日本精工（6471） – Corporate Governance Report

This document is a translation of a document originally prepared in the Japanese language and is provided for your convenience. NSK makes no representation or warranty that this document is a complete or accurate translation of the original Japanese text, and it is not intended to be relied upon. In the event that there is a discrepancy between the Japanese and English versions, the Japanese version shall prevail. This document is not intended and should not be construed as an inducement to purchase or sell stock in NSK. Corporate Governance Report Last Update: April 1, 2022 NSK Ltd. Representative Executive Officer and President Akitoshi Ichii Contact: 03-3779-7111 Securities Code: 6471 https://www.nsk.com/jp/ The corporate governance of NSK, Ltd. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The NSK Mission Statement is as follows: “NSK contributes to a safer, smoother society and helps protect the global environment through its innovative technology integrating Motion & Control™*.” As a truly international enterprise, we are working across national boundaries to improve relationships between people throughout the world. NSK Ltd. aims to fulfill this responsibility to society while maintaining an appropriate level of profitability that meets the expectations of our shareholders, thereby achieves sustainable growth and increases our mid- to long-term corporate value. NSK believes that the establishment and maintenance of systems that ensure transparent, fair and timely decision-making is essential in order to achieve sustainable growth and increases our mid- to long-term corporate value. To realize this objective, we are working to construct our corporate governance systems based on the following four guiding principles. We aim: (1) To increase the efficiency and agility of management by proactively delegating decision-making on the execution of the operations from the Board of Directors to the Company’s executive organizations. (2) To ensure that supervisory organizations have oversight of executive organizations by clearly separating the two. (3) To strengthen supervisory organizations’ oversight of the executive organizations by ensuring cooperation between the two. (4) To improve the fairness of management by strengthening compliance systems. NSK has adopted a Company with Three Committees (Nomination, Audit and Compensation) system as its form of corporate organization to better achieve the aforementioned basic approach. We have articulated – 1 – this basic approach to corporate governance and its structure in our Corporate Governance Rules, which guide directors and executive officers in the performance of their duties. (*MOTION & CONTROL™ defines the scope of NSK’s present and future business. “MOTION” symbolizes our complex hardware, machinery, and systems, while “CONTROL” represents our sophisticated software and electronics systems.) [Reasons for Non-compliance with the Principles of the Corporate Governance Code] NSK complies with all principles of the Corporate Governance Code. For your reference, this Corporate Governance Report is described based on the revised Corporate Governance Code published in June, 2021(including the principles for prime market). [Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1-4 Cross-Shareholdings] (1) Policy on cross-shareholding NSK aims to reduce the cross-holding of shares deemed to have little benefit in increasing mid- to long-term corporate value. Conversely, if we believe that there is a valid rationale for holding such shares, we will continue to do so. Regarding the appropriateness of cross-shareholdings, our executive organizations conduct quantitative and qualitative evaluations on an annual basis to determine whether each individual shareholding is delivering acceptable benefits in relation to our capital cost. The Board of Directors receives regular reports from the aforementioned executive organizations and studies the matter accordingly. We will sell any cross-shareholdings whose possession we believe cannot be justified, taking into account stock prices and market trends. (2) Criteria for exercise of voting rights concerning cross-shareholdings NSK has defined specific criteria for exercise of voting rights concerning cross-shareholdings. When exercising voting rights, we confirm that the proposal in question does not damage shareholder value, and that it serves to improve the mid- to long-term corporate value of both NSK and the company in which the stake is held. [Principle 1-7 Related Party Transactions] NSK’s Board of Directors conducts prior approval of transactions with officers or major shareholders (transactions between related parties) in accordance with relevant laws such as the Companies Act, as well as internal regulations, to ensure that the interests of the Company and its shareholders are not harmed. The Board also receives regular status reports. Furthermore, the Audit Committee conducts audits on transactions where required. [Supplementary Principle 2-4-1 Ensuring Diversity in Core Human Resources] (1) Policy on ensuring diversity in core human resources The NSK Group Management Principles clearly state that our aim is “to provide challenges and opportunities to our employees, utilizing their skills and encouraging their creativity and individuality.” In acknowledgment of the fact that each employee is a priceless asset, we have committed ourselves to creating a “fair workplace that empowers the individual.” This commitment features three key areas of focus: leveraging a diverse workforce, building more engaging workplaces and providing opportunities for growth. As one concrete measure under “leveraging a diverse workforce,” NSK is working to promote greater diversity and inclusion. We believe that employing people from diverse backgrounds – in gender, age, nationality, culture, lifestyle, values and career (knowledge and experience) – will foster a work environment full of new perspectives and ways of thinking. This, in turn, will strengthen NSK’s – 2 – competitiveness and capacity to avoid risks. We also place an emphasis on ensuring diversity among managers and managerial candidates, and are working in a systematic manner to utilize human resources with diverse attributes and backgrounds. More information on NSK’s policy and key initiatives on diversity and inclusion can be found at the following website: https://www.nsk.com/sustainability/hr/index/ ≪Scope≫ ≪Goal≫ ≪As of Nov 2021≫ ・Number of women in managerial positions and managerial candidates* Japan FY21: 1.6 times(vs. FY18) 1.6 times ・Ratio of midcareer hires among managers and managerial candidates Japan FY26: 25% or more 22% *Goals NSK has disclosed based on The Act on Promotion of Women’s Participation and Advancement in the Workplace. NSK has worked to localize its management with the aim of establishing a framework that enables it to conduct locally-oriented, agile business management in each region as it expands its operations outside Japan. Currently, we are expanding our business under local leadership by appointing a number of national employees to the “global posts” in each regional headquarters that we have defined as key positions in our global business operations, including regional heads. ≪Scope≫ ≪Goal≫ ≪As of Nov 2021≫ ・Ratio of national employees assigned to global posts Global 70% or more 72% (2) Policies for human resource development to ensure diversity and the status of their implementation NSK created a roadmap for a three-phase initiative lasting from 2016 to 2026, and is promoting diversity and inclusion in line with this. In addition to empowering women, which is one of our important management objectives, we are also expanding our initiatives to other areas including empowerment of non-Japanese employees and those who identify as LGBTQ+. We also recognize that encouraging diverse employees to play an active role requires that we make progress in creating work arrangements with more flexibility. This is why we are moving forward with work-style reform, hand in hand with diversity and inclusion, recognizing that each complements the other. Information on NSK’s diversity and inclusion roadmap, key initiatives and status of implementation, policy on facilitating work-life balance and key initiatives can be found at the following websites and NSK Report: – NSK website: Diversity – Leveraging a Diverse Workforce: https://www.nsk.com/sustainability/hr/diversity/ – NSK Report 2021 p30: 6th Mid-Term Management Plan Targets and Progress, Evolve Personnel Development https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_14.pdf (Reference: Evaluation of NSK’s human resources initiatives by external agencies) ■Nadeshiko Brand: Selected for the 2nd straight year (Mar. 2021) https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_17.pdf ■PRIDE index, gold award（Nov. 2021） https://www.nsk.com/jp/company/news/2021/1111a.html ＊Japanese language only ■Outstanding Health and Productivity Management Organization (White 500): – 3 – Selected for the 4th straight year (Mar. 2021) https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_17.pdf [Principle 2-6 Roles of Corporate Pension Funds as Asset Owners] NSK has established a Pension Administration Committee, to which it has assigned personnel from the human resources and finance divisions possessing appropriate knowledge and skills, and operates its pension assets in accordance with defined operating policies. We select the organizations to which we entrust the operation of our pension fund based on a comprehensive evaluation which encompasses investment policy, investment performance, compliance, and other perspectives. The management of our pension assets is commissioned to several organizations, and by entrusting the selection of investment targets and exercise of voting rights to each fund we ensure that no conflict of interest arises between pension beneficiaries and the Company. [Principle 3-1 Full Disclosure] (i) Company objectives, business strategies and business plans NSK’s mission is outlined in our Corporate Philosophy. The Board of Directors resolves mid- to long-term management strategies, management plans, and other key policies in line with this Philosophy. Further information on our Corporate Philosophy can be found on the following website: https://www.nsk.com/company/visionandphilosophy.html For more information regarding our management strategies and management plans, NSK’s mid-term plan and long-term vision can be found at the following website: https://www.nsk.com/investors/library/mtp.html (ii) Basic views and guidelines on corporate governance NSK’s basic approach and policy on corporate governance are as described in the section of this report entitled “I-1 Basic Views”. (iii) Policies and procedures of Compensation Committee in determining the compensation of senior management and directors The policy in determining the compensation of directors and executive officers is as described in the section of this report entitled “II-1. [Compensation for Directors and Executive Officers (Shikkoyaku)] Disclosure of Policy on Determining Compensation Amounts and Calculation Methods”. (iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of director candidates NSK’s directors are required to possess experience and insight into either general business and management or a specific field of expertise, as well as high ethical principles and a sound knowledge of corporate governance. Based on this approach, candidates for director are determined by the Nomination Committee, and the Board of Directors then submits a resolution to the General Meeting of Shareholders for approval. In the event that it is deemed that a director has failed to exercise appropriate duty of care or duty of loyalty, or is otherwise unsuitable to continue serving in the position, the Nomination Committee deliberates on their removal. The Board of Directors then submits a resolution to the General Meeting of Shareholders for approval. NSK’s executive officers are required to possess sufficient capability to swiftly and appropriately enact the decision-making responsibility delegated to them by the Board of Directors. This includes considerable knowledge and insight into business and/or a specific field of expertise, as well as high ethical principles and a sound knowledge of corporate governance. Appointment of executive officers is made via resolution by the Board of Directors, in order to construct an optimal operating framework for management of the Group. In the event that the Board of Directors deems that an executive officer has – 4 – failed to exercise appropriate duty of care or duty of loyalty, or is otherwise unsuitable to continue in the position, it shall pass a resolution to remove the officer in question from the position. (v) Explanations with respect to the individual appointments/dismissals and nominations by the Board of Directors based on (iv), when appointing/dismissing senior management or nominating director candidates Reasons for selection of director candidates and the career history, positions, and assignments of directors and executive officers are listed in the Notice of the Ordinary General Meeting of Shareholders and the Securities Report, as well as disclosed on the following website: [Notice of the Ordinary General Meeting of Shareholders] https://www.nsk.com/investors/stockandbond/meeting.html [Supplementary Principle 3-1-3 Initiatives for Sustainability] (1) Our initiatives for sustainability Under NSK’s corporate philosophy, which is to contribute to a safer, smoother society and help protect the global environment through its innovative technology integrating Motion & Control™ while working across national boundaries to improve relationships between people throughout the world, we will continue to collaborate with stakeholders to create value with the aim of contributing to the resolution of social issues while achieving sustainable growth as a company. The NSK “spirit” and “direction” espoused in our Corporate Philosophy continues to be the starting point of NSK’s efforts at sustainability. With the goal of realizing this aim in mind, we continue to target “the establishment of a corporate foundation for sustainable growth and the provision of values through evolution of Motion & ControlTM” as its vision for 2026, and thus undertake the key management tasks of “ESG management,” “Enhancement of managerial resources” and “Growth with profitability.” For more information and details regarding our sustainability initiatives, refer to NSK’s website: – NSK website, Sustainability: https://www.nsk.com/sustainability/index.html NSK has formulated an SDGs Declaration that respects the spirit of the SDGs to realize a sustainable society and has selected seven key goals that are particularly interlinked with our business. In addition, we have formulated the Declaration of NSK’s Initiatives as more concrete strategic measures. We are continuing to create collaborative value with our stakeholders through our business activities in order to achieve sustainable growth while contributing to the resolution of social issues and the achievement of the SDGs goals. Please see our website for more information on our SDGs initiatives: – NSK website: Realizing the World Envisioned by NSK and the SDGs: https://www.nsk.com/sustainability/sdgs/ (2) Investments in Human Capital The NSK Group Management Principles clearly state that our aim is “to provide challenges and opportunities to our employees, utilizing their skills and encouraging their creativity and individuality.” In acknowledgment of the fact that each employee is a priceless asset, we have committed ourselves to creating a “fair workplace that empowers the individual.” This commitment features three key areas of focus: leveraging a diverse workforce, building more engaging workplaces, and providing opportunities for growth. We have set “evolution in personnel development” as a key task in our 6th Mid-Term Management Plan, and have promoted initiatives including diversity and inclusion, work-style reform, health and wellness, and career support to assist each employee in furthering their careers. Information on our FY20 initiatives, targets and results can be found at the following websites and NSK Report: – NSK website: Sixth Mid-Term Management Plan and the FY2020 Targets and Performance: https://www.nsk.com/sustainability/nskcsr/mid_term_plan/ – NSK Report 2021 – 5 – p30: 6th Mid-Term Management Plan Targets and Progress, Evolve Personnel Development https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_14.pdf p36: Evolve Personnel Development https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_17.pdf (3) Investment in Intellectual Property NSK has set the target of “building a business base and strengthening resources in preparation for the next growth phase” in its 6th Mid-Term Management Plan (6th MTP) and is promoting three measures: “New initiatives targeting growth,” “Enhance managerial resources,” and “Contribution to the environment and society.” As part of the 6th MTP, to address with these three managerial tasks, NSK intends to make R&D expenses, which we recognize as all expenses in the technology divisions, equivalent to 3%–4% of sales (¥30.0 billion – ¥40.0 billion annually). Our Four Core Technologies, consisting of tribology, materials, numerical simulation, and mechatronics and with the “plus One” of manufacturing engineering will enable us to quickly supply sophisticated products with new features to the market. Moreover, we will contribute to the realization of a more abundant, sustainable society by engaging in activities to save energy, reduce CO2 emissions, and conserve the global environment. Please see NSK report 2021 for our R&D Expenses. -NSK Report 2021, p.48-49: Core Technologies and Taking Up the Challenge of Creating New Collaborative Value https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_21.pdf (4) The impact which risks and opportunities in relation to global warming and climate change have on business activities or profits The NSK Group seeks to minimize CO2 emissions from its business operations to address the problems of global warming and climate change. Our specific efforts include making technical innovations in production processes, visualizing energy use, and expanding the adoption of renewable energy. We have also set an ambitious goal of completely offsetting CO2 emissions from our business operations by fiscal 2026 by maximizing our contribution to reducing our customers’ CO2 emissions through development, design, production and sales of renewable energy compatible products such as products with low-friction performance or bearings for wind power generation. In January 2020, NSK endorsed the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). In accordance with the recommendations of the TCFD, NSK identifies business risks and opportunities, adapts management plans, and enhances information disclosure with the aim of contributing to both the sustainable development of society and the sustainable growth of NSK, while endeavoring to take its environmental activities to the next level. For information on our TCFD-related initiatives, please refer to our website and the NSK Report. – NSK website: Information disclosure based on TCFD Recommendations: https://www.nsk.com/sustainability/TCFD/ – NSK Report 2021, p.52-53: Climate Change-related Risks and Opportunities: Addressing the TCFD Recommendations https://www.nsk.com/investors/library/pdf/nsk_report/split/2021/ir202103e_23.pdf [Supplementary Principle 4-1-1 Role and Responsibilities of the Board of Directors] NSK’s Board of Directors determines basic management policies, etc. with the aim of achieving the Group’s sustainable growth and increasing its mid- to long-term corporate value. In order to achieve fair, transparent, and swift decision-making based on the aforementioned policies, the Board proactively delegates decision-making on the execution of the operations to executive officers, while monitoring the – 6 – status of implementation in an appropriate manner. A list of the items which must be resolved by NSK’s Board of Directors can be found at the following website: https://www.nsk.com/company/governance/index.html The Board of Directors also discusses long-term and strategic issues from the perspective of the NSK Group’s stakeholders, and advises executive officers regarding the planning and implementation of long-term strategy. [Principle 4-8 Effective Use of Outside Directors] NSK maintains a principle that at least one third of its Board should be comprised of outside directors, and has appointed five independent outside directors possessing outstanding character and a broad range of knowledge. These individuals provide expert knowledge beneficial to the Group and contribute to achieving sustainable growth and increasing its mid- to long-term corporate value. We hold meetings comprised of independent outside directors to facilitate information exchange and foster shared understanding. While respecting the objective of these meetings as an opportunity to freely share opinions, the Board secretariat follows up any relevant matters as appropriate to improve the effectiveness of the Board of Directors. [Principle 4-9 Independence Standards and Qualification for Outside Directors] When electing outside directors’ nominee, we refer to the following criteria: ・Persons who have neither a special interest with the Company nor conflict of interest with regular shareholders ・Persons who meet NSK’s criteria for independence ・Persons who have considerable experience and deep insight as a corporate executive or as experts ・Persons who can devote sufficient time to perform duties as an outside director of NSK The Nomination Committee determines outside director candidates who meet the above criteria. The criteria for the independence of NSK’s outside directors can be found in the section of this report entitled “II-1 Independent Directors,” as well as the following website: https://www.nsk.com/company/governance/index.html These criteria satisfy those of the Tokyo Stock Exchange, Inc., and each of the outside directors has been registered with the Tokyo Stock Exchange as an independent director. [Supplementary Principle 4-11-1 Composition of the Board of Directors] The Company believes that the Company’s Board of Directors should be well versed in the Company’s businesses and be capable of supervising important managerial judgments related to business execution, with the aim of enhancing the sustainable growth and mid- to long-term corporate value of the NSK Group. Career diversity in field of expertise and business experience are considered to ensure that the Board maintains a well-balanced composition, in light of the Company’s mid- to long-term business strategy or managerial issues, and the size of the Board is also considered to enhance the effectiveness of deliberations. In appointing individual directors, in addition to selecting based on experience in business and management in general or experience in their area of expertise, high ethical standards in management and their insight into corporate governance is also in the selection criteria. For reference, the current Board of Directors consists of total of nine directors (including one female) who have experienced the fields of business management/top management, corporate governance/internal control, global business, engineering/production, finance/accounting/capital policy: five outside directors, two internal directors who do not concurrently serve as executive officers and two internal directors who concurrently serve as executive officers. For more details on the skill matrix for NSK’s Board of Directors, please refer to the following website. NSK website, Corporate Governance: https://www.nsk.com/company/governance/index.html – 7 – [Supplementary Principle 4-11-2 Status of Directors with Concurrently Held Posts] NSK discloses important concurrently held posts of each director in the Business Report and Reference Material sections of the Notice of the Ordinary General Meeting of Shareholders, as well as at the following website: https://www.nsk.com/investors/stockandbond/meeting.html [Supplementary Principle 4-11-3 Assessment of Board of Directors] In order to achieve sustainable growth and increase our mid- to long-term corporate value, NSK conducts annual assessments of the effectiveness of its Board function and works to further enhance performance. To maintain the objectiveness of these assessments, we commission external experts to conduct assessment based on questionnaires and interviews and the results are discussed by the Board. [Assessment process] ・Conduct questionnaires for each director. ・Conduct one hour interview for each director. *Interview was done in person or on remote in fiscal 2020. [Main contents of questionnaire] The main contents of the questionnaire conducted in fiscal 2020 are outlined below. ・Management strategies and risk control ・Composition, role and process of the Board of Directors ・Stakeholder engagement ・CEO succession planning ・Operation of committees (Nomination/Audit/Compensation Committees) [Assessment Results and Future Initiatives] An assessment conducted in 2020 by external experts concluded that the Board of Directors maintained a high level of effectiveness with the purpose of sustainable growth and mid- to long-term corporate value. The main results are as follows. ・All the directors including outside directors who have extensive knowledge keep contributing to active discussions, backed by a close relationship of mutual trust. ・The structure of Board of Directors was changed to consist of majority of outside directors. Furthermore, the Board delegated more authority to the executive organization, which enabled the Board to focus on monitoring, and discussing mid- to long-term strategies. We will continue to improve the effectiveness of our Board of Directors, consisting of a majority of outside directors, to contribute further enhancement of corporate value by strengthening our corporate governance system, focusing on improved monitoring function and placing more emphasis on discussions regarding the direction of long-term management. [Supplementary Principle 4-14-2 Officer Training] NSK provides training to its directors and executive officers to enhance their knowledge regarding relevant laws such as the Companies Act of Japan, corporate governance, its business, and its financial status. [Principle 5-1 Policy for Constructive Dialogue with Shareholders] (1) Basic Approach – 8 – NSK discloses its management information in a fair and timely manner and strives to maintain a healthy dialogue with investors. By delivering stable shareholder returns and working to secure sustainable growth and increasing mid- to long-term corporate value, we aim to constantly exceed the expectations of our stakeholders, including shareholders and investors. (2) Investor Relations Framework NSK positions investor relations initiatives as one of its key management tasks. Accordingly, we have established the Corporate Communications Department, a specialized organization which reports directly to the CEO and is overseen by the executive officer responsible for corporate communications. The Corporate Communications Department works with the Company’s various departments to develop systems by which to disclose business strategies and financial information, as well as non-financial information such as ESG initiatives, in a fair and appropriate matter. (3) Method of Dialogue and Status of Initiatives NSK recognizes the General Meeting of Shareholders as an important opportunity for dialogue with its shareholders. When setting meeting dates, we strive to avoid clashes with other companies and work to achieve swift disclosure by sending the Notice of Convocation and Business Report to our shareholders as early as possible. We also hold face-to-face dialogue between shareholders and investors through briefing meetings for institutional investors and analysts, hosted by top management, to explain our corporate results and mid-term management plans. Specific efforts are as described in the section of this report entitled “III-2 IR Activities”. We also began publishing the NSK Report (Integrated Report) as a tool for advancing constructive dialogue with investors and a range of other stakeholders and conduct constructive dialogue (engagement) relevant to our management strategy and ESG initiatives. (4) Feedback NSK has developed systems to swiftly relay the feedback obtained at its General Meeting of Shareholders and through the IR initiatives outlined above to the Board of Directors, upper management, and relevant departments. (5) Management of Insider Information NSK will not disclose or divulge insider information during dialogue with shareholders and investors. When disclosing important information regarding NSK that might influence investment decisions of investors as outlined in relevant laws and regulations, the Disclosure Committee will confirm the timeliness and appropriateness of the information prior to release. In addition, we will refrain from dialogue for a certain period prior to the release of our quarterly results, referred to as the “Silent Period”. (6) Initiatives to Ensure Fair Disclosure NSK promotes fair disclosure to prevent any information gaps regarding our company between market participants. In addition to exercising caution during communication with shareholders and investors, we work to make information regarding the Company broadly available through our website and other means. 2. Capital Structure Percentage of Foreign Shareholders From 10% to less than 20% [Status of Major Shareholders] Name / Company Name The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan (Trust Account) Number of Shares Owned Percentage (%) 73,954,700 31,657,700 14.27 6.11 – 9 – Meiji Yasuda Life Insurance Company Nippon Life Insurance Company Fukoku Mutual Life Insurance Company Mizuho Bank, Ltd. The Master Trust Bank of Japan, Ltd. (Toyota Motor Corporation Account) Toyota Motor Corporation NSK Customer Shareholding Association NSK Employee Shareholders Association Controlling Shareholder (except for Parent Company) Parent Company None 27,626,000 27,543,090 22,400,000 18,211,000 10,709,600 10,000,000 9,064,618 7,890,069 ――― 5.33 5.31 4.32 3.51 2.07 1.93 1.75 1.52 Supplementary Explanation 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year First Section of the Tokyo Stock Exchange March Machinery More than 1000 From ¥100 billion to less than ¥1 trillion From 50 to less than 100 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder ――― ――― 5. Other Special Circumstances which may have Material Impact on Corporate Governance II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Organization Form Company with Three Committees (Nomination, Audit and Compensation) – 10 – [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated Incorporation in Articles of 1 year No maximum number Chairperson of the Board Number of Directors [Outside Directors] Number of Outside Directors Number of Independent Directors 5 5 Outside Directors’ Relationship with the Company (1) Chairman (excluding those with concurrent position as President) 9 Name Attribute Relationship with the Company* f c h g △ △ △ △ d e i From another company Hajime Bada Certified Public Accountant Akemi Mochizuki From another company Yoshitaka Fujita From another company Mitsuhiro Nagahama Koichi Obara From another company * Categories for “Relationship with the Company” * “○” when the director presently falls or has recently fallen under the category; * “△” when the director fell under the category in the past * “●” when a close relative of the director presently falls or has recently fallen under the category; * “▲” when a close relative of the director fell under the category in the past b a j k a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others – 11 – Outside Directors’ Relationship with the Company (2) Name Membership of Committees Hajime Bada Nomination Committee Designation as Independent Director Independent Director Akemi Mochizuki Audit Committee Independent Director Supplementary Explanation of the Relationship Hajime Bada has not been engaged in business execution at JFE Holdings, Inc. since July 2015. Although there are mutual transactions between the Company and JFE Holdings, Inc., the value of such transactions was less than 0.5% of net sales of each company, constituting no special interest between the Company and Mr. Bada. Mr. Bada fulfills the Company’s Criteria for Independence of Outside Directors and the criteria for independence laid out by the Tokyo Stock Exchange. The Company has filed Mr. Bada as an Independent Director with the Tokyo Stock Exchange. Akemi Mochizuki has not been engaged in operations at Deloitte Touche Tohmatsu LLC since July 2018. There are no Reasons of Appointment Hajime Bada has actively expressed his opinions at meetings of the Board of Directors from a fair and independent standpoint, and we expect him to supervise the Company’s management and provide advice on business execution in general based on his considerable experience and deep insight as a corporate executive. As the Chair of the Nomination Committee, he has played a leading role in the Committee through discussions and deliberations on proposals for the election of directors and succession planning. The Company has designated him as an outside director nominee with the expectation that he will continue to contribute to enhancement and reinforcement of the Company’s corporate governance and the enhancement of corporate value. Akemi Mochizuki has actively expressed her opinions at meetings of the Board of Directors from a fair and independent standpoint, and we expect her to supervise the Company’s management and provide on business execution – 12 – transactions between the Company and Deloitte Touche Tohmatsu LLC, constituting no special interest between the Company and Ms. Mochizuki. Ms. Mochizuki fulfills the Company’s Criteria for Independence of Outside Directors and the criteria for independence laid out by the Tokyo Stock Exchange. The Company has filed Ms. Mochizuki as an Independent Director with the Tokyo Stock Exchange. Yoshitaka Fujita has not been engaged in business execution at Murata Manufacturing Co., Ltd since July 2019. Although there are mutual transactions between the Company and Murata Manufacturing Co., Ltd., the value of such transactions was less than 0.1% of net sales of the Company, constituting no special interest between the Company and Mr. Fujita. Mr. Fujita fulfills the Company’s Criteria for Independence of in general based on her considerable experience and insight as a Certified Public Accountant. As chair of the Audit Committee, she has played a leading role in the Committee discussions and deliberations, and provided appropriate guidance on the operation and enhancement of internal audit systems. The Company has designated her as an outside director nominee with the expectation that she will continue to contribute to the enhancement and reinforcement of the Company’s corporate governance and the enhancement of corporate value. a as Yoshitaka Fujita has actively expressed his opinions at meetings of the Board of Directors from a fair and independent standpoint, and we expect him to supervise the Company’s management and provide advice on business execution in general based on considerable experience and insight corporate executive. As a member of the Nomination Committee, he has played a role in the Committee discussions and deliberations and appropriate guidance on proposals for the election of Directors and in successor planning. As a member the Audit Committee, he has played a role in Committee discussions and deliberations, and provided appropriate guidance on the operation and enhancement of internal auditing systems. The Company has designated him as an outside director nominee with the expectation provided of – 13 – Yoshitaka Fujita Independent Director Nomination Committee /Audit Committee Outside Directors and the criteria for independence laid out by the Tokyo Stock Exchange. The Company has filed Mr. Fujita as an Independent Director with the Tokyo Stock Exchange. Mitsuhiro Nagahama has not been engaged in operations at Mizuho Securities, Co., Ltd. since April 2015. Although there are mutual transactions between the Company and Mizuho Securities, the value of such transactions was less than 0.1% of net sales of Mizuho Securities, constituting no special interest between the Company and Mr. Nagahama. Mr. Nagahama fulfills the Company’s Criteria for Independence of Outside Directors and the criteria for independence laid out by the Tokyo Stock Exchange. The Company has filed Mr. Nagahama as an Independent Director with the Tokyo Stock Exchange. Koichi Obara has not been engaged in business execution at Maeda Corporation since July Although there are mutual transactions the between and Company 2019. that he will continue to contribute to the enhancement the and reinforcement of corporate Company’s the governance corporate enhancement value. and of Mitsuhiro Nagahama has actively expressed his opinions at meetings of the Board of Directors from a fair and independent standpoint, and we expect him to supervise the Company’s management and provide advice on business execution in general based on his considerable experience and insight as a corporate executive. As the Chair of the Compensation Committee, he has played a leading role in the Committee through discussions and deliberations on proposals for executive compensation and decisions. As a member of the Audit Committee, he has played a role in Committee discussions and deliberations, and appropriate guidance on the operation and internal enhancement auditing The Company has designated him as an outside director nominee with the expectation that he the will and enhancement reinforcement the corporate Company’s governance, as well as ensure its sustainable growth and increase its corporate value. of systems. contribute provided policy of to Koichi Obara has considerable experience and deep insight as a corporate executive. Such experience and knowledge, as well as his independence from the Company, make him sufficiently to supervise the Company’s management. The Company has designated him as an qualified – 14 – Mitsuhiro Nagahama Compensation Independent Director Committee /Audit Committee Koichi Obara Nomination Committee Independent Director and outside director nominee with the expectation that he will the Company’s supervise management provide advice on business execution in general based on his experience as an outside director, and that the he will contribute and enhancement the reinforcement Company’s corporate governance, as well as ensure its sustainable growth and increase its corporate value. of to Maeda the Corporation, value such of transactions was less than 0.1% of the net sales of Company, no constituting interest special the between Company and Mr. Obara. Mr. Obara fulfills the Company’s for Criteria Independence of Outside Directors and the criteria for independence laid out by the Tokyo Stock Exchange. The Company has filed Mr. Obara as an Independent Director with the Tokyo Stock Exchange. [Committees] Committee’s Composition and Attributes of Chairperson All Committee Members Full-time Members Internal Directors Outside Directors Chairperson Nomination Committee Compensation Committee Audit Committee 3 3 4 0 0 1 1 1 1 2 2 3 Outside Director Outside Director Outside Director [Executive Officers (Shikkoyaku)] Number of Executive Officers (Shikkoyaku) 21 Status of Additional Duties Name Representative Authority Additional Duties as Director Nomination Committee Member Compensation Committee Member Additional Duties Employee as Akitoshi Ichii Saimon Nogami Yes Yes Yes Yes Yes – – Yes – – – 15 – Tomoyuki Yoshikiyo Hideki Ochiai Nobuaki Mitamura Kunihiko Akashi Masaru Takayama Guoping Yu Keita Suzuki Susumu Ishikawa Hayato Omi Narihito Otake Hiromichi Takemura Tatsufumi Soda Michio Ozaki Hidenori Oka Tamami Murata Ulrich Nass Brian Parsons Gen Murayama Hideaki Hayami – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – [Auditing Structure] Appointment of Directors and/or Staff to Support the Audit Committee Appointed Matters Related to the Independence of Such Directors and/or Staff from Executive Officers (Shikkoyaku) NSK’s Internal Audit Department is designated as the organization tasked with supporting the duties of the Audit Committee. Selected employees of the Internal Audit Department are assigned to support Audit Committee duties, on either a full-time or part-time basis. The Internal Audit Department reports directly to the CEO, and is independent from audit subject divisions and the executive officer(s) responsible. The Audit Committee may give direct instructions/directions to employees belonging to the Internal Audit Department. Official notification of appointment or disciplinary disposition of the aforementioned Internal Audit Department staff requires the prior consent of the Audit Committee. In addition, the Audit Committee may state opinions regarding the performance evaluation of Internal Audit Department staff. As an internal director has been designated as a standing member of the Audit Committee, allowing committee members to focus solely on monitoring duties, no other directors have been assigned to support the duties of the Audit Committee. Cooperation among Audit Committee, Accounting Auditors and Internal Audit Departments The Audit Committee receives reports from the accounting auditor at the time of formulation of the accounting auditor’s audit plan and at appropriate intervals, such as on a quarterly basis. Matters for discussion include the implementation status of the accounting auditor’s duties and the results of audits of the Group’s non– 16 – consolidated and consolidated financial statements. Where necessary, the Audit Committee requests further clarification. The above system maintains the independence of the accounting auditor and ensures that the auditing duties of the Audit Committee are monitored to verify their appropriate operation. The Audit Committee also creates an audit policy as well as an annual audit plan. In addition to conducting day-to-day auditing duties, the Committee also coordinates with the Internal Audit Department in order to audit the Group. In addition, the Audit Committee reviews the plans, implementation status, and results of audits performed by the Internal Audit Department (including appraisal of internal control over financial reporting) and directs changes or improvements where necessary. The Committee also receives monthly reports from the Internal Audit Department detailing eventuated or underlying risks related to business operation and directs additional investigations or other follow-up actions as required. [Independent Directors] Number of Independent Directors 5 Matters relating to Independent Directors NSK classifies all outside directors who meet the criteria for independent officers as Independent Directors. Criteria for independence is outlined below: The following persons are ineligible to become independent director candidates of the Company. 1) Persons holding positions at a company which constituted 2% or more of the previous year’s consolidated sales of NSK, or persons who held such a position until recently. 2) Persons holding positions at a company which made 2% or more of its previous year’s consolidated sales to NSK or a subsidiary of NSK, or persons who held such a position until recently. 3) Persons holding positions at a financial institution which NSK relies on for funding, or persons who held such a position until recently. 4) Consultants, accounting or legal professionals receiving significant financial compensation in addition to compensation for the NSK independent director position, or persons who held such a position until recently. 5) Persons belonging to a company or organization which held 10% or more of NSK’s total number of shares issued at the end of the most recent financial reporting period, or persons belonging to such a company or organization until recently. 6) Persons belonging to a company or organization which NSK holds 10% or more of the company’s total number of shares issued at the end of the most recent financial reporting period, or persons belonging to such a company or organization until recently. 7) Relatives within the second degree, or family members living in the same household as persons specified in items 1 to 6 (excluding non-key posts). (“Key posts” are generally assumed to refer to executive or senior managers of relevant companies or trading partners, chartered public accountants belonging to relevant audit firms, and legal professionals belonging to relevant legal firms.) 8) Persons who hold executive positions at NSK or a subsidiary of NSK, or relatives within the second degree or family members living in the same household of persons who held such positions until recently. The wording “recently” in the items above shall be assumed to be a period of three years or less from the date NSK elects directors. * This information is also available on the Company’s website below: https://www.nsk.com/company/governance/index.html – 17 – [Incentives] Incentive Policies for Directors and/or Executive Officers (Shikkoyaku) Supplementary Explanation Introduction of performance-based compensation system At the Compensation Committee meeting held on May 16, 2016, the decision was made to end stock option programs. Furthermore, at the Compensation Committee meeting held on March 27, 2019, the committee resolved to revise the stock compensation program for executive officers from the year ending March 31, 2020, changing it into a performance-based program. However, the stock compensation program for directors will be operated as previously as a stock compensation program with no added incentive for business performance, in consideration of the supervisory role of directors. For directors who also serve as executive officers, stock-based compensation will not be provided for the director position. Details of performance-based and stock compensation can be found in the sections of this report entitled “Compensation for Directors and Corporate Executive Officers (Shikkoyaku), Disclosure of Policy on Determining Compensation Amounts and Calculation Methods”. Recipients of Stock Options Supplementary Explanation [Compensation for Directors and Executive Officers (Shikkoyaku)] of Individual Disclosure Compensation Disclosure of Individual Executive Officers’ (Shikkoyaku) Compensation Directors’ Individual compensation is not disclosed Selected corporate executive officers (shikkoyaku) Supplementary Explanation Compensation for year ended March 31, 2021 Fixed compensation Total compensation No. of officers 7 6 31 ¥73 million ¥79 million ¥1,851 million Amount ¥66 million ¥65 million ¥939 million Directors (internal) Directors (outside) Executive Officers who also serve as executive officers. results for the year ended March 31, 2021. Stock options Amount Performance-based salary No. of officers – Amount – 30 ¥277 million – – No. of officers 1 6 43 ¥7 million ¥13 million ¥634 million 1. Compensation (excluding stock compensation) for directors (internal) includes compensation for directors 2. The amount of performance-based salary is the planned amount to be paid on July 1, 2021, based on the 3. The amount of stock compensation is the amount recorded as expenses for the current fiscal year. – 18 – 4. Figures listed above are rounded down to the nearest one million yen. Policy on Determining Compensation Amounts and Calculation Methods Appointed Disclosure of Policy on Determining Compensation Amounts and Calculation Methods As a Company with Three Committees (Nomination, Audit, and Compensation), NSK Ltd. makes decisions on executive compensation structure, compensation levels, and individual compensation, etc., at a Compensation Committee chaired by an outside director, and based on advice from external consultants as well as objective information on compensation levels and trends at other companies. The Company will determine compensation for director and executive officer positions separately. When a director also serves as an executive officer, the total of respective compensation amount shall be paid. For directors who also serve as executive officers, stock-based compensation for the director position will not be provided. 1. Executive Officers’ Compensation The compensation package for executive officers consists of a fixed basic compensation and a performance-based compensation that fluctuates with performance. The Company generally sets a compensation ratio of 4:6 of fixed compensation to performance-based compensation. (1) Basic compensation The amount of basic compensation is determined according to the title of the executive officer. Moreover, an additional amount will be paid to executive officers with representation rights. (2) Performance-based compensation The performance-based compensation consists of a short-term performance-based compensation and a mid- to long-term performance-based stock compensation. i) Short-term performance-based compensation The short-term performance-based compensation will be determined based on metrics consistent with management goals to increase profitability, raise efficiency of shareholders’ equity, and improve corporate value: metrics related to the operating income margin, ROE, cash flow, and the ratio of new product sales to the total sales as well as an achievement target for ESG goals for CO2 emission reductions and safety and quality improvement. The individual’s level of achievement in their designated job duties are also evaluated when determining the amount of compensation paid to each executive officer. ii) Mid- to long-term performance-based stock compensation In order to further incentivize contributions to a sustainable improvement of corporate value, to ensure they share the interests with shareholders, and to further reinforce the link between executive officer compensation and mid- to long-term stock value, the Company has introduced a performance-based stock compensation program using a Board Benefit Trust system. Through the system, points are fixed every three years based on a relative evaluation of the total shareholder return (TSR) of the Company’s shares through a comparison with the TOPIX growth rate, the equivalent for which company shares are then distributed upon retirement. However, for a certain portion of the above shall be provided in the form of cash obtained by converting shares into cash. 2. Directors’ Compensation The compensation package for directors consists of a fixed basic compensation and stock compensation which is variable compensation. (1) Basic compensation – 19 – Basic compensation is determined based on whether the director is an outside director or an internal director in addition to the director’s role on committees and the Board of Directors to which the director belongs. (2) Stock compensation In order to further incentivize contributions to a sustainable improvement of corporate value and to ensure they share the interests of shareholders, the Company has introduced a stock compensation program using a Board Benefit Trust system. The system distributes company shares upon retirement based on points allocated each fiscal year, of which separate amounts are given for outside and internal directors. However, for a certain portion of the above shall be provided in the form of cash obtained by converting shares into cash. For directors who also serve as executive officers, stock-based compensation will not be provided for the director position. 3. Other In addition, in the event a member of a management team of another company such as a subsidiary or an affiliate, etc., assumes an executive officer position, compensation will be determined separately. [Supporting System for Outside Directors] NSK provides information to its outside directors in an appropriate manner, including distributing meeting materials to all directors in advance, and providing prior explanation by the officers responsible or the Board secretariat. Furthermore, in previous years, we have provided opportunities for outside directors to visit business facilities in Japan and overseas, which enables them to deepen their understanding of NSK’s business and matters specific to NSK, although such site visits were not carried out in 2020, due to the spread of COVID-19 pandemic. Each outside director is a member of either the Nomination, Audit, or Compensation committees, and are supported in the corresponding duties by the respective secretariats. [Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)] Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Employment terms (Full/part time, with/without compensation, etc.) Part-time, compensated Date when former role as president/ CEO ended 6/24/2015 Maximum Term of five years Name Job title/ position Responsibilities Norio Otsuka Advisor Key external engagements to further the Company’s activities in the business world Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) 1 Others ・ Advisor has no involvement in managerial decision-making. He engages in social activities and public services including key external engagements that serve to increase the Group’s corporate value. ・ “Term” in the above table indicates the maximum term of advisor. – 20 – 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Compensation Decisions (Overview of Current Corporate Governance System) (1) Current Framework NSK’s Board of Directors determines basic management policies, etc. with the aim of achieving the Group’s sustainable growth and increasing its mid- to long-term corporate value. The Board proactively delegates decision-making on the execution of the operations to executive organizations, while supervising the status of implementation in an appropriate manner. In addition, Nomination Committee, Audit Committee, and Compensation Committee, each of which are chaired by an outside director, have been granted independent authority, and work to strengthen the monitoring function by fulfilling the criteria defined by the Companies Act etc. and the rules of each board committee. At the time of this report, our Board is comprised of nine directors, five of whom are outside directors (four men, one woman), while four are internal directors (two of whom concurrently serve as executive officers). The CEO has the ultimate authority and responsibility for all decision-making on the execution of the operations and operational executive functions delegated by the Board. Under the direction of the CEO, executive officers are responsible for executing their respective duties in accordance with the division of duties. We also maintain an Operating Committee, which functions as an organization to support the CEO in the decision-making process. The Committee deliberates on policies and key matters related to the NSK Group’s business operations. NSK also holds Officers’ Meeting, to foster a common understanding by sharing information of managerial issues, operational direction and status of the execution of their duties. The Officers’ Meeting consists of the CEO, Executive Officers, Operating Officers and Group Officers, and is chaired by the CEO. The structure of the Board and each committee and the number of times each meeting was convened during the period from April 1, 2020 to March 31, 2021, and the attendance record of each member are outlined below. [Board of Directors] ・Objectives and authority – Passes resolutions related to basic management policies, etc. (including delegation of decision-making on the execution of the operations to executive officers) – Supervises execution of duties by executive officers ・Structure: 9 members: (5 outside directors, 4 internal directors; Chair: non-executive director) ・Number of times convened: 10 ・Secretariat: Employees from the Corporate Planning Division Headquarters and the Secretariat Office perform secretariat duties in addition to their regular duties. ・Members (number of meetings attended): Toshihiro Uchiyama (9/10) Saimon Nogami (10/10) Akitoshi Ichii (10/10) Toshihiko Enomoto (10/10) Hajime Bada (9/10) Akemi Mochizuki (10/10) Toshio Iwamoto (10/10) Yoshitaka Fujita (10/10) Mitsuhiro Nagahama (8/8) *appointed as of June 30, 2020 Directors Toshihiko Enomoto and Toshio Iwamoto retired from their positions as of June 25, 2021, and Kenichi Yamana and Koichi Obara were appointed as directors on the same date. – 21 – [Nomination Committee] ・Objectives and authority – Determines the content of proposals submitted to the General Meeting of Shareholders regarding the appointment or dismissal of directors ・Structure: 3 members: (2 outside directors, 1 internal director; Chair: outside director) ・Secretariat: Employee from the Human Resources and General Affairs Division Headquarters performs secretariat duties in addition to the regular duties. ・Number of times convened: 5 ・Members (number of meetings attended) Hajime Bada (5/5) Yoshitaka Fujita (5/5) Toshihiro Uchiyama (5/5) Toshihiro Uchiyama retired from his position as of June 25, 2021, and Akitoshi Ichii was appointed to the position on the same date. [Audit Committee] ・Objectives and authority ・Audits the duties of directors and executive officers ・Creates audit reports ・Determines the content of proposals related to appointment or dismissal of accounting auditor and other matters. ・Structure: 4 members: 3 outside directors, 1 internal director (standing Audit Committee member); Chair: outside director ・Secretariat: Employees from the Internal Audit Department perform secretariat duties either exclusively or in addition to their regular duties. ・Number of times convened: 16 ・Members (number of meetings attended) Akemi Mochizuki (16/16) Yoshitaka Fujita (10/10) *appointed as of June 30, 2020 Mitsuhiro Nagahama (10/10) *appointed as of June 30, 2020 Toshihiko Enomoto (16/16) Toshihiko Enomoto retired from his position as of June 25, 2021, and Kenichi Yamana was appointed to the position on the same date. [Compensation Committee] ・Objectives and authority matters – Determines policies on the compensation of directors and executive officers – Determines the individual compensation provided to directors and executive officers, and other ・Structure: 3 members: (2 outside directors, 1 internal director; Chair: outside director) ・Secretariat: Employee from Human Resources and General Affairs Division Headquarters performs secretariat duties in addition to the regular duties. ・Number of times convened: 4 ・Members (number of meetings attended) Toshio Iwamoto (4/4) Mitsuhiro Nagahama (3/3) *appointed as of June 30, 2020 – 22 – Akitoshi Ichii (4/4) Toshio Iwamoto, and Akitoshi Ichii retired from their positions as of June 25, 2021, and Koi