Corporate Governance

Corporate Governance Overview

Policies and Fundamental Approach to Corporate Governance

The Nippon Koei’s fundamental approach to enhancing the Group's corporate value is to perform comprehensive corporate governance by strengthening oversight of management organizations, ensuring management transparency, and maintaining a structure facilitating the swift execution of business.

Our Board of Directors has established the Basic Corporate Governance Policy which addresses the Basic Idea for Corporate Governance (Chapter 1), Securing Shareholders’ Rights and Equality (Chapter 2), Appropriate Cooperation with Non-Shareholder Stakeholders (Chapter 3), Appropriate Information Disclosure and Ensuring Transparency (Chapter 4), Responsibilities of the Board of Directors, etc. (Chapter 5), and Dialogue with Shareholders (Chapter 6).

Basic Corporate Governance Policy (278KB)

Main Initiatives for Strengthening Corporate Governance

Main Initiatives for Strengthening Corporate Governance

Corporate Governance Organizational Chart

Corporate Governance Organizational Chart

Description of the Role and Other Aspects of Each Organization

Nippon Koei maintains a company with an Audit & Supervisory Board, and adopted in 2003 and a Nominating and Compensation Advisory Committee with members including independent outside directors in 2016. To further enhance management fairness and transparency, we implement a system which clarifies responsibility and expedites decision-making by separating the management supervision and monitoring functions from execution functions.

The main committees related to governance are listed below.

Name Purpose Meeting Frequency Members Head
Board of Directors The Board of Directors, in accordance with the Regulations of the Board of Directors, makes decisions about important matters and oversees the directors’ execution of their duties. Regular meetings are normally held once a month Composed of 11 Directors. Three are Outside Directors.
Four Audit & Supervisory Board members, including two Outside Audit & Supervisory Board Members, also attend meetings of the Board of Directors.
Director and Chairman
Nominating and Compensation Advisory Committee The committee reports its discussions of personnel matters, compensation, and other matters related to directors to the Board of Directors. About six times a year Composed of six members. These members include three Independent Outside Directors and one Independent Outside Audit & Supervisory Board Member. Director and Chairman
Management Council The Management Council discusses basic policies related to business execution and important matters related to management. Meetings are normally held twice a month The council is composed of nine members, including the three representative directors plus five directors designated by the president, and 1 executive officer. One Audit & Supervisory Board member attends the council meetings as an observer. Representative Director and President
Board of Executive Officers The Board periodically monitors the execution status of specific measures related to the annual business plan and the medium-term management plan. Meetings are normally held once a month Composed of 31 members (Representative Director and President and 30 Executive Officers). Two full-time Audit & Supervisory Board members also attend the meetings. Representative Director and President
Audit & Supervisory Board The Audit & Supervisory Board conducts audits such as operational audits of the directors’ execution of duties and monitoring of the independence of the accounting auditor. Meetings are normally held once a month Composed of 4 members (2 full-time Audit & Supervisory Board Members and 2 Audit & Supervisory Board Members) Full-time Audit & Supervisory Board Member
Total Risk Management Council The Total Risk Management Council supervises the overall promotion of risk management. Meetings are normally held once a month Composed of 8 directors with the president serving as the chair.
One Audit & Supervisory Board member attends the council meetings as an observer.
Representative Director and President

Board of Directors

Diversity of Directors

Functions of the Board of Directors

The Board of Directors, in accordance with the Regulations of the Board of Directors, makes decisions about important matters and oversees the directors’ execution of their duties. The Board of Directors is composed of 11 directors, including three outside directors. Four Audit & Supervisory Board members, including two outside members, also attend meetings of the Board of Directors. The Board of Directors formulates medium- to long-term strategies and supervises management in order to achieve sustainable growth and medium- to long-term improvement of corporate value based on trustee responsibility and accountability to shareholders, and recognizes that its basic responsibility is to improve profitability and capital efficiency.

During the 76th General Meeting of Shareholders held on September 29, 2020, we increased the number of female Outside Directors by one to further strengthen the corporate governance system, enhance the soundness and transparency of the Board of Directors from a standpoint independent of management, and receive useful recommendations from international and female perspectives. While maintaining an overall balance of knowledge and experience, the Board of Directors will fulfill its responsibilities by making swift decisions and conducting extensive discussions.

Basic policy related to Board of Directors composition

In order to effectively fulfill its responsibilities, the Board of Directors is based on the concept that each member has character, insight, experience, knowledge, and ability, and can make comprehensive decisions from a broad perspective. It is composed of members who are judged to be the best in consideration of the appropriate overall balance in light of the company's business environment.

One female Outside Director was added as a member of the Board of Directors as stated above in order to incorporate diverse perspectives into management. In addition, there is one female Outside Audit & Supervisory Board Member.

Although there are currently no foreigners serving as Directors, we have ensured diversity in the composition of the Board of Directors by appointing officers with various backgrounds, including those with global experience.

Backgrounds of Directors (eight Inside Directors and three Outside Directors) and Audit & Supervisory Board Members (two internal and two outside)

(ages current as of September 2021)

*Table slides horizontally

Name and Position Age Number of Years Serving as Director Number of Board of Directors Meetings Attended during the fiscal year ended June 2021 Background
Business Planning / Management Technology Sales and Marketing Human Resources Financial / Accounting Legal Global Experience
Ryuichi Arimoto
Director and Chairman
68 12 16/16
(100%)
Hiroaki Shinya
Representative Director and President
61 4 16/16
(100%)
Hiroyuki Akiyoshi
Representative Director
Executive Vice President
65 9 16/16
(100%)
Takayasu Tsuyusaki
Director and Executive Vice President
65 4 16/16
(100%)
Haruhiko Kanai
Representative Director and Senior Managing Executive Officer
63 4 16/16
(100%)
Yasushi Hirusaki
Director and Managing Executive Officer
59 4 16/16
(100%)
Hiizu Ichikawa
Outside Directors
74 7 16/16
(100%)
Kazumasa Kusaka
Outside Directors
73 6 16/16
(100%)
Yoko Ishida
Outside Directors
64 1 12/12
(100%)

(business evaluation)
Yoshizo Goto
Full-time Audit & Supervisory Board Member
62 3 16/16
(100%)
Kunio Okamura
Outside Full-time Audit & Supervisory Board Member
67 2 16/16
(100%)
Naoki Honjo
Audit & Supervisory Board Member
67 3 16/16
(100%)
Yoshiko Koizumi
Outside Audit & Supervisory Board Members
78 4 16/16
(100%)

*Director Ishida will attend different times because she was newly appointed and assumed office at the 76th Ordinary General Meeting of Shareholders held on September 29, 2020.

*Mr. Yoshida and Mr.Fukuoka, who became a director at the General Meeting of Shareholders on September 29, 2021, will be posted in the future integrated report for the fiscal year ending June 2021.

Policies and Procedures for Nominating and Dismissing Directors and Audit & Supervisory Board Members

In order to improve fairness and transparency, proposals for appointing/dismissing Directors (proposals for the General Meeting of Shareholders or Board of Directors meetings regarding positions and appointments), which include the benefits and negatives of reappointment, are first screened by the Nominating and Compensation Advisory Committee and then discussed by the Management Council. Afterwards, plans are then decided by the Board of Directors. Proposals for appointing/dismissing Audit & Supervisory Board Members (proposals for the General Meeting of Shareholders) are decided by the Board of Directors after consultation by the Management Council which obtains consent from the Audit & Supervisory Board in advance.

Evaluation of the Effectiveness of the Board of Directors

Guidelines for conducting Board of Directors evaluations

Each year, the Company analyzes and evaluates the effectiveness of the Board of Directors, discusses issues for further improvement of the Board of Directors during Board of Directors meetings as efforts to improve the effectiveness of the Board of Directors. The process of evaluating the effectiveness of the Board of Directors, the content of the evaluation, the evaluation results, and future issues addressed are as follows.

Process
  • ● A survey for Directors and Audit & Supervisory Board Members is conducted (anonymous questionnaire using a third-party organization to ensure objectivity)
  • ● The Board of Directors evaluates the effectiveness of the Board of Directors based on the aggregated and analyzed results of the survey, and the summary of the evaluation results is described in the Corporate Governance Report which is made public in October.
Evaluation Content
  • ● The content of the questionnaire is based on fixed-point observation. However, social issues, recent issues faced by the Company, etc. will be newly added.
  • ● This year's survey addressed 11 topics ((1) Board of Directors and management, (2) Management strategy and business strategy, (3) Risk and crisis management, (4) Group company monitoring/management evaluation and compensation, (5) Investment, (6) Dialogue with Shareholders, etc., (7) Status of improvement of matters indicated last year, (8) Existence of opinion exchange, etc. between Outside and Inside Directors regarding business execution, (9) Expected roles of Outside Directors and Outside Audit & Supervisory Board Members, (10) promoting paperless for board of directors, etc. (11) About long-term management strategy formulation. (12) Other matters).
Evaluation results and future issues

(Evaluation results)

  • ● Confirmed that the effectiveness of the Board of Directors of the Company was ensured, including the improvement of the matters indicated previous fiscal year.

(Issues)

  • ● Strengthening the screenig system for investment screening projects
  • ● Information sharing between outside officers and internal directors and enhancement of exchange opportunities, etc.

Initiatives for enhancing the Board of Directors and Audit & Supervisory Board

In order to enhance the Board of Directors and the Audit & Supervisory Board, the Company is carrying out the following initiatives to train officers and stimulate discussion.

Officer training

In order for officers to properly fulfill their responsibilities, the basic objective of training is for officers to acquire necessary knowledge and improve abilities regarding corporate value, governance, etc.

  • ● After taking the position of an officer, we provide training to them on the roles (including legal responsibilities) expected of Directors and Audit & Supervisory Board Members, compliance, etc. In addition, we explain our corporate history, Management Philosophy, business outline, management situation, governance system, etc. to outside officers.
  • ● We regularly invite outside lecturers to provide seminars for all officers on current business themes. We also continue to provide opportunities for officers to acquire specialized knowledge, such as attending outside seminars.
Initiatives for stimulating discussion
  • ● Since 2014, the Board of Directors has had two Outside Directors to encourage lively discussion. In September 2020, one female Outside Director was appointed, making the total number of Outside Directors three. This move is expected to further stimulate discussion based on the diversity of the Board of Directors.
  • ● In order to demonstrate the function of the Board of Directors as a monitoring board, we have been transferring authority since 2018 to the President on certain orders, which were previously decided by the Board of Directors.

Internal Control

Internal Control System

Nippon Koei is striving to ensure the legality and efficiency of business execution following the Basic Policies on the Development of Internal Control System (later partially revised) which was established during the Board of Directors meeting held on May 12, 2006. In order to further enhance its effectiveness, we are reviewing and improving the Internal Control System by referring to opinions of the Audit & Supervisory Board and Outside Directors.

The Basic Policies on the Development of Internal Control System stipulates the following six items, and the outline of the operational status during the fiscal year ended June 2021 is as follows.

1. System for maintenance and management of information related to Directors' execution of duties

Minutes of meetings including Board of Directors meetings, approval documents, accounting books and other documents related to business execution (including electronic information) are created, stored, and disposed using prescribed method after setting an appropriate maintenance period for each information type. In addition, we have established an information management system by taking efforts, such as appointing an information manager in each department, and are striving to implement the system appropriately.

2. Regulations and other systems for managing risk of loss

After identifying and evaluating business-related risks, we examined control measures for each risk and formulated a company-wide risk management plan in October 2020. Since then, risk management activities based on the plan have been monitored quarterly and reported to the Board of Directors by the Total Risk Management Council. In addition, risk information on business execution, including our response to the COVID-19 pandemic, is reported in a timely manner by each council member at the monthly meetings of the Total Risk Management Council (held 11 times during the current fiscal year). Important matters are then reported to the Board of Directors.

3. System for ensuing efficient execution of Directors' duties

The internal rules clarify the decision-making rules for matters to be resolved by the Board of Directors. The Board of Directors (meetings held a total of 16 times during the current fiscal year) and the Management Council (meetings held a total of 38 times during the current fiscal year) deliberated on prescribed matters and made decisions efficiently and flexibly. In addition, the Company has established a medium-term management plan (covering the period of July 2018 to June 2021) as well as a fiscal year business plan (July 2020 to June 2021), systematically and strategically carrying out operations based on those plans.

4. System for ensuring that the execution of duties by Directors and their assistants complies with laws and regulations as well as the Company's articles of incorporation

Throughout the year, we plan compliance activities for the entire Group to raise awareness regarding compliance. In addition, the Internal Auditing Office continuously engages in compliance activities through efforts including conducting internal audits of the Group (conducted once across the same theme for 4 companies in the current fiscal year) and operating a consultation/reporting system for the Group.

5. System for ensuring the appropriateness of business in the corporate group formed by the Company and its subsidiaries

Based on the Operating Regulations for Group Companies, we received reports on important business matters from our subsidiaries and approved them. In addition, we received regular reports such as monthly business reports from each subsidiary, confirmed the status of business, and provided guidance.

Regarding risk management, we provide guidance and support for the establishment of an appropriate risk management system according to the size and format of the subsidiary. As for compliance, we are making efforts with our subsidiaries involved as described in 4 above.

6. System for supporting audits by our Audit & Supervisory Board Members

In the fiscal year ended June 2019, the Company assigned one assistant to assist Audit & Supervisory Board Members.

During that fiscal year, Audit & Supervisory Board Members of the Company attended important internal meetings of the Board of Directors, Board of Executive Officers, Management Council, and Total Risk Management Council to directly confirm the status of business execution. Furthermore, our Audit & Supervisory Board Members held regular meetings with the accounting auditor and the Internal Auditing Office to exchange information for mutual cooperation.

Approach to Officer Compensation and a Description of Each Type of Compensation

(1) Matters relating to policies for decision-making on each Director’s compensation
The Company shall consult the Nominating and Compensation Advisory Committee, the advisory body of the Board of Directors composed mainly of Independent Outside Directors, concerning the framework, amounts and standards of Director Compensation, and based on the results, the Board of Directors shall establish the following policies for determining the amount of each Director’s compensation.

1. Basic Policy

To ensure that Director Compensation duly serves as an incentive for continuously growing corporate value, the basic policy shall be to establish a compensation framework that takes into account linkage with shareholder profits, and appropriate standards based on the duties and responsibilities of each Director when determining their compensation.

2. Compensation Framework

Compensation of Directors excluding that for Outside Directors shall be base compensation (fixed monthly compensation), performance-based compensation (bonus) and non-monetary compensation (compensation related to restricted stocks).
The standard compensation structure of Director Compensation shall be roughly 67% base compensation (fixed monthly compensation), 19% performance-based compensation (bonus) and 14% non-monetary compensation (compensation related to restricted stocks). This compensation structure will be changed after the Directors’ bonus for performance for the period ended June 2022 to roughly 64% base compensation (fixed monthly compensation), 22% performance-based compensation (bonus) and 14% non-monetary compensation (compensation related to restricted stocks).
Compensation of Outside Directors shall only be in the form of base compensation (fixed monthly compensation), a part of which is spent to acquire the Company’s shares under the Directors’ Stock Ownership Plan.
The Company has adopted a structure in which the compensation framework is reviewed by the Nominating and Compensation Advisory Committee as necessary.
Compensation of Audit and Supervisory Board Members shall be determined after establishment of the compensation framework at the General Meeting of Shareholders, and individual compensation amounts shall be set through deliberations of the Audit and Supervisory Board Members. Compensation of Audit and Supervisory Board Members shall be in the form of base compensation (fixed monthly compensation), a part of which can be spent to acquire the Company’s shares under the Directors’ Stock Ownership Plan.


(2) Matters relating to performance-based compensation
Performance-based compensation shall be positioned as an incentive for enhancing short-term results. Profit attributable to owners of parent in each fiscal year shall be selected as an appropriate performance indicator and this shall be reflected in cash compensation.
More precisely, a standard amount shall be determined in accordance with the profit attributable to owners of parent, and an amount within the Directors’ compensation limit approved by the General Meeting of Shareholders after the president has evaluated each Director’s achievement in performance and contribution to the Company shall be paid as a bonus every year at a specific time after the end of the relevant fiscal year.
The performance indicators for performance-based compensation shall be changed after the Directors’ bonus for performance in the period ended June 2022 to consolidated net sales and profit attributable to owners of parent in order to increase net profit, an important resource for growth investment and shareholder returns, and improve linkage with business scale expansion.


(3) Non-monetary compensation
Non-monetary compensation shall be compensation related to restricted stocks with the intention of sharing the merits and risks of share price fluctuations with shareholders and providing additional motivation to contribute to growth in share price and corporate value.
With respect to compensation related to restricted stocks, the Company shall allocate to each Director such restricted stocks at a specific time every year in such a manner that the Company requires each Director to contribute in kind the monetary remuneration payable to each Director in accordance with standards predetermined for each official position, within the range of the total monetary remuneration payable as compensation related to restricted stocks approved separately from the Directors’ compensation limit at the General Meeting of Shareholders.
The restriction period shall be three years from the date of allocation.


(4) Matters relating to delegation of authority pertaining to determining each Director’s compensation
Based on delegation of authority in accordance with the resolution of the Board of Directors, the President shall determine the detailed amount of base compensation of each Director and the evaluation and allocation of a bonus as performance-based compensation based on achievement in performance and contribution to the Company.
This authority is delegated to the President because it is deemed that the President can determine the amount of compensation for each Director in a comprehensive manner due to an accurate grasp of the execution of each Director’s role and duties as well as the business environment and financial status of the Company.
The Board of Directors shall consult and obtain a report from the Nominating and Compensation Advisory Committee on appropriate exercise of the above authority by the President, and the President to whom the above authority has been delegated must make the above decisions in accordance with the content of the report and in line with the standard compensation structure.

When the compensation amount is set for each Director, since the Nominating and Compensation Advisory Committee has conducted deliberations and the delegated President has exercised his authority after accurately grasping the state of execution of each Director’s role and duties, the Board of Directors basically respects the amount and deems it to be in line with the policy on decision-making.
With respect to share-based compensation as non-monetary compensation, the number of shares allotted to each Director is decided by the Board of Directors based on the report from the Nominating and Compensation Advisory Committee.

Description of Officer Compensation

Compensation (annual amount) Director Outside Director Audit & Supervisory Board Member
Fixed Compensation Directors: Set within \465 million (includes bonus)
Outside Directors: Set within \30 million
Audit & Supervisory Board Members: Set within \80 million
Performance-based compensation (bonus) Determined in accordance with the consolidated net income of each term
Restricted Stock Compensation Set within \60 million

*Compensation for outside directors has been revised from \30 million to \45 million during the 76th Ordinary General Meeting of Shareholders.

Standard compensation structure for Director compensation

Fixed Compensation (Base Compensation) Performance-based compensation (bonus) Restricted Stock Compensation
67% 19% 14%

Compensation amounts for Directors and Audit & Supervisory Board Members in FY2021

Officer Classification Total Amount of Compensation (Millions of yen) Total Amount of Compensation by Type (Millions of yen) Number of Officers Eligible
Fixed Compensation Performance-based Compensation
Base Compensation Restricted Stock Compensation Bonus
Directors (excluding outside directors) 344 207 41 94 8
Audit & Supervisory Board Members (excluding outside members) 28 28 2
Outside Directors 41 41 3
Outside Audit & Supervisory Board Members 33 33 3

Notes: 1. The bonus amount will be the provision for Directors’ bonuses in the current fiscal year.

Notes: 2. The restricted stock compensation shown above is non-monetary compensation. All other compensation is monetary compensation,

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