Nippon Express : Corporate Governance Report

Corporate Governance Report

Last Update: February 22th, 2022

22th February 2022

NIPPON EXPRESS HOLDING, INC.

Name of representative Mitsuru Saito President, CEO

Contact: [phone]

Code No. 9147 First Section of the Tokyo Stock Exchange

Web site: https:// www.nipponexpress-holdings.com/

The corporate governance of NIPPON EXPRESS HOLDING, INC. ("Nippon Express" or "Our company") is described below.

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other

Basic Information

1. Basic Policy

1. Basic Views on Corporate Governance

In accordance with the Nippon Express Groupʼs corporate philosophy, we believe that it is important to establish appropriate corporate governance and a group management system in order to solve social issues through logistics, support the sustainable development of society, and achieve the ideal of the corporate group set out for 2037 in our long-term vision. Based on these ideas, we have established the following basic policy for Nippon Express Group governance.

【Nippon Express Group Basic Policy on Governance】

［Nippon Express Group Corporate Philosophy］ Our Mission

Be a Driving Force for Social Development Our Challenge

Create New Ideas and Value that Expand the Field of Logistics Our Pride

Inspire Trust Every Step of the Way

［2037 Vision］

Business growth: A logistics company with a strong presence in the global market

Customers & Society: A company that contributes to achieve a sustainable society through logistics

Shareholders: A company that achieves sustainable growth by establishing corporate governance

Employees: A company whose employees come from a variety of backgrounds, are proud of their work, support customers and society, and play active roles

＜Basic Concept Oriented Towards Realizing the Long-term Vision＞

・The NIPPON EXPRESS GROUP resolves social issues through logistics, and contributes to sustainable development and growth of our clients and society based on our corporate philosophy.

・We will meet stakeholdersʼ expectations and create value together, in an aim to realize the long-term vision that depicts the ideal stance of the NIPPON EXPRESS GROUP in 2037, based on our corporate philosophy.

・To realize these, we will establish corporate governance and optimally build a group governance structure, which will service as the premise for corporate governance.

＜Basic Concept Oriented Towards Establishing Corporate Governance＞

To realize increased corporate value and sustainable growth, we will respect the positions of stakeholders, such as our shareholders, and build appropriate governance of offense and defense.

Corporate Governance to Aim for

・Expansion of global business based on "prompt/decisive decision-making and clarification of responsibility"

・Growth of a robust corporate group based on "ensuring thorough compliance and transparency of management"

Approaches Aimed at Establishing Corporate Governance

・Continuous improvement of governance in line with the meaning of each principle in the Corporate Governance Code ・Promotion of compliance management

・Construction of a strong group governance structure

＜Basic Concept Oriented Towards Evolving Group Governance＞

To ensure that corporate governance functions appropriately, and to realize maximization of value as a corporate group, the group governance structure will continue to be evolved globally.

Group Governance to Aim for

・Establishment of a group management structure that realizes "maximized value as a corporate group" ・Construction of a global governance structure that realizes "further expansion of overseas business"

・Sophistication of a business management structure that realizes "appropriate business portfolio management" and "customer-oriented optimization of the entire group"

Approaches Aimed at Evolving Group Governance

・Strengthening of group management strategy functions based on a holding company structure, clarification of roles and responsibilities of Group companies, structural and organizational design for realizing an optimized Group as a whole

・Construction of a global risk management system based on linkage between holding companies and presiding companies ・Sophistication of group databases and promotion of data-oriented management

【Reasons for Non-compliance with Principles of the Corporate Governance Code】

Our company will implement all the principles of the Corporate Governance Code revised in June 2021, including those for the prime market applicable April 4, 2022.

【Disclosure Based on Principles of the Corporate Governance Code】

In addition to disclosing each principle of the Corporate Governance Code in accordance with the statutory requirements revised in June 2021, including those for the prime market applicable April 4, 2022, our Company's response policies and implementation details for all 83 principles of the Basic Principles, Principles and Supplementary Principles are listed in "Nippon Express Policy and Implementations of JPXʼs Corporate Governance Code". These are available at the end of this document and on our Company's website.

(Japanese website) https://www.nipponexpress-holdings.com/ja/ir/governance/(English website) https://www.nipponexpress-holdings.com/en/ir/governance/

Our implementations of the eleven principles of disclosure are as follows:

【Principle 1.4 Cross-Shareholdings】

In principle, our company will reduce cross-shareholdings and will not acquire new shares from other companies. We will not accept any cross-shareholding requests for the sake of retaining loyal shareholders. However, as an exception, we may hold such shares if we decide that the action would improve our mid to long-term corporate value by increasing the number of business transactions, expanding our business scope, strengthening our relationship with business partners and promoting cooperative collaborations.

For cross-shareholdings, our board of directors will annually review the rationality of holding each share name including capital costs and benefits of holding. The benefits will be evaluated not only from quantitative aspects but also from qualitative aspects. Specifically, we will review the benefits using the following criteria:

1. Whether or not the benefits of cross-shareholdings are in proportion with the weighted average cost of capital (WACC) in our companyʼs capital policy.
2. Whether or not holding these shares has contributed in expanding our companyʼs marketing area (i.e. whether or not it has created reasonable sales against the market value of the shares).
3. Whether or not holding these shares has contributed in increasing our corporate value (i.e. whether or not it has strengthened our relationship with business partners or promoted cooperative collaborations).
4. Whether or not we can expect an improvement of our corporate value in the future according to our business strategy (i.e. an increase in the number of business transactions or expansion of our business scope).

We conducted the above review at the Nippon Express Co., Ltd.`s board meeting held in May 2021, and the result was as follows:

We conducted the above review at the board meeting held in May this year, and the result was as follows: (Specific cross-shareholdings)

1. Number of stocks to which one or more of the criteria listed above applies: 58
2. Number of stocks which we are planning to sell part or all: 20

(Deemed cross-shareholdings)

1. Number of stocks to which one or more of the criteria listed above applies: 7
2. Number of stocks which we are planning to sell part or all: 4

* Seven of the above overlap with the stocks we are holding.

Our company policy for each category:

Regarding (A), our company considers that there is a rationality in holding these shares. However, we will provide opportunities to hold dialogues with the issuing companies as necessary. We will check the positioning of our companyʼs shareholdings, and if we can confirm that there will be no damage to our relationship with the issuing bodies by selling the shares, we will sell them by taking into consideration our companyʼs fund and market conditions.

Regarding (B), these stocks are the ones which we have decided to sell part or all of our holdings after discussions with the issuing companies, but have not yet sold after taking into consideration our companyʼs fund and market conditions. We will continue to review the time and method for sales. Note that those shares which are to be sold partially but still owned by our company will fall into one or more of the above criteria and policy (A) will apply.

Under these policies, Nippon Express Co., Ltd. which was listed company in FY2020 prior to the transition to the holding company structure, sold the entire shares of 11 stocks and the part of 5 stocks listed in specific cross-shareholdings. This brought us approximately 11.6b yen.

As a result, the number of listed companies which we still held shares of as cross-shareholdings was 78 (-12.4% from the previous year) and 11 of the deemed cross-shareholdings (no change from the same period of the previous year) as of the end of March 2021. (Seven of the above belong to both categories.)

Our company opposes the following actions regarding exercising voting rights on cross-shareholdings.

1. Actions which may lose the balance between holding on cross-shareholding and the purpose of cross-shareholding.
2. Actions which hinder the maintenance and expansion of the relationship with our business partners.

Our company will have regular meetings with the issuing companies of the shares and check our agreed upon standpoint concerning these s hares. However, if we see a rapid deterioration in an issuing companyʼs business performance or a sign of a weakening in our business relationship with a company, we will set up a meeting as soon as possible and utilize the results when deciding whether or not to approve actions.

【Principle 1.7 Related Party Transactions】

When a board director engages in competing transactions, transactions between a board director and our company or transactions involving any conflict of interest, the director must seek approval at a meeting of directors including independent outside officers. We conduct an investigation each year to see if any of our board directors, corporate officers or A & S Board Members engage in transactions with our company or a consolidated subsidiary. We disclose the results in our annual securities report in accordance with regulations including the "Accounting Standards for Related Party Disclosures." Currently, there is no such transaction in existence.

【Supplementary Principle 2.4.1 Policy on ensuring diversity】

(ⅰ) Ensuring diversity

With respect to ensuring diversity in the workforce, which forms the basis of diversity management, we will work to put them into practice, based on Nippon Express Group "Basic Policy on Diversity Promotion".

【Nippon Express Group "Basic Policy on Diversity Promotion"】

By promoting diversity and creating an environment where all employees respect each other's diversity and maximize the power of each employee, we will realize "self-growth and self-fulfillment for employees" and "sustainable growth and improvement of corporate value of Nippon Express Group".

"Respect for Diversity"

We will respect each other regardless of age, gender, sexual orientation, gender identity, nationality, disability, etc.

To date, we have been working to increase the number of employees, especially new graduates in career-track positions, create a work environment where everyone can work comfortably, and foster career motivation among female employees. These efforts have produced some results, such as an increase in the proportion of women among employees in their 20s and the ratio of female employees who continue to work for the company.

However, issues remain in raising the overall number of female employees and the proportion of women in management positions. In order to address these issues, we have set targets for expanding the pool and the proportion of women in management positions that play a central role in the company.

Going forward, we will work to achieve these targets by expanding the overall pool through various channels, such as fostering increased awareness among employees (area staff) and hiring experienced personnel, as well as reviewing training and allocation of staff.

In addition, from the perspective of ensuring diversity on the Board of Directors, we will strive to increase the number of female members. (As of September 2021: 1 female director and 1 female Auditor, Ratio of female directors of the Board of Directors, including A & S Board Members 14.2% %. In addition, one female auditor has been appointed to Nippon Express Co., Ltd., the group's main subsidiary.)

･Goal for hiring new female graduates for career-track positions

Increase the percentage of women hires to 50%. (Recruitment percentage in 2021: 44.0％） ･Goal for proportion of women in management positions

Increase the proportion of women in management positions to 10% or more by the end of FY2030. (Percentage as of April 1, 2021: 1.52％）

* Both KPI figures are for non-consolidated Nippon Express Co., Ltd.

＜Appointment of foreign nationals to management positions>

Our group has 755 overseas offices in 48 countries, with more than 20,000 foreign employees. In addition, due to the promotion of local management of overseas operating companies, the percentage of foreign employees in the post of president at overseas operating companies has exceeded 30%. Since foreign employees play an active role as core personnel supporting our overseas operating companies, we have not set or disclosed KPIs for appointing them as core personnel at this time. In the future, we will continue to promote the localization of top management and reinforce the human resource development of top management at overseas operating companies.

＜Appointment of experienced personnel to management positions>

In order to secure diverse human resources to facilitate diversity management, eliminate biases in the makeup of the workforce, and secure professional human resources with expertise in specialized fields such as industrial logistics and new businesses, in FY2019, we drew up a recruitment plan (260 employees in total over five years) and have been actively recruiting experienced personnel, mainly in the younger and mid-career levels with diverse experience.

However, due to the impact of COVID-19 on our business and changes in the market for hiring experienced personnel, the actual results fell far short of the target and it became difficult to achieve the target. Therefore, for the transitional year, we have revised the target figures in accordance with the actual results.

Going forward, we will set up a full-time recruitment team to achieve these targets, as well as taking a proactive approach to recruiting women, foreign nationals, and managers, for whom particularly intensive hiring efforts are required. This will allow us to achieve our targets and increase diversity in our core personnel by hiring experienced staff.

･Experienced personnel recruitment plan

Hire 190 experienced personnel by FY2023 (5-year cumulative total) * Both KPI figures are for non-consolidated Nippon Express Co., Ltd.

(ⅱ) Policy for developing human resources and the internal company environment to ensure diversity, and its current status

Nippon Express is committed to promoting diversity management, enhancing employee satisfaction, and improving employee engagement, thereby becoming a company where a diverse range of employees can play an active role while feeling happy and creating new value.

Furthermore, in harmony with society and by practicing our corporate philosophy, we will proactively invest in our employees and enhance our corporate value. The cornerstone of our human resource development will be producing "autonomous personnel" who are not afraid of change, take action proactively, and continue to grow independently.

Specific initiatives are described in the CSR Databook.

【Principle 2.6 Roles of Corporate Pension Funds as Asset Owners】

In order to support our employeesʼ asset formation and reduce management risk of corporate pension funds, Nippon Express, the group's main subsidiary, adopted a defined contribution pension system in 2007.

In order to teach our employees how to increase their assets, we are working to educate them in how to properly do this. As a part of new employee education, we implement fixed contribution pension seminars and teach basic knowledge on the systems used to start asset management and relevant precautions.

We conduct investment educational seminars once a year for our pension fund beneficiaries and teach employees the importance of long-term investments, continuous investments and diversified investments, depending on their individual future plans. In order to make this more effective and realistic, we review the educational content based on the monitoring results of operation status in cooperation with the operation management institution. In addition, we form a committee with the labor union to reflect the opinions and requests of the members.

In selecting products, we consider not only the potential for the highest possible returns, but also the following factors with respect to the investment trusts: (1) a sufficient net asset balance, (2) a stable return over a certain period of time, (3) the degree of linkage to the benchmark for passive products, and (4) the balance of risk and return for active products. After that,

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