako Nohara—to evaluate the achievements and issues of our Board of Directors in FY2016 and of the first year of the Fifth Medium-term Business Plan implemented since FY2016. We also asked our new independent director elected in the 2016 Ordinary General Meeting of Shareholders, Kazuhito Osugi, to evaluate the company in the context of macroeconomics based on his broad general knowledge of monetary economics.

In my opinion Nissha adopts high standards of corporate governance, starting with an effective Board of Directors.The key to achieving the goal of the Fifth Medium-term Business Plan is to reform the behavior patterns of organizations and human resources. (Tamio Kubota)

Evaluation of Nissha Board of Directors (Five-scale rating)

Tamio Kubota, MBA, Independent Director, Member of the Board

Tamio Kubota, MBA, Independent Director, Member of the Board

The Nissha Board of Directors comprises seven members of which three are independent directors, and from June 2016, eight members of which four are independent directors. In size, balance, and diversity of backgrounds, I believe the composition is appropriate. Meetings of the Board of Directors cover a broad range of agenda items, both resolved and reported. Thanks to the detailed materials provided in advance, we convening members are able to organize the points at issue beforehand, and raise questions and engage in productive discussion on the day of the meeting. Having fully discussed the proposals, those requiring additional explanation or re-examination are often carried over to the next session. Considering that the results are thoroughly analyzed, reflected on, and reviewed, in my opinion the Board of Directors is sufficiently effective. Nissha ensures effective operation of its corporate governance structure, and I see no particular room for improvement.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
5 5 4 4

Achievements and Issues in the First Year of the Fifth Medium-term Business Plan

The Fifth Medium-term Business Plan names reorganization of the Nissha business portfolio as a core strategy. But the achievement rate of numerical targets was inadequate in the first year. Consolidated net sales have not increased a great deal from the previous fiscal year, and recovery of operating income is falling behind in all business segments save for Devices. Although Industrial Materials has made a welcome comeback thanks to M&A activities overseas (the acquisition of AR Metallizing as a subsidiary), existing product lines remain sluggish.
Nissha recognizes that a reorganization of its business portfolio cannot be achieved without a reshuffling of organizations and human resources. The company has undertaken to rebuild its personnel system to this end, although the effects are still limited. As mentioned above, Nissha’s top priority is to restructure and reinforce Industrial Materials. Yet the marketing strategies and tactics of Life Innovation and Information and Communication also lack power. All business segments require a common approach: constantly look back and check on behavior patterns. Are organizations and human resources lapsing into mannerism, unable to take steps beyond an extension of past practices? Conventional approaches alone are not enough to realize the goal of reorganization, either in terms of numerically or time.
The key to rebuild a structure for amplifying the scale and strength of marketing activities is to enhance speedy effectiveness of various aspects from a broad point of view, such as reanalyzing data in terms of business, product and market, acknowledging obstacles and its challenges, presenting managerial approaches and specific measures, allocating and positioning human resources, and forming organization, without being constrained by restrictions and fixed ideas that Nissha used to have. Constructive destruction and reconstruction are essential to enhance such effectiveness, by collaborating between the business division and corporate division in the group’s entire work process without making any off-limits. Take on challenges! I look forward to seeing a fresh round of efforts toward achieving the goal of the Fifth Medium-term Business Plan.

Profile

April 1972: Entered The Dai-Ichi Kangyo Bank, Limited (currently, Mizuho Financial Group, Inc.)
June 1979: Received Master’s degree in Business Administration from Yale University, USA
January 2001: General Manager, International Credit Supervision Department, The Dai-Ichi-Kangyo Bank, Limited
April 2002: Joined TOKYO LEASING CO., LTD. (currently, Century Tokyo Leasing Corporation)
June 2006: Representative Director of the Board and Senior Executive Officer, TOKYO LEASING
June 2007: Senior Executive Officer, TOKYO LEASING
June 2007: Independent Director, Member of the Board, Nissha Printing Co., Ltd. (current position)
June 2008: Independent Audit and Suppervisory Board Member (full-time), Takashima and Co., Ltd.

Major activities and reason for election

Mr. Tamio Kubota attended all of the 21 meetings of the Board of Directors held during the fiscal year ended March 31, 2016. He has given valuable advice and opinions from his point of view as a corporate manager across the whole range of the Company’s management, making the most of his international knowledge, broad experience as a manager or an audit and supervisory board member in other companies and his excellent judgment gained through such experience. We elected him as an Independent Director, Member of the Board since we judged that he will continue to give his valuable counsel.

The presence of independent directors enhances the oversight functions of the board of directors and helps to maximize corporate value.In order to make an achievement in reorganizing product and market portfolios, both officers and employees should build awareness and capabilities, and have the tenacity to achieve targets. (Kenji Kojima)

Evaluation of Nissha Board of Directors (Five-scale rating)

Reforms in corporate governance structure and function are underway at Japanese companies. One major objective of the reforms is to enhance the functions of the board of directors. To this end, the role of the board is to effectively carry out three oversight functions, given below.
The first is, having clearly separated between business execution functions and oversight functions, to check if business execution carried out by management (corporate officers) serves the interest of stakeholders effectively. The second is to check that management carrying out business execution complies with laws and the articles of incorporation. And the third is to check that management fulfills its accountability to stakeholders by disclosing necessary information that satisfies a certain level of consistency, continuity, and transparency.
These oversight functions are effective when they ensure that business execution carried out by management serves the interest of stakeholders, and when the board of directors has its constitution and operation that enable to balance the advantages and disadvantages of stakeholders. The inclusion of independent directors in the board of directors helps to clarify the functions of the board of directors, divide business execution from oversight functions with the objective of creating corporate value, and ensure appropriate oversight of management carrying out business execution in line with this objective.
In my opinion the Nissha Board of Directors effectively carries out these three oversight functions. In future, it would help to enhance the organizational structure so that management can swiftly share accurate information regarding business execution and fully draw on the knowledge and insight of the independent directors.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
4 4 3 4

Achievements and Issues in the First Year of the Fifth Medium-term Business Plan

Nissha has entered a new phase of growth in which ongoing, swift efforts are required to implement drastic reforms and adapt to the changing corporate environment. To this end, Nissha’s top priority is to speed up reforms by using revenues from existing business as capital for new business development. In such a recognition, the Fifth Medium-term Business Plan is formulated around the medium-term vision of reorganizing the Nissha business portfolio.
Of the five basic strategies given toward achieving this reorganization of business portfolio, four have yet to see sufficient results, excluding “growth using M&A.” Further efforts are needed particularly in “reorganize product and market portfolios” in order to achieve the Fifth Medium-term Business Plan by the end of FY2018. To effectively and efficiently execute the five strategies, Nissha must both reinforce and reorganize its organizational capabilities.
The organizational capabilities required to achieve the plan are accurate understanding of changes in the business environment, the drive to promptly respond to those changes, and the tenacity to achieve targets. Top management (corporate officers and department directors) should focus on building speed and persistence for executing business to deal with change. It should also perform a fundamental review of the traditional thought and action framework, and take the initiative in reorganize it based on a clear understanding of the contents and standards required.
Middle management should base its actions on an accurate understanding of the details and methods of strategy execution assigned to it. Further, it should share this with employees, translate it into personal challenges and targets, and ensure that the personal targets are steadily being met.
Both Nissha directors and top and middle management need to be fully aware of the reality of the circumstances, and commit to reinforcing the managers’ business execution capabilities and the directors’ oversight and checking capabilities.

Profile

April 1970: Entered Matsushita Electric Industrial Co., Ltd. (currently Panasonic Corporation)
June 1975: Received Master of Business Administration from the Kellogg School of Management, Northwestern University, USA
March 1979: Completed Doctoral program in Graduate School of Business Administration, Kobe University, Japan
March 1985: Visiting Scholar, Yale School of Management, Yale University, USA
September 1988: Visiting Scholar, School of Engineering, Stanford University, USA
January 1993: Visiting Scholar, Department of Economics, Harvard University, USA
May 1999: Professor, Research Institute for Economics & Business Administration, Kobe University
June 2008: Independent Director, Member of the Board, Nissha Printing Co., Ltd. (current position)
April 2012: Specially Appointed Professor at Research Institute for Economics & Business Administration, Kobe University (current position)

Major activities and reason for election

Mr. Kenji Kojima attended all of the 21 meetings of the Board of Directors held during the fiscal year ended March 31, 2016. He has given his valuable advice and opinions from an independent point of view across the whole range of the Company’s management, which comes from his deep knowledge as a researcher in corporate governance and corporate strategy, and also his rich experience in developing businesspersons in the Kobe University Graduate School of Business Administration MBA program. We elected him as an Independent Director, Member of the Board, since we judged that he will continue to give his valuable counsel.

I join the vigorous discussions at Nissha meetings of the Board of Directors.Amid growth through M&A activities, a challenge moving forward is risk management covering the entire global Nissha Group. (Sawako Nohara)

Evaluation of Nissha Board of Directors (Five-scale rating)

Sawako Nohara, Independent Director,Member of the Board

Sawako Nohara, Independent Director,Member of the Board

Nissha’s meetings of the Board of Directors are a place for long, vigorous discussion, where corporate and independent directors and Audit and Supervisory Board Members as well as corporate officers when necessary, exchange candid views on a variety of management topics. With the establishment of a Nomination and Remuneration Committee in 2015, and the election of four independent directors in June 2016 for a board comprising an equal number of corporate and independent directors, Nissha continues to work actively toward strengthening its corporate governance structure.
In light of the M&A activities overseas which Nissha has conducted in a proactive manner, one challenge is to prepare a governance structure covering subsidiaries not only in Japan but also abroad. Also, the regularity with which corporate and independent directors and Audit and Supervisory Board Members engage in lengthy discussion poses the risk of weakening the objective standpoint of the independent officers. In an effort to avoid this, I will continue to strive to offer input from my own independent position as well as the objective viewpoint of Nissha’s diverse stakeholders.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
4 3 4 3

Achievements and Issues in the First Year of the Fifth Medium-term Business Plan

Nissha has entered the second year of its Fifth Medium-term Business Plan, covering the three-year period from FY2016 to FY2018. The plan aims to correct excessive reliance on the IT industry and establish balanced management through the development of new proprietary core technologies beyond printing, as well as by acquiring and merging new technologies through M&A, and expanding into global growth markets such as automobiles, packaging materials, and medical materials. In FY2016, Nissha gained entry into the metallized paper and packing materials fields with its acquisition of the AR Metallizing Group as a subsidiary, and then with that of Málaga Produtos Metalizados by the AR Metallizing Group. In other areas as well, I believe the Fifth Medium-term Business Plan is progressing smoothly.
As Nissha continues to conduct M&A activities both in Japan and abroad toward achieving the goal of the Fifth Medium-term Business Plan, an important challenge will be to build a risk management system covering the entire global Nissha Group in addition to enhancing the governance structures of individual subsidiaries.

Profile

December 1988: Joined Living Science Institute, Inc.
July 1995: Entered InfoCom Research, Inc.
July 1998: Head of the E-Commerce Business Development Group, InfoCom Research, Inc.
December 2000: Director, IPSe Marketing, Inc.
December 2001: Representative Director, President of IPSe Marketing, Inc. (current position)
June 2006: Independent Director, Member of the Board, NEC Corporation
November 2009: Project Professor, Keio University Graduate School of Media and Governance (current position)
June 2012: Independent Audit and Supervisory Board Member, Sompo Japan Insurance Inc.
June 2013: Independent Director, Member of the Board, NKSJ Holdings, Inc. (Currently, Sompo Japan Nipponkoa Holdings, Inc.) (current position)
June 2014: Independent Director, Member of the Board, Nissha Printing Co., Ltd. (current position)
June 2014: Independent Director, Member of the Board, Japan Post Bank Co., Ltd. (current position)

Major activities and reason for election

Ms. Sawako Nohara attended 18 of the 21 meetings of the Board of Directors held during the fiscal year ended March 31, 2016. She has given valuable advice and opinions from an independent point of view across the whole range of the Company’s management, making the most of her profound knowledge of the Internet business, broad experience as a corporate manager, director, and an audit and supervisory board member in other companies, and excellent judgment gained through such experience. We elected her as an Independent Director, Member of the Board since we judged that she will continue to give her valuable counsel.

Amid an increasingly uncertain global economy, companies are required to adapt to change and take on bold challenges.As independent director, I hope to contribute to the “practical” application of corporate governance at Nissha. (Kazuhito Osugi)

Macroeconomic Outlook and the Challenge Posed to Companies

Kazuhito Osugi, MBA, Independent Director, Member of the Board

Kazuhito Osugi, MBA, Independent Director, Member of the Board

The global economy is looking increasingly uncertain at the moment. Resource-rich countries and emerging economies are in a slump due to stagnant resource prices, the Chinese economy is sluggish, and even the prospects of US monetary policy are difficult to predict. Eight years on since the chaos in the world’s financial markets in 2008, the global economy has not yet fully recovered strength and disinflation is all but ubiquitous in the developed world. Whereas deflation once appeared to be a phenomenon unique to Japan, today policymakers in other developed countries also fear the risks of a similar relapse.
In a sense, corporate administration is an endless struggle with uncertainties. Charles Darwin says, “It is not the strongest of the species that survives, but the one that is most adaptable to change.” In the world today full of uncertainties, now is the time when companies must summon their entrepreneur spirit, take on bold challenges, and adapt to change.
After school I built a more than 38-year-long career at the Bank of Japan. The job of the central bank is to prepare a macro environment for facilitating the activities of private companies. I have never had a hand in economic growth, however, as this depends solely on the activities of the individual companies. Being elected as an independent director of Nissha has filled me with a sense of joy and pride at finally being able to contribute directly to the growth of the economy.
At this very moment, Japan is taking its first steps into a new era of corporate governance. With the revision of the Companies Act and the establishment of a Corporate Governance Code, a system has largely been set in place over the past few years. The next phase will likely put companies to the test, as it will require “practical” execution of corporate governance under the new system, and the skills to link this governance to strong, sustainable corporate growth. I hope to draw on my insight and sincerely fulfill my duties as independent director of Nissha.

Profile

April 1977: Entered the Bank of Japan
May 1984: Received Master’s degree in Graduate School of Business Administration from University of Michigan, USA.
November 1986: Economist, BIS(Bank for International Settlements)
June 1999: General Manager, the Bank of Japan Matsumoto Branch
May 2001: Deputy General Manager, the Bank of Japan Osaka Branch
May 2003: Senior Director, Industrial Revitalization Corporation of Japan
July 2005: Deputy Director- General, Head of Center for Advanced Financial Technology, the Bank of Japan Financial System and Bank Examination Department
May 2006: Director-General, the Bank of Japan Internal Auditors’ Office
April 2007: Director-General, the Bank of Japan Secretariat of the Policy Board
April 2009: Guest professor, Ochanomizu University
September 2011: Auditor, the Bank of Japan
October 2015: Counsel, Guarded Transportation Division, Nippon Express Co., Ltd. (current position)
June 2016: Independent Director, Member of the Board, Nissha Printing Co., Ltd. (current position)

Reason for election

We elected Mr. Kazuhito Osugi as an Independent Director, Member of the Board since we judge that he will give his valuable counsel from an independent point of view and broad perspective across the whole range of the Company’s management, making the most of the deep insight in the field of finance he has cultivated in the Bank of Japan over the years.

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