Nippon Suisan Kaisha : Corporate Governance Report (June 28, 2022)

Corporate Governance Report

Last Update: June 28, 2022

Nippon Suisan Kaisha, Ltd.

Shingo Hamada

Representative Board Member, President & CEO Contact: Hirokazu Ishii, Investor Relations Section, Corporate Strategic Planning & IR Department

Phone: [phone]

Securities Code: 1332 https://www.nissui.co.jp/english/index.html

The corporate governance of Nippon Suisan Kaisha, Ltd. ("Nissui" or the "Company") is described below.

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

1. Basic Views

With a view to improving the profitability and the capital efficiency of Nissui and its Group companies, as well as to promoting initiatives toward corporate social responsibility to encourage sustainable growth and the medium- to long-term enhancement of corporate value, the Board of Directors will demonstrate the major direction in corporate strategies and other matters and will place greater emphasis on supervising functions while retaining important decision-making functions.

The decision-making functions have been empowered to the Executive Officers (and Executive Committee) headed by the President & CEO, to speed up the decision-making process and to further separate supervising and execution.

Furthermore, in addition to the above management supervising by the Board of Directors, Nissui has adopted the governance structure of a company with an audit & supervisory board, based on its belief in the effectiveness of an audit system over management comprising four Audit & Supervisory Board Members including Outside Audit & Supervisory Board Members who are independent of management.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

The Company complies with all principles of the Corporate Governance Code (including the principles of the Code for companies listed on the Prime Market).

[Disclosure Based on the Principles of the Corporate Governance Code]

(Principle 1.4)

1. Policies on the reduction of cross-shareholdings
   The Company understands that collaboration with various companies is necessary to expand its business and achieve sustainable growth. Based on this understanding, if a cross-shareholding relationship with a company, in particular, is expected to lead to retaining and strengthening business ties over the medium- to long-term, considering the business relationship and costs, the Company continues the cross-shareholding in principle. However, when holding the cross-holding shares becomes less significant, the Company sells them.
2. Review of individual cross-shareholdings
   Each year, the Board of Directors reviews all cross-shareholdings on an individual stock basis in light of underlying economic rationality, the purpose of holding, and other factors from a medium- to long- term perspective. More specifically, the Company decides whether the holding purpose is appropriate given the indices such as "achievement of targets for each individual stock and transactions for the past three years" and "percentage achievement of target ROA."
   In June 2020, the Board of Directors reviewed individual cross-shareholdings, and during the fiscal year, the Company sold shares of nine issues, comprising five listed companies and six non-listed
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companies, including the partial sale of cross-holding shares. In November 2021, the Board of Directors decided to begin working to sell shares of six issues in and after FY2022 in line with the Mid-Term Business Plan. At present, the Company is considering the method for the sale and other details.

1. Criteria for exercising voting rights of cross-holding shares
   The Board of Directors comprehensively considers whether the proposal conforms to the Company's cross-shareholding policy and whether it will lead to enhancing the corporate value of the invested company, before determining whether to approve or reject the proposal and then exercising the voting rights.

(Principle 1.7)

Any competition and conflict of interest transactions with a Board Member and a company substantially controlled by a Board Member shall be subject to examination and resolution by the Board of Directors. The Board Member with a conflict of interest shall not participate in the resolution of such agenda. The Board Member involved in the transaction shall report to the Board of Directors on important matters related to the transaction without delay.

(Supplementary Principle 2.4.1)

The Company believes that actively hiring people from diverse backgrounds stimulates the organization and encourages business development. For this reason, based on the staffing plan by division, the Company actively hires mid-careers including foreign nationals, in addition to new graduates to secure diverse human resources. The Company actively promotes diverse employees into managerial positions regardless of gender, age, nationality, career background, etc.

To make this happen, the Company has decided to first work on hiring and promoting women. It has established numerical targets for the three-year period from April 1, 2022 to March 31, 2025, and set out concrete measures to achieve them as described below.

Numerical targets:

• Hire outstanding talent irrespective of gender and maintain the percentage of women in hires in each fiscal year at 50% on a consistent basis.
• Increase the percentage of female managers to 10% or more.
• Increase the percentage of female Executive Officers and departmental managers to 10% or more.

Concrete measures:

• Examine whether personnel interviewing candidates have unconscious biases and provide them with training to control such biases in order to encourage the hiring of diverse human resources without regard to gender, nationality, education, and other attributes.
• Proactively assign women to the divisions and jobs to which not many women have hitherto been assigned in order to expand the fields of work for women; and increase the percentage of female participants in skill enhancement seminars for managerial position candidates to 50%.
• Help to accelerate the development, and broaden the experience of female employees through systematic task assignment and early transfers for development purposes by harnessing the Career Development Meeting.
• Clarify and expand the pool of female leader candidates primarily by appointing successors to fill unit head positions as well as formulating a development plan and providing training for each appointee.
• Further enhance arrangements to allow flexible work styles, such as by introducing the full teleworking program, in order to enable female employees to proactively develop their career and thereby achieve a balance between work and life events.

Each year, the Company hires around 10 to 20 mid-career workers in light of its business expansion, vacant positions to be filled, and other situations. The promotion of mid-career hires is properly administered as they are subjected to the same promotion requirements and examinations as new graduates hired with no restrictions related to the number of years in service, scope of internal work experience, and so forth. As a result, mid-career hires account for about 24% of all managers and at least 20% of departmental and sectional managers.

Furthermore, to create a workplace where diverse human resources including women can work energetically, maintaining their sound physical and mental health, the Company has adopted arrangements

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to allow flexible work styles such as the aforementioned full teleworking program, flex time without core, hourly leave, and reemployment system. The Company is promoting human resources development to create a corporate culture embracing and leveraging diversity in the workplace, in addition to conducting diversity management training for managers, and an e-learning course across the Company to eliminate unconscious bias.

(Principle 2.6)

The Company has put in place the DB Pension Committee to ensure appropriate management of the defined benefit pension plan, comprising the Chief Financial Officer (CFO), experts in human resources, finance, and other areas, as well as the labor union. The Committee also consults external professionals.

The DB Pension Committee determines an asset manager given its compliance status with the stewardship code, in addition to the investment performance versus benchmark. For the current asset manager, DB Pension Committee has monitored its compliance with stewardship codes.

The compliance status is reported to the Board of Directors once a year.

(Principle 3.1)

1. In formulating the Mid-Term Business Plan for the period from April 2022, the Company redefined its mission (purpose of being) and clarified its long-term vision as "Good Foods 2030."

Mission:

With the wellbeing of the ocean and people as our compass, we are driven to offer the world better food choices.

We are determined to harness the power of our pioneering spirit and industry expertise to create a healthier, more sustainable future through innovative food solutions.

Long-term vision "Good Foods 2030":

A leading company that delivers friendly foods for people and the earth.

To achieve the Good Foods 2030 long-term vision, the Company accelerates sustainability management that creates value for a sustainable society, in consideration of multi-stakeholders. In parallel, the Company reinforces business portfolio management based on ROIC to concentrate its management resources on growth fields with the aim of enhancing corporate value.

Furthermore, guided by the Mid-Term Business Plan "Good Foods Recipe1," the Company is working on the following six basic strategies, as the first recipe to move up toward higher level and achieve the long-term vision in 2030: (i) evolving towards sustainability management, (ii) accelerating global expansion, (iii) opening new businesses & business boundary areas, (iv) innovating productivity, (v) financial strategy, and (vi) strengthening governance.

1. With a view to improving the profitability and the capital efficiency of the Company and its Group companies, as well as to promoting initiatives toward corporate social responsibility to encourage sustainable growth and the medium- to long-term enhancement of corporate value, the Board of Directors will show the major direction in the corporate strategies and other matters and will place greater emphasis on supervising functions while retaining important decision-making functions.
   The decision-making functions have been empowered to the Executive Officers (and Executive Committee) headed by the President & CEO, to speed up the decision-making process and to further separate supervision of management and execution.
   Furthermore, in addition to the above management supervision by the Board of Directors, the Company has adopted the governance structure of a company with an audit & supervisory board, based on its belief in the effectiveness of an audit system over management, comprising four Audit & Supervisory Board Members including Outside Audit & Supervisory Board Members who are independent of management.
2. The Company has established the executive compensation system based on the following basic policy: The compensation system shall (i) support the achievement of the Company's mission and long-term vision, (ii) be designed to eliminate short-term bias and motivate the medium- to long-term improvement of corporate value, (iii) be effective in maintaining and securing outstanding talents, (iv)
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be designed in a transparent, fair and reasonable manner, and shall ensure appropriate determination processes, (v) be aligned to the roles and responsibilities entailed by each rank, and to performance.

In accordance with the above policy, the compensation of Board Members and Executive Officers consists of three elements: (i) basic compensation defined by title as fixed compensation, (ii) annual performance-linked compensation (annual incentive), and (iii) stock-based compensation (medium- to long-term incentive) linked to the achievement of the Mid-Term Business Plan. The ratio among (i) basic compensation, (ii) performance-linked compensation, and (iii) stock-based compensation per year is roughly targeted at 65:30:5 when business performance targets are achieved 100%. Compensation is paid (i) monthly for basic compensation, (ii) twice a year for performance-linked compensation, and (iii) stock-based compensation is in principle linked with the covered period of the Mid-Term Business Plan.

The policy for determining compensation for Board Members and Executive Officers and its procedures are as follows: The policy for determining compensation, etc. of individual Board Members and Executive Officers is determined by the Board of Directors upon deliberation of (i) the basic policy for compensation; (ii) the compensation system; (iii) the compensation levels; and (iv) compensation item composition ratio; among other things, based on comparative verification against benchmark groups by the voluntary Compensation Committee which is chaired by an independent Outside Board Member and consists of three Outside Board Members and two Representative Board Members, with the aim of ensuring compensation commensurate with the company's stage. The amount of each compensation paid to individual Board Members and Executive Officers shall be determined by the Compensation Committee, an independent body delegated by the Board of Directors, from the viewpoint of the objectivity and transparency of the operation of said system.

1. For the nomination of Board Member candidates and selection of the senior management, the Company has in place the voluntary Nomination and Compensation Committee (comprising Representative Board Members and Outside Board Members) as an advisory body to the Board of Directors which deliberates on issues such as the selection and dismissal of candidates for officers including the CEO and succession planning to make recommendations to the Board of Directors. Based on these recommendations, the Board of Directors selects and nominates personnel who are well versed in the Company's business and have expertise as well as capable of balancing appropriate decision-making for the overall corporate management. Candidates for Outside Board Members are selected and determined from persons who can use their wide range of experience and deep insight gained, for instance, at listed companies in managing the Company. Candidates for Audit & Supervisory Board Members are selected from persons who have expertise required for auditing such as insight into finance and accounting as well as abundant knowledge from a wide range of fields and determined by the Board of Directors. The candidates for Audit & Supervisory Board Members are selected with the prior consent of the Audit & Supervisory Board.
2. The Company specifies in the Notice of the General Shareholders' Meeting the skills of all candidates for Board Members and Audit & Supervisory Board Members, and the reason for their selection and dismissal.

(Supplementary Principle 3.1.3)

• Sustainability initiatives
  In formulating the Mid-Term Business Plan for the period from April 2022, the Company redefined its mission (purpose of being) and established a long-term vision entitled "Good Foods 2030," which dictates that it become "a leading company that delivers friendly foods for people and the earth." To achieve the long-term vision, the Company accelerates sustainability management that creates value for a sustainable society, in consideration of multi-stakeholders.
  The Company's sustainability initiatives are disclosed on its website (https://nissui.disclosure.site/en).
• Initiatives to invest in human capital
  Diversity & inclusion is essential to drive a company to grow, while satisfying social sustainability requirements, given that it is imperative to nurture human resources who proactively address social issues through business. Prioritizing women's advancement in society, the Company endeavors to create a working environment in which women can thrive by taking concrete measures to achieve the numerical targets specified in Supplementary Principle 2.4.1 above. It also participates in the 30% Club Japan to promote women's participation in management.
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In an effort to accelerate global expansion, one of the basic strategies under the Mid-Term Business Plan, the Company aims to make a vibrant organization embracing diversity by hiring and nurturing foreign nationals, mid-career workers, and other human resources capable of competing on the global stage. At the same time, the Company advances health and productivity management to support the mental and physical health of employees, by promoting the health of individuals, supporting the balance between personal and work lives, and providing a comfortable and rewarding workplace.

• Initiatives to invest in intellectual property
  To ensure business sustainability, a designated unit set up in the Corporate Communication Section of Corporate Communication Department manages the Company's overall brands, and a unit at the Central Research Laboratory manages patents and know-how to focus on securing the intellectual properties of the Company and enhancing their value. The Company pursues the development of new farming and processing technologies to further procure sustainable marine resources as well as pharmaceutical products and health products (including research) which contribute to people's healthy life. The Company has actively acquired the rights to many different intellectual properties arising from technology development, in order to ensure superiority and continuity in business.
• Disclosure based on TCFD framework
  In 2021, the Company endorsed the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and joined the TCFD Consortium.
  Accordingly, the Company identifies climate-related risks and opportunities, assesses their business and financial impacts by conducting scenario analysis, and discloses the information based on the four disclosure elements suggested by the TCFD Recommendations-namely, governance, strategy, risk management, and metrics and targets.
  (https://nissui.disclosure.site/en/themes/223)

(Supplementary Principle 4.1.1)

While the Board of Directors shows the overall direction of the Company, such as its management philosophy, vision, and medium- to long-term business plans, and makes important decisions, the decision- making functions have been empowered to the Executive Officers (and Executive Committee) headed by the President & CEO, to speed up the decision-making process and to further separate supervision of management from execution. The internal rules clearly define the scope of delegating decision-making authority, including that of Group companies, by type of decisions and amount value. Detailed reporting to the Board of Directors is required to enable the Board to fully exercise its supervisory function when delegation is made to the Executive Officers (and Executive Committee).

(Principle 4.9)

The Company has designated Outside Board Members and Outside Audit & Supervisory Board Members satisfying the Company's own criteria, in addition to the independence criteria provided by the Tokyo Stock Exchange, as Independent Board Members/Audit & Supervisory Board Members. For the details of the Company's criteria, please refer to "Independence Criteria of Outside Executive Officers" described in Ⅱ 1. "Independent Board Members/Audit & Supervisory Board Members" hereunder.

(Supplementary Principle 4.10.1)

The Company has in place the voluntary Nomination and Compensation Committee (comprising three Outside Board Members and two Representative Board Members) as an advisory body to the Board of Directors. An Outside Board Member serving as Chairperson is authorized to determine the agenda and convene a committee meeting, and the majority of Committee members consist of Outside Board Members to ensure further independence and objectivity in discussing important issues such as nomination and compensation. More specifically, the Nomination Committee deliberates on issues such as the selection and dismissal of candidates for officers including the CEO, succession planning, and compensation system for Board Members, etc., and details (basic policy, compensation structure, calculation method, decision- making process, selection of evaluation items and criteria, etc.) and makes recommendations to the Board of Directors. The Compensation Committee, delegated by the Board of Directors, decides on the amount of the compensation of individual members to ensure transparency and neutrality concerning compensation. As such, the Company seeks timely and appropriate involvement and advice of the Nomination and Compensation Committee when considering, in particular, important matters such as nomination and compensation.

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