Nitto Boseki : Corporate Governance Report 2021/10/04

Corporate Governance Report

NITTO BOSEKI CO., LTD

Last Update: October 4, 2021

Nitto Boseki Co, Ltd.

Yuichi Tsuji, Director, Representative and Chief Executive Officer Contact: Corporate Communication Department Securities Code: 3110 https://www.nittobo.co.jp/eng/index.html

The corporate governance of Nitto Boseki Co., Ltd (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and

Other Basic Information

1. Basic Views

The Nittobo Group constantly revises corporate governance with the aim of creating a fair and highly transparent management organization in order to conduct business activities with emphasis on social trust from the Nittobo Group's shareholders, investors and other stakeholders.

The Company introduced an executive officer system in June 2003 and has created a system able to maximize the effect of consolidated management by invigorating the Board of Directors and speeding up decision making. Since June 2008, management has been conducted by further clarifying the functions and roles of management and business execution.

In addition, with the approval of the Ordinary General Meeting of Shareholders on June 26, 2014, the Company shifted to a company with Nomination Committee, etc. By doing so, the Company further clarified the separation of supervision from execution and has aims to strengthen supervisory functions, ensure highly transparent management, execute business swiftly, and increase the flexibility of management. Furthermore, by establishing a system that enables it to more precisely meet the expectations of stakeholders, such as customers, shareholders, suppliers, and employees, the Company will work to further enhance its corporate value.

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

The Company complies with all of the principles in the Corporate Governance Code revised June 2021.

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

[Principle 1-4Cross-shareholdings]

< Policy regarding Cross-shareholdings >

The Company holds shares of listed companies under its policy on cross-shareholding in cases where it deems such shareholding to be beneficial for building favorable trading relationship with important trading partners of the Group in fields including sales, raw material procurement and finance, smoothly advancing business activities of the Group, and enhancing corporate value in the Group. However, when the Company deems that shares in its cross-shareholding are not contributing to the sustainability and growth of the Group's corporate value, and that there is insufficient reason to hold them, the Company will sell those share while paying attention to the effect on the market, and so forth.

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The Company reviews the holding policy for listed shares individually at a meeting of the Board of Directors on a periodic basis, comprehensively considering qualitative factors such as the materiality of transactions with the trading partner, the existence of any technological cooperation or joint capital investment, whether there are any joint ventures underway, and a quantitative evaluation that compares the total return on investment, calculated by considering dividend yield and business profit, against the cost of capital, as well as the comprehensively considered policy on cross-holding.

Based on such reviews, the Company sold four different company shares worth 8,665 million yen in fiscal 2020, and 17 different company shares worth 12,804 million yen in the four-year period from fiscal 2017.

cross-shareholdings>

The Company will appropriately exercise its voting rights associated with cross-shareholdings after consideration of whether such issuing company has established an effective governance structure and is making appropriate decisions to improve its corporate value over the medium-tolong-term, as well as whether such shareholdings will contribute to enhancing the Group's corporate value.

[Principle 1-7 Related Party Transactions]

The Company requires that competitive transactions or conflict-of-interest transactions involving Directors or Executive Officers are discussed and approved at the Board of Directors. Moreover, the Company requires that transactions involving major shareholders, etc. are conducted fairly and appropriately, and where necessary, are approved after being discussed at Executive Committee, etc.

[Supplementary Principle 2-4-1 Ensuring Workforce Diversity]

The Group believes it is important to value and harness the capabilities and views of every employee. In line with that thinking, the whole Group strives to create an environment and organizational culture that is motivating for all employees based on respect for different people, regardless of gender, age, sexual orientation and gender identity, disability and other individual identities. In addition, believing that human resources are the driving force supporting the Company's sustainable growth, the Group promotes the use of diverse personnel, including offering management positions without discrimination of gender, nationality, or mid-career status.

Among such activities, the Group considers initiatives to foster environments and organizational culture that enables women to demonstrate the capabilities as one of its most important management issues. While actively hiring new female graduates, the Group will strategically train and promote female personnel for management positions, and aims for the ratio of female in management positions to be 10% by 2030 (4.1% in the fiscal year 2020). Currently, the Presidents of two major overseas subsidiaries are in charge of the local personnel and they continue to promote foreign personnel. In addition, currently a considerable number of employees who entered the company mid-career are serving in management positions and they are demonstrating their skill and experience in the Company. Going forward, the Company plans to continue to hire a certain number of mid-career personnel to bring greater vibrancy to the organization and ensure personnel with professional skills.

In order for each employee to be able to demonstrate their abilities to the maximum extent, there needs to be systems and structures that allow employees to shape their own career paths, regardless of their gender or nationality. Taking such a stance, in its initiatives for personnel development, the Company supports employee growth and focuses its energies into building systems, offering opportunities for learning, improving the quality of management, and fostering environments and organizational culture in order to enable diverse personnel attain achievements via various workstyles.

Meanwhile, in order to be an attractive workplace for employees, the Company is actively undertaking initiatives to realize flexible workstyles, such as flextime system and work-from-home system to improve the quality of life and employees' engagement, and to enhance work-life balance support programs such as childcare and nursing care, etc.

For childcare leave in particular, the Company has established a system for two-weeks paid leave from this fiscal year.

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For details on the Company's policy on human resources development, please refer to the Integrated Report.

https://www.nittobo.co.jp/eng/ir/library/integrated_report.htm

[Principle 2-6 Roles of Corporate Pension Funds as Asset Owners]

The Company has adopted a fund-type corporate pension based on the Defined-Benefit Corporate Pension Act for its corporate pension. The staff of the Nittobo Corporate Pension Fund consists of seconded employees from the Nittobo Group, and personnel are purposefully rotated to ensure the administration and operation of the corporate pension fund is performed appropriately. Moreover, the board of governors and board of representatives whose members have been selected by election by the Company and the labor union regularly holds meetings to strive for the appropriate operation of the corporate pension and conduct checks of the operational status and investment activities of the fund management trustees. The Company demands that the fund management trustees should perform appropriate stewardship activities, and every fund management trustee has formulated policies to fulfill their responsibilities.

[Principle 3-1 Full Disclosure]

(1)The Group has published its corporate philosophy and the Nittobo Declaration, which expresses the Group's values in easy-to-understand language based on the corporate philosophy, on the Company's website. The Group has also formulated the Mid-Term Business Plan, which is published on the Company's website.

(2)The Company's basic views on corporate governance are stated in "1. Basic Views," of section I of this report.

(3)The procedures for determining the remuneration of the Company's Directors and Executive Officers are operated under the framework of a company with a Nomination Committee, etc. The policy for remuneration of Directors and Executive Officers is determined at the Remuneration Committee whose majority of members are External Directors, and individual remuneration is determined in line with that policy. The Company describes its basic policy for remuneration in the Notice of the General Meeting of Shareholders, and the Annual Securities Report (both are published on the Company's website; Annual Securities Report is in Japanese only).

(4)Under the framework of a company with a Nomination Committee, etc., the candidates for Director for proposals to be submitted to a General Meeting of Shareholders regarding the election of candidates for Director, or the dismissal of Directors, are determined at the Nomination Committee, whose majority of members are External Directors. The Nomination Committee selects those candidates deemed most suitable based on their personal qualities, insight, etc. Moreover, the appointment or dismissal of Executive Officers is determined by the Board of Directors, in line with the provisions of the Companies Act. Adopting the approach of finding persons most suitable for the job, the Company chooses persons suitable for the execution of the Company's business from the perspective of enhancement of business execution and corporate value.

(5)When proposing the election of a Director candidate at a General Meeting of Shareholders, the Company states the reason for nomination of a candidate for Director in the reference documents included in the Notice of the General Meeting of Shareholders. The Company mails the Notice of the General Meeting of Shareholders to all shareholders and also publishes it on the Company's website.

The Board of Directors appoints Executive Officers after providing adequate explanation of the reason for each Executive Officer's appointment at the Board of Directors pursuant to the standards for appointment of Executive Officers stated in (4) above.

[Supplementary Principle 3-1-3 Disclosure of sustainability initiatives, etc.]

The Company is promoting "Actions for Environment Issues" and "Human Resources Development" as the priority measures of its sustainability initiatives. For details, please refer to the Mid-Term Business Plan and the Integrated Report.

Mid-Term Business Plan	https://ssl4.eir-parts.net/doc/3110/ir_material_for_fiscal_ym3/94830/00.pdf
Integrated Report	https://www.nittobo.co.jp/eng/ir/library/integrated_report.htm

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[Supplementary Principle 4-1-1 Outline of the Scope of Delegation to the Management]

Since the Company is a company with a Nomination Committee, etc., the Company's Board of Directors delegates to Executive Officers as much authority as allowed by laws and regulations for making operational decisions. This contributes to the speed and flexibility of managing business operations.

The Company's Board of Directors makes decisions about items regarding basic policies of management that can be determined only by the Board of Directors according to laws and regulations, and items that will have a significant impact on the Group's management, including investments over a certain amount.

[Principle 4-8 External Directors]

The Company actually appoints four External Directors.

[Principle 4-9 Independence Criteria for External Directors]

If an External Director of the Company does not fall under any of the following items, that External Directors is deemed to have independence.

1. Any party whose major client or supplier is the Company or any of its subsidiaries, or executive of that party.
2. Any party that major client or supplier is the Company or any of its subsidiaries, or executive of that party.
3. A consultant, certified public accountant or other accounting professional, or an attorney at law or other legal professional who has been paid substantial amounts of money or other financial benefits other than Directors' or other corporate officers' remuneration paid by the Company (or if the party receiving such financial benefits is an incorporated entity, partnership or other organization, then persons belonging to such organization).
4. A party who has fallen under any of the items in 1 to 3 above in the most recent year.
5. A relative within the second degree of kinship of a party who falls under any of the following sub-items
6. 1. to (c) (excluding unimportant positions).

1. Party mentioned in 1 to 4
2. Executive of a subsidiary of the Company
3. A party who has fallen under (b) or an executive of the Company in the most recent year

[Supplementary Principle 4-11-1 View on the balance between knowledge, experience and skills on the Board of Directors as a whole, and also on diversity and board size]

To ensure a system by which the whole of the Board of Directors is able to suitably supervise the execution of the Company's business, the basic policy is to have the Board of Directors comprised of Internal Directors, who have capabilities and insight with respect to respective business and overall management, and External Directors, who are in number at least the same as Internal Directors and are able to provide valuable opinions concerning the enhancement of governance, etc. from the multiple perspective of the stakeholders, etc. Then the number of the Board of Directors is specified no more than 12 members in its Article of Incorporation. Actually, the Board of Directors consists of 7 members, including four External Directors.

The Company defines the fields of Directors' knowledge, experience and capability that are considered important for the Company from the perspective of company management as "corporate management," "technology and R&D," "sales and marketing," "global business," "finance and accounting," "legal affairs and risk management," "HR, labor resources, personnel development," and other fields. The Company aims to ensure the Board of Directors is made up of personnel who possess the appropriate insight and abundant experience in each of these fields. The Company intends to review these fields as deemed appropriate, giving suitable attention to the external environment and circumstances of the company.

A skill matrix of the Directors is presented in the Integrated Report. https://www.nittobo.co.jp/eng/ir/library/integrated_report.htm

[Supplementary Principle 4-11-2 Status of Concurrent Position of Directors]

When nominating the Director candidates, the Nomination Committee examines and decides the candidates, giving consideration to their concurrent positions at other companies. Each year, the Company discloses the status of significant concurrent positions outside the Company for each Director candidate and Director in the reference documents included in the Notice of the General Meeting of Shareholders, and in disclosure documents such as the Business Report, etc.

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[Supplementary Principle 4-11-3Self-evaluation concerning the effectiveness of the Board of Directors]

The composition, operation, support structure, shareholder dialogue, etc. of the Company's Board of Directors are analyzed and evaluated by the Board of Directors based on evaluation by each Director by implementing surveys using external attorneys.

In the evaluation concerning the effectiveness of the Board of Directors in the fiscal year 2019, the opinion was expressed that further improvements need to be made to matters such as enhancement of feedback from Executive Officers on matters resolved by the Board of Directors, deepening of discussion on management policy and management strategy, including from the perspective of ESG and SDGs, and further strengthening of risk management, such as disaster countermeasures, fraud prevention measures and Group management, and review of the agenda of items and time for discussion at meeting of the Board of Directors, and the following initiatives were adopted in the fiscal year.

• With regard to large-scale capital investment projects resolved by the Board of Directors and progress made with respect to the annual budget, the Executive Officers provided preliminary briefings, as well as provided explanations and reports at meeting of the Board of Directors, which enhanced deliberations.
• In the development of the Mid-Term Business Plan, Executive Officers and the Board of Directors shared reflection on the previous Mid-Term Business Plan as well as challenges for each business areas on several occasions and deepened discussions on the Company's management policy and management strategy incorporating environmental goals (the Nittobo Group's vision for 2030 [Big VISION 2030], and the New Mid-Term Business Plan).
• As four External Directors with diverse knowledge and experience were elected and the Board of Directors received explanations related to agenda items, current business conditions and issued at preliminary briefings, etc., the Board of Directors was able to have and open-minded deliberations and discussions that

were constructive and multifaceted.

The survey for the fiscal year 2020, returned an evaluation that there were very positive results, with about 70% of the survey items receiving higher evaluation compared with the fiscal year 2019. However, there were also the opinions that the following items require improvement.

• Further improvement in risk management
• Creation of a structure for feedback on matters resolved by the Board of Directors in the past
• Promotion of sustainability activities
• Continued discussions on grooming plan for prospective candidates for senior executive positions

The Company will continue to make improvement to ensure the Board of Directors performs supervisory functions more.

[Supplementary Principle 4-14-2 Policy for Training of Directors]

The Company provides opportunities to External Directors, as necessary to allow them to acquire the required knowledge on the Group's businesses, through plant tours, etc. in order to allow them to adequately fulfill their functions. In addition, the Company provides necessary support to the other Directors and Executive Officers for them to undertake self-study.

[Principle 5-1 Policy for Constructive Dialogue with Shareholders]

1. The Corporate Communication Officer is responsible for general dialogue with shareholders, and the Corporate Communication Department is the internal department responsible for providing assistance thereto. The Company endeavors to have opportunities for dialogue with shareholders that contribute to the sustained growth and enhancement of medium-tolong-term corporate value of the Company centered on Executive Officers. Furthermore, departments involved in IR activities centered on the Corporate Communication Department work to coordinate among departments on a daily basis.
2. We will continue to endeavor to disclose information in a timely and appropriate manner to enable the Nittobo Group's customers, shareholders and investors to accurately recognize and judge the actual state of the Nittobo Group. In order to achieve this, we comply with laws, regulations and securities exchange rules on disclosure, and are engaged in the creation and operation of an appropriate disclosure system.
3. 1. We publish items specified for the disclosure in Japanese and foreign laws, regulations and securities exchange rules in business reports, annual securities reports and communications to shareholders, and announce them in securities exchange communication systems and press releases.
   2. In principle, we publish information being disclosed on the Nittobo Group's website, and also endeavor provide fairer and broader disclosure.
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