日東電工（6988） – Corporate Governance Report

[Notes of caution] This document is an English translation of the Japanese original. In the event of any differences or inconsistencies between the Japanese and English versions, the Japanese language version shall take precedence. CORPORATE GOVERNANCE Inquiries: Corporate Legal Dept. Legal and Corporate Affairs Div. 06-7632-2101 NITTO DENKO CORPORATION. Last update: April 1st, 2022 NITTO DENKO CORPORATION Hideo Takasaki, President Stock code: 6988 https://www.nitto.com/jp/ja/ The corporate governance of NITTO DENKO CORPORATION. is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes andOther Basic Information1. Basic ViewsAt the Nitto Group, we make clear our fundamental values and sense of purpose with respect to business per-formance in the form of our Corporate Philosophy. In order to maximize our corporate value and achieve continuous growth under the Corporate Philosophy, we believe that prompt and transparent decision-making, as well as bold managerial decisions, are necessary. Being fully aware of the importance of establishing corporate governance to achieve such decision-making, we will further improve our corporate governance system by establishing these Corporate Governance Guidelines [Ref-erence 1] in accordance with the following basic principles. 1.We ensure the rights and equality of our shareholders.2.We collaborate with our stakeholders appropriately.3.We disclose information appropriately to ensure transparency.4.We aim to realize the management functions expected of us by our stakeholders.5.We engage in constructive dialogue with our shareholders.[Reason not to Enforce Each Principle of the Corporate Governance Code] All of the principles below are pursuant to Japan’s Corporate Governance Code (last revised in June 2021). 【Supplementary Principle 4.10.1 Composition, Independence, Etc. of Advisory Committees】 Nitto established the Management, Nomination, and Remuneration Advisory Committee as an advisory body to the representative director. For details, please see “Voluntary Establishment of Committee(s) Equivalent to 1 Nomination Committee or Remuneration Committee” of the Corporate Governance Report. Please note that Nitto does not necessarily believe that only independent directors can provide useful advice on management, nomination, and remuneration but rather believes that inviting opinions from a broad range of independent third parties contributes to the enhancement of corporate governance. As such, said Committee consists of independent individuals who are deemed to be appropriate at the time, such as outside corporate auditors and external experts. This being the case, independent directors may not always compose a majority of said Committee, though we believe that its independence is secured as full-time executives other than the rep-resentative director are not eligible to be a member of said Committee. 【Supplementary Principle 4.11.1 Skill Matrix】 To achieve compliance with Supplementary Principle 4.11.1, Nitto is currently holding a series of discussions to determine the skillsets, etc. required of the members of its Board of Directors. 【Supplementary Principle 5.1.1 Dialogue between Senior Management and Shareholders】 Please refer to Principle 5.1 Policy for Constructive Dialogue with Shareholders for Nitto’s policy for dialogue with shareholders. Nitto is aware of the requests from shareholders to provide information and arrange management meetings with outside directors and corporate auditors. Accordingly, we make it a rule that the contents of dialogue with share-holders be shared with outside directors, corporate auditors, and other senior management members at the Board of Directors meetings and other opportunities and have outside directors provide information in Integrated Report and elsewhere. We will continue discussing how we can realize management meetings with outside di-rectors and corporate auditors, as there remain issues with the current systems’ structure to ensure fairness of opportunities, prevent information leaks, etc. [Disclosure Based on the Principles of the Corporate Governance Code] 【Principle 1.4 Cross-Shareholdings】 The Nitto Group may hold shares of other listed companies as cross-shareholdings only when such holdings are deemed to lead to the enhancement of the Group’s corporate value over the long-term. However, the ratio of such shares to total assets is minimal, and with regard to each cross-shareholding, we will continue to examine every year such factors as the status of transactions with such companies and whether the return on such holdings is commensurate with the capital costs deemed appropriate by the Company, and determine whether or not such shares need to be sold. When exercising voting rights with respect to such cross-shareholdings, we decide the manner in which we vote in a comprehensive manner after taking into consideration such factors as whether each item to be re-solved leads to the stable enhancement of the Group’s corporate value. 【Principle 1.7 Related Party Transactions】 At Nitto, related party transactions conducted by our Directors or major shareholders and other parties are resolved at Board of Directors meetings or entrusted to Outside Directors as appropriate in order to verify the 2 rationality (business necessity) of such transactions and the validity of their terms and conditions. resolve such transactions or entrust such business to Outside Directors as appropriate Whether or not any items to be presented at Board of Directors meetings and other important meetings fall under the definition of related party transactions is examined by the Secretariat beforehand in conjunction with the legal department. The soundness and appropriateness of such transactions are ensured through ex-post-facto checking of their nature, etc. by the internal audit department and through audits by the Board of Corporate Auditors (members). 【Supplementary Principle 2.4.1 Ensuring Diversity】 Nitto strives to empower women by appointing more female employees to managerial positions by including “corporate culture that satisfies diverse employees” in its material issues (materiality) for sustainability. Mean-while, at this point, we do not set or disclose performance targets for the appointment of foreign and/or mid-career employees to managerial positions as we do not perceive a significant difference in appointing our employees to managerial positions on account of their nationality or timing of hiring. Please refer to the Com-pany’s website and Integrated Report regarding our performance targets and progress for the appointment of women to managerial positions. Remaining committed to developing a “Nitto Person” who comprehends and carries out the Nitto Way, Nitto is developing a group-wide foundation for human resource management to empower human resources across the globe. Please refer to the Company’s website and Integrated Report for the latest on our concrete evalua-tion systems and human resource development programs. The Company’s website: https://www.nitto.com/jp/en/sustainability/social/human_resources/ – Integrated Report The Company’s website: https://www.nitto.com/jp/en/sustainability/report/ 【Principle 2.6 Roles of Corporate Pension Funds as Asset Owners】 In order for Nitto to perform a function as an asset owner with its enhanced investment expertise, it appoints a CFO, a manager in charge of finance, and a manager in charge of human resources as the pension manage-ment director, and in addition, appoints human resources with experience in fund management as an executive director, and supplements professional capacity and knowledge by employing an external advisor, thereby properly operating and managing Nitto’s corporate pension. 【Principle 3.1 Full Disclosure】 (i) Corporate Philosophy and Management Plan Please refer to the Company’s website at https://www.nitto.com/jp/en/ir/ (ii) Basic Views on Corporate Governance Please refer to “1. Basic Views” of this Report. 3 Please refer to [Reference 1] for the “Corporate Governance Guidelines.” (iii) Policy related to remuneration of Directors and Corporate Auditors Please refer to the Company’s website at https://www.nitto.com/jp/en/ir/ (iv) (v) Nomination Policy and Procedures, and Reasons for Individual Nomination of Candidates for Directors and Corporate Auditors (Appropriate Structure of the Board of Directors and Board of Corporate Auditors) Given the current scale of business, the need to facilitate substantial discussions at Board of Directors meet-ings and Board of Corporate Auditors meetings and to ensure an appropriate number of Outside Directors, etc., we believe that the appropriate size of the Board of Directors is not more than ten Directors (one third or more of whom are independent directors). Likewise, the Articles of Incorporation set an upper limit of ten. We also believe that the appropriate size of the Board of Corporate Auditors is not more than five members (half or more of whom are independent auditors), who are individuals having appropriate experience and ability as well as necessary knowledge in finance, accounting, and legal affairs, with at least one (1) Corporate Auditor who has sufficient expertise in finance and accounting. Likewise, the Articles of Incorporation set an upper limit of five. (Appointment and Dismissal of Directors and Corporate Auditors) The Officer Appointment Standards and the Officer Dismissal Standards have been established as described below and are applied when appointing or dismissing a Director or Corporate Auditor. In addition, in order to further enhance fairness and transparency in appointment and dismissal of Directors, the Management, Nom-ination and Remuneration Advisory Committee meets and reports the results of its deliberations to the Board of Directors, and the Board of Directors makes the final decision by taking such report into account. In addition to the basic requirement of having profound insights and high levels of expertise acquired from past experience, successful candidates should comprehend and live up to our Corporate Philosophy, deliver results, and continue to take on new challenges. (At Nitto, those meeting such requirements are called “Nitto Persons.”) 1. An act was committed that was contrary to public order and morality; 2. A violation of the laws and ordinances, the Articles of Incorporation, or any other regulations of the Group was committed, and Nitto suffered a substantial loss or hindrance to Group business operations due to such violation; 3. A material inconvenience was caused to the execution of the duties of an Officer; or 4 4. Any of the quality requirements set forth in the Officer Appointment Standards is no longer satisfied. (Nomination of Outside Directors and Outside Corporate Auditors) When nominating Outside Director and Outside Corporate Auditor candidates, individuals who are considered appropriate for such positions must meet the Independent Officer Appointment Standards and the Officer Ap-pointment Standards. Furthermore, in order for Outside Directors and Corporate Auditors to set aside the time and labor necessary to properly fulfill their roles and responsibilities at Nitto, due attention is paid to the statuses of concurrent positions (officers, etc.) that they might hold at other companies to ensure that such statuses are appropriate. The Company, in an effort to ensure the objectivity and transparency of governance, has set forth the criteria for the independence of Outside Directors and Outside Corporate Auditors (hereinafter collectively referred to as “Outside Officer(s)”), as follows. The Company considers an Outside Officer or a candidate for Outside Officer to have independence, if, after conducting an investigation to the utmost reasonable extent, it is determined that none of the following items are applicable to the Outside Officer or candidate for Outside Officer. 1. A person who is or has been in the past ten years an executing person (Director, Corporate Auditor, Vice President, or any other employee) of the Company or the Group (hereinafter collectively referred to as the “Group”); 2. A person who is an important executing person (Director, Corporate Auditor, Accounting Advisor, Executive Officer, Executive Director, or any other important employee; hereinafter the same shall apply) of a major shareholder of the Company (a shareholder holding 10% or more of the voting rights of the Company); 3. A person who is an important executing person of a company of which the Company is a major shareholder; 4. A person who is an important executing person of a major counterparty of the Company (a counterparty for which the amount of payment or receipt for transactions with the Company for the latest fiscal year exceeds 2% of consolidated gross sales); 5. A person who is an important executing person of a major lender of the Company (a lender to which the Group’s aggregate amount of loans payable at the latest fiscal year-end exceeds 2% of consolidated total assets); 6. A person who is a legal professional, accounting and tax professional, consultant, or research and education specialist who receives a large amount of compensation or donation (for the latest fiscal year, 10 million yen or more in the case of an individual and more than 2% of consolidated gross sales in the case of a corporation or an organization) from the Company; 7. A person who has kinship status (being a relative within the third degree of kinship or a relative living 5 together) with an executing person of the Group; 8. A person to whom any of the items 2. through 7. above has been applicable within the past ten years; and 9. In addition to the above, a person who has an interest that is reasonably considered to give rise to doubts about his or her independence as an Independent Outside Director or Independent Outside Corporate Auditor, or to give rise to a conflict of interest with shareholders of the Company. Concurrent positions are deemed “important” if: equivalent public companies; 1. The director (candidate) in question concurrently holds a position as Director, etc. at listed companies or 2. The director (candidate) is a representative of corporations other than those stipulated in the preceding item and does not have the time, etc. necessary to fulfill his/her duties at the Company; 3. The director (candidate) has a specialist job (as a professor, lawyer, accountant, etc.) and his/her related duties can affect the allocation of time, etc. necessary to fulfill his/her duties at the Company; 4. The place of employment of the director (candidate) affects his/her independence in light of the Criteria for Election of Independent Outside Directors and Outside Corporate Auditors of the Company; and/or 5. The place of employment of the director (candidate) affects the allocation of time, etc. necessary to fulfill his/her duties at the Company. (Profiles of Director and Corporate Auditor Candidates) Please refer to the reference materials for the general meeting of shareholders of Nitto’s “Notice.” The “Notice” is available on its website: https://www.nitto.com/jp/en/ir/. 【Supplementary Principle 3.1.3 Disclosure of Initiatives on Sustainability, Etc.】 Nitto has laid down the following basic policies on its initiatives on sustainability, human resources, and re-search and development, including intellectual property strategies. Simultaneously solving social issues and creating economic value – The Nitto Group keeps challenging itself to realize a sustainable future and support well-being for everyone by serving the global environment, humankind, and society as our customers. – We seek the sustainable enhancement of corporate culture through the practice of our Corporate Philosophy. – We contribute to “sustainable growth,” the universal principle of humanity, through business. – We foster “respect and trust” through dialogue with stakeholders. – We remain conscious of the environment and act with integrity. – We pay due regard to human rights, the environment, and diversity, including those pertaining to the supply chain. 6 – We work to realize sustainability through fair and transparent governance. The Nitto Group considers human resources as our most valuable assets. As such, we are committed to cre-ating new value by globally developing the “Nitto Person” who can carry out the Nitto Way. – We employ and develop human resources who understand diversity and respect people of all nationalities, genders, ages, careers, and disabilities, and who act with integrity. – We respect our employees as individuals and provide growth opportunities for their autonomous career de– We build a rewarding, safe, secure, and healthy work environment by promoting diverse work styles and an – We fairly evaluate the results of our employees who take upon challenges without fear of failure to motivate – We seek to discover outstanding human resources from across the globe and train them to become leaders velopment. open organizational culture. them to do their best. who can anticipate and deliver changes. Solving social issues through innovation and society. – We aim to enhance corporate value through technological development for the global environment, humanity, – We continue to create new products/services and businesses that help conserve and improve the global environment and improve the quality of life for all people. – We make continued enhancements to the value of technology by proactively introducing novel technologies from outside while deepening Nitto’s core technologies. – We contribute to increasing corporate value by stressing the importance of intangible value and leveraging high-quality patents to enhance our competitive edge. – We take on new challenges to develop innovative technologies by gathering the wisdom of diverse and ver-satile talents. It is in line with these basic policies that we have come up with “a long-term vision for 2030,” which reads “As a manufacturer of high-functional materials, Nitto will realize a sustainable environment and society by creating the future with technology and continuously providing amazement and inspiration. To realize these prospects, we have established a new Mid-term Management Plan, Nitto Beyond 2023. Please refer to the Company’s website and Integrated Report for concrete programs, etc. – About the Mid-term Management Plan The Company’s website: https://www.nitto.com/jp/en/about_us/concepts/management_plans/ – About sustainability in general 7 The Company’s website: https://www.nitto.com/jp/en/sustainability/ – About human resources The Company’s website: https://www.nitto.com/jp/en/sustainability/social/human_resources/ – About R&D – Integrated Report The Company’s website: https://www.nitto.com/jp/en/rd/ The Company’s website: https://www.nitto.com/jp/en/sustainability/report/ Please refer to page 7 of our Integrated Report for patent publications and R&D expenses. Please note that we are considering disclosing our response to the TCFD. 【Supplementary Principle 4.1.1 Brief Summary of the Scope and Nature of Matters Delegated to the Board of Directors】 At Nitto, decisions are made at different levels: the Board of Directors serves as an organization for making management decisions and conducting oversight; the Corporate Strategy Committee undertakes business af-fairs based on decisions made by the Board of Directors; each business division (including corporate depart-ments) has its own meeting structure(s); and heads of each department make decisions (see Nitto’s web-site(https://www.nitto.com/jp/ja/ir/) for information on the Corporate Governance System). The scope and content of decisions to be made at each level are regulated through the Group’s decision-making regulations and standards that are specifically segmented based on the nature of such decisions, amounts to be approved, and other factors. Management decision-making at the Board of Directors meetings and execution of operations are thus separated from each other, and the effectiveness of discussions at the Board of Directors meetings is ensured. 【Supplementary Principle 4.1.3 CEO’s Successor Plan】 Pursuant to the succession plan for the president (Chief Executive Officer), the Board of Directors appropriately exercises supervision to ensure that an individual with the necessary knowledge, experience, and ability to be a candidate for the successor is fostered systematically, with sufficient time and resources devoted thereto. 【Supplementary Principle 4.9 Criteria for Independence of Outside Officers】 Please refer to “(iv) (v) Nomination Policy and Procedures, and Reasons for Individual Nomination of Candi-dates for Directors and Corporate Auditors (Nomination of Outside Directors and Outside Corporate Auditors) of 【Principle 3.1 Full Disclosure】 of this Report. 【Supplementary Principle 4.11.1 Views on the Scale, etc. at the Board of Directors and the Board of Corporate Auditors】 Please refer to “(iv) (v) Nomination Policy and Procedures, and Reasons for Individual Nomination of Candi-dates for Directors and Corporate Auditors (Appropriate Structure of the Board of Directors and Board of 8 Corporate Auditors) of 【Principle 3.1 Full Disclosure】 of this Report. 【Supplementary Principle 4.11.2 Concurrent Positions of Directors and Corporate Auditors】 Please refer to the reference materials for the general meeting of shareholders of Nitto’s “Notice.” The “Notice” is available on its website: https://www.nitto.com/jp/en/ir/. 【Supplementary Principle 4.11.3 Analysis, Evaluation, and Disclosure of the Effectiveness of the Entire Board of Directors】 fectiveness of the Board of Directors. Nitto conducts questionnaires targeting Directors and Corporate Auditors and analyzes and evaluates the ef-Please refer to [Reference 2] for the summary of the results of the previous year’s effectiveness evaluation. (“Findings of the Nitto Board Effectiveness Evaluation”). 【Supplementary Principle 4.14.2 Training for Directors and Corporate Auditors】 When nominating Directors and Corporate Auditors, Nitto makes it a policy to nominate candidates appropriate for such positions who, in light of the Officer Appointment Standards, can fulfill the duties and responsibilities of Directors and Corporate Auditors. Additionally, Nitto periodically provides training on practicing the Corporate Philosophy, compliance, and cor-porate responsibilities that should be assumed by the Officers, which are attended not only by employees, but also by all of the officers, who thereby set an example for others to follow. Nitto’s internal officers are obliged to constantly gather information and train themselves proactively in order to fulfill their roles. Newly appointed outside officers undertake training on Nitto’s business lines, financial position, and other top-ics immediately after taking office. 【Supplementary Principle 5.1 Policies Related to Constructive Dialogue with Shareholders】 In order to achieve sustainable growth and increase our medium- and long-term corporate value, we provide clear explanations of our business to our shareholders and promote constructive dialogue with them in order to gain their understanding. To this end, we have established the following policies. 1. We at Nitto position IR activities as one of our key business issues, and senior management members personally promote dialogue with shareholders, with the CEO in charge and the CFO serving as a competent director. 2. In order to ensure the effectiveness of dialogue, a dedicated IR department has been established, and a cross-sectional structure for sharing and disclosure of IR information has been constructed through positive cooperation with the Legal, Corporate Planning, Corporate Accounting & Finance, General Affairs, Public Re-lations, Management of Group Companies, CSR, and other departments. In addition, an information-handling officer has been appointed to strive to ensure disclosure of information in a timely and appropriate manner. 3. As measures to promote opportunities for dialogue aside from individual meetings, information meetings are 9 held every quarter, with the CEO or CFO providing explanations. Additionally, overseas IR roadshows in the United States, Europe, and Asia are conducted at least once a year. 4. Information on views and business issues uncovered through dialogue with shareholders are periodically relayed to senior management and relevant departments to communicate, share, and feed the same back to 5. In order to control insider information, the “Nitto Group Regulations to Prevent Insider Dealings” have been established to ensure infallible information control. Meetings with shareholders and investors to be interviewed are limited during the “quiet periods” immediately prior to the announcement of financial results. management. 2. Capital Structure [Major Shareholders] Foreign Shareholding Ratio 30% or more Name of Corporate Entity Number of shares held Ratio (%) The Master Trust Bank of Japan, Ltd. (Trust Account) 35,311,600 23.86 Custody Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account 7) Custody Bank of Japan, Ltd. (Securities Investment Account) STATE STREET BANK AND TRUST COMPANY 505223 STATE STREET BANK WEST CLIENT – TREATY 505234 Nippon Life Insurance Company JP Morgan Securities Japan Co., Ltd. JP MORGAN CHASE BANK 385781 STATE STREET BANK AND TRUST COMPANY 505225 Controlling Shareholder (Except for Parent Company) ――― Parent Company None 12,215,700 3,060,800 2,839,000 2,715,065 2,654,792 2,082,060 2,076,156 1,907,735 1,844,754 8.25 2.06 1.91 1.83 1.79 1.40 1.40 1.28 1.24 Supplementary Explanation 1. The ownership percentage has been calculated based on the number of shares issued, excluding treasury stock. 2. Although the reports on large-scale shareholdings have been submitted as follows, the Company lists the major 10 shareholders above according to the shareholder register as of March 31, 2021. A total of two shareholders comprising Sumitomo Mitsui Trust Asset Management Co., Ltd. and its joint holders A total of three shareholders comprising Nomura Securities Co., Ltd. and its joint holders A total of four shareholders comprising MUFG Bank, Ltd. and its joint holders A total of ten shareholders comprising BlackRock Japan Co., Ltd. and its joint holders 12,629,500 shares (as of July 15, 2019) 16,288,072 shares (as of July 1, 2020) 10,970,009 shares (as of March 22, 2021) 11,216,496 shares (as of March 31, 2021) 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year End Business Category Number of Employees (Consolidated) as of Sales (Consolidated) for the Previous Fiscal Year Number of Consolidated the Previous Fiscal Year the End of the Previous Fiscal Year Tokyo Stock Exchange, First Section March Chemical 1,000 or more 100 billion yen or more and less than 1 trillion yen Subsidiaries as of the End of 50 or more and less than 100 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder 5. Other Special Circumstances That May Have Material Impact on Corporate Govern-ance ――― ――― II. Business Management Organization and Other Corporate Governance Systems re-garding Decision-Making, Execution of Business, and Oversight in Management 1. Items Related to Organizational Structure and Operation 11 Organizational Form Company with company auditor(s) [Directors] Number of Directors Specified in Ar-ticles of Incorporation Term of Office of Directors in Arti-cles of Incorporation 10 1 year Chairperson of the Board President Number of Directors Appointment Status of Outside Di-Appointed rectors Number of Outside Directors Number of Outside Directors Designated as Independent Directors 9 5 5 12 Relationship with the Company (1) Name Affiliation Relationship with the Company* a b c d e f g h i j k Yoichiro Furuse Takashi Hatchoji Tamio Fukuda Wong Lai Yong Michitaka Sawada From other companies From other companies Scholar From other companies From other companies *Selection criteria regarding relationship with the Company *“○” when the person presently falls or has recently fallen under the category; “” when the person fell under the category in the past *“●” when a close relative of the person presently falls or has recently fallen under the category; “▲” when a close relative of the person fell △under the category in the past a Executive of a listed company or its subsidiaries b Non-executive managing director or executive of a parent company of a listed company c Executive of a fellow subsidiary company of a listed company d A party 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, accountant, or legal professional who receives a large amount of monetary consideration or other property from a listed company besides compensation as an officer g Major shareholder of a listed company (or an executive of the said major shareholder if the shareholder is a corporation) h Executive of a client or supplier company of a listed company (which does not correspond to any of d, e, or f) (the executive himself/herself only) i Executive of a company, between which and the listed company outside directors are mutually appointed (the executive himself/herself only) j Executive of a company or organization that receives a donation from a listed company (the executive himself/herself only) k Other Relationship with the Company (2) Name Independent Officer Supplementary Explanation of the Conforming Items Reason for Appointment Yoichiro Furuse ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Mr. through k. above. Furuse attended all the Board of Mr. Furuse also currently serves Directors’ meetings (12 times) and as an important executing person made useful comments based on 13 of Evanston Corporation and his deep insight into and extensive Permira Advisers KK, with both of experience in corporate manage-which the Company does not en-ment, which he had gained through gage in transactions. his service as a director and repre-sentative director at the listed com-panies. The Company expects Mr. Furuse to continue overseeing the Board of Directors and providing a wide range of opinions on the business administration of the Company based on his insight and experi-ence as a corporate manager and a former employee of a mega bank. Mr. Furuse will also continue working as a member of the Man-agement, Nomination and Remu-neration Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Com-pany has designated Mr. Furuse as an Independent Director as stipu-lated by the Tokyo Stock Exchange and has reported such designation to the Exchange. Takashi Hatchoji ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Mr. through k. above. Hatchoji attended 11 out of the 12 Mr. Hatchoji was an important ex-Board of Directors’ meetings and ecuting person of Hitachi, Ltd. in made useful comments based on the past, which held about 15% of his deep insight into and experi-shares in Nitto through a subsidi-ence in management, which he ary. Hitachi, Ltd., however, sold had gained through his service as most of its shares in Nitto in July a representative executive officer 14 2003 (and has sold all of its and director of the listed compa-shares in Nitto to date). It has nies. been 15 years or more since a The Company expects Mr. Hatchoji group relation between Hitachi, to continue overseeing the Board Ltd. and Nitto was dissolved. The of Directors and providing opinions Company engages in transac-on the business administration of tions with Hitachi, Ltd. Most of the Company from a global per-such transactions relate to the de-spective based on his insight and velopment, maintenance, etc. of experience as a corporate man-the Company’s system, with the ager in Japan and Overseas. Mr. annual transaction amount ac-Hatchoji will also continue working counting for less than 0.13% of as a member of the Management, the Company’s consolidated rev-Nomination and Remuneration Ad-enue. Thus, the Company’s rela-visory Committee. tionship with Hitachi, Ltd. does 2. The Company stipulates the not affect his independence. “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Com-pany has designated Mr. Hatchoji as an Independent Director as stip-ulated by the Tokyo Stock Ex-change and has reported such des-ignation to the Exchange. through k. above. Fukuda attended all the Board of Mr. Fukuda also currently serves Directors’ meetings (12 times), as a professor emeritus of Kyoto providing advice on the establish-Institute of Technology. The Com-ment of the Company’s corporate pany makes a donation to the uni-brand as a university professor versity. However, the annual do-specializing in design management nation amount, accounting for and making useful comments less than 0.0003% of Nitto’s con-based on his experience in busi-solidated revenue, does not affect ness management as a corporate his independence. advisor. The Company expects Mr. Fukuda Tamio Fukuda ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Mr. 15 to continue overseeing the Board of Directors and providing opinions on the business administration of the Company from the perspec-tives of brand building and innova-tion creation based on his insight and experience as an expert as de-tailed above. Mr. Fukuda will also continue working as a member of the Management, Nomination and Remuneration Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Com-pany has designated Mr. Fukuda as an Independent Director as stip-ulated by the Tokyo Stock Ex-change and has reported such des-ignation to the Exchange. Wong Lai Yong ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Ms. through k. above. Wong attended all the Board of Di-Ms. Wong also currently serves rectors’ meetings (10 times) and as an important executing person provided useful opinions on diver-of first Penguin Tours & Training sity and sustainability including the Sdn. Bhd., with which the Com-promotion of women and non-Jap-pany does not engage in transac-anese nationals based on her ex-tions. perience of studying and working in Japan for about 16 years and her diverse experience and track rec-ords in her mother country, Malay-sia, and other Asian countries. The Company expects Ms. Wong to continue overseeing the Board of Directors based on her insight 16 and experience as an expert as de-tailed above and providing opinions on the business administration of the Company from the perspective of an expert. Ms. Wong will also continue working as a member of the Management, Nomination and Remuneration Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Com-pany has designated Ms. Wong as an Independent Director as stipu-lated by the Tokyo Stock Exchange and has reported such designation to the Exchange. ination and Remuneration Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Com-pany has designated Mr. Sawada as an Independent Director as stip-ulated by the Tokyo Stock Michitaka Sawada 〇 There is no matter falling under a. 1. The Company expects Mr. through k. above. Sawada to oversee the Board of Mr. Sawada also currently serves Directors and provide a wide range as an important executing person of opinions as a manager of a lead-of Kao Corporation, with which ing company in ESG promotion. the Company does not engage in Mr. Sawada will also work as a transactions. member of the Management, Nom- 17 Exchange and has reported such designation to the Exchange. Voluntary Establishment of Com-mittee(s) Equivalent to Nominating Commit-tee or Remuneration Committee Established Relationship with the Company (2) Committee All Com Full-Intern Extern Exter Othe Chairper ’s Name mittee time al al nal rs son Member Commit Direct Direct Exper s tee ors ors ts Committee Management, 9 1 5 0 3 Member s 0 Committee Management, 9 0 1 5 0 3 Internal Director Internal Director Corresponding to Nomination, and Nomination Committee Remuneration Advisory Com-mittee Corresponding to Nomination, and Remuneration Remuneration Committee Advisory Com-mittee Supplementary Explanation Nitto has formed the Management, Nomination, and Remuneration Advisory Committee as an advisory body for the Representative Director(s), and it consists of Outside Directors and Outside Corporate Auditors who offer advice from different perspectives on the Company’s important management issues, nomination of officers, and compensation system for officers. The other three members are the Outside Corporate Auditors of the Company. The Committee met three times in total in the fiscal year under review (FY2020), with members’ attendance rate of 100% each time. The following are main consultations and deliberations: ･ The Company’s course of action based on the global situation, industry trends, new research, etc. 18 ･ Current remuneration structure, level, and future stance based on trends in other companies, stakeholders includ-･ Current status of securing candidates for management position and succession plan ing shareholders, etc. [Corporate Auditors] Establishment of a Board of Corporate Auditors Established Number of Corporate Auditors Specified in Articles of Incorporation Number of Corporate Auditors 5 5 Coordination between Corporate Auditors, Accounting Auditor, and Internal Auditing Corporate Auditors receive reports on the audit structure and audit plans and reports on the results of the audits conducted based on such structure and plans from the internal audit section. Corporate Auditors also share infor-mation on audits they conduct with the internal audit section. Furthermore, Corporate Auditors endeavor to ensure the effectiveness of audits by holding regular meetings with their counterparts in domestic and overseas Group com-panies and exchanging opinions and information with them as needed. Corporate Auditors receive reports from Accounting Auditors on the results of the audits the latter have conducted and periodically hold information exchange meetings with them. Corporate Auditors also attend meetings where Ac-counting Auditors provide feedback to Group companies on their audits to facilitate collaboration with them. As a new initiative introduced in FY2020, Corporate Auditors aimed at enhancing their overseas network from the perspective of improving group governance and accepted partners of KPMG’s member firms in the six geographical areas, which General Managers of the Company are appointed to oversee. This was a collaborative initiative with Accounting Au-ditors. Meetings were also held to exchange opinions with the partners in charge of the six areas, respectively, to promote the use of this network. Appointment Status of Outside Corporate Auditors Number of Outside Corporate Established 3 Auditors Directors Number of Outside Corporate Auditors Designated as Independent 3 19 Relationship with the Company (1) Name Affiliation Relationship with the Company* a b c d e f G h i j k l m Masashi Teranishi From other companies Masakazu Toyoda Other Mitsuhide Shiraki Scholar *Selection criteria regarding relationship with the Company *“○” when the person presently falls or has recently fallen under the category; “” when the person fell under the category in the past *“●” when a close relative of the person presently falls or has recently fallen under the category; “▲” when a close relative of the person fell under the △category in the past a Executive of a listed company or its subsidiaries b Non-executive managing director or accounting adviser of the Company or its subsidiaries c Non-executive managing director or executive of a parent company of a listed company d Corporate auditor of a parent company of a listed company e Executive of a fellow subsidiary company of a listed company f A party whose major client or supplier is a listed company or an executive thereof g Major client or supplier of a listed company or an executive thereof h Consultant, accountant, or legal professional who receives a large amount of monetary consideration or other property from a listed company besides compensation as an officer i Major shareholder of a listed company (or an executive of the said major shareholder if the shareholder is a corporation) j Executive of a client or supplier company of a listed company (which does not correspond to any of f, g, or h) (the executive himself/herself only) k Executive of a company, between which and the listed company outside directors are mutually appointed (the executive himself/herself only) l Executive of a company or organization that receives a donation from a listed company (the executive himself/herself only) m Other 20 Relationship with the Company (2) Name Independent Officer Supplementary Explanation of the Conforming Items Reason for Appointment Masashi Teranishi ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Mr. through m. above. Teranishi attended all the Board of Mr. Teranishi also serves as Hon-Directors’ meetings (12 times) and orary Advisor of MUFG Bank, Ltd. all the Board of Corporate Auditors’ He was an important executing meetings (13 times), performed ap-person of the group in the past, propriate audits based on his in-but it has been ten years or more sight and experience as a manager since then. Hence, it does not af-of a mega bank, and provided use-fect his independence. Further, ful opinions on the business admin-there is no borrowing from MUFG istration of the Company from the Bank, Ltd. perspective of finance. The Company expects Mr. Terani-shi to continue providing opinions on the business administration of the Company from the financial perspective, utilizing his insight and experience as an expert in finance in the auditing of the Company. Mr. Teranishi will also continue working as a member of the Management, Nomination and Remuneration Ad-visory Committee. He possesses a broad range of knowledge in finance and account-ing. 2. The Company stipulates the “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Corporate Auditors based on the criteria. The Company has designated Mr. 21 Masakazu Toyoda ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Mr. through m. above. Toyoda attended all the Board of Teranishi as an Independent Direc-tor as stipulated by the Tokyo Stock Exchange and has reported such designation to the Exchange. Directors’ meetings (12 times) and 12 out of the 13 Board of Corporate Auditors’ meetings, performed ap-propriate audits based on his in-sight and experience as an econo-mist involved in national politics, and provided useful opinions. The Company expects Mr. Toyoda to continue providing opinions on the business administration of the Company from the perspectives of the economy and international trades, utilizing his insight and ex-perience in the auditing of the Company. Mr. Toyoda will also continue work-ing as a member of the Manage-ment, Nomination and Remunera-tion Advisory Committee. Although he does not have experience of be-ing directly involved in corporate management, the Company be-lieves that he will be able to exe-cute his duties as an Outside Cor-porate Auditor of the Company ap-propriately for the aforementioned reasons. 2. The Company stipulates the “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects 22 Mitsuhide Shiraki ○ There is no matter falling under a. 1. In this fiscal year (FY2020), Mr. candidates for Outside Corporate Auditors based on the criteria. The Company has designated Mr. Toyoda as an Independent Director as stipulated by the Tokyo Stock Exchange and has reported such designation to the Exchange. through m. above. Shiraki attended all the Board of Mr. Shiraki also currently serves Directors’ meetings (12 times) and as a professor of the Faculty of all the Board of Corporate Auditors’ Political Science and Economics, meetings (13 times) and provided Waseda University. While the useful opinions based on his in-Company has a transaction with sight and experience as an expert the university, it relates to a joint on labor issues and global human research, and the annual transac-resource development. tion amount is less than 0.0004% The Company expects Mr. Shiraki of consolidated revenue of the to continue providing opinions on Company. The Company’s rela-the business administration of the tionship with the university there-Company from the perspectives of fore does not affect Mr. Shiraki’s labor and human resource devel-independence. opment, utilizing his insight and ex-perience in the auditing of the Company. Mr. Shiraki will also continue work-ing as a member of the Manage-ment, Nomination and Remunera-tion Advisory Committee. Although he does not have experi-ence of being directly involved in corporate management, the Com-pany believes that he will be able to execute his duties as an Outside Corporate Auditor of the Company appropriately for the aforemen-tioned reasons. 2. The Company stipulates the 23 “Criteria for Election of Independ-ent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Corporate Auditors based on the criteria. The Company has designated Mr. Shi-raki as an Independent Director as stipulated by the Tokyo Stock Ex-change and has reported such des-ignation to the Exchange. [Independent Officers] Number of Independent Officers 8 Other Details concerning Independent Officers All individuals who satisfy the qualifications for Independent Officers are appointed as Independent Officers. In order to ensure the independence of Outside Directors and Outside Corporate Auditors, Nitto has stipulated “Cri-teria for Election of Independent Outside Directors and Outside Corporate Auditors.” Please refer to 1. Basic Views 【Supplementary Principle 4.9 Criteria for Independence of Outside Officers】 of “I. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes, and Other Basic Information” of this Report for the details of “Criteria for Election of Independent Outside Directors and Outside Corporate Auditors.” [Incentives] Implementation status of measures Introduction of a performance-linked compensation plan, and oth-for granting incentives to Directors ers Supplementary Explanation For the purpose of incentivizing Directors to contribute to medium- and long-term performance improvement and sustainable enhancement of corporate value, Nitto has introduced a restricted share remuneration that allots the Company’s common shares with transfer restriction until they leave office, as a form of medium-term performance-linked remuneration, and a performance-linked share-based remuneration that provides the Company’s common shares in accordance with the achievement of numerical targets predetermined by the Company’s Board of Directors, as a medium-term performance-linked remuneration. 24 Stock Option Recipients Supplementary Explanation ――― [Director Compensation] Disclosure of Compensation of Indi-vidual Directors Supplementary Explanation Individual disclosure made for certain directors only The Company discloses the total amount of compensation by category for Directors and Corporate Auditors, respec-tively, as well as the total amount paid to Outside Officers in its annual securities report and business report. The Company also discloses compensation of those whose total amount of consolidated compensation, etc. is 100 million yen or more individually in its annual securities report 1) Number of eligible Directors and Corporate Auditors for each position, total amount of compensation, etc. by type, and total amount of compensation, etc. Directors (excluding Outside Directors) Number of eligible Directors 6 Total amount of compensation, etc. by type Compensation in cash 203 million yen Bonus paid to Directors 240 million yen Restricted share remuneration 82 million yen Total amount of compensation, etc. 525 million yen Outside Directors Number of eligible Outside Directors 4 Total amount of compensation, etc. by type Compensation in cash 45 million yen Total amount of compensation, etc. 45 million yen Corporate Auditor (excluding Outside Auditors) Number of eligible Corporate Auditors 2 Total amount of compensation, etc. by type Compensation in cash 67 million yen Total amount of compensation, etc. 67 million yen 25 2) Total amount of compensation, etc. of those whose total amount of remuneration, etc. is 100 million yen or more Outside Corporate Auditors Number of eligible Outside Corporate Auditors 3 Total amount of compensation, etc. by type Compensation in cash 32 million yen Total amount of compensation, etc. 32 million yen Name Hideo Takasaki Position Director Total amount of compensation, etc. by type Compensation in cash 96 million yen Bonus paid to Directors 107 million yen Restricted share remuneration 42 million yen Total amount of remuneration, etc. 246 million yen (Notes) under review. 1. The above table includes two Directors (who were not Outside Directors) who resigned during the fiscal year 2. The amount of employee salary (including bonus) for a Director who also holds an employee position is paid separately from the abovementioned compensation, but such employee salary was not paid for the current term. 3. The upper limit of compensation in cash for Directors was set at 1 billion yen per year (of this amount, the upper limit of the total amount of compensation in cash for Outside Directors was set at 100 million yen) at the 156th Ordinary General Meeting of Shareholders. The number of Directors at the close of the said Ordinary General Meeting of Shareholders was nine (of which, five were Outside Directors). The upper limit of the total amount of compensation in cash for Corporate Auditors was set at 144 million yen per year at the 156th Ordinary General Meeting of Shareholders. The number of Corporate Auditors at the close of the said Ordinary General Meeting of Shareholders was five. 4. The amount of bonus for Directors was approved at the 156th Ordinary General Meeting of Shareholders. 5. The upper limits of the total value and the number of shares to be granted to Directors (excluding Outside Direc-tors) in the form of performance-linked share-based remuneration were set at 364 million yen and 48,400 shares a year at the 153rd Ordinary General Meeting of Shareholders. The number of Directors at the close of the said Ordinary General Meeting of Shareholders was nine (of which, three were Outside Directors). 6. The upper limit of the total value and the number of shares to be granted to Directors (excluding Outside Directors) in the form of restricted share remuneration were set at 243 million yen and 32,000 shares a year at the 153rd Ordinary General Meeting of Shareholders. The number of Directors at the close of the said Ordinary General 26 Meeting of Shareholders was nine (of which, three were Outside Directors). 7. Consolidated operating income and consolidated ROE are adopted as indicators based on which bonuses for Directors and performance-linked share-based remuneration are calculated. For the fiscal year under review, the Company’s consolidated operating income was 93,809 million yen and consolidated ROE 10.0%. There will be no payment of performance-linked share-based remuneration as the Company did not achieve its targets. Re-stricted share remuneration is linked to the market price of the Company’s shares. There is nothing that needs to be disclosed in relation to its performance. 8. Individual remuneration and so on granted to Directors and others for the fiscal year under review are (or will be) paid in accordance with the determination process. The Board of Directors considers that their details are in line with the Company’s compensation policy. Policy for Determining Compensa-tion Amounts and Calculation Meth-Established ods Disclosure of Policy for Determining Compensation Amounts and Calculation Methods Please refer to “1. Basic Views 【Principle 3.1 Full Disclosure】 of “I. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes, and Other Basic Information” of this Report for the policy for determining the calcula-tion method of compensation. [System for Supporting Outside Directors (Outside Auditors)] Nitto has five Outside Directors and three Outside Corporate Auditors. Nitto expects Outside Directors to perform functions and roles of expressing objective and fair opinions from an ex-ternal perspective, including general shareholders, exercising supervision, providing important information obtained externally, concerning the Company’s management in general, and others, and Outside Corporate Auditors to perform functions and roles of monitoring and checking Directors’ business execution based on an external, objective point of view, respectively. Nitto reports to Outside Corporate Auditors in advance agendas of meetings of the Board of Directors and the Corpo-rate Strategy Committee, and agenda materials for business reporting via email, etc. each month. Further, Nitto appoint assistants for the Outside Corporate Auditor who support Outside Corporate Auditors by (1) determining to hold audits and the Board of Corporate Auditors’ meetings, and preparing minutes; (2) preparing meet-ing materials in advance; and (3) providing various information to Outside Corporate Auditors. There are no special interests between Outside Directors and Outside Corporate Auditors, and the Company. [Retired Presidents/CEOs] Name, etc. of Retired Presidents/CEOs Holding Advisory Positions (Senior Consultant, etc.) 27 Name Job Title/ Respon-(Full/Part-Time, Position sibilities With/Without Employment Terms Compensation, etc.) Date when Role as President/ CEO Ended Term ――― ――― ――― ――― ――― ――― Total Number of Retired Presi-dents/CEOs Holding Advisory Positions (Senior 0 Consultant, etc.) Other Matters Nitto has stipulated internal rules concerning Senior Consultant and delegates such positions to individuals who re-tired from the position of Chairman or President upon the President’s decision after consulting with the Management, Nomination, and Remuneration Advisory Committee. They mainly engage in external affairs such as social activities (full-time), but have no involvement in Nitto’s management. The President determines compensation for Senior Consultant after consulting with the Management, Nomination, and Remuneration Advisory Committee. The term of office of Senior Consultant is one year. He or she may be reappointed, but shall go through the same procedures as the above-mentioned appointment to be reappointed each time, and reappointment is up to the limit of two times. Nitto has currently no Senior Consultant. Further, if individuals who retired from the position of Chairman or President need a title at Nitto for their social activ-ities, they may use the name “special advisor” (part-time, without compensation). 2. Matters Concerning Business Execution, Auditing and Supervision, Nomination, De-termination of Remuneration and Other Functions (Overview of Current Corporate Gov-ernance System) In accordance with the provisions of Article 362 of the Companies Act and Article 100 of the Ordinance for Enforce-ment of the Companies Act, Nitto has established basic policies on internal controls and executes its operations based on the following corporate governance system. [Board of Directors] The Board of Directors is chaired by the President and makes decisions on basic management policies. The Board also oversees business execution by Representative Director(s), Vice Presidents, and others and the operation status 28 of internal controls. To ensure the soundness and transparency of management, Directors serve one-year terms and multiple Outside Directors are appointed. [Management, Nomination and Remuneration Advisory Committee] The Management, Nomination and Remuneration Advisory Committee was formed as an advisory body for the Rep-resentative Director(s). It consists of Outside Directors, Outside Corporate Auditors, and Representative Director(s) and is chaired by the President. The Committee offers advice on important management issues, the appointment of officers, and compensation for officers, from the perspectives of shareholders and other various stakeholders. [Corporate Strategy Meeting] The Corporate Strategy Meeting is chaired by the President and consists of Directors (excluding Outside Directors) and Vice Presidents. It makes decisions on important management matters. In addition, the Meeting receives reports on issues such as business risks, compliance, and operational risks from business execution divisions, special func-tion departments, and regional headquarters to provide mutual oversight over the business execution of the Vice Presidents in charge. [Representative Director(s) and Vice Presidents] The Representative Director(s) and Vice Presidents execute business operations in accordance with the basic policies determined by the Board of Directors. With respect to important matters of each business execution department, decisions are made at a meeting organized by the relevant department and chaired by the head of the said department. [Audit & Supervisory Board Members] Nitto has adopted the Audit & Supervisory Board Member system. Audit & Supervisory Board Members attend Board of Directors meetings to monitor business execution by Directors. Their tasks also include attending other important meetings, inquiring about the activities of Directors and employees; viewing approval papers and other important documents; inspecting the head office, technology/business divisions, plants, and Group companies in Japan and overseas; and receiving audit reports from and exchanging opinions with accounting auditors. [Internal audit department] The internal audit department audits whether management activities are conducted accurately, legitimately, and rea-sonably by all companies within the Nitto Group, in order to contribute to improving business operations and perfor-mance from a position independent from business execution. In addition, the department conducts audits on quality, environment, and safety (QES) to provide assurance to employees, customers, and society. The department also receives external evaluations on a periodic basis.

The Company has executed agreements with all of the Outside Directors and Outside Corporate Auditors in 29 accordance with the Articles of Incorporation to limit the compensation liability provided in Paragraph 1, Article 423 of the Companies Act, and the compensation limitation amount under these agreements is the minimum amount deter-mined under laws and regulations. 3. Reason for adopting present system of corporate governance The Company recognizes the corporate governance system described above enables business execution and man-agement supervision to function effectively and efficiently. 30 III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Invigorate the General Meeting of Shareholders and Facilitate the Exer-cise Supplementary Explanation Early notification of General Shareholders Meeting Nitto endeavors to send a convocation notice as early as possible to ensure that shareholders understand the status of its business and fully examine agenda items, and sends a convocation notice about three weeks prior to a general meeting of shareholders. Fur-ther, Nitto posts on its website the Japanese version of the notice before sending it, and the English version (reference translation) on the date of sending it, respectively. Scheduling General Shareholders Aiming for a more open general meeting of shareholders, Nitto Meeting to Avoid the Peak Day holds the meeting on a day other than the peak day. Option to exercise voting rights electronically system. Nitto provides its shareholders with an environment that allows them to exercise their voting ri