Nitto Boseki : Corporate Governance Report (submitted to TSE) （680KB）

Corporate Governance Report

NITTO BOSEKI CO., LTD

Last Update: December 26, 2023

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 (the "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 >

Regarding to the holding shares of listed companies, the Company holds shares 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 there is insufficient reason to hold shares of a particular issuing company in its cross-shareholding from the perspective of the sustainability and growth of the Group's corporate value, 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 shares of each issuing company individually at a meeting of the Board of Directors on a periodic basis, comprehensively considering qualitative factors such as the materiality of transactions, and the maintaining or establishment of favorable trading relationships, etc., i.e. sales and purchases, the existence of any technological cooperation or joint capital investment, whether there are any joint ventures underway, or financing arrangements, and a quantitative evaluation that compares the total return on investment, calculated by considering dividend yield and business profit, against the cost of capital. Based on such reviews, the Company sold one listed company shares worth 2,516 million yen in fiscal year 2022, and 18 different company shares worth 15,320 million yen in the six-year period from fiscal year 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 (5.0% in the fiscal year 2022). Currently, the local personnel member serves as President of the major overseas subsidiary, Nittobo America Incorporated, and the Group continues 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.

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For childcare leave in particular, the Company has established a system for two-weeks paid leave from fiscal year 2021. Targets related to the above-mentioned initiatives and results in fiscal year 2022 are as follows:

			Results
Indicators		Targets (Note 1)	(Fiscal year 2022)
			(Note 1)
Percentage of female employees in		10.0% by fiscal year 2030	5.0%
management positions
Percentage of male employees who		Maintain percentage at 30.0% or higher	47.1%
have taken childcare leave
		Wages of female employees at 80% or higher
		of the wages of male employees in the
Wage gap between male and female		comparison between all employees by fiscal	77.1%
employees		year 2030
	* There is no difference in the treatment of
		male and female employees in the personnel
		system

58.5% by fiscal year 2023

Employee engagement score * Increase of 30% from the score of 45% in53.0% fiscal year 2019

Note 1: Among the targets and results, "Percentage of female employees in management positions," "Percentage of male employees who have taken childcare leave" and "Wage gap between male and female employees" are figures from Nitto Boseki Co., Ltd.

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

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https://ssl4.eir-parts.net/doc/3110/ir_material_for_fiscal_ym3/94830/00.pdfhttps://www.nittobo.co.jp/eng/ir/library/integrated_report.htm https://www.nittobo.co.jp/eng/sustainability/environment/climate_change.html

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, and the details including investments in intellectual property are provided in the Mid-Term Business Plan and the Integrated Report. In addition, the Company announced its endorsement of the TCFD recommendations in May 2022. In line with this, the Company is disclosing the risks and revenue opportunities pertaining to climate change under the framework recommended by TCFD, and providing the details on the Company's website. The Company plans to further enhance its disclosure based on this framework.

Mid-Term Business Plan Integrated Report Website

[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

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
4. • 4 -

[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. 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." 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 Convocation Notice of the Ordinary General Meeting of Shareholders.

https://www.nittobo.co.jp/eng/ir/library/general_meeting.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.

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

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

In response to the opinions expressed in the evaluation concerning the effectiveness of the Board of Directors in fiscal year 2021 that Directors did not have sufficient opportunity to grasp the front line situation through business site and plant visits due to the COVID-19 pandemic, and that it would be desirable to continue to undertake a full review of group governance, the following actions were taken in fiscal year 2022.

• After taking sufficient measures to prevent infection of COVID-19, we enhanced opportunities for Directors to visit each business site and plant, etc. and to exchange opinions with on-site employees. In addition, several lectures by outside experts were held to deepen the understanding of the Company's business among Directors.
• Discussions were held on the topic of the Company's group governance at the preliminary briefings.

In the survey summarizing fiscal year 2022, the average evaluation score for all items was 4 or more out of 5, indicating that the effectiveness of the Board of Directors was extremely highly evaluated by both Internal and External Directors of the Company.

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

[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.

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[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.
   3. We conduct briefings for analysts and institutional investors promptly after the announcement of quarterly financial results.
   4. We publish an integrated report that integrates financial information and non-financial information, including CSR, in order to provide a better understanding of the Nittobo Group's medium-to long- term value creation framework.
4. Opinion and concerns, etc., about the Company that are learned through dialogue with shareholders and investors are collated by the Corporate Communication Department, reported to the Executive Officer in charge of the Corporate Communication Department, and appropriately provided as feedback to management executives and the Board of Directors by means of reporting to the Executive Meeting, etc. on a quarterly basis.
5. Adequate care is given to insider information in individual inquiries and dialogue with the Nittobo Group, and explanations are limited to information that has already been published and facts that are well known.

[Action to implement management that is conscious of cost of capital and stock price (under review)]

The Group has set forth the challenge of improving capital efficiency as part of its basic policies of the current Mid-Term Business Plan (FY2021-2023), and it is undertaking initiatives aimed at achieving that through reinforcement of the management foundation and implementation of growth strategies. Moreover, in the financial results presentation for the fiscal year ended March 31, 2023 (disclosed on May 12, 2023), the Group set forth the management indicator targets of ROE of 8% or more and ROIC of WACC or higher as basic policies when reviewing the next Mid-Term Business Plan, and the Group will continue to undertake initiatives to achieve sustainable growth and improvement of corporate value over the medium and long term.

(Please refer to page 22 "Basic Policies for the Next Mid-Term Business Plan") https://ssl4.eir-parts.net/doc/3110/ir_material_for_fiscal_ym3/135174/00.pdf

2. Capital Structure

Percentage of Foreign Shareholders

From 20% to less than 30%

[Status of Major Shareholders]

Name / Company Name	Number of Shares Owned	Percentage (%)
The Master Trust Bank of Japan, Ltd. (Trust account)	4,194,400	11.47
Custody Bank of Japan, Ltd. (Trust account)	2,542,100	6.95
Sumitomo Realty & Development Co., Ltd.	2,383,400	6.51
Nippon Life Insurance Company	1,614,785	4.41
The Dai-ichi Life Insurance Company, Limited	1,316,000	3.60
Sumitomo Life Insurance Company	1,082,400	2.96
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Air Water Inc.		997,200	2.73
The Toho Bank, Ltd.		905,243	2.47
Aioi Nissay Dowa Insurance Co., Ltd.		890,686	2.43
Mizuho Bank, Ltd.		800,000	2.19
Controlling Shareholder (except for Parent Company)	-
Parent Company	None

Supplementary Explanation

3. Corporate Attributes

	Listed Stock Market and Market Section		Tokyo Stock Exchange, Prime Market
	Fiscal Year-End		March
	Type of Business		Glass & Ceramics Products
	Number of Employees (consolidated) as of the		More than 1000
	End of the Previous Fiscal Year
	Sales (consolidated) as of the End of the		From ¥10 billion to less than ¥100 billion
	Previous Fiscal Year
	Number of Consolidated Subsidiaries as of the		From 10 to less than 50
	End of the Previous Fiscal Year

1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder
2. Other Special Circumstances which may have Material Impact on Corporate Governance

II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organization Form

Company with Nomination Committee, etc.

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[Directors]

		Maximum Number of Directors Stipulated in		12
		Articles of Incorporation
		Term of Office Stipulated in Articles of		1 year
		Incorporation
		Chairperson of the Board		Representative and Chief Executive Officer
		Number of Directors		7
[External Directors]
		Number of External Directors		4
		Number of Independent Directors		4

Outside Directors' Relationship with the Company (1)

Name

Attribute

Relationship with the Company*

a

b

c

d

e

f

g

h

i

j

k

Sadayoshi Fujishige

From another company

Hiroshi Kagechika

From another company

Agasa Naito

Lawyer

Yasuharu Nakajima

CPA

• Categories for "Relationship with the Company"

* "○" when the director presently falls or has recently fallen under the category; "△" when the director fell under the category in the past

• "●" when a close relative of the director presently falls or has recently fallen under the category; "▲" when a close relative of the director fell under the category in the past

1. Executive of the Company or its subsidiaries
2. Non-executivedirector or executive of a parent company of the Company
3. Executive of a fellow subsidiary company of the Company
4. A party whose major client or supplier is the Company or an executive thereof
5. Major client or supplier of the listed company or an executive thereof
6. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku
7. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity)
8. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only)
9. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only)
10. Executive of a company or organization that receives a donation from the Company (the director himself/herself only)
11. Others
12. • 8 -

External Directors' Relationship with the Company (2)

Designation

Supplementary

Name

Membership

as

Explanation of

Reasons of Appointment

of Committees

Independent

the

Director

Relationship

Sadayoshi

Nomination

/

〇

Mr. Sadayoshi Fujishige has a wealth of

Fujishige

Remuneration

experience and a high level of insight as a

/Audit

top manager of listed companies. He

attends meetings of the Board of Directors,

the

Nomination

Committee,

the

Remuneration Committee, and the Audit

Committee and as Chairman of the

Nomination

Committee

he

actively

expresses opinions. In this way, he plays an

appropriate role as an External Director of

the Company, including providing accurate

advice to management, contributing to

decision making by the Board of Directors,

and supervising business execution. The

Company judged that he will continue to

perform his expected role described above

as an External Director through his

knowledge and experience from a

perspective of promoting the sustainable

growth and medium- to long-term increase

in corporate value of the Company.

In addition, the Company has designated

him as an independent director because he

satisfies the criteria for independent

directors stipulated in the Securities Listing

Regulations

and

the

Enforcement

Regulations of the Securities Listing

Regulations, and the Company believes

that there is no risk of conflict of interest

with general shareholders.

Hiroshi

Nomination

/

〇

Mr. Hiroshi Kagechika has specialist

Kagechika

Remuneration

insight and a wealth of experience in

/ Audit

corporate business and the field of research

and development in the manufacturing

sector. He attends meetings of the Board of

Directors, the Nomination Committee, the

Remuneration Committee, and the Audit

Committee, and as Chairman of the

Remuneration

Committee

he

actively

expresses opinions. In this way, he plays an

appropriate role as an External Director of

the Company, including providing accurate

advice to management, contributing to

decision making by the Board of Directors,

and supervising business execution.

The Company judges that he will continue

to perform his expected role described

above as an External Director through his

knowledge and experience from a

perspective of promoting the sustainable

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					growth and medium- to long-term increase
					in corporate value of the Company.
					In addition, the Company has designated
					him as an independent director because he
					satisfies the criteria for independent
					directors stipulated in the Securities Listing
					Regulations	and	the	Enforcement
					Regulations of the Securities Listing
					Regulations, and the Company believes
					that there is no risk of conflict of interest
					with general shareholders.
Agasa	Nomination	/	〇		Ms. Agasa Naito has a wealth of
Naito	Remuneration			experience and a high level of insight as an
	/ Audit				expert in law and as an outside officer of
					other companies. She attends meetings of
					the Board of Directors, the Nomination
					Committee, the Remuneration Committee,
					and the Audit Committee, where she
					actively expresses opinions. In this way,
					she plays an appropriate role as an External
					Director of the Company, including
					providing accurate advice to management,
					contributing to decision making by the
					Board of Directors, and supervising
					business execution.
					The Company judges that she will
					continue to perform her expected role
					described above as an External Director
					through her knowledge and experience
					from a perspective of promoting the
					sustainable growth and medium- to long-
					term increase in corporate value of the
					Company.
					In addition, the Company has designated
					him as an independent director because she
					satisfies the criteria for independent
					directors stipulated in the Securities Listing
					Regulations	and	the	Enforcement
					Regulations of the Securities Listing
					Regulations, and the Company believes
					that there is no risk of conflict of interest
					with general shareholders.
Yasuharu	Nomination	/	〇		Mr. Yasuharu Nakajima has engaged in
Nakajima	Remuneration			corporate audit work for many years as a
	/ Audit				certified public accountant, and he has
					specialized	knowledge	and	abundant
					experience in finance and accounting. He
					attends meetings of the Board of Directors,
					the	Nomination	Committee,	the
					Remuneration Committee, and the Audit
					Committee and as Chairman of the Audit
					Committee he actively expresses opinions.
					In this way, he plays an appropriate role as
					an External Director of the Company,
					including providing accurate advice to
					management,	contributing to	decision
					making by the Board of	Directors,	and
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