Financial Information: Annual Report 2004

	Corporate Governance

Reinforcing internal monitoring functions has become one of the most important issues facing corporate management in Japan today, especially against a background of frequent media reports of corporate scandals and business misconduct. Intensifying international competition and changing shareholder composition are two other pressing realities forcing management to improve transparency and place greater emphasis on increasing shareholder value.
  In 1999, NSK introduced a voluntary executive officer system, appointed an independent director, and reinforced the monitoring functions of the Board of Directors, effectively creating a corporate governance structure that mirrored the Company’s business operations. At the same time, we established a voluntary Executive Compensation Committee. In 2003, we established an Audit Committee with the intention of enhancing management transparency and strengthening corporate governance. In 2004, we adopted the company-with-committees system to further improve management flexibility and enhance the effectiveness of management’s monitoring functions.
  To swiftly respond to the constantly changing business environment and the concomitant increase in business risks, while at the same time maintaining the fundamental values of NSK’s corporate governance system, we have raised the status of our Audit, Compensation, and Nomination committees from voluntary organizations to statutory committees. In addition, we have abolished our former voluntary executive officer system and introduced a statutory executive officer system, as prescribed by the Japanese Commercial Code, thereby establishing the framework for a new corporate governance system.
  While retaining its oversight functions, and with an eye on actual business operations, the Board of Directors has relinquished a large portion of its decision-making authority to the operational organizations to speed-up decision making processes and improve management flexibility.
  In addition, by elevating the Audit Committee to a statutory body, and by establishing an internal monitoring body within the operational structure, we aim to reinforce the internal monitoring and risk-management functions of the entire NSK Group, giving management greater latitude to focus on business expansion and profitability improvement issues.
  Working under the framework of this new corporate governance system, we intend to further increase shareholder value.

*Company-with-Committees System
The revised Japanese Commercial Code, effective April 1, 2003, gives Japanese companies the option of adopting an American-style corporate governance system, namely, the company-with-committees system.

				Before adoption			After adoption
	Board of Directors			Execution of both operational and monitoring functions			• Emphasis on monitoring functions NSK’s oversight structure (Board of Directors) and operational structure (executive officers) work cooperatively to reinforce monitoring functions. The majority of the NSK Board members are also NSK executive officers. This structure ensures that the monitoring functions are executed with full awareness of the actual business operations.
	Executive officers			Introduction of a voluntary executive officer system in 1999			• Introduction of a statutory executive officer system • Improvement of management flexibility by transferring decision-making authority to executive officers • Establishment/reorganization of the Internal Audit Office, Compliance Division - Headquarters, and Corporate Planning Division - Headquarters in June 2004 to strengthen internal monitoring function
	Committees			Establishment of voluntary Audit, Compensation, and Nomination committees			• Audit, Compensation, and Nomination committees elevated to statutory status • At least half of the members must be independent directors • Abolishment of statutory auditor structure

Companies choosing to adopt this style of governance system are required both to establish three committees—audit, compensation, and nomination—under the Board of Directors and to introduce an executive officer system. At the same time, these companies are required to abolish the statutory auditor/board of statutory auditors structure, the existence of which was mandatory under the former Commercial Code.

Dividend Policy
NSK places great importance on shareholder returns and intends to maintain a basic policy of consistently paying stable dividends. In the future, greater emphasis will be placed on our dividend payout ratio to ensure that dividends more closely reflect our consolidated business results.

			Yen
			FY99	FY00	FY01	FY02	FY03
	Dividends per share		5.0	6.0	5.0	5.0	6.5