Basic Policy on Corporate Governance
The Company believes that the establishment and maintenance of systems that ensure transparent, fair and timely decision-making is essential in order to raise our corporate value in a sustainable manner. To realize this objective, the Company will construct its corporate governance systems on the following four guiding principles.
- 1) To increase the efficiency and agility of management by proactively delegating decision-making authority regarding the execution of operations from the Board of Directors to the Company's executive organizations.
- 2) To establish oversight of the executive organizations by supervisory organizations through separation of the former and the latter.
- 3) To strengthen supervisory organizations' oversight of the executive organizations through cooperation between the former and the latter.
- 4) To improve the fairness of management by strengthening compliance systems.
The Company will adopt the Company with Three Committees (Nominating, Audit and Compensation) system as its form of corporate organization in order to better achieve the above Basic Policy. 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 executive organizations. In order to strengthen this supervisory function, Nominating Committee, Audit Committee and Compensation Committee are to be established, comprised of a majority of independent directors.
- Nominating Committee
- The primary function of the Nominating Committee is to determine the content of proposals regarding the election and dismissal of directors to be submitted at the general meeting of shareholders, ensuring with due care that the Nominating process for director candidates is transparent and effective.
- Audit Committee
- The primary function of the Audit Committee is to audit the execution of duties by the Directors and the Executive Officers and prepare audit reports, as well as to determine the content of proposals regarding the election and dismissal of financial auditors to be submitted for deliberation at the general meeting of shareholders. The Committee also audits in accordance with the Companies Act, and the NSK Group's governance systems and its management of business risk in cooperation with the internal audit department.
- Compensation Committee
- The primary function of the Compensation Committee is to determine the remuneration policy for the Directors and the Executive Officers as well as the remuneration of the individual Executive Officers.
As an executive organization, the Executive Officers appointed by the Board of Directors execute business operations under the directions of the Chief Executive Officer (CEO), according to the procedures defined by the Board of Directors. The Operating Committee is established as an organization for supporting decision-making by the CEO. The Operating Committee deliberates on policies and key matters related to the execution of the NSK Group's business operations. The Executive Officers Meeting is established to provide an opportunity for the Executive Officers to report on the execution of their duties to the CEO. The meetings also aim to foster a common understanding of operational direction by sharing important information related to the operation of the business.
The 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.The main functions related to the construction and operation of the internal control system and the roles of the organization responsible are outlined as follows:
- The Compliance Committee creates policies designed to strengthen the compliance of the overall NSK Group, sets and promotes compliance enhancement measures to realize these policies, supervises their implementation, and periodically reports to the Board on the progress of these measures. The Compliance Enhancement Office is located under CSR Division Headquarters and, as the operational arm of the Compliance Committee, is responsible for implementing measures to strengthen compliance based on the policies set by the Committee. It also monitors the operations of initiatives and reports their progress to the Compliance Committee on a regular basis.
- Risk Management
- The Corporate Planning Division Headquarters and the Finance Division Headquarters coordinate with each business, functional and regional headquarters to support the CEO and oversee and manage general risks related to management of the NSK Group. It is also responsible for maintaining and enhancing the internal control systems necessary for the operation of the NSK Group's global business. The Internal Audit Department conducts regular stock takes of risks and performs risk monitoring to ascertain their management status. It also studies the appropriateness of internal systems and performs business audits to facilitate corrective measures and improvement initiatives. The Risk Management Committee is responsible for preparing and strengthening risk management systems in order to prevent or minimize the damage from major risks to the NSK Group, such as natural disasters, pandemics, or major accidents. It is also responsible for leading a swift and appropriate response in the event of a disaster.
- Approval and Reporting
- Each NSK Group Company duly applies for approval to CFO for matters related to corporate management, systems, governance structure and interest of shareholders, or to the controlling business or functional division headquarters in the case of important decisions related to business operation. NSK Group Companies also report on the progress of their operations to the Company on a regular basis.
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 agility of our management by separating executive and supervisory functions in order to delegate a wide range of decision-making authority to the executive 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 the Executive Officers.
Major matters requiring board resolution are as follows:
- Basic management policy
- Matters regarding the interrelationship between the Executive Officers, including the division of duties between the Executive Officers and hierarchy of command of the Executive Officers
- Basic policy on the development of internal control systems
- Acquisition of company own shares stipulated in the Articles of Incorporation
- Calling of the General Meetings of Shareholders
- Approval of related party transactions
- Appointment and removal of members of the Nominating, Audit or Compensation Committees
- Appointment and removal of the 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 the Executive Officers as well as items delegated to the Executive Officers but for which deliberation to the Board are deemed necessary
Major matters requiring resolution at our General Meetings of the Shareholders are amendment of the Articles of Incorporation, the election and dismissal of directors, 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, June 2014, and June 2017.
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 such factors as social and economic changes and recent capital market conditions, 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)”.