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

–Policies and procedures for nominating Director and Corporate Auditor candidates
[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 corporate auditors), with at least one of them having appropriate finance and accounting expertise. Likewise, the Articles of Incorporation set an upper limit of five.

[Nomination of Directors and Corporate Auditors]
When nominating Director and Corporate Auditor candidates, individuals are chosen that meet the relevant Officer Appointment Standards described below.
<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.”)

[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.

<Independent Officer Standards>

  1. The Outside Director/Outside Corporate Auditor is not, nor has been an executing person (Director, Corporate Auditor, Vice President or any other employee) of the Company or the Group.
  2. The Outside Director/Outside Corporate Auditor is not an important executing person (director, corporate auditor, accounting advisor, executive officer or executive director, or any other important employee) of a major shareholder of the Company (a shareholder holding 10% or more of the voting rights of the Company).
  3. The Outside Director/Outside Corporate Auditor is not an important executing person of a company of which the Company is a major shareholder.
  4. The Outside Director/Outside Corporate Auditor is not 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. The Outside Director/Outside Corporate Auditor is not an important executing person of a major financial institution of the Company (a financial institution to which the Group’s aggregate amount of loans payable for the latest fiscal year exceeds 2% of consolidated total assets).
  6. The Outside Director/Outside Corporate Auditor is not 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. The Outside Director/Outside Corporate Auditor does not have a kinship (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. In addition to the above, the Outside Director/Outside Corporate Auditor does not have any interest that is reasonably considered to give rise to any doubt on the independence as an independent outside director or independent outside corporate auditor or to a conflict of interest with shareholders of 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 and compliance, 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 receive three kinds of remuneration:
Compensation in cash (fixed);
Bonus to Directors (based on short-term performance); and
Warrants (medium- and long-term incentives).

Each type of remuneration is determined within the range of the total amount approved at general meetings of shareholders.

In order to enhance the subjectivity and transparency of such remuneration, the Representative Director(s) determine the remuneration of each Director in accordance with his or her duties, responsibilities, and performance, and after hearing the views of Management and Remuneration Advisory Committee.

- 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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