NOK : Corporate Governance report

Corporate Governance

Last Updated: July 2, 2021

NOK CORPORATION

Masao Tsuru, President and Representative Director Contact: Legal Affairs Department, Corporate Administration Office (Tel: [phone])

Securities Code: 7240 https://www.nok.co.jp/en/

The corporate governance of NOK CORPORATION (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Views

The NOK Group seeks not only to contribute toward the economic development of society by creating added value through fair competition, but also to develop management of which all its stakeholders can be proud and that encourages them to chase their dreams with us, and to make an effective contribution to society at large. In addition, the NOK Group develops its business plans with the objective of securing stable growth and profits over the medium to long term. For this reason, the NOK Group considers the continuous strengthening of corporate governance to be one of its business management priorities, and is committed to this approach.

Specifically, in addition to appropriately implementing the System for Ensuring Properness of Operations (the basic policy for the internal control system) in accordance with the provisions of the Companies Act, our basic policy is to maintain our commitment to continuously strengthen corporate governance in conformity with the Corporate Governance Code stipulated by the Tokyo Stock Exchange.

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

[Principle 4.11 Preconditions for Board of Directors and Board of Corporate Auditors Effectiveness]

Directors and Corporate Auditors are nominated by the Board of Directors based on consideration of their personal qualities and their appropriateness as officers of a company, in accordance with the nomination policy described in Principle 3.1 and Supplementary Principle 4.11.1, which will be discussed later, and the Company believes that the current composition of the Board of Directors is appropriate.

Corporate Auditors include one Outside Corporate Auditor who is a tax accountant and certified public accountant, and one who is a lawyer.

[Disclosure Based on the Principles of Japan's Corporate Governance Code]

[Principle 1.4 Cross-Shareholdings]

(1) Policy on cross-shareholdings

The Company has cross-shareholdings as assets based on the following views and verifies the suitability of holding the shares at regular intervals. Based on the results of the verification, the Company determines whether to continue or reduce the cross-shareholdings.

a. Purpose of holding funds

The Company believes that it is necessary to secure a certain amount of funds to prepare for unforeseeable events under the challenging business environment in our operation of the Electronic Product business with high volatility in the short term and the Seal business where there are concerns over a decrease in demand as electric vehicles and fuel cell vehicles become more popular in the medium to long term. Furthermore, to grow the Company and expand its business, the Company believes that it is necessary to secure funds on hand, separate from the usual working capital, as necessary funds for new investments that carry risk and funds to cover times

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when risks arise. Given the above reasons, the Company has determined that a certain amount of funds is necessary and is holding the funds as assets.

b. Purpose of cross-shareholdings

The Company believes that it is desirable to hold assets that provide three types of value, "financial value," as well as "business value" and "value as an investment," and has determined that listed shares of customers are appropriate. Although there are risks associated with listed shares, such as price fluctuation, the Company has the cross-shareholdings based on the Company's view that out of the various kinds of assets such as government bonds, and real estate, only listed shares can be expected to contribute to business growth and revenue. When selecting cross-shareholdings, the Company determines which shares to hold based on the expectation that ownership of the shares will advance its business in terms of sales and purchasing activities, etc., including sales growth, stable procurement, consistent sourcing of funds, etc. by strengthening relationships with customers, as well as to grasp whether current state of business for each issuer is stable and the dividend yields of shares are kept at a certain level.

c. Verification of cross-shareholdings

Regarding cross-shareholdings, the Company confirms the purpose of holding each issuer's stock individually at regular intervals, evaluates the cross-shareholdings at regular intervals based on the applicable standards of the evaluation standards that have been established, and verifies the necessity of the cross-shareholdings. According to the results of this verification, the Company believes that it is necessary to sequentially sell, or reduce the number of, the shares of issuers that are determined not to meet NOK's purpose of cross-shareholdings or standards. The Company has established individual numerical values as the verification standards to determine whether the cross-shareholdings provide the three types of value, "financial value," "business value" and "value as an investment," evaluates individual issues of stock, and verifies the suitability of the cross-shareholdings. Specifically, the Company conducts annual checks on the state of transactions over the preceding three years, and also implements measures to grasp the current state of business for each issuer by means of indicators covering growth potential, profitability, investment safety and valuation issues. After the results have been verified by the Board of Directors, it provides confirmation as to the suitability of the cross-shareholdings.

(2) Standard for Exercising Voting Rights in Cross-Shareholdings

The Company takes decisions on the exercise of voting rights in cross-shareholdings, and exercises such rights, in accordance with the objective for which the shares are held. For proposals that are deemed to run counter to the objective for which the shares are held by the Company, the assessment of such proposals by external bodies will be taken into account, and an appropriate evaluation and decision will be taken.

[Principle 1.7 Related Party Transactions]

For transactions that cause conflicts of interest for Directors, the Company has created and applied provisions requiring such transactions to be reported to, and approved by, the Board of Directors.

Moreover, for sales of goods to or purchases of materials etc. from customers, including major shareholders, the Principles of Corporate Behavior in the NOK Charter of Corporate Behavior stipulate that transactions should be appropriate and characterized by fair, transparent and free competition. The NOK Charter of Corporate Behavior and the Principles of Corporate Behavior are presented in "IV. 1 Basic Views on Internal Control System and Progress of System Development," to which readers are referred for more details.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

With regard to corporate pension funds, the Company has established a fund and manages the assets. In terms of managing the assets, we take into account that this affects both asset formation for employees and the Company's own finances. Accordingly, as well as monitoring the organization managing the funds at regular intervals, we also take appropriate steps to ensure that human resources delegated to the pension fund are suited to the management, such as by taking a systematic approach to the appointment and assignment of personnel.

In terms of concrete management issues, important cases are decided by a body made up of representatives from the company and those insured, which may be a board of representatives, a board of trustees or an asset management committee, with the results being disclosed in internal company newsletters and websites.

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[Principle 3.1 Full Disclosure]

(1) Business principles, business strategies and business plans

The Company has set out its business principles, etc. in the NOK Charter of Corporate Behavior. In addition, the Company drew up a three-year plan as a business plan for the medium to long term, which is included in financial results and in the notice of the annual shareholders' meeting.

1. Basic views and guidelines on corporate governance Please refer to "I. 1. Basic Views" of this report.
2. Policies and procedures in determining the remuneration to Directors and Corporate Auditors

Please refer to "II. 1. [Director Remuneration] Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof" of this report.

1. Policies and procedures in the nomination and dismissal of the candidates for Directors and Corporate Auditors

Please refer to "II. 2. Matters on Functions of Business Execution, Audit and Supervision, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.

(5) Explanations with respect to the individual nominations and dismissals

With regard to the nominations of Directors or Corporate Auditors, career histories and reasons for their appointment are presented in the notice of the annual shareholders' meeting.

With respect to the dismissal of Directors and Corporate Auditors, reasons for their dismissal will be presented in the notice of the annual shareholders' meeting.

[Principle 4.1 Roles and Responsibilities of the Board (1)] Supplementary Principle 4.1.1

Please refer to "IV. 1. Basic Views on Internal Control System and Progress of System Development, 3. System for securing the efficiency of the execution of duties by the Company's Directors" of this report.

[Principle 4.9 Independence Standards and Qualification for Independent Directors]

Please refer to "II. 2. Matters on Functions of Business Execution, Audit and Supervision, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.

[Principle 4.11 Preconditions for Board of Directors and Board of Corporate Auditors Effectiveness] Supplementary Principle 4.11.1

Please refer to "II. 2. Matters on Functions of Business Execution, Audit and Supervision, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" and "II. 3. Reasons for Adoption of Current Corporate Governance System" of this report.

Supplementary Principle 4.11.2

Concurrent positions held by Directors or Corporate Auditors as officers of other companies are described in the notice of the annual shareholders' meeting.

Supplementary Principle 4.11.3

The Company implements a self-evaluation questionnaire system for all Directors and Corporate Auditors, including Outside Directors and Outside Corporate Auditors every May, consisting of questions about the composition, operation and resolutions of the Board of Directors, as well as questions regarding the supporting system for the Board of Directors. The results of the aggregated responses are shared with the Board of Directors. For the self-evaluation questionnaire implemented in May 2021, the Company analyzed the results and confirmed that the effectiveness of the Board of Directors as a whole has been secured.

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[Principle 4.14 Director and Corporate Auditor Training] Supplementary Principle 4.14.2

The Company's policy is to continuously provide Directors and Corporate Auditors with opportunities to work diligently on acquiring and updating, as appropriate, the knowledge required to discharge their roles and responsibilities.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]

(1) Systems

Please refer to "V. 2. Other Matters Concerning Corporate Governance System, Overview of the Timely Disclosure System" of this report.

(2) Initiatives

Please refer to "III. 2. IR Activities" of this report.

The opinions acquired during dialogue with shareholders (investors) are provided as feedback to the Board of Directors and to Management Meetings by the Director responsible for Corporate Communication, as necessary.

In addition, in compliance with the Timely Disclosure System based on (1) above, we do not disclose insider information to a subset of shareholders (investors). To be more specific, the period from the day following the date on which the quarterly accounts are settled to the date of the announcement of results is designated as a period during which the disclosure of information related to results is avoided.

2. Capital Structure

		Foreign Shareholding Ratio		30% or more
[Status of Major Shareholders]
		Name			Number of Shares Owned			Shareholding Ratio (%)
				(Shares)
		Freudenberg SE		43,457,500		25.10
		Custody Bank of Japan, Ltd. (Trust account)		9,121,800		5.27
		Seiwa Jisho Co., Ltd.		8,773,000		5.07
		The Master Trust Bank of Japan, Ltd. (Trust account)	8,253,600		4.77
		The Dai-ichi Life Insurance Company, Ltd.		8,000,000		4.62
		Toyota Motor Corp.		6,809,500		3.93
		Sumitomo Mitsui Banking Corp.		4,270,000		2.47
		Sompo Japan Insurance Inc.		3,036,400		1.75
		SMBC Trust Bank Ltd. (Sumitomo Mitsui Banking	3,000,000		1.73
		Corporation retirement benefit trust account)
		The NOK Stock Ownership Association		2,779,288		1.61
		Controlling Shareholder (except for Parent)		--
		Parent		N/A

Supplementary Explanation

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3. Corporate Attributes

	Listed Stock Market and Market Section		Tokyo Stock Exchange First Section
	Fiscal Year-End		March
	Type of Business		Transportation Equipment
	Number of Employees (Consolidated) at End		1,000 or more
	of the Previous Fiscal Year
	Net Sales (Consolidated) for the Previous		From ¥100 billion to less than ¥1 trillion
	Fiscal Year
	Number of Consolidated Subsidiaries at End		From 50 to less than 100
	of the Previous Fiscal Year

4. Policy for Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

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5. Special Circumstances Which May Have Material Impact on Corporate Governance

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

1. Organizational Composition and Operation

		Organization Form		Company with the Board of Corporate Auditors
[Directors]
		Maximum Number of Directors Stipulated in		15
		Articles of Incorporation
		Term of Office Stipulated in Articles of		1 year
		Incorporation
		Chairperson of the Board		Chairman (excluding the case where the person
			concurrently serves as President)
		Number of Directors		9
		Appointment of Outside Directors		Appointed
		Number of Outside Directors		2
		Number of Independent Officers Designated		2
		from among Outside Directors

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