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Corporate Governance

Corporate Governance

Basic Policy

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) as its form of corporate organization to better achieve the aforementioned basic approach. We have articulated 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.

Corporate Governance Structure

Corporate Governance Structure

Supervisory Organizations

NSK's Board of Directors passes resolutions related to basic management policies etc. The Board also delegates decision-making on the execution of the operations to executive organizations, while monitoring the status of implementation in an appropriate manner. A list of the items which must be resolved by Board of Directors is as follows.

<Major matters requiring board resolution>
  1. Basic management policy
  2. 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
  3. Basic policy on the development of internal control systems
  4. Acquisition of company treasury stock stipulated in the Articles of Incorporation
  5. Calling of the General Meeting of Shareholders
  6. Approval of related party transactions
  7. Appointment and removal of members of the Nomination, Audit and Compensation Committees
  8. Appointment and removal of the Executive Officers
  9. Appointment and removal of Representative Executive Officers
  10. Approval of financial statements, business reports and the annexed detailed statements thereof as well as provisional financial statements and consolidated financial statements
  11. Decision on matters regarding dividends of surplus stipulated in the Articles of Incorporation
  12. Approval of execution of material operations
  13. Establishment, amendment and repeal of material by-laws
  14. 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 resolution of the Board are deemed necessary

The Nomination Committee, Audit Committee and the Compensation Committee, each of which are comprised of a majority of independent outside directors, work to strengthen the monitoring function by fulfilling the duties of each.

Nomination Committee
The primary function of the Nomination 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. 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 Directors and Executive Officers.

Executive Organizations

The Executive Officers appointed by the Board of Directors are responsible for executing their respective duties in accordance with the division of duties under the directions of the Chief Executive Officer (CEO) . NSK established the Operating Committee and Officers' Meeting, and secures the efficiency and agility of execution of operations properly.

Operating Committee
The Operating Committee is established as an organization for supporting decision-making by the CEO. It deliberates on policies and key matters relates to the execution of the NSK Group's business operations.
Officers' Meeting
The Officers' Meeting is established 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.

Internal Control System

The Executive Officers are required to create and operate internal control systems, according to the basic policy determined by resolution of the Board of Directors. The main functions of the internal control system and the roles of the organization responsible are outlined as follows:

Compliance

The Core Values Committee develops 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 Legal and Compliance Division Headquarters as the operational arm of the Core Values 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 Core Values Committee on a regular basis.

Risk Management

The Corporate Planning Division Headquarters and the Finance Division Headquarters coordinate with each business and functional division headquaters, 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 Crisis Management Committee is responsible for preparing and strengthening 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.

Changes to Corporate Governance System

Changes to Corporate Governance System

Board of Directors

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.

<Skill Matrix for Board of Directors>

Name Experience and expertise expected
Business
management/
Top
management
Corporate
governance/
Internal
control
Global
business
Engineering/
Manufacturing
Finance/
Accounting/
Capital policy
Toshihiro Uchiyama    
Akitoshi Ichii    
Saimon Nogami  
Kenichi Yamana    
Yoshitaka Fujita  
Mitsuhiro Nagahama  
Koichi Obara  
Junji Tsuda  
Sayoko Izumoto      

Yoshitaka Fujita, Mitsuhiro Nagahama, Koichi Obara, Junji Tsuda, and Sayoko Izumoto are outside directors.

Structure and Roles of Supervisory Organizations

(As of the end of June, 2022)

Roles and structure of  Supervisory Organizations

Years as Director at NSK, Attendance at the Board of Directors and Committee meetings

(As of the end of June, 2022)

Name Years as
Director
at NSK
Attendance at the Board of Directors and committee meetings(FY2021) Current position of the Board Significant Concurrent Positions
outside the Company
Toshihiro
Uchiyama
10 Board of Directors 100% (10/10) - Outside Director of Sapporo Holdings Co., Ltd.
Outside Director of IHI Co., Ltd.
Nomination Committee 100% (2/2)
Akitoshi
Ichii
5 Board of Directors 100% (10/10) Nomination Committee -
Nomination Committee 100% (5/5)
Compensation Committee 100% (1/1)
Saimon
Nogami
9 Board of Directors 100% (10/10) Compensation Committee -
Compensation Committee 100% (4/4)
Kenichi
Yamana
1 Board of Directors 100% (8/8) Audit Committee -
Audit Committee 100% (9/9)
Yoshitaka
Fujita
3 Board of Directors 100% (10/10) Nomination Comittee
(Chair)
Audit Committee
Advisor of Murata Manufacturing Co., Ltd.
Nomination Committee 100% (7/7)
Audit Committee 100% (14/14)
Mitsuhiro
Nagahama
2 Board of Directors 100% (10/10) Compensation Committee
(Chair)
Audit Committee
External Auditor of Kuraray, Co., Ltd.
Outside Director of Azbil Corporation
Compensation Committee 100% (5/5)
Audit Committee 100% (14/14)
Koichi Obara 1 Board of Directors 100% (8/8) Compensation Committee Consultant of Maeda Corporation
Compensation Committee 100% (4/4)
Junji
Tsuda
- - Nomination Committee Senior Advisor of Yaskawa Electric Corporation
Outside Director of TOTO LTD.
External Member of Directors of Kyushu
Electric Power Company, Incorporated.
Sayoko
Izumoto
- - Audit Committee
(Chair)
External Audit and Supervisory Board Member of Freund Corporation
Outside Director of Hitachi Transport System, Ltd.

* Junji Tsuda and Sayoko Izumoto were newly appointed as directors on June 28, 2022, and therefore have not attended any meetings in fiscal 2021.

* Each of the outside directors has been registered with the Tokyo Stock Exchange as an independent director.

Reasons of Outside Directors Appointment

Outside Directors

Roles and Election Standards of Outside Directors

NSK expects outside directors to possess 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.
When electing outside director candidates, we verify requirement as follows in addition to “Selection Standards of Directors”:

  • 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 following persons are ineligible to become independent director candidates of NSK Ltd.

  • 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.
These criteria satisfy those of the Tokyo Stock Exchange, Inc.

Reasons of Outside Directors Appointoment

Name Independence Reasons of Appointment
Yoshitaka Fujita Yoshitaka Fujita has actively participated in Board of Directors meetings from an independent and fair standpoint, drawing on his extensive experience and insight as a corporate executive. As a member of the Nomination Committee, he has played an appropriate role through discussions and deliberations on proposals for the appointment of directors and succession planning. Furthermore, as a member of the Audit Committee, he has played an appropriate role through discussions and deliberations at committee meetings regarding the enhancement of the audit system and its operation. We nominated Mr. Fujita as a candidate for outside director because we expect that he will continue to supervise management and provide advice on overall management as an outside director, thereby contributing to the improvement and strengthening of our corporate governance and enhancement of our corporate value.
Mitsuhiro Nagahama We expect Mr. Mitsuhiro Nagahama to supervise management and provide advice on general management from an independent and fair standpoint, drawing on his extensive experience as a corporate manager, high ethical standards, and broad insight, and he has actively participated in Board of Directors meetings. As chairman of the Compensation Committee, he plays a leading role in the discussion and deliberation of executive compensation policies and decisions on compensation. Furthermore, as a member of the Audit Committee, he has played an appropriate role in enhancing the audit system and its operation through discussions and deliberations at committee meetings. We nominated Mr. Nagahama as a candidate for outside director because we believe that he will continue to contribute to improving and strengthening our corporate governance and enhancing our corporate value.
Koichi Obara Koichi Obara has a wealth of experience as a corporate manager, high ethical standards, and broad insight, and he actively participates in Board of Directors meetings from an independent and fair standpoint. As a member of the Compensation Committee, he has played an appropriate role through discussions and deliberations on executive compensation policies and compensation decisions. We nominated Mr. Obara as a candidate for outside director because we believe that he will contribute to improving and strengthening our corporate governance and enhancing our corporate value by continuing to supervise management and provide advice on overall management as an outside director.
Junji Tsuda We believe that Junji Tsuda has a wealth of experience as a corporate manager, high ethical standards, and broad insight, which he will utilize in supervising management from an independent and fair standpoint. We have nominated Mr. Tsuda as a candidate for outside director because we expect that he will contribute to improving and strengthening our corporate governance and increasing our corporate value by supervising management and providing advice on overall management as an outside director.
Sayoko Izumoto We believe that Sayoko Izumoto has a wealth of experience as a certified public accountant, high ethical standards, and broad insight, which she will utilize in supervising management from an independent and fair standpoint. We have nominated Ms. Izumoto as a candidate for outside director because we expect that she will contribute to improving and strengthening our corporate governance and increasing our corporate value by supervising our management and providing advice on overall management as an outside director.

Years as Director at NSK, Attendance at the Board of Directors and Committee meetings

Supporting System

NSK provides information in an appropriate manner, including distributing materials to all directors in advance, and prior explanation by officers and 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 fiscal 2021, due to the spread of COVID-19 pandemic.
In addition, NSK holds meetings comprised of outside directors to facilitate information exchange and foster shared understanding among outside directors and executive officers. While valuing these meetings as an opportunity to freely share opinions, the Board secretariat follows up on requests and suggestions as appropriate to improve the effectiveness of the Board of Directors.

Directors/Officers’ Compensation

Compensation for Directors and Executive Officers, 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 each 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.

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.

Executive officer compensation package
Executive officer compensation package
  • (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.
    a) Short-term performance-based compensation
    The short-term performance-based compensation are 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 ratio of new product sales to 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.
    b) 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 the 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 from of cash obtained by converting shares into cash.

Directors’ Compensation

The compensation package for directors consists of a fixed basic compensation and stock compensation which is variable compensation.

  • (1) Basic compensation
    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 from 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.

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.

Assessment of Effectiveness 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 each committee (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.

Takeover Defenses

NSK continues to have its response measures to large-scale purchases of the Company’s shares (“Takeover Defenses”) based on the resolution of the Ordinary General Meeting of Shareholders held in June 2020.
NSK is a listed company whose shares are freely tradable by shareholders and investors on capital markets, and therefore, NSK believes that, in the case of a large-scale purchase of its shares, the decision whether or not to accept such a purchase should ultimately be left to the shareholders.
In light of recent social and economic conditions, as well as the state of the capital markets, however, there is a possibility that a sudden and unsolicited large-scale purchase of the Company’s shares could occur without necessary and sufficient information being disclosed, and without an opportunity to consider the proposal being given to the shareholders of the Company, or without NSK’s Board of Directors being provided with the information and time to express its opinion and make 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 the case in which a purchaser does not intend to manage the Company reasonably or in good faith.
For this reason, NSK decided to introduce and keep to have Takeover Defenses for the purpose of securing and enhancing corporate value and the common interests of its shareholders, believing that shareholders, who will make the final decision, should have an adequate understanding of any proposals for the large-scale purchase of shares by the Large-Scale Share Purchaser, so they can make an appropriate decision.

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)”.