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Policies related to the Board of Directors (members) and the Board of Corporate Auditors (members)

–Policies and procedure for Electing and Dismissing 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 meetings 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 (two 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. Likewise, the Articles of Incorporation set an upper limit of five.

[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.

<Officer Appointment Standards>
In addition to the basic requirement of having profound insights and high levels of expertise acquired from past experience, successful candidates should comprehend and live up to our Corporate Philosophy, deliver results, and continue to take on new challenges.
(At Nitto, those meeting such requirements are called “Nitto Persons.”)

<Officer Dismissal Standards>
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. In order for Outside Directors and Corporate Auditors to set aside the time and labor required 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 in order to ensure that such statuses are appropriate.

<Criteria for Independent Outside Directors and Outside Corporate Auditors>
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; hereinafter the same shall apply);
  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. 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 education 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 corporation or an organization) from the Company;
  7. A person who has kinship status (being a relative within the third degree of kinship or a relative living together) with an executing person of the Company or the Group;
  8. A person to whom any of the items 2. through 7. above has been applicable within the past five 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.

<Criteria for “Important Concurrent Positions”>
Concurrent positions are deemed “important” if:

  1. The director (candidate) in question concurrently holds a position as Director, etc. at listed companies or equivalent public companies;
  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.

–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 departments) has its own meeting structure(s); and heads of each department make decisions (see Nitto’s website 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 decision-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 and execution of operations at the Board of Directors are thus separated from each other, and the effectiveness of discussions at the Board of Directors meetings is ensured.

–Oversight related party transactions
At Nitto, related party transactions conducted by our Directors or major shareholders and other parties are resolved at Board of Directors meetings in order to verify the rationality (business necessity) of such transactions and the validity of their terms and conditions.

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 legal department.

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 (members).

- Training for Directors and Corporate Auditors
When nominating Directors and Corporate Auditors, Nitto makes it a policy to nominate candidates appropriate for such positions who, in light of the Officer Appointment Standards, can fulfill the duties and responsibilities 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 participated in by not only employees, but also 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.

–Policy related to remuneration of Directors
At Nitto, Directors (excluding Outside Directors) receive four types of remuneration:
Fixed compensation in cash;
Bonus for Directors based on short-term performance;
Performance-linked share-based remuneration as a form of mid-term performance-linked remuneration (to be provided within the scope of 0% to 150% in accordance with achievement of numerical targets determined by the Company’s Board of Directors based on the performance targets laid out in the Mid-Term Management Plan and other indicators); and
Restricted share remuneration as a form of mid- and long-term performance-linked remuneration.

The above types of remuneration are paid for the purpose of motivating Directors to contribute to mid- and long-term performance improvement and continual enhancement of corporate value, and by taking into account the balance between fixed and variable remunerations and between compensation in cash and share remuneration. Each type of remuneration is determined within the range of the total amount (and number of shares issued) that has been approved at a general meeting of shareholders.

In order to enhance the subjectivity and transparency of such remuneration, the amount of performance-linked share-based remuneration is calculated by using the prescribed formula and the amount of other remunerations to each Director is determined by the Representative Director(s) in accordance with their duties, responsibilities, and performance, and after hearing the views of the Management and Remuneration Advisory Committee on remuneration of Directors.

Given their roles of overseeing management through important decision-making at the Board of Directors meetings, remuneration to Nitto’s Outside Directors does not include any share-based or other performance-linked portions, and instead is comprised solely of fixed compensation in cash.

-Policy related to remuneration of Corporate Auditors

In light of their duties, such as auditing the execution of duties by Directors, Nitto’s Corporate Auditors receive compensation in cash (fixed) only, without any elements of equity-related or other performance-based remuneration. Such remuneration is determined within the range of the total amount approved at general meetings of shareholders.

Remuneration of individual Corporate Auditors is determined through consultation among themselves in accordance with the duties and responsibilities of each Corporate Auditor.

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