NIPPON YAKIN KOGYO CO., LTD

Our management philosophy states our commitment to “offer excellent products that drive progress and create a better world.” We are working to do this in our business activities to meet the expectations and earn the trust of all our stakeholders, including shareholders and business partners, and increase our corporate value. To grow sustainably and increase our corporate value in the medium to long term, it is essential that we pursue effective corporate governance. We are conscious that enhancing our corporate governance through timely and appropriate disclosure of information and thorough compliance is critical for ensuring the soundness of our business management and further increasing our credibility as a company, and we take measures accordingly.

Please refer to the Corporate Governance Report for details on the status of corporate governance at the Company.

For our Board of Directors to wholly fulfill the management supervisory role and respond promptly to changes in the management environment, the number of directors is set at nine. Moreover, in order to ensure the transparency and objectivity of our business management by incorporating the viewpoints of third parties in decisions made by the Board, we have been appointing outside directors since June 2013, and presently have four outside directors.

Nippon Yakin Kogyo has introduced the executive officer system to increase the efficiency and speed of business execution while clarifying the related responsibilities and roles. We presently have 14 executive officers.

Furthermore, as an optional advisory organization for the Board of Directors, we have the Nomination and Compensation Committee, which is chaired by the president and composed of four members who serve as outside directors of the Company. This committee deliberates the following issues in a fair and transparent manner and reports to the Board as appropriate: important issues related to the appointment and compensation of directors and officers including those related to the nomination of candidates for director and auditor positions; dismissal of directors; appointment and dismissal of executive officers; and compensation paid to directors and executive officers.

Nippon Yakin Kogyo also appoints auditors to ensure the appropriate auditing of the directors’ fulfillment of their duties. Presently, our Audit & Supervisory Board is composed of four members (two full-time auditors and two outside auditors). Auditors attend the important meetings such as the Board of Directors and check important final decisions to audit the execution of duties by the directors. We also have the Internal Control Office under the direct control of the president, which carries out internal audits on the execution of business by the entire Group.

*1 Management Meeting: Held weekly in principle with the participation of the directors who also serve as executive officers, and full-time auditors.
*2 Managing Executive Officer Meeting: Held with the participation of directors who also serve as executive officers. Members of the Audit & Supervisory Board examine the meeting materials and participate as necessary or receive explanations from the related departments.
*3 LPC Hoshikawa Law Office

Nippon Yakin Kogyo categorizes the skills required of the directors into those for 1) corporate management; 2) sales (in and outside Japan) and marketing; 3) manufacturing, equipment and R&D; 4) financial, accounting and personnel affairs; 5) global issues; and 6) IT and risk management. Our Board of Directors comprises members with the following skills.

We are conscious that ensuring the effectiveness of the corporate governance is essential for growing sustainably and increasing corporate value in the medium to long term. To this end, we have been evaluating the effectiveness of the Board of Directors since FY2017 by checking the results and progress of our corporate governance measures and identifying issues to be resolved in future.

For the evaluation, we send a questionnaire survey to each member of the Board of Directors and of the Audit & Supervisory Board, asking them to perform a self-evaluation by answering the questions. Then, under the leadership of outside directors, the answers are analyzed, evaluated and discussed by the Board of Directors.

In the evaluation for FY2023, the evaluators praised Nippon Yakin Kogyo for our initiatives to tackle ESG issues, such as our commencement of measures against climate change based on the TCFD and our issuing of Sustainability Report 2022 in September 2022. In terms of enhancement of deliberations by the Board of Directors, the evaluators praised Nippon Yakin Kogyo for actions such as our ongoing discussion and deliberation about the Medium-Term Management Plan 2024 (FY2024-FY2026) over multiple meetings of the Board of Directors. In consideration of the details of other answers, it was concluded that the effectiveness of the Board of Directors was well maintained.

In FY2024, we will establish procedures for the appointment of directors and Audit & Supervisory Board members and work to ensure fairness and transparency in these processes. We will also continue to implement measures to address ESG issues. We will also examine how to improve the Board of Directors’ effectiveness evaluation framework and the evaluation method.

The compensation paid to our directors is composed of (1) basic salary; (2) stocks of the Company; and (3) bonuses for directors/officers. However, to ensure their independence from management as well as their objectivity, outside directors and Audit & Supervisory Board members are paid only a basic salary (1).

Total amount of basic salary and bonus paid:
The Board of Directors makes a resolution in reference to the report made by the Nomination and Compensation Committee, which is mainly composed of independent outside directors.

Amount paid to each director:
Decided by the president, being commissioned by the Board of Directors and based on the deliberation report made by the Nomination and Compensation Committee.

Total amount paid in the form of stocks:
Decided by the Board of Directors in reference to the deliberation report made by the Nomination and Compensation Committee.

Specific amount paid to each director:
Decided by the president in the form of a certain ratio to their basic salary.

Basic salary to be paid to individual auditors:
Decided by themselves in reference to the deliberation report made by the Nomination and Compensation Committee.

We established the Compliance Committee to make sure that all directors, managers and employees are aware of corporate ethics and the importance of complying with laws and regulations. The Committee deliberates compliance-related policies and monitors compliance with the policies in cooperation with the related departments. We have also posted our declaration on compliance on our website to inform the public of our commitment to continuously enhancing our compliance awareness.

We have established a code of conduct to show what is required of all of our directors, managers and employees to conduct our corporate activities appropriately and comply with laws, regulations and social norms both in Japan and abroad. Our Compliance Committee, headed by one of our full-time directors, has also established a system to prevent legal noncompliance and any acts that might lead to noncompliance.

At the Board of Directors meeting held on April 28, 2015, the following revisions to the Basic Policy for Building Internal Control Systems were approved.

Our Compliance Committee shares information about the compliance education plans throughout the fiscal year and how they are implemented as well as compliance-related cases and measures across the Group. The secretariat of the Committee supports the activities by providing information to committee members and employees through channels such as our intranet, giving them necessary warnings and helping them to increase their compliance awareness.

Nippon Yakin Kogyo Group has established Nippon Yakin Kogyo Group Helpline Rules for its internal reporting system. Employees at Group companies and our business partners can seek advice from and make reports through the contact points set up by Nippon Yakin Kogyo if they detect any acts in our business practices that constitute or may constitute a violation of laws, regulations or each Group Companyʼs code of conduct.

• Group employees^*1, Temporary workers^*1, directors and managers
• Business partners^*1

*1: Including employees who have resigned from their jobs within past year

Ensuring Confidentiality

Only authorized personnel are allowed to access reports from whistleblowers and they are prohibited from sharing any reported information with unauthorized personnel. We also accept anonymous reports.

Prohibition of disadvantageous treatment of whistleblowers

We protect whistleblowers by prohibiting disadvantageous treatment on the grounds of whistleblowing.

Access to the Helpline

(1)San-ei Bldg., 1-5-8 Kyobashi, Chuo-ku, Tokyo 104-8365 Japan
General Manager of Internal Control Office
General manager of General Affairs Department
E-mail: ml_helpline@nyk.jp
(2)9th floor Omi Bldg, 3-7-3 Ginza, Chuo-ku, Tokyo 104-0061 Japan
LPC HOSHIKAWA LAW OFFICE

Risk Management

Nippon Yakin Kogyo Group defines risks as factors that could hinder Group companies from implementing their basic management policies (management philosophy, action guidelines and code of conduct) and management plans (business policies, medium-term management plans and budgets). We are working to ensure the corporate soundness and sustainability of the Group by precisely understanding the risks posed to our business management, establishing a system to appropriately manage the risks, and implementing the system in an effective manner.

Framework

Our Group conducts risk management based on the establishment of the NAS Group Risk Management Regulations.

Overall Controller

President, Nippon Yakin Kogyo Co., Ltd.

Persons responsible for management

●Group-wide risks
Nippon Yakin Kogyo: Officer in charge of each division and Chair of Standing Committee
Group companies other than the above: President of each company
●Business process risks: Manager of division administrating each business process

Risk management process

①Identify risks

Each Group division manager and the staff of the divisions identify (extract, revise) risks under the supervision of the Compliance Office established in the Internal Control Department of Nippon Yakin Kogyo.

②Analyze and evaluate risks, decide policy for countermeasure

Draft proposals are created by the Compliance Office and the Internal Control Department of Nippon Yakin Kogyo, the following items are decided by the Compliance Committee, and the Chair of the Compliance Committee obtains approval from the Overall Controller.

1. ① Selection of risks that require draft policy for countermeasure and identification of priorities based on necessity
2. ② Assignment of departments and persons responsible for the draft policy
3. ③ Selection of risks that should receive routine response (regular and extraordinary discussion and examination in usual internal meetings)

③Finalize the draft policy for implementation

The department and person in charge finalize the plan for countermeasure by the deadline and submit it to the Compliance Office. The Compliance Committee reviews and revises the said pplicy in the Committee, and obtains approval, jointly with the department in chage, from the Management Meeting.
The Overall Controller promptly implements the policy approved by the Management Meeting.

Emergency response system

We are working to minimize the risks posed to us through risk management. However, we are still subject to certain inherent and residual risks, and in the event that any such risks or other unexpected risks do materialize, we will implement our emergency response system as planned in preparation against such risks. We are thus appropriately managing risks by formulating a plan to collect and communicate information, launch an emergency response organization, and set emergency response measures.

Information security

Nippon Yakin Kogyo uses various sales and technical information it has retained, including information received from customers, to distinguish itself from competitors and remain a competitive edge. This information is a source of our corporate value and needs to be managed stringently while it is used.

We are also conscious of the need for appropriate management to protect personal information and prevent insider trading according to the relevant laws.With background like this in mind, Nippon Yakin Kogyo has built systems and mechanisms to prevent incidents such as information leaks and cyber attacks and ensure information security, focusing on the following three points.

Firstly, we establish frameworks that enable the protection and appropriate management of information to be stipulated and effectively enforced as internal rules. Information security assessments are conducted to identify risks and establish and execute countermeasures. Regular briefings are also held to increase employees’ awareness of the need for and importance of information security.

Secondly, to protect information systems such as our operational applications and email systems, and our data, from cyber attacks, we have created redundancy in protective mechanisms, such as our mechanisms for detecting and removing anomalies, to ensure protection against threats. Protective mechanisms with uniform specifications have been introduced throughout the Group.

Thirdly, the status of our information security management is shared with our managers, focusing on points such as the external environment, risks and countermeasures, and education and training, and company-wide consensus is sought for various measures so that they are implemented effectively.

Management of intellectual property

Nippon Yakin Kogyo has acquired around 140 patents in Japan to maintain the technological superiority in highperformance alloys, and we also have a range of patent rights outside Japan, including in China.