Basic Policy on Corporate Governance
To raise our corporate value in a sustainable manner, we believe it is necessary to establish and maintain a structure for transparent, fair, timely and decisive decision-making. To achieve such a structure, we adopted the Company with Three Committees (Nomination, Audit and compensation) system as our legal form of corporate organization and developed a corporate governance structure based upon the following four policies:
- 1） To increase the efficiency and mobility of management by delegation of authority from the Board of Directors to the operating organizations.
- 2） To establish oversight of the operating organizations by supervisory organizations, by segregating operating organizations and supervisory organizations.
- 3） To strengthen oversight of the operating organizations by supervisory organizations through cooperation between the operating organizations and supervisory organizations.
- 4） To improve the fairness of management by strengthening the compliance system.
Our directors and executive officers perform their duties in accordance with our Corporate Governance Rules, which stipulate the above idea and policies.
Corporate Governance Structure
The Board of Directors is defined as the organization that makes decisions regarding important management matters, such as basic management policies, and serves as a supervisory body for the operating organizations. In order to strengthen this supervisory function, Nomination Committee, Audit Committee and Compensation Committee are to be established, comprised of a majority of independent directors. As an Operational Organizations, the Executive Officers appointed by Board of Directors execute business operations under the directions of Chief Executive Officer (CEO), according to the procedures defined by the Board of Directors. In addition, Executive Officers meetings shall be established for Executive Officers to report on the progress of duties to the CEO, in order to share information and ensure mutual understanding regarding the implementation status of business policies. And the Operating Committee shall be established as a decision-making support organization, chaired by the CEO. The CEO makes final management decisions based on discussions at the Operating Committee.
- Nomination Committee
- Nomination Committee decides director candidates for submission to the shareholders meeting.
- Audit committee
- Audit committee oversees directors & Executive Officers' operation, the NSK's corporate governance and Company risk.
- Compensation Committee
- Compensation Committee decides policy of individual directors & executive officers' compensation and officers' individual compensation according to the policy.
Executive Officers are required to create and operate legally required internal control systems, according to the basic policy determined by resolution of the Board of Directors, in order to ensure that Executive Officers comply with laws, the articles of association during the performance of their duties, and that obligations as a publicly traded company are appropriately fulfilled.
The following organizations perform a critical role in the creation and operation of internal control systems:
- Internal Audit Department
- As an internal audit division, responsible for conducting audits to determine the legitimacy, adequacy, and efficiency etc. of operations, and monitoring performance of operations. Also responsible for overseeing the evaluation of the effectiveness of internal controls over financial reporting.
- Corporate Strategy Division HQ
- Cooperates with each business, functional and regional headquarters, supports the CEO, and oversees and manages general risks related to management of the NSK Group. Holds responsibility for maintaining and enhancing the internal control systems necessary for the operation of the NSK Group's global business.
- Compliance Committee
- Creates policies designed to strengthen the compliance of the overall NSK Group, sets and promotes compliance strengthening measures to realize these policies, and monitors and supervises their implementation. Periodically reports to the Board of Directors on the progress of these activities.
- CSR Division HQ (Compliance Enhancement Office)
- Responsible for enacting measures to strengthen compliance, based on the policies set by the Compliance Committee. Conducts educational initiatives to ensure that the company acts as a good corporate citizen with a sense of social responsibility in all situations, and plans, proposes, enacts, and monitors measures to ensure compliance with laws, rules, and corporate ethics. Also reports periodically to the Compliance Committee on the progress of compliance strengthening measures.
- Disclosure Committee
- Responsible for ensuring appropriate and timely disclosure of important corporate information that is likely to influence investors' investment decisions, based on the relevant laws and regulations.
- Crisis Management Committee
- Responsible for preparing and strengthening the management system against major risks to the company, such as natural disasters, pandemics, or major accidents, in order to prevent such risks from arising or minimize damage, also responsible for leading a swift and appropriate response in the event of a disaster.
The structure of the corporate governance of NSK is as follows:
Operation and Supervision
As a Company with Three Committees, we aim to enhance the efficiency and mobility of our management by separating operating and supervisory functions in order to delegate a wide range of decision-making authority to the operating organizations while ensuring thorough checking, control, and legal compliance.
Excluding the items requiring board resolution listed below, decisions on matters regarding execution of operations, such as the disposal of and acceptance of transfer of important assets, are delegated to executive officers.
Major matters requiring board resolution are as follows:
- Basic management policy
- Matters regarding the interrelationship between executive officers, including the division of duties between executive officers and hierarchy of command of executive officers
- Basic policy on the development of internal control systems
- Acquisition of company own shares stipulated in the Articles of Incorporation
- Calling of Shareholders’ Meetings
- Approval of related party transactions
- Appointment and removal of members of the audit, compensation or nominating committees
- Appointment and removal of executive officers
- Appointment and removal of representative executive officers
- Approval of financial statements, business reports and the annexed detailed statements thereof as well as provisional financial statements and consolidated financial statements
- Decision on matters regarding dividends of surplus stipulated in the Articles of Incorporation
- Approval of execution of material operations
- Establishment, amendment and repeal of material by-laws
- Other items required to be resolved by the Board of Directors in accordance with laws or the Company’s Articles of Incorporation except matters which may be delegated to executive officers as well as items delegated to executive officers but for which deliberation to the Board are deemed necessary
Major matters requiring resolution at our general shareholders meeting are the election and dismissal of directors, reversal of reserves, election and dismissal of financial auditors, as well as matters stipulated in the Articles of Incorporation, including introduction, amendment, continuation and repeal of measures for takeover defense.
Criteria for Independence of Independent Directors
The following persons are ineligible to become independent director candidates of NSK Ltd.(NSK).
- 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 stock 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 stock 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.
The Company introduced response measures to large-scale purchases of the Company shares (“Takeover Defenses”) at the annual general meeting of shareholders held in June 2008, and subsequently renewed it with the approval of the shareholders at the annual general meetings of shareholders held in June 2011 and June 2014.
The Company is a stock company, the shares of which are traded on capital markets, and the free trading of its stock by all shareholders and investors is permitted. The Company believes that, in the case of a large-scale purchase of the Company shares, the decision whether to accept such a purchase should ultimately be left to the shareholders.
However, taking into account recent capital market conditions in Japan, there is a possibility that a sudden and unsolicited large-scale purchase of a Company shares could occur without necessary and sufficient information being disclosed, and without an opportunity to consider the proposal being given to the shareholders and investors of the target company, or without the target company's board of directors being provided with information and time to express its opinion and prepare an alternative proposal. Such large-scale purchases of shares could damage the Company's corporate value and the common interests of its shareholders, such as cases in which the purchaser does not intend to manage the Company reasonably or in good faith.
Therefore, the Company decided to introduce and subsequently renew the Takeover Defenses for the purpose of (i) allowing the Company shareholders, who will make the final decision, to sufficiently understand the specifics of such a proposal by any person attempting a large-scale purchase of shares and to make an appropriate decision, and (ii) securing and increasing the Company's corporate value or the common interests of the Company shareholders.
For details of the Company's Takeover Defenses, please see “Continuation of the Response Measures to Large-scale Purchases of the Company Shares (Takeover Defenses)” .