日本ペＨＤ（4612） – Corporate Governance Report

Corporate Governance CORPORATE GOVERNANCE Nippon Paint Holdings Co., Ltd. Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Last Update: January 14, 2022 Nippon Paint Holdings Co., Ltd. Representative Executive Officer & Co-President Yuichiro Wakatsuki Contact for inquiries: Hiroshi Kanamori, Corporate Governance dept. General Manager TEL: +81-3-6433-0711 Securities Code: 4612 https://www.nipponpaint-holdings.com/en/ The corporate governance of Nippon Paint Holdings Co., Ltd. (the “Company”) is described below. Ⅰ. Basic approach to corporate governance and basic information about the Company including capital structure and corporate attributes. Updated １． Basic Concepts ■ The Company, based on its “Purpose”, which shows the significance of existence common to the Group, and its “Business Philosophy”, which is its policy, shall promotes its business and engage in ongoing efforts to enhance and strengthen its corporate governance, and thereby, will “maximize the financial value remaining after the performance of obligations to customers, employees, trading partners, and society, etc.” (hereinafter referred to as “MSV” or “Maximization of Shareholder Value.), including obligations relating to sustainability, as its ultimate objective. ■ ”Purpose” Enriching our living world through the power of Science + Imagination ■“Business Philosophy” Prosper Together We prosper with absolute integrity and fairness by fulfilling our obligations and maximizing our commitments to all stakeholders (consumers, customers, communities, employees, suppliers, governments). Powerful Partnership Our unique approach between our partner companies is based on respect, trust, empowerment, and accountability. These partnerships form a powerful catalyst for innovation and growth. Science + Imagination The unlimited power of science and imagination, leading to ground-breaking technology and useful innovation that preserve, enhance and enrich the world. ■ The Company has formulated and published the “Nippon Paint Holdings Corporate Governance Policies”, which presents the basic concepts and initiatives concerning corporate governance, and which can be viewed at the URL indicated below. https://www.nipponpaint-holdings.com/en/sustainability/governance/cg/ ■ The Company established a Global Code of Conduct to be observed by all Directors of the Board, Executive Officers, and employees of the Group with respect to compliance, ethics and sustainability, and which can be viewed at the URL indicated below. https://www.nipponpaint-holdings.com/en/sustainability/governance/gcoc/ [Reason for not implementing the principles of the Corporate Governance Code] The Company has implemented the principles of the Corporate Governance Code. [Disclosure based on the principles of the Corporate Governance Code] Updated The following statements are based on the Corporate Governance Code(including content for the prime market) revised in June 2021. [General Principle 1-4] ■ Policy on cross shareholdings 1 ･ The Company makes a decision every year on the continued holding of cross-shareholders at the Board of Directors based on the policy described below and disposes of or reduces holdings of shares for which the rationality of their holding can’t be recognized. Company Policy: The Company holds shares of other listed companies as Cross-Shareholdings, limited to where it can be determined to be reasonable in consideration of, among others, the necessity of it for business activities (e.g., to maintain and strengthen the relationship with the business partner), the status of the issuer, and the return on the capital cost. ■ Standards for the exercising of voting rights of cross-shareholdings ･ The Company, based on the policy of the preceding paragraph and internal standards, exercises voting rights upon making comprehensive judgment, from the perspectives of maximization of corporate value in the medium to long term of the other company to the Cross-Shareholding, the effect on the Group, etc. [General Principle 1-7] ■ Mechanism for checks on transactions between related parties ･ The Company reports to the Board of Directors and discloses significant related party transactions exceeding a certain monetary threshold (such as transactions between the Company and a major shareholder, competing transactions between the Company and Directors or the Executive Officers, transactions for itself, and conflict of interest transactions, etc.) in Notice of convocation of the Annual General Meeting of Shareholders and Securities report. ･ When the Company intends to carry out a related party transaction, the Company will make a comprehensive judgment regarding the reasonableness of the transaction taking into consideration its terms and condition, profit and cost levels, etc., to ensure that the transaction will not harm the interests of the Company or the interests of its minority shareholders and obtain the approval of the appropriate decision-maker. ･ In particular, when conducting transactions with the Controlling Company of the Company, the Company shall ensure appropriate involvement and supervision by the Independent Outside Directors of the Board, such as obtaining approval at the Board of Directors with the majority of the Independent Directors, etc. ･ The Company has prescribed the “monitoring for conflicts of interests between the Company and its Directors of the Board, Executive Officers, and controlling shareholders, etc.” as one of the “Roles of Independent Directors of the Board” in Article 22 (Roles of Independent Directors of the Board) of the Company’s “Corporate Governance Policies”. ･ Notice of convocation of the Annual General Meeting of Shareholders (https://www.nipponpaint-holdings.com/en/ir/stock/meeting/) ･ Securities report(https://www.nipponpaint-holdings.com/en/ir/library/statements/) [Supplementary General Principle 2-4-1] ■Ensuring diversity in the promotion to core human resources Stated in the “Others” section of “3. Measures to ensure due respect for the position of stakeholders” in “III Implementation status of measures concerning shareholders and other stakeholders” of this Report. [General Principle 2-6] ■ Demonstration of function as a corporate pension asset owner ･ The Company, in the management and operation of the “Nippon Paint Corporate Pension Fund (hereinafter the “Fund”),” in order to be able to demonstrate the function expected as the asset owner of the Fund, systematically secures personnel with the qualities required for the management and operation of the Fund from both within and outside the Group, and deploys such personnel as representatives of the corporate pension fund, and to the Asset Management Committee and Corporate Pension Fund Secretary’s Office. In addition, in partnerships with investment consultants, efforts are made to promote the understanding of the operation status and individual strategies of the pension assets in general, and to further improve the level of expertise. ･ In the operation of the Fund, decisions are made by the representative committee, based on the activities status report for the investment period, as well as the opinions of the Asset Management Committee, and investment consultants, with the objective of the maximization of the interest of the beneficiaries. ･ The selection of investment institution shall be determined in accordance with the standards prescribed in the Basic Policy on Asset Management, upon the performance of a comprehensive assessment of both quantitative aspects, such as investment performance, and qualitative aspects, such as investment policy and compliance. ･ In addition, in the exercising of voting rights in companies receiving investment, etc., we are appropriately managing any conflicts of interest that arise between the beneficiaries and the Company. ･ As part of corporate governance reforms, in December 2020, the Fund declared that it had received a Stewardship Code. Toward the resolution of social issues relating to global sustainability, through the Stewardship Code, we are promoting the improvement of the corporate value of investee companies and their sustainable growth and making efforts to increase the interests of final beneficiaries. 2 Nippon Paint Corporate Pension Plan “Regarding the Receiving of a Stewardship Code （https://www.nipponpaint-kikin.jp/stewardship/） Members of the “Nippon Paint Group Defined Contribution Pension” plan are provided with education on asset management, such as through training, as well as support for the stable asset formation of members. [General Principle 3-1] ■ General Principle 3-1 (i) What the Company is aiming for (Management philosophy, etc.), management strategy, and management plan of the Company. ･ The Company has adopted and published the “Purpose” and “Business Philosophy”. The Company has also published its “Purpose” and “Medium-Term Management Plan” on the website of the Company. ･ https://www.nipponpaint-holdings.com/en/company/purpose/ ･ Medium-term management plan (https://www.nipponpaint-holdings.com/en/ir/library/materials_01/) ■ [General Principle 3-1] (ii) The basic concepts and basic policies in relation to corporate governance, based on each of the principles in this code Stated in “1. Basic concepts” of this Report. ■ General Principle 3-1(iii) Policy and procedures when the Board of Directors determines the remuneration of Directors of the Board and management executives ･Stated in Article 26 (The Compensation Committee) and Article 27 (Decision Making Policy for Remuneration, etc., of Directors of the Board and Executive Officers) of the “Corporate Governance Policies” ■ General Principle 3-1(iv) Policies and procedures for the appointment and dismissal of management executives and the nomination of candidate Directors of the Board and Audit and Supervisory Board Members ･Stated in Article 19 (Composition of the Board of Directors), Article 20 (Director of the Board Appointment and Qualification Standards), Article 25 (The Nominating Committee), Article 31 (Policies and Procedures for the Election and Dismissal of Executive Officers), and Article 32(Successor Plan for the Representative Executive Officers, etc.). ■ General Principle 3-1 (v) When the Board of Directors selects management executives or nominates Directors of the Board or Audit and Supervisory Board Members based on (iv) above, they will explain each selection and nomination ･Stated in “Notice of Annual General Meeting of Shareholders” published in the website of the Company [Supplementary General Principle3-1-3] ■ Ensuring diversity in the promotion to core human resources Stated in the “Implementation of environmental protection activities, CSR activities, etc.” section of “3. Measures to ensure due respect for the position of stakeholders” in “III Implementation status of measures concerning shareholders and other stakeholders” of this Report. [Supplementary General Principle 4-1-1] ■ Overview of scope of delegation from the Board of Directors to management personnel ･ Stated in Article 18 (Roles of the Board of Directors) of the “Corporate Governance Policies” of the Company. [General Principle 4-8] ■ Effective use of Independent Directors of the Board ･ The principle of a majority of the Directors of the Board being Independent Directors of the Board is stated in Article 19 (Composition of the Board of Directors) of the “Corporate Governance Policies” of the Company. [General Principle 4-9] ■ Independence Criteria for Outside Director of the Board ･ Stated in “II.1 [Independent Officers] Other matters relating to Independent Officers” of this Report. [Supplementary General Principle 4-11-1] ■ Concepts on the balancing of knowledge, experience, and abilities, as well as the diversity and size of the Board of Directors overall ･Stated in Article 19 (Composition of the Board of Directors) and Article 20 (Director of the Board Appointment and Qualification Standards) of the “Corporate Governance Policies” of the Company. [Supplementary General Principle 4-11-2] ■ Situation of concurrent service of Directors of the Board 3 ･ Stated on page 12 of the “Notice of Convocation of the 196th Annual General Meeting of Shareholders” ･ Further, the obtaining of the prior approval of the Board of Directors of the Company in the event of an Outside Director of the Board being newly appointed as an Officer of another company is stated in Board of Directors Rule of the Company. [Supplementary General Principle 4-11-3] ■ Overview of analysis and assessments on the effectiveness of the Board of Directors ◇ Continuing on from the period ending December 2019, in regard to the assessment for the period ending December 2020, we again implemented a Director of the Board assessment comprised of a questionnaire and individual interviews by a third party organization Board Advisors Japan, Inc. ◇ An overview of the results of the assessment for the period ending December 2020 is as per the below. ･ The separation of supervision and execution was advanced by changing the corporate design to a Company with a Nominating Committee, etc.. Further, two-thirds of Directors are now Independent Directors of the Board and the supervision function of the Board of Directors has been greatly strengthened, such as by securing the independence of Committee Members by having two-thirds of more of the members of the three committees being Independent Directors of the Board and not having Representative Executive Officers as Committee Members. Further, when considering whether or not to make the Asia joint venture business with Wuthelam Group, to which our parent company NIPSEA INTERNATIONAL LIMITED belongs, a wholly owned subsidiary and whether or not to acquire the Indonesia business of Wuthelam Group, as well as the capital policies in association with these items, it was confirmed that minority shareholder interests were taken into account by the Company’s Board of Directors through the establishment of a special committee composed of three Independent Directors of the Board and the holding of a total of 15 meetings to discuss the matter, including meetings of the Board of Directors. ･ Among the issues that were pointed out as requiring strengthening in the effectiveness evaluations for the period ending December 2019, it was confirmed that although progress was being made in the handling with regard to the expansion of discussions of important agenda items, strengthening of supervisory functions, and strengthening of nomination functions, there is still room for further improvement. ･ Based on the above, the evaluation that was received was that the effectiveness of the Company’s Board of Directors has been largely secured and effectiveness has continued to improve since last fiscal year. On the other hand, the issues for which efforts should be strengthened for the period ending December 2021 were identified as: advancement of monitoring models through delegation to executives, etc., expansion of the discussion of an important agenda item–the medium-term growth strategy, further strengthening of monitoring functions to contribute to monitoring models, and strengthening of nomination functions with regard to the succession of the Directors of the Board and the next generation of management. ◇ Based on the results of the above, the Company’s Board of Directors will continue to aim for “Maximization of Shareholder Value” and make efforts to improve effectiveness. [Supplementary General Principle 4-14-2] ■ Policy on training for Directors of the Board ･ Stated in Article 34 (Policy on Training for Directors of the Board) of the “Corporate Governance Policies” of the Company. [General Principle 5-1] ■ Policies on the establishment of a system and initiatives for the promotion of constructive dialog with shareholders. ･ Stated in Article 15 (Disclosure of Information), Article 36 (Basic Policy on Dialogue with Shareholders), and Article 37 (System for Dialogue with Shareholders) 2． Capital structure Foreign shareholding ratio Above 30% [Status off major shareholders] Name Nipsea International Limited (Standing proxy City Bank, NA Tokyo Branch, The Bank of Tokyo-Mitsubishi UFJ, Ltd.) Fraser (HK) Limited (Standing proxy City Bank, NA Tokyo Branch) 4 Number of shares held Shareholding ratio (%) 1,293,030,000 55.06 85,000,000 3.61 Clearstream Banking S.A. (Standing proxy The Hongkong and Shanghai Banking Corporation Limited, Tokyo Branch) HSBC Bank plc A/C CLIENTS 3 (Standing proxy The Hongkong and Shanghai Banking Corporation Limited, Tokyo Branch) The Master Trust Bank of Japan, Ltd. (Trust Account) Nippon Life Insurance Company (Standing Proxy The Master Trust Bank of Japan, Ltd.) Sumitomo Life Insurance Company (Standing Proxy Custody Bank of Japan, Ltd.) Sumitomo Mitsui Banking The Bank of Tokyo-Mitsubishi UFJ, Ltd. Sumitomo Mitsui Trust Bank, Ltd. (Standing proxy Custody Bank of Japan, Ltd.) Controlling shareholders (other than the parent company) ――― 83,509,645 3.55 75,544,385 65,012,400 54,085,665 53,750,000 49,998,305 35,667,470 35,265,000 3.21 2.76 2.30 2.28 2.12 1.51 1.50 Parent company Nipsea International Limited (Unlisted) Supplementary explanation 1. The total number of issued shares written are as of June 30, 2021. 2. The ratio of the number of shares owned to the total number of issued shares is calculated excluding treasury stock of 22,342,327 shares. 3. Nipsea International Limited is a wholly owned subsidiary of Wuthelam Holdings Ltd. where Goh Hup Jin, a Director of the Board of our Company, serves as Managing Director. 4. On January 25, 2021, the Company conducted a third-party allotment of shares with Nipsea International Limited and Fraser (HK) Limited as underwriters, where it issued 148,700,000 new shares of the Company, and as a result, the total number of issued shares was 474,102,443. 5. Based on the resolution of the Board of Directors meeting held on February 10, 2021, the Company set March 31, 2021 as the record date and April 1, 2021 as the effective date, and as of April 1, 2021, the number of common shares owned by shareholders noted or recorded in the final shareholder registry on the record date has been split at a rate of 5 shares for each share. As a result, the total number of issued shares (474,102,443 shares) after the above third-party allotment has increased by 1,896,409,772 shares to 2,370,512,215 shares. 6. A large shareholding report dated November 15, 2021 (submitted by The Bank of Tokyo-Mitsubishi UFJ, Ltd. and its joint holders Mitsubishi UFJ Trust and Banking Corporation, Mitsubishi UFJ International Investment Trust and Banking Corporation, and First Sentier Investors (Australia) IM Ltd.) has been made available for public inspection. However, the portion for which the actual number of shares held as of June 30, 2021 cannot be confirmed by the Company is not included in the above status of the major shareholders. 3. Company attributex Listed exchanges and market section Tokyo Stock Exchange, 1st Section Fiscal year-end December 5 Business category Chemical Number of employees (consolidated) as of the end of the previous fiscal year More than 1000 Net sales (consolidated) as of the end of the previous fiscal year Not less than 100 billion yen, but less than 1 trillion yen Number of consolidated subsidiaries as of the end of the previous fiscal year Not less than 100, but less than 300 4. Guidelines for measures to protect minority shareholders in conducting transactions with the controlling shareholder ･ To protect minority shareholders, when the company intends to conduct a transaction with its parent company, the Independent Directors appropriately conduct engagement and supervision, such as obtaining approval at the Board of Directors with the majority of the Independent Directors, etc. 5． Other special circumstances that may have material impact on corporate governance ･ The Company’s parent company is Nipsea International Limited, which belongs to the Wuthelam group. There are no agreements between the Company and the Wuthelam Group regarding the holding and sale of the Company’s shares held by the Wuthelam Group, the exercise of voting rights, or other contracts that restrict management. Also, the Company has secured a certain level of independence since it has taken the measures described in “4. Guidelines for measures to protect minority shareholders in conducting transactions with the controlling shareholder” above. 6 II. Status of the corporate governance system including the business management organization pertaining to management decision-making, execution and supervision 1. Matters concerning governing institution structure, operations of organization, etc. Organizational form Company with a Nominating Committee, etc. Chair of the Board of Directors Outside Director of the Board [Directors] Maximum number of Directors of the Board stipulated in the articles of incorporation 11 people Term of office of Directors of the Board stipulated in the articles of incorporation 1 year [Matters relating to outside directors of the board] Number of Directors of the Board Number of Outside Directors of the Board Number of Outside Directors of the Board who are designated as Independent Director of the Board 8 6 6 Relationship with the Company (1) Name Attributes Hisashi Hara Takashi Tsutsui Toshio Morohoshi Masayoshi Nakamura Masataka Mitsuhashi Attorney Formerly a member of another company Formerly a member of another company Formerly a member of another company Certified public accountant Relationship with the Company (*) a b c d e f g h i j k △ △ △ Miharu Koezuka Formerly a member of another company * Selections regarding the relationship with the company * “○” if the person falls under each item in “current / recent,” “△” if the person falls under “past” * “●” if a close relative falls under each item in “current / recent,” “▲” if they fall under “past” a Executive of a listed or its subsidiary b Executive or Non-Executive Director of the Board of the parent company of a listed company c Executive of a brother company of a listed company d Person whose major client or supplier is a listed company or an executive thereof e Major client or supplier of a listed company or an executive thereof f Consultant, accounting expert or legal expert who receives a large amount of monetary consideration or other property from a listed company besides executive compensation g Major shareholder of a listed company (or an executive of the said major shareholder if it is a corporation) 7 h i j Executive of a client or supplier company of a listed company (which does not fall under any of d, e, or f) (the executive himself/herself only) The previous executive in a relationship where there is a mutual appointment of outside officers (the executive himself/herself only) Executive of a company or organization that receives a donation from the Company (the Outside Audit & Supervisory Board Member himself/herself only) k Other Relationship with the company (2) Updated Affiliated Committee Compensation Committee Independent Officers Nominating Committee Audit Committee Name Supplementary explanation regarding conforming items Reason for appointment Hisashi Hara has a career as an attorney spanning over 40 years, has participated in many cross border M&A transactions, and in addition, has been involved in various corporate legal affairs projects. He is highly regarded as an attorney involved in cross border M&A transactions, and in 2011 was awarded the Chambers Area-Pacific Lifetime Achievement Award by Chambers Partners. He was appointed as an Outside Director of the Board of the Company in March 2018, and prior to the transition to a Company with a Nominating Committee, etc. in March 2020, as Chairperson of the Nominating Advisory Committee, he played an important role in selecting the next President and nominating candidates for the Board of Directors from an objective standpoint. Even after this transition in March 2020, he has fulfilled important responsibilities as the chairperson of the Nominating Committee We have determined that his opinions and experience are required for the construction of governance towards “Maximization of Shareholder Value” in the medium to long term in fulfilling obligations to the various stakeholders surrounding the Company, and therefore request his appointment as an Outside Director of the Board. He has also been designated as an independent officer as he satisfies the requirements for an independent officer established by the Tokyo Stock Exchange as well as the “Independence Criteria for Outside Officers” established by the Company and it is therefore determined that there is no risk of any conflict of interest with general shareholders. Takashi Tsutsui worked for Nomura Securities Co., Ltd. (currently Nomura Holdings, Inc. and Nomura Securities Co., Ltd.) for many years, and has experience as a Representative Director of Jasdaq Securities Exchange, Inc. (currently Japan Exchange Group, Inc.) as well as managing M & A, IR, etc. as a member of the management team at LIXIL Group Co., Ltd. (currently LIXIL Corporation). Therefore, he also has a great deal of experience in global business operations and Hisashi Hara ○ ○ (concurrent service) Senior Counsel at T&K Partners (concurrent service) Outside Director of the Board of MetaReal Corp.(former Rozetta Corp.) Nomura Securities Co., Ltd., at which Takashi Tsutsui previously served as executive officer, is the lead securities 8 Takashi Tsutsui ○ ○ companies of the Company, however over 10 years have passed since he retired as an advisor of said company, and we have determined that there is no concern of a conflict of interest arising with general shareholders. a high level of insight into corporate governance, including the need to secure the rights of minority shareholders. Appointed as an Outside Director of the Board of the Company in March 2018, prior to the transition to a Company with a Nominating Committee, etc. in March 2020, as Chairperson of the Remuneration Advisory Committee he worked to revise the compensation system for Directors of the Board, such as the introduction of a stock compensation system with transfer restrictions. Even after this transition in March 2020, he has fulfilled important responsibilities as the chairperson of the Compensation Committee. We have determined that his opinions and experience are required for the construction of governance towards “Maximization of Shareholder Value” in the medium to long term in fulfilling obligations to the various stakeholders surrounding the Company, and therefore request his appointment as an Outside Director of the Board. He has also been designated as an independent officer as he satisfies the requirements for an independent officer established by the Tokyo Stock Exchange as well as the “Independence Criteria for Outside Officers” established by the Company and it is therefore determined that there is no risk of any conflict of interest with general shareholders. Toshio Morohoshi has had a career of over 40 years as an IT specialist; he has participated in the management of Japanese flagship global electronics company Fujitsu Ltd., has been the Japanese representative of many global companies, and up to May 2018, participated in the management of Yaskawa Information Systems Corporation (currently YE Digital Corporation) as President & CEO, Representative Director of the Board. After assuming the service of Outside Director of the Board of the Company in March 2018, with a background as an IT expert, we can anticipate accurate advice from him for the Company, which is bringing diversity to the composition of the Board of Directors of the Company to contribute to revitalizing discussions, and is promoting ICT strategies. After transitioning to a Company with a Nominating Committee, etc. in March 2020, he has served as a member of the Nominating Committee and Audit Committee. We have determined that his opinions and experience are required for the construction of governance towards “Maximization of Shareholder Value” in the medium to long term, upon completely fulfilling obligations to the various stakeholders surrounding the Company, and therefore request his appointment as an Outside Director of the Toshio Morohoshi ○ ○ ○ (concurrent service) Outside Director of the Board of T-Gaia Corporation 9 Board. He has also been designated as an independent officer as she satisfies the requirements for an independent officer established by the Tokyo Stock Exchange as well as the “Independence Criteria for Outside Officers” established by the Company and it is therefore determined that there is no risk of any conflict of interest with general shareholders. Masayoshi Nakamura, since 1984, has worked at major US banks Lehman Brothers and Morgan Stanley, as well as at Mitsubishi UFJ Securities Co., Ltd. (currently Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.), which is the core securities company of the Mitsubishi UFJ Financial Group, and has a wealth of practical experience spanning over 30 years as a specialist in the M&A advisory business and raising funds from capital markets. During this time, he has led many large cross-border M&A transactions and has also contributed to the internationalization of business through M&A transactions involving Japanese companies. With many years of experience in M & A transactions, we can expect him to contribute to the development of our business through advice regarding accurate risk control and other matters concerning domestic and overseas M & A transactions. He was appointed as an Outside Director of the Board in March 2018, and after the transition to a Company with a Nominating Committee, etc. in March 2020, he became chair of the Independent Director of the Board Meeting as the Lead Independent Director of the Board to gather the opinions of the Independent Directors of the Board. Having done so, he then conveys these opinions to the Chairman, Representative Executive Officer & Co-President or other Executive Officers to contribute to revitalizing discussions among the Board of Directors from an objective viewpoint. He also works as a member of the Nominating Committee and Compensation Committee. We have determined that his opinions and experience are required for the construction of governance towards “Maximization of Shareholder Value” in the medium to long term, upon completely fulfilling obligations to the various stakeholders surrounding the Company, and therefore request his appointment as an Outside Director of the Board. He has also been designated as an independent officer as he satisfies the requirements for an independent officer established by the Tokyo Stock Exchange as well as the “Independence Criteria for Outside Officers” established by the Company and it is therefore determined that there is no risk of Masayoshi Nakamura ○ ○ ○ Masayoshi Nakamura has been an executive officer of Mitsubishi UFJ Securities Co., Ltd., a subsidiary of Mitsubishi UFJ Financial Group, Inc., and although Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., which took over the company, and its brother company, MUFG Bank, Ltd., have a business relationship, more than 10 years have passed since he retired from all positions of Mitsubishi UFJ Financial Group, and we believe that there is no risk of conflict of interest with general shareholders. 10 (concurrent service) Outside Audit & Supervisory Board Member of Fujifilm Holdings Corporation and Integral Corporation, and an Outside Director of the Board of Skymark Airlines Inc. The Company has a trading relationship with the PwC Japan Group, which includes PwC Advisory LLC and PricewaterhouseCoopers Aarata LLC, where Masataka Mitsuhashi has previously served as a business executive; said trading relationship has included the receipt of support for corporate acquisitions and the construction of an internal audit system. In addition, Mr. Masataka Mitsuhashi worked as an advisor of the Governance Advisory Committee established as an advisory committee for the Board of Directors of the Company until December 31, 2019. However, as the amount of such transactions was less than the amount prescribed in the “Outside Director of the Board Independence Judgment Standards” of the Company, the Company has determined that there is no concern of a conflict of interest arising with general shareholders. (concurrent service) Outside Director of the Board of Japan Post Holdings Co., Ltd. and Nankai Electric Railway Co., Ltd. any conflict of interest with general shareholders. Masataka Mitsuhashi has accumulated diverse experience in accounts auditing as a chartered public accountant at an audit firm as well as through his many years of involvement in M&A related businesses, and in addition, has also been active as a Representative Director of the Board of a consulting firm. Furthermore, in June 2019, he was appointed as an advisor of the Company’s Governance Advisory Committee, and he provided useful advice to the Board of Directors of the Company for the organizational reforms towards the transition to a Company with a Nominating Committee in March 2020. Furthermore, after assuming the service of Outside Director of the Board of the Company in March 2020, as the Chairperson of the Audit Committee he has fulfilled important responsibilities such as working toward establishing the Company’s global audit system by utilizing his abundant experience at audit firms, etc. We have determined that his opinions and experience are required for the construction of governance towards “Maximization of Shareholder Value” in the medium to long term, upon completely fulfilling obligations to the various stakeholders surrounding the Company, and therefore request his appointment as an Outside Director of the Board. He has also been designated as an independent officer as he satisfies the requirements for an independent officer established by the Tokyo Stock Exchange as well as the “Independence Criteria for Outside Officers” established by the Company and it is therefore determined that there is no risk of any conflict of interest with general shareholders. Miharu Koezuka has been involved in management for many years as a member of the management team at Takashimaya Company, Limited, and currently serves as an Outside Director of the Board of Japan service Holdings Co., Ltd., and Nankai Electric Railway Co., Ltd. After assuming the service of Outside Director of the Board in March 2020, she has utilized her experience in various industries to provide multifaceted and accurate advice, and as the first female director of the Company, she has greatly contributed to increasing the diversity of the Masataka Mitsuhashi ○ ○ Miharu Koezuka ○ ○ 11 Board of Directors of the Company. She also serves as a member of the Audit Committee. We have determined that his opinions and experience are required for the construction of governance towards “Maximization of Shareholder Value” in the medium to long term, upon completely fulfilling obligations to the various stakeholders surrounding the Company, and therefore request his appointment as an Outside Director of the Board. She has also been designated as an independent officer as she satisfies the requirements for an independent officer established by the Tokyo Stock Exchange as well as the “Independence Criteria for Outside Officers” established by the Company and it is therefore determined that there is no risk of any conflict of interest with general shareholders. 1 1 1 3 2 3 Outside Director of the Board Outside Director of the Board Outside Director of the Board [Various Committees] Composition of Members and Affiliation of Chairpersons of Each Committee Total number of committee members Number of full-time committee members Number of Inside Directors Number of Outside Directors Committee Chair (Chairperson) Nominating Committee Compensation Committee Audit Committee 4 3 4 [Executive Officers] Number of Executive Officers Updated 3 Concurrent service status Updated Wee Siew Kim Yuri Inoue [Audit System] Whether there are directors or employees to assist in the duties of the Audit Committee Yes 0 0 0 12 Name Presence or absence of representation rights Presence or absence of concurrent service as director of the board Nominating Committee Member Compensation Committee Member Presence or absence of concurrent service as employee Yuichiro Wakatsuki Yes Yes Not adopted Not adopted × Not adopted × Not adopted × × × × Not adopted Not adopted Not adopted Matters concerning the independence of directors and employees from Executive Officers ･ The Company has established the Audit Department as an organization to assist in the duties of the Audit Committee. ･The Audit Department shall serve as secretariat of the Audit Committee, and furthermore, based on the instructions of the Audit Committee, investigate, analyze, and report on matters subject to auditing, and support the audit activities of the Audit Committee. ･ Furthermore, in order to ensure independence from the Executive Officers of the Audit Department, the authority to consent to the Audit Committee concerning the necessary matters (matters related to the personnel rights of the General Manager of the Audit Department, basic policy of the Audit Department, audit plan, budget, etc.), and the priority authority over the Representative Executive Officer and President for the Audit Committee’s instructions concerning audits are prescribed in the Company’s “Audit Committee Rules.” Status of coordination among Audit Committee, the Accounting Auditor, and the Internal Audit Department ･ The Audit Committee has established a group audit system centered on the Company and is making efforts to improve the effectiveness of audits through various activities, such includes the holding of a Group Audit Committee jointly attended by Audit and the persons responsible at the internal auditing departments of domestic and foreign partner companies to carry out information sharing, opinion exchange, etc.; the conduct of information sharing and opinion exchange with regard to issues, etc., identified over the course of audits through the holding of three-way audit meetings attended by the Accounting Auditor and the General Manager of Audit; and regular meetings with domestic partner company Audit & Supervisory Board Members. [Independent officers] Number of independent officers 6 Other matters concerning independent officers The Company has specified all Outside Directors of the Board who meet the qualifications for to be independent officers as independent officers. The < Independence Criteria for Outside Director of the Board> prescribed by the Company are as set forth below. 1. The Company will determine that Outside Directors of the Board or candidates for Outside Directors of the Board are sufficiently independent from the Company if they are found to satisfy all the requirements prescribed in the following items as a result of a reasonable investigation by the Company. (1) The person in question is not a controlling shareholder (Note 1). (2) The person in question is not an executive (Note 3) or director or former executive or director (Note 4) of a parent company (Note 2) of the Company. (3) The person in question is not an executive or ex-executive (Note 5) of the Company or a subsidiary of the Company (hereinafter referred to as “the Group”). (4) The person in question is not an executive or ex-executive of a fellow subsidiary of the Company (Note 6). (5) The person in question does not fall under any of the following persons either currently or anytime during the past three years: (i) A major shareholder (Note 7) of the Company, or an executive of such a major shareholder (ii) A person whose major business partner is the Group (Note 8) or an executive of such a person (iii) A major trading partner (Note 9) of the Group or an executive of such a trading partner (iv) A person belonging to an audit corporation that conducts statutory audits of the Group (v) A person who receives a significant amount (Note 10) of money, etc. from the Group aside from officer remuneration (vi) An executive of an organization that receives a significant amount (Note 10) of donation or aid from the Group (6) The person in question is not the spouse or a relative within the second degree of a person who falls applicable under any of the items of (1) and (5) above. 2. Outside Directors of the Board shall strive to maintain the independence prescribed by these Independence Criteria until their resignation from office. If an Outside Director of the Board no longer satisfies these Independence Criteria, he/she shall promptly notify the Company of the fact. (Notes) 1. A controlling shareholder means an individual who is a controlling shareholder a defined by the “Securities Listing Rules (Tokyo Stock Exchange)” (Listing Rules) Article 3, No. 42-2 and the Enforcement Rules thereof 13 Article 3-2 2. A parent company means parent company as define in the “Regulation on Terminology, Forms, and Preparation Methods of Financial Statements” (Financial Statement Rules), Article 8, Paragraph 3. 3. An executive means an Executive Director, an Executive Officer, a Corporate Officer, or a person holding a similar position at a corporation or other organization. 4. A former executive or director means a person who has been an executive or director anytime during the past 10 years. 5. An ex-executive means a person who has been an executive anytime during the past 10 years. 6. A fellow subsidiary means another company that has the same parent company as the Company. 7. A major shareholder means a person who directly or indirectly holds 10% or more of the total voting rights. 8. A person whose major business partner is the Group means a person who has received from the Group a payment equivalent to 2% or more of the annual consolidate sales revenue or annual consolidated net sales for the latest fiscal year of that person. 9. A major business partner of the Group means a person who has paid to the Group an amount equivalent to 2% or more of the annual consolidated sales revenue for the latest fiscal year of the Company or a person who has an outstanding balance of loans to the Company that is equivalent to 2% or more of the consolidated total assets of the Company as of the end of the latest fiscal year of the Company. 10. A significant amount means an amount exceeding an annual amount of 10 million yen on average over the past three fiscal years of the Company. [Incentives] Implementation status of measures to provide incentives to Directors of the Board and Executive Officers Introduction of a performance-linked remuneration plan, stock option plans, and others Supplementary explanation of the applicable items 1. The Company transitioned to a Company with a Nominating Committee, etc., with the approval of the 195th Annual General Meeting held on March 26, 2020. Before the transition to a Company with a Nominating Committee, etc., (from January 2020 to March 2020), the remuneration of Directors of the Board (excluding Outside Directors of the Board) consisted of “job-based remuneration,” “performance-linked remuneration,” and “long-term incentive remuneration.” 2. After the transition to a Company with a Nominating Committee, etc., (from April 2020 to December 2020), the remuneration, etc., of Directors of the Board and Executive Officers consisted of, based on the above remuneration structure of officers before the transition to a Company with a Nominating Committee, etc., with regard to Directors of the Board, “job-based remuneration,” “stipends for positions such as being a Committee Member,” and “long-term incentive remuneration”; and, with regard to Executive Officers, “job-based remuneration,” “performance-linked remuneration,” and “long-term incentive remuneration,” and job-based remuneration in accordance with the position of each Executive Officer has been newly stipulated. ･ “Job-based remuneration” is provided as fixed salary that is specified for each position in the Company in accordance with the applicable roles and responsibilities. ･ “Performance-linked remuneration” for Directors of the Board (excluding Outside Directors of the Board) before the transition to a Company with a Nominating Committee, etc., (from January 2020 to March 2020) was provided as a variable amount within the range of 0% and 160% of job-based remuneration for Directors of the Board (excluding Outside Directors of the Board), depending on evaluations; “Performance-linked remuneration” for Executive Officers after the transition to a Company with a Nominating Committee, etc., (from April 2020 to December 2020) was provided as a variable amount within the range of 0% and 180% of job-based remuneration depending on individual performance evaluations. ･ “Long-term incentive remuneration” involves remuneration through the granting of Restricted Stock Compensation in accordance with a design under which the Company and the recipient execute an agreement for the allotment of shares of the Company with restrictions on transfer equal to an amount determined as a ratio, stipulated in accordance with each position, of the job-based remuneration, and such ratio increases depending on the position. Remuneration through the granting of Restricted Stock Compensation provide an incentive for the Company’s Directors of the Board and Executive Officers to maximize shareholder value of the Company and are aimed at promoting further value sharing with shareholders. Further, with regard to Independent Directors of the Board as well, in addition to traditional “job-based remuneration,” “long-term incentive remuneration” has been introduced. Because the Company’s Outside Directors of the Board not only supervise management, but also hold positions relating to the long-term perspective of the Company with regard to important decision-making, including corporate acquisitions, the aim was to provide Outside Directors of the Board with a remuneration system that takes this into account. 14 Persons to whom stock options are granted Inside Directors of the Board, employees Supplementary explanation of the applicable items With regard to share remuneration as a part of “long-term incentive remuneration,” stock options are converted to Restricted Stock. With regard to stock options, they are scheduled to come to an end after the completion of their being awarded to overseas dispatched personnel, who are eligible for these, upon their return to Japan. There were no new grants of stock options in the period ending December 2020. [Director of the board and executive officer remuneration] Disclosure status (of remuneration of individual Directors of the Board) Disclosure status (of remuneration of individual Directors of the Board) Remuneration of only some of the Directors of the Board is disclosed Remuneration of only some of the Directors of the Board is disclosed Supplementary explanation of the applicable items ･ The Company transitioned to a Company with a Nominating Committee, etc., with the approval of the 195th Annual General Meeting held on March 26, 2020. Separating the period into before the transition to a Company with a Nominating Committee, etc., (from January 2020 to March 2020) and after the transition to a Company with a Nominating Committee, etc., (from April 2020 to December 2020), the remuneration, etc., in the Securities Report, the “total amount of remuneration, etc., for each officer category, total amount of remuneration, etc., by type, and number of target officers” are disclosed and, with regard to officers whose total amount of consolidated remuneration, etc., is 100 million JPY or more, the “total amount, etc., of consolidated remuneration by officer” is disclosed. ・Securities report (https://www.nipponpaint-holdings.com/en/ir/library/statements/) Policy for determining the amount of remuneration or its calculation method Yes Disclosure of policy for determining the amount of remuneration or its calculation method ･ The Company transitioned to a Company with a Nominating Committee, etc., with the approval of the 195th Annual General Meeting held on March 26, 2020. Before the transition to a Company with a Nominating Committee, etc., (from January 2020 to March 2020), the policy for determining the remuneration, etc., of Directors of the Board (excluding Outside Directors of the Board) was as per the below. ･ Global competitors shall be used as the benchmark, and the standard shall be one in which talented managers are be attracted and kept ･ The ratio of performance-linked remuneration and share remuneration shall be increased, and “Maximization of Shareholder Value (MSV)” shall be incentivized. With regard to the process for the determination, in accordance with the above policies, of the remuneration structure for Directors of the Board, their level of annual remuneration (which serves as the standard for other remuneration), etc., the Remuneration Advisory Committee has deliberated fairly and transparently, taking into account social trends, comparisons with other companies, market levels, etc., and the Board of Directors has determined them based on the findings of such committee. The remuneration, etc., of Audit & Supervisory Board Members are determined through consultation by Audit & Supervisory Board Members. Further, remuneration, etc., of Audit & Supervisory Board Members, including Outside Audit & Supervisory Board Members, consists solely of job-based remuneration in view of the nature of their duties, and “no performance-linked remuneration” nor “long-term incentive remuneration” have been introduced for them. 2. The determination policy for the remuneration of Directors of the Board and Executive Officers after the transition to a Company with a Nominating Committee, etc., (from April 2020 to December 2020) is the same as above, and such remuneration has been determined in accordance with the above policy after the Compensation Committee carried out fair and transparent deliberations, taking into account social trends, comparisons with other companies, market levels, etc. 3. With regard to the determination policy for the remuneration of Directors of the Board and Executive Officers from January 2021, the Compensation Committee has stipulated the following remuneration philosophy and the 15 FY2021 remuneration system will be deliberated and determined in accordance with such remuneration philosophy. [Remuneration Philosophy] Overarching Principle ・In order to implement ”Maximization of Shareholder Value” (MSV), to build a remuneration system that is transparent and satisfactory and to continue to provide appropriate motivation, incentives, etc., to key executives by implementing individual treatment based on the system. Guiding Principles ・To be able to attract and keep management talent that excels at practicing MSV. ・To be able to continuously provide motivation so that maximum potential can be encouraged even under changing environment. ・To function effectively and in harmony with the current state of business development, level of maturity of organizational systems, organizational values, and the community. In accordance with this remuneration philosophy, the design policies for the remuneration of the Representative Executive Officer and President has been determined to be the below. [“Design Policies for the remuneration of the Representative Executive Officer and President] ・A total amount of remuneration that is commensurate with the performance of the Representative Executive Officer and President ・A remuneration structure that promotes appropriate and decisive risk taking ・Strengthening of share remuneration that contributes to MSV [Support system for Outside Directors of the Board] ･ The Company will strive to put in place an environment that encourages lively discussion to ensure that discussions at the board meetings are rewarding. For example, the Company will notify board meeting agenda and deliver materials related to them to Directors of the Board in advance in addition to the provision of prior explanation to Outside Directors of the Board as necessary. ･ The Board of Directors, Nominating Committee, Compensation Committee, Audit Committee, and Independent Director of the Board Committee may appoint attorneys, chartered public accountants, tax accountants, consultants, and other external specialists at the cost of the Company as necessary, and may receive advice therefrom. ･ The Company, in order to ensure the effectiveness of the Board of Directors, the Nominating Committee, the Compensation Committee, the Audit Committee, as well as meetings of the Independent Directors of the Board, shall establish a secretary’s office for each meeting body that has been assigned an appropriate budget and personnel. 2. Matters concerning such functions as business execution, audit, oversight, nomination, and the determination of remuneration (overview of the current corporate governance system) Updated 1. An overview of the corporate governance system of the Company is set forth below. (1) Board of Directors and Directors of the Board ･ The Board of Directors supervises the general management of the Group. The Board of Directors delegates decision-making authority for the execution of business to executive officers, with the exception of matters requiring the resolution of the Board of Directors pursuant to laws and ordinances and the Articles of Incorporation, matters delegated to the Board of Directors by resolution of a shareholders’ meeting, and important matters relating to the management of the Group. ･ As a general rule, the Board of Directors shall be composed of a majority of Independent Directors of the Board. ･ As of January 14, 2022, three-quarters of Directors of the Board are Independent Directors of the Board. ･ By a resolution of the Board of Directors, the Board Chair is Masayoshi Nakamura who is Lead Independent Director of the Board, since Independent Director of the Board, in a position of independence from controlling shareholders, etc.(Article 22, item 4 of the Company’s Corporate Governance Policies), plays a role in protecting minority shareholder . ･ The number of members of the Board of Directors, as of January 14, 2022, is as set forth below (eight males and one female). Goh Hup Jin (Chairman) Manabu Minami Hisashi Hara Takashi Tsutsui (Independent Director of the Board) (Independent Director of the Board) 16 (Independent Director of the Board) Toshio Morohoshi (Board Chair, Lead Independent Director of the Board) Masayoshi Nakamura (Independent Director of the Board) Masataka Mitsuhashi Miharu Koezuka (Independent Director of the Board) ･ 21 meetings of the Board of Directors were held in FY2021. ･ In regard to the tenure of Outside Directors of the Board, as a general rule, the same person may be nominated as a candidate for Outside Director of the Board by the Nominating Committee up to four times, however, if agreed beforehand by a majority of the Directors of the Board, the same person may be nominated a maximum of eight times. ･ The Company, through a mutual election by Independent Directors of the Board, has appointed Masayoshi Nakamura as the Lead Independent Director of the Board. The Lead Independent Director of the Board, upon collecting the opinions of the other Independent Directors of the Board as necessary, conveys the opinion of the Independent Directors of the Board to the Chairman, Representative Executive Officer & Co-President and other Executive Officers, and holds consultation as needed. ･ The Lead Independent Director of the Board may convene a meeting of the Independent Directors of the Board, composed of all Independent Directors of the Board, before or after a meeting of the Board of Directors, etc., as necessary. (2) Committees The following committees prescribed by the Companies Act have been established as of January 14, 2022. (i) Nominating Committee (Role) To make decisions on the content of proposals on the appointment and dismissal of Directors of the Board to be submitted to the General Meeting of Shareholders, and to deliberate and report to the Board of Directors on the Directors of the Board successor plan, as well as the appointment, dismissal, and successor plan for Representative Executive Officer and President. (Composition) Pursuant to the Nominating Committee Rules of the Company, the Nominating Committee has three or more Committee Members. A majority of the Committee Members are Independent Directors of the Board and the Committee Chairperson is elected from among the Committee Members who are Independent Directors of the Board. Further, among the Executive Officers, Representative Executive Officer and President or Directors of the Board holding an equivalent position cannot become Nominating Committee Members. (Number of times convened) 16 meetings were convened in FY2021. (Attendance rates) Committee Chairperson Hisashi Hara (Independent Director) Committee Member Committee Member Committee Member (ii) Compensation committee (Role) To make decisions on the decision-making policy for the individual remuneration, etc., of Directors of the Board and Executive Officers, and to make decisions on the content of remuneration, etc., for individuals (Composition) Pursuant to the Compensation Committee Rules of the Company, the Compensation Committee has three or more Committee Members. A majority of the Committee Members are Independent Directors of the Board and the Committee Chairperson is elected from among the Committee Members who are Independent Directors of the Board. Further, among the Executive Officers, Representative Executive Officer and President or Directors of the Board holding an equivalent position cannot become Compensation Committee Members. (Number of times convened) 19 meetings were convened in FY2021. (Attendance rates) Committee Chairperson Takashi Tsutsui (Independent Director) Goh Hup Jin Committee Member Masayoshi Nakamura (Independent Director) Committee Member (iii) Audit Committee (Role) The auditing of the execution of duties of Executive Officers and Directors of the Board, the creation of audit reports, and the making of decisions on the content of proposals relating to the appointment, dismissal, and non-reappointment of the Accounting Auditor to be submitted to a General Meeting of Shareholders (Composition) Pursuant to the Audit Committee Rules of the Company, the Audit Committee has three or more Committee Members. A majority of the Committee Members are Independent Directors of the Board and the Committee Chairperson is elected from among the Committee Members who are Independent Directors of the Board. Further, an Audit Committee Member may not concurrently serve as an Executive Officer, Director of the Board who executes business, or employee of the Company or a subsidiary of the Company. In addition, a Director of the Board who concurrently serves as an Executive Officer and, at present or within the past 10 years, is, or has been a Director of the Board, Executive Officer, Audit & Supervisory Board Member, or employee (includes positions equivalent to these) of a major shareholder with 10% or more of the total number of Goh Hup Jin Toshio Morohoshi (Independent Director) Masayoshi Nakamura (Independent Director) Attendance rate: 16/16 (100%) Attendance rate: 16/16 (100%) Attendance rate: 16/16 (100%) Attendance rate: 16/16 (100%) Attendance rate: 19/19 (100%) Attendance rate: 19/19 (100%) Attendance rate: 19/19 (100%) 17 Attendance rate: 17/17 (100%) Attendance rate: 17/17 (100%) Attendance rate: 17/17 (100%) Attendance rate: 17/17 (100%) issued shares of the Company (includes the parent company, etc., thereof), may not become an Audit Committee Member. (Number of times convened) 17 meetings were convened in FY2021. (Attendance rates) Committee Chairperson Masataka Mitsuhashi (Independent Director) Manabu Minami Committee Member Toshio Morohoshi (Independent Director) Committee Member Committee Member Miharu Koezuka (Independent Director) (3) Executive Officers As of January 14, 2022, there are 3 Executive Officers, and the Executive Officers make decisions on the execution of business of the Company that they have been delegated by resolution of the Board of Directors, and execute such business. The company has established a Co-President system with the aim to further accelerate global business growth to pursue Maximization of Shareholder Value on April 28, 2021. Yuichiro Wakatsuki, Representative Executive Officer & Co-President, oversees back-office operations including promotion of M&A, financial policies, and fund procurement. Wee Siew Kim, Representative Executive Officer & Co-President, takes charge of all the operations of the Group. (4) Corporate Officers The Company has introduced a Corporate Officer system, and as of January 14, 2022, there are 2 Corporate Officers (1 male, 1 female) engaged in the execution of the specified businesses. 2. The situation of audits is as set forth below. (1) Situation of Audit Committee audits ･ As of January 14, 2022, the Audit Committee is composed of four Audit Committee Members, of which three are Independent Directors of the Board, they include a person holding a CPA qualification, who can perform audits from a specialized perspective, and a person with international experience and abundant international experience as a manager. The Director of the Board, who has a background in the company, who fills the last position has many years of experience in the Finance & Accounting Department of the Company and as an officer of the Company. ･ The main items with regard to which deliberations are being conducted are the audit policy and audit plan, building an