The Nittobo Group constantly revises corporate governance with the aim of creating a fair and highly transparent management organization in order to conduct business activities with emphasis on social trust from our shareholders, investors and other stakeholders.

The Company introduced an executive officer system in June 2003 and has created a system able to maximize the effect of consolidated management by invigorating the Board of Directors and speeding up decision making. Since June 2008, management has been conducted by further clarifying the functions and roles of management and business execution.
In addition, with the approval of the Ordinary General Meeting of Shareholders on June 26, 2014, Nittobo shifted to a company with Nomination Committee, etc. By doing so, the Company further clarified the separation of supervision from execution and aims to strengthen supervisory functions, ensure highly transparent management, execute business swiftly, and increase the flexibility of management. Furthermore, by establishing a system that enables it to more precisely meet the expectations of stakeholders, such as customers, shareholders, suppliers, and employees, the Company will work to further enhance its corporate value.

The Company's basic policy is to constitute the Board of Directors with Directors from the Company who have capabilities and knowledge on each business and management in general, and at least the same number of External Directors as Internal Directors, who are able to express opinions beneficial for the enhancement of governance from the perspectives of diverse stakeholders and society, in order to ensure a system enabling appropriate supervision of the Company's business execution by the Board of Directors as a whole, and has specified that the Board of Directors shall have no more than 12 members in its Articles of Incorporation.
The Company's Board of Directors is currently made up of seven members including four External Directors.
The Board of Directors is responsible for supervision of business execution through selection of Directors making up the Nomination, Remuneration and Audit Committees; election and dismissal of Executive Officers and delegation of business to them; approval of matters related to operations that have an impact on basic management policy such as mid-term business plans and annual budgets; and approval of matters that could have a significant impact on Group management such as investments exceeding a certain amount. The term of office of Directors is one year, and a vote of confidence in Directors is obtained in the Ordinary General Meeting of Shareholders held annually. The Company's Executive Officers are determined by the Board of Directors. People suitable for the execution of the Company's business are elected from the perspective of enhancement of business execution and corporate value by adopting the approach of putting the right people in the right place.

As a company with Nomination Committee, etc., the Company has established a Nomination Committee, a Remuneration Committee, and an Audit Committee. The roles of the committees and overviews of the members of the committees are as follows.

The Nomination Committee determines the content of proposals to elect and dismiss Directors to be submitted to the General Meeting of Shareholders. It is made up of five Directors (four of whom are External Directors), and is chaired by External Director Sadayoshi Fujishige. Meetings of the Nomination Committee are held as needed. The Nomination Committee selects the Company's Director candidates who are believed to be the most suitable based on factors such as their character and insight.

The Remuneration Committee determines the content of individual remuneration, etc., of Directors and Executive Officers. It is made up of five Directors (four of whom are External Directors), and is chaired by External Director Hiroshi Kagechika. Meetings of the Remuneration Committee are held as needed.

The Audit Committee's responsibilities include auditing the state of execution of duties of Directors and Executive Officers, and the preparation of audit reports. Working with accounting auditors and the Audit Office, audits, etc., are conducted based on audit plans approved in the Audit Committee. It is made up of five Directors (four of whom are External Directors), and is chaired by External Director Yasuharu Nakajima. An Audit Committee Secretariat has been established as an organization for assisting the duties of the Audit Committee. In principle, the Audit Committee holds meetings at least once every month.

The Company currently has 11 Executive Officers, of which one has been selected as Representative and Chief Executive Officer.
The Executive Meeting was established as an organ to deliberate on matters related to the execution of business delegated by the Board of Directors, and it endeavors to ensure efficient business execution by holding meetings twice a month.

The Board of Directors analyzes and evaluates its composition, operation, supervision, support system, and dialogue with shareholders, etc., based on a survey conducted by outside attorneys and the evaluation of each Director.
In the self-evaluation concerning the effectiveness of the Board of Directors in fiscal 2020, the opinion was expressed that further improvements need to be made to matters such as enhancement of risk management; creation of a feedback mechanism for past Board of Directors resolutions; promotion of sustainability activities; and consideration of a management succession plan. In response to these opinions, the following initiatives were adopted in fiscal 2021.
In the survey covering fiscal 2021, about 80% of the questionnaire responses improved from fiscal 2020, and the results were overall very positive. However, there were comments that the Directors did not have sufficient opportunities to visit each business site and factory to understand the situation on the ground due to the COVID-19 pandemic, as well as a desire to continue the constant review of the Group's governance.
We will continue to make ongoing improvements so that the Board of Directors can fulfill its supervisory function effectively.

The knowledge, experience, and abilities of Directors that are considered important to the Company from the perspective of corporate management are defined as business management, technology, research and development, sales, marketing, global business, finance, accounting, legal affairs, risk management, human resources, labor relations, and human resources development. We ensure that the Board of Directors is composed of people with appropriate knowledge and abundant experience in each field.

(a) Deciding policy

The Company determines policy related to the determination of individual remuneration of Directors and Executive Officers on the basis of objective data, etc., from external consultants in the Remuneration Committee made up of a majority of External Directors and chaired by an External Director, based on the provisions of the Companies Act related to a Company with Nomination Committee, etc.
Furthermore, the policy is based on the approach of providing strong motivation for officers to achieve their performance targets with secure transparency and rationality, fostering awareness for medium- to long-term management, and conforming with the interests of stakeholders including shareholders and investors, and the performance targets used for calculating remuneration also reflect this approach.

(b) Outline of the policy

The Company's executive remuneration (excluding External Directors) is structured by basic remuneration determined by the state of competency expected of each position (behavior evaluation) and the state of performance (performance evaluation), and performance-linked remuneration that varies within a range of 0% to 150% according to the level of achievement of individual performance targets based on company performance targets from the previous fiscal year and the activities and performance of the responsible divisions, and the current fiscal year's remuneration is based on a combination of these.
Performance-linked remuneration has not been applied for External Directors due to the role of supervising management from an independent and objective perspective.

1. Company performance
The selected indicators are operating profit to strengthen earning power and growth potential, ROE to show capital efficiency improvement, and dividends to promote further sharing of value to our shareholders.

2. Individual performance
Initiatives undertaken regarding operating profit of the responsible business unit and to address issues in the Mid-Term Business Plan were selected as an indicator to clarify the responsibility of each Executive Officer (excluding External Directors) and evaluate them from perspectives and items separate from the Company’s business performance.

The Remuneration Committee, chaired by an External Director, checks the exhibition of competencies and the level of achievement of the Company's performance targets, along with individual performance targets, and then calculates and determines individual amounts based on the aforementioned remuneration percentages and percentages of reflection in performance-linked remuneration.

＜Calculation Rules＞
（Basic remuneration）
This is determined using a basic remuneration table that is a matrix based on four levels of behavior evaluation and nine levels of performance evaluation.
（Performance-linked remuneration）

• Company performance = amount of basic remuneration for each prior fiscal year x percentage of Company performance for each position x level of achievement of company performance target for the previous fiscal year
• Individual performance = amount of basic remuneration for each prior fiscal year x percentage of individual performance for each position x level of achievement of individual performance target for the previous fiscal year

Performance-linked remuneration is determined by combining the Company performance and the individual performance calculated as shown above.
The remuneration of Directors and Executive Officers for fiscal 2021 was also determined by the above method. Furthermore, the Remuneration Committee believes that the content of the remuneration is in line with the above policy, as it confirms the appropriateness of the level based on the executive compensation data provided by external consultants on a regular basis.

The Company introduced the Board Benefit Trust (the Plan) in fiscal 2022 as a new performance-linked stock remuneration plan with the objective of raising the awareness of Executive Officers regarding their contributions to medium- and long-term improvement in business performance and increasing corporate value by clarifying the link between the remuneration of Executive Officers (including those who concurrently serve as Directors) and the Company’s business performance and market capitalization and creating interests that Executive Officers share with shareholders not only in the benefits of rising stock prices, but also the risks of falling stock prices.　

Under the Plan, Company shares were acquired through a trust (the Trust) with money contributed by the Company as its source of funds. This is a performance-linked stock remuneration plan under which the Company's shares and money equivalent to the amount obtained by converting the shares to market value (the Company's shares, etc.) are paid to the Executive Officers through the Trust in accordance with the Regulations of Directors' Stock Benefits established by the Company. In principle, the Executive Officers shall receive the Company's shares and other benefits at the time of their retirement.

The eligible persons for the Plan shall be the Executive Officers of the Company (including those who concurrently serve as Directors). Directors and External Directors who do not concurrently serve as Executive Officers are not eligible for the Plan.

The Company will contribute to the Trust the funds reasonably expected to be required to acquire up to 174,500 shares, taking into consideration the market price of the Company's common stock in regular trading on the Tokyo Stock Exchange immediately prior to the establishment of the Trust, as the necessary funds for five fiscal years (Initial Relevant Period) spanning the fiscal year ending on March 31, 2023 to the fiscal year ending on March 31, 2027, and also for each of the three-year periods beginning after the Initial Relevant Period (“Subsequent Relevant Periods”). Collectively, the Initial Relevant Period and Subsequent Relevant Periods are referred to as the “Relevant Periods.”
After the Initial Relevant Period has elapsed and until the termination of the Plan, the Company shall, in principle, continue to make additional contributions to the Trust for each Subsequent Relevant Period, based on a reasonable estimate of the number of shares necessary to provide benefits to Executive Officers under the Plan, and the funds deemed necessary for the Trust to acquire such shares in advance. However, when making such additional contributions, if there are any remaining shares of the Company—excluding the Company shares equivalent to the number of points granted to the Executive Officers for each of the immediately preceding eligible periods for which the Executive Officers have not yet received benefits—or funds (the Remaining Shares, etc.) in the trust assets, the additional contribution amount shall be calculated after taking into account the Remaining Shares, etc.

With the introduction of the Plan, the Company has decided to increase the percentage of performance-linked remuneration for Executive Officers to a higher level than previously. Specifically, the ratio of basic remuneration, variable remuneration, and share remuneration for achieving performance goals was set at 60%:25%:15% in the case of the Representative and Chief Executive Officer.

The Corporate Communication Officer is responsible for general dialogue with shareholders, and the Corporate Communication Department is the internal department responsible for providing　assistance thereto. The Company endeavors to create opportunities for shareholder dialogue that will contribute to the sustained growth and enhancement of medium- to long-term corporate value of the Company centered on Executive Officers. Furthermore, departments involved in IR activities centered on the Corporate Communication Department work to coordinate among departments on a daily basis.
We will continue to endeavor to disclose information in a timely and appropriate manner to enable the Nittobo Group's customers, shareholders and investors to accurately recognize and judge the actual state of the Nittobo Group. In order to achieve this, we comply with laws, regulations and securities exchange rules on disclosure, and are engaged in the creation and operation of an appropriate disclosure system.

Opinions and concerns, etc., about the Company that are learned through dialogue with shareholders and investors are collated by the Corporate Communication Department, reported to the Corporate Communication Officer, Executive Meeting, and the Board of Directors on a quarterly basis, and appropriately provided as feedback to management executives.
Adequate care is given to insider information in individual inquiries and dialogue with the Nittobo Group, and explanations are limited to information that has already been published and facts that are well known.

The Company holds shares of listed companies under its policy on cross-shareholding in cases where it deems such shareholding to be beneficial for building favorable trading relationships with important trading partners of the Nittobo Group in fields including sales, raw material procurement and finance, smoothly advancing business activities of the Nittobo Group, and enhancing corporate value in the Nittobo Group. However, from the perspective of improving the Group's corporate value, the Company will sell shares that are deemed to be of little holding significance, while paying attention to the effect on the market, and so forth.

The Company reviews the holding policy for listed shares individually at meetings of the Board of Directors on a periodic basis, comprehensively considering qualitative factors that take into account the importance of the transactions, the maintenance and establishment of good business relationships, and other factors in terms of sales, procurement, technical cooperation, joint capital investment, joint ventures, and financing, and a quantitative evaluation that compares the total return on investment, calculated by considering dividend yield and business profit, against the cost of capital.

The Company will appropriately exercise its voting rights associated with cross-shareholdings after consideration of whether such issuing company has established an effective governance structure and is making appropriate decisions to improve its corporate value over the medium to long term, as well as whether such shareholdings will contribute to enhancing the Group's corporate value.