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 inconsisten-cies between the Japanese and English versions, the Japanese language version shall take precedence. CORPORATE GOVERNANCE Inquiries: Corporate Legal Dept. Legal and Compliance Div. NITTO DENKO CORPORATION. Last update: May 19, 2022 NITTO DENKO CORPORATION Hideo Takasaki, President Phone: +81-6-7632-2101 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 and Other Basic Information 1. Basic Views At 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. Be-ing 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 [Reference 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 3.1.3 Disclosure of Sustainability Initiatives, etc.】 Nitto will disclose climate-related information in the Nitto Group Integrated Report 2022. 1 【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 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 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 shareholders 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 Inte-grated Report and elsewhere. We will continue discussing how we can realize management meetings with out-side directors and corporate auditors, as there remain issues with the current systems’ structure to ensure fair-ness 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】 2 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 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 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 (mem-the legal department. bers). 【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. Meanwhile, 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 Company’s website and Integrated Report regarding our performance targets and progress for the appoint-ment 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 evalu-ation 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 man-agement 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/ 3 (ii) Basic Views on Corporate Governance Please refer to “1. Basic Views” of this Report. 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. Furthermore, in order to make important policy deci-sions in an ever-changing business environment and to exercise a sustained supervisory function, we have identified five qualities, knowledge, experience, etc. (hereinafter collectively referred to as “skills”) in “leader-ship,” “technology,” “finance,” “governance,” and “sustainability” for the Board of Directors and Board of Corporate Auditors and believe that a composition that ensures a good balance of such skills will contribute to management. (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, Nomination 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. 1. A person who practices the Nitto Way* 2. A person who can contribute to the Company with the five skills identified by the Company. *Our values, attitudes and mindset, and code of conduct are based on placing safety before everything else, amazing and inspiring our customers, anticipating and leveraging change, taking on challenges for new value creation, acting promptly and following through on decisions with determination, transforming ourselves con- 4 stantly, and having an attitude of integrity, and understanding and respecting diversity. 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. 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 Appointment 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 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 educa-tion 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 cor-poration or an organization) from the Company; gether) with an executing person of the Group; 7. A person who has kinship status (being a relative within the third degree of kinship or a relative living to-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 6 – 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 Philoso– 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 – 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 – 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 phy. chain. development. 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 versatile talents. 7 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 creat-ing 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 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 affairs based on decisions made by the Board of Directors; each business division (including corporate de-partments) has its own meeting structure(s); and heads of each department make decisions (see Nitto’s website(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 deci-sion-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 appropri-ately 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. 8 【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 A view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size】 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 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 appropri-ate for such positions who, in light of the Officer Appointment Standards, can fulfill the duties and responsibil-ities of Directors and Corporate Auditors. Additionally, Nitto periodically provides training on practicing the Corporate Philosophy, compliance, and corporate 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 topics 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 9 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 Relations, Management of Group Companies, CSR, and other departments. In addition, an infor-mation-handling officer has been appointed to strive to ensure disclosure of information in a timely and ap-propriate manner. 3. As measures to promote opportunities for dialogue aside from individual meetings, information meetings are 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 inter-viewed 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 10 12,215,700 3,060,800 2,839,000 2,715,065 2,654,792 2,082,060 2,076,156 1,907,735 8.25 2.06 1.91 1.83 1.79 1.40 1.40 1.28 STATE STREET BANK AND TRUST COMPANY 505225 1,844,754 1.24 Controlling Shareholder (Except for Parent Company) ――― Parent Company None 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 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 Prime Market, Tokyo Stock Exchange March Chemical 1,000 or more 11 the End of the Previous Fiscal Year Sales (Consolidated) for the Previous Fiscal Year Number of Consolidated the Previous Fiscal Year Subsidiaries as of the End of 50 or more and less than 100 100 billion yen or more and less than 1 trillion yen 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 Gov-ernance ――― II. Business Management Organization and Other Corporate Governance Systems regarding Decision-Making, Execution of Business, and Oversight in Management 1. Items Related to Organizational Structure and Operation Organizational Form Company with company auditor(s) [Directors] Number of Directors Specified in Articles 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 (FY2021), 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, with his deep insight into and extensive which the Company does not experience in corporate manage-engage in transactions. ment, which he had gained through his service as a director and rep-resentative director at the listed companies. 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 work-ing as a member of the Manage-ment, Nomination and Remunera-tion Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Compa-ny has designated Mr. Furuse as an Independent Director as stipulated 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 (FY2021), Mr. through k. above. Hatchoji attended 11 out of the 12 Mr. Hatchoji was an important Board of Directors’ meetings and executing person of Hitachi, Ltd. made useful comments based on in the past, which held about 15% his deep insight into and experi-of shares in Nitto through a sub-ence in management, which he had sidiary. Hitachi, Ltd., however, gained through his service as a sold most of its shares in Nitto in representative executive officer and 14 July 2003 (and has sold all of its director of the listed companies. shares in Nitto to date). It has The Company expects Mr. Hatchoji been 15 years or more since a to continue overseeing the Board of group relation between Hitachi, Directors and providing opinions on Ltd. and Nitto was dissolved. The the business administration of the Company engages in transactions Company from a global perspective with Hitachi, Ltd. Most of such based on his insight and experi-transactions relate to the devel-ence as a corporate manager in opment, maintenance, etc. of the Japan and Overseas. Mr. Hatchoji Company’s system, with the an-will also continue working as a nual transaction amount ac-member of the Management, counting for less than 0.1% of the Nomination and Remuneration Ad-Company’s consolidated revenue. visory Committee. Thus, the Company’s relationship 2. The Company stipulates the with Hitachi, Ltd. does not affect “Criteria for Election of Independent his independence. Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Compa-ny has designated Mr. Hatchoji as an Independent Director as stipu-lated by the Tokyo Stock Exchange and has reported such designation 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 ment of the Company’s corporate Company conducts joint research, brand as a university professor etc. with the university. However, specializing in design management the annual expense of such joint and making useful comments research, etc. represents less based on his experience in busi-than 0.0005% of Nitto’s consoli-ness management as a corporate dated revenue and does not affect advisor. his independence. The Company expects Mr. Fukuda to continue overseeing the Board of Tamio Fukuda ○ There is no matter falling under a. 1. In this fiscal year (FY2021), Mr. 15 Directors and providing opinions on the business administration of the Company from the perspectives of brand building and innovation crea-tion based on his insight and expe-rience as an expert as detailed above. Mr. Fukuda will also con-tinue working as a member of the Management, Nomination and Remuneration Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Compa-ny has designated Mr. Fukuda as an Independent Director as stipu-lated by the Tokyo Stock Exchange and has reported such designation to the Exchange. her experience of studying and working in Japan for about 16 years and her diverse experience and track records in her mother country, Malaysia, and other Asian coun-tries. The Company expects Ms. Wong to continue overseeing the Board of Directors based on her insight and Wong Lai Yong ○ There is no matter falling under a. 1. In this fiscal year (FY2021), Ms. through k. above. Wong attended all the Board of Ms. Wong also currently serves Directors’ meetings (12 times) and as an important executing person provided useful opinions on diver-of First Penguin Sdn. Bhd., with sity and sustainability including the which the Company does not promotion of women and engage in transactions. non-Japanese nationals based on 16 experience as an expert as detailed above and providing opinions on the business administration of the Company from the perspective of an expert. Ms. Wong will also con-tinue working as a member of the Management, Nomination and Remuneration Advisory Committee. 2. The Company stipulates the “Criteria for Election of Independent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Compa-ny has designated Ms. Wong as an Independent Director as stipulated by the Tokyo Stock Exchange and has reported such designation to the Exchange. Company expects Mr. Sawada to continue overseeing the Board of Directors, based on his insight and experience as a corporate manag-er, and providing a wide range of opinions on the business admin-istration of the Company. Mr. Sawada will also continue working as a member of the Management, Nomination and Remuneration Ad-visory Committee. Michitaka Sawada 〇 There is no matter falling under a. 1. In this fiscal year (FY2021), Mr. through k. above. Sawada attended all the Board of Mr. Sawada also currently serves Directors’ meetings (10 times) and as an important executing person provided useful opinions based on of Kao Corporation, with which the his diverse experience and track Company does not engage in records as a manager of a leading transactions. company in ESG promotion. The 17 2. The Company stipulates the “Criteria for Election of Independent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Directors based on the criteria. The Compa-ny has designated Mr. Sawada as an Independent Director as stipu-lated by the Tokyo Stock 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-time Intern Extern Exter Othe Chairper ’s Name mittee Commit al al nal rs son Committee Management, 1 5 3 Member tee Direct Direct Exper Member ors ors s 9 s 0 ts 0 Committee Management, 9 0 1 5 0 3 Corresponding to Nomination, and Nomination Committee Remuneration Advisory Com-mittee Corresponding to Nomination, and Remuneration Remuneration Committee Advisory Com-mittee 18 Internal Director Internal Director Supplementary Explanation (1)Structure and roles of the Management, Nomination and Remuneration Advisory Committee To strengthen the independence, objectivity, and accountability of the Board of Directors’ functions with respect to important issues such as key management themes, director nominations, and director compensation systems, the Company has established the Management, Nomination and Remuneration Advisory Committee, which consists of Outside Directors and Outside Corporate Auditors, as a voluntary advisory body to the Representative Director(s). By having the above important matters deliberated by the Management, Nomination, and Remuneration Advisory Committee, the Company has achieved a system whereby the Representative Director receives appropriate advice in advance from Outside Directors and Outside Corporate Auditors, and the Board of Directors deliberates on these (2)Activities of the Management, Nomination and Remuneration Advisory Committee The Committee met three times in the fiscal year under review (FY2021). All outside officers played important roles as the members of the Advisory Committee utilizing their deep insights and extensive experience in their respective areas of expertise. The following are attendance status, main consultations and deliberations: matters. Hideo Takasaki: 3 out of 3 times Yoichiro Furuse: 3 out of 3 times Takashi Hatchoji: 3 out of 3 times Tamio Fukuda: 3 out of 3 times Wong Lai Yong: 3 out of 3 times Michitaka Sawada: 3 out of 3 times Masashi Teranishi: 3 out of 3 times Masakazu Toyoda: 2 out of 3 times Mitsuhide Shiraki: 3 out of 3 times Major consultations and deliberations during the current fiscal year (FY2021) Management ・Operation and DX of the General Meeting of Shareholders ・How to achieve dialogue with shareholders by Outside Directors/Corporate Auditors Nomination ・Candidates for Board members ・Efforts to increase the number of female managers Remuneration ・Confirmation of executive compensation structure ・Addition of ESG items to executive compensation 19 [Corporate Auditors] Establishment of a Board of Corporate Auditors Established Number of Corporate Auditors Specified in Articles of Incorpora-5 tion Number of Corporate Auditors 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 companies 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 Accounting 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 per-spective 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 Auditors. 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 Auditors Established 3 Number of Outside Corporate Auditors Designated as Independ-3 ent Directors 20 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 21 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 (FY2021), 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 person of the group in the past, appropriate audits based on his but it has been ten years or more insight and experience as a man-since then. Hence, it does not ager of a mega bank, and provided affect his independence. Further, useful opinions on the business there is no borrowing from MUFG administration of the Company from Bank, Ltd. the 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 Independent Outside Directors and Outside Corporate Auditors” and selects candidates for Outside Corporate Auditors based on the criteria. The Company has designated Mr. Ter-22 Masakazu Toyoda ○ There is no matter falling under a. 1. In this fiscal year (FY2021), Mr. through m. above. Toyoda attended all the Board of anishi as an Independent Director as stipulated by the Tokyo Stock Exchange and has reported such designation to the Exchange. Directors’ meetings (12 times) and all the Board of Corporate Auditors’ meetings (13 times), performed appropriate audits based on his insight and experience as an economist involved in national poli-tics, 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 working as a member of the Man-agement, Nomination and Remu-neration Advisory Committee. Alt-hough 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 “Criteria for Election of Independent Outside Directors and Outside Corporate Auditors” and selects 23 Mitsuhide Shiraki ○ There is no matter falling under a. 1. In this fiscal year (FY2021), Mr. through m. above. Shiraki attended all the Board of Mr. Shiraki also currently serves Directors’ meetings (12 times) and as a visiting professor at Ko-all the Board of Corporate Auditors’ kushikan University, with which meetings (13 times) and provided the Company does not engage in useful opinions based on his insight transactions. and experience as an expert on 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. labor issues and global human re-source development. The Company expects Mr. Shiraki to continue providing opinions on the business administration of the Company from the perspectives of labor and human resource devel-opment, utilizing his insight and experience 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 24 “Criteria for Election of Independent 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 designation 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 for granting incentives to Directors others 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 perfor-mance-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. 25 Stock Option Recipients Supplementary Explanation ――― [Director Compensation] Disclosure of Compensation of In-dividual 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, re-spectively, 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 26 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 Di-rec-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 Direc-tors) 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 Meeting of Shareholders was nine (of which, three were Outside Directors). 27 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 Established Methods 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 calcu-lation 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 per-form 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 Cor-porate 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 meeting 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.) Name Job Title/ Responsibilities Employment Terms Date when Term 28 Position (Full/Part-Time, With/Without Compensation, etc.) Role as President/ CEO Ended ――― ――― ――― ――― ――― ――― 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 ac-tivities, they may use the name “special advisor” (part-time, without compensation). 2. Matters Concerning Business Execution, Auditing and Supervision, Nomination, Determination of Remuneration and Other Functions (Overview of Current Corporate Governance System) Please refer to “V. Other Matters” “2. Other Matters Concerning the Corporate Governance System”

of this Report. The summary of the Liability Limitation Agreement is as described below.

The Company has executed agreements with all of the Outside Directors and Outside Corporate Auditors in ac-cordance 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 de-termined under laws and regulations. 29 3. Reason for adopting present system of corporate governance The Company recognizes the corporate governance system described above enables business execution and management 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 Ex-ercise 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. Further, Nitto posts on its website the Japanese version of the notice before sending it, and the English version (reference trans-lation) 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 ing system. Nitto provides its shareholders with an environment that allows them to exercise their voting rights, by adopting an electronic vot-Participation in an electronic voting Nitto uses the platform service of ICJ, Inc., which enables institu-platform and other measures for tional investors in Japan and overseas to timely access infor-enhancing the environment for the mation related to the convocation notice and exercise their voting exercise of voting rights by institu-rights. tional investors Provision of notice of annual shareholders meeting (summary) in English Other The convocation notice, the attachments to the convocation no-tice, and the reference documents for the general meeting of shareholders are translated into English and made available on Nitto’s website, etc. as reference translation. For the convenience of shareholders, a Japanese version and an English version (referenc