Approaches to Observe the Corporate Governance Code
In accordance with the basic principles of the Corporate Governance Code mandated by the Tokyo Stock Exchange, NGK's implementation status is as follows: NGK implements all of the individual principles of Corporate Governance Code.
NGK continuously holds shares of listed companies, which contribute to long-term business development, as cross-shareholdings, primarily in order to maintain and strengthen business relationships.
NGK holds the shares of Morimura Group, which was established by the same founders of NGK, to enhance the brand value of NGK Group. NGK Group companies will mutually work on the improvement of management quality and each company will contribute to the development of the industry focusing on ceramics.
At its Board of Directors' meeting, NGK determines the necessity of the continuous holding of shares as cross-shareholdings by regularly reviewing the significance of holding, stock prices, dividend yields, ratings, and so forth, and NGK gives specific explanations on the purpose and rationality of holding of shares as cross-shareholdings in its annual securities reports.
For voting rights pertaining to cross-shareholdings, NGK exercises voting rights focusing on factors including whether the content of proposals adversely affect the interest of shareholders and, from a medium to long term perspective, whether the investee company implements management that emphasizes the enhancement of corporate value and the interest of shareholders.
At NGK, transactions with directors and corporate officers are designated as matters to be approved by the Board of Directors in accordance with the procedures pertaining to conflict of interest transactions prescribed in laws and regulations. NGK deliberates and makes a resolution of said transactions, at its Board of Directors' meeting, in terms of whether or not the content and conditions of transactions are appropriate and do not impair NGK, and discloses the major content of transactions in its business reports and annual securities reports. Transactions with audit & supervisory board members and major shareholders that do not pose a conflict of interest prescribed in laws and regulations are also designated as matters to be approved at the Board of Directors' meeting, as well as disclosed as above.
NGK's corporate philosophy states "NGK products and technologies must create new value and contribute to the quality of life." Business strategies and plans are disclosed in our Consolidated Financial Results as well as on our website.
To refer to our basic policies on corporate governance, please click here. Our basic approaches to observe the Corporate Governance Code are as follows.
To effectively secure shareholders' rights including voting rights at a General Meeting of Shareholders, NGK complies with appropriate procedures pertaining to the exercise of voting rights by shareholders, and provides information that sufficiently explains to shareholders in both quality and quantity through timely and appropriate information disclosure.
Based on its corporate philosophy, NGK endeavors to ensure sustainable growth and create medium- to long-term corporate value by actively promoting appropriate cooperation with various stakeholders, including employees, customers, business partners, creditors, and local communities.
Recognizing that appropriate disclosure of information contributes to ensuring the transparency of corporate management as well as improving corporate governance, NGK actively provides not only financial information, such as financial conditions and operating results of NGK, but also non-financial information, such as information related to business strategies and business issues, risks, and corporate governance.
Based on recognition that the major responsibilities of the Board of Directors are to present the basic policy on management as well as supervision and monitoring of the performance of duties by directors, NGK will leverage the various committees pertaining to business execution and advisory committees that consist mainly of outside directors/audit & supervisory board members so that the Board of Directors can adequately fulfill their responsibilities.
Based on recognition that constructive dialogue with shareholders is important for the sustainable growth and the enhancement of medium- to long-term corporate value, NGK sincerely responds to dialogue requested by shareholders in cooperation with the relevant divisions as necessary, and works to provide the management with effective feedback on opinions and concerns of shareholders.
With the aim of providing motivation to realize NGK's corporate philosophy and management policies, as well as heighten the transparency, fairness and clarity of director responsibilities, director (excluding outside directors) and executive officer remuneration is comprised of three components
by sharing the shareholders' risk of declines as well as the merits of stock price increases and increasing sensitivity to NGK share prices. In terms of the ratio of fixed annual remuneration to variable remuneration, from the perspective of emphasis on maintaining and improving performance over the mid to long-term, NGK sets the performance-based variable remuneration at an appropriate level.
Outside directors and audit & supervisory board members receive only basic remuneration based on their supervision of management from an independent perspective and role as monitors; no performance or share price-based remuneration is provided.
In terms of amounts, resolutions at the regular general shareholders meeting held in June 2007 and June 2017, excluding stock-related remuneration, namely stock options, capped annual compensation for directors at 800 million yen and outside director compensation was capped at 60 million yen per year. Similarly, resolutions for director (excluding outside director) stock options were limited to 200 million yen or less per year, while Audit & Supervisory Board members' remuneration, etc., was capped at 100 million yen per year.
Regarding directors' remuneration, the Nomination and Compensation Advisory Committee, which consists of majority of outside directors to ensure fairness and increase the transparency of the process, deliberates on remuneration policy, the overall limit of director and executive officer remuneration, as well as the amount of remuneration received by individual directors and executive officers. The outcomes of the deliberations are then reported to the Board of Directors. Based on the Committee's advice, the Board then decides on the remuneration for the directors and executive officers. Upon the board resolution, annual remuneration, including bonuses, is determined in consultation with representative directors.
In terms of specific procedures, the basic remuneration is determined by considering corporate performance and the level of remuneration within the similar industry, with the amount set according to position or rank. Performance-based bonuses, which are annual bonuses, are determined based on management indicators and increases/decreases in performance, including annual consolidated operating margins, consolidated sales and consolidated ROE. In terms of stock-related remuneration, as a long-term incentive, the allotment of stock remuneration-type stock options with a strike price of 1 yen per share are determined in accordance with position or rank. In principle, conditions determining the exercise of stock options stipulate that stock options can be exercised starting one year after a director's resignation for no longer than a period of five years. The amount of remuneration for each audit & supervisory board members is determined by discussion by audit & supervisory board members.
NGK is a manufacturer in the business of providing ceramics and other materials and related products to a variety of industries in a wide range of areas in and outside Japan. The senior management directors and executive officers responsible for business execution, are required to engage in business judgments and decision-making based on individual knowledge pertaining to each NGK business area, production technologies and research and development, as well as financial, legal and labor-related knowledge. Similarly, standing audit & supervisory board members are also required to conduct monitoring based on a specialized knowledge of finance, etc., and knowledge gained through individual business experience. Accordingly, candidate nominations place importance on practical experience with production technologies, research and development, sales and planning, etc., as well as leadership and financial, legal and labor-related knowledge. Outside director and outside audit & supervisory board member candidates are nominated for their high degree of specialization in law, corporate finance and other areas, as well as knowledge related to international affairs, and social and economic trends. In accordance with NGK's Articles of Incorporation, the total number of directors is limited to 15 or less.
The Nomination and Compensation Advisory Committee, consisting of a majority of outside director, deliberates on these policies and the results of deliberation are reported to the Board of Directors.
Regarding the nominations of directors and audit & supervisory board members, each candidate's suitability is assessed by all representative directors. With regard to audit & supervisory board member candidates, the approval of Audit & Supervisory Board is obtained to ensure independence. Moreover, the Nomination and Compensation Advisory Committee, established to ensure fairness and improve transparency in the nomination process, screens each candidate, and the outcome of the deliberations is then reported to the Board of Directors. Based on the Committee's advice, the Board of Directors approves the nomination of candidates and puts the matter to a resolution at a General Meeting of Shareholders.
Concerning reasons for the appointment of the directors and executive officers elected at the 151th Annual Shareholders' Meeting, please refer to "Convocation Notice of the 151th Annual Shareholders' Meeting," posted on our website (http://www.ngk.co.jp/english/ir/).
The reasons for the appointment of Audit & Supervisory Board Members (excluding Outside members) whose term of office had not expired are as follows:
Takeyuki Mizuno: With business management experience focused on manufacturing, Mr. Mizuno was involved in the establishment of the Ceramics Division for Semiconductor Manufacturing Equipment after being engaged in technological development in the Ceramic Product Business Group. He also served as Head of the Manufacturing Technologies Division and Chair of the Quality Committee and the Environmental Committee. He was appointed as a Audit & Supervisory Board Member in consideration of the knowledge gained through these positions as well as his ability to monitor NGK business management.
Ken Sugiyama: After joining NGK, Mr. Sugiyama spent many years in the Finance Department, where he served as General Manager. In addition to involvement in the business management of an overseas subsidiary, he also has experience as head of the Auditing Department. He was appointed as an Audit & Supervisory Board Member in consideration of his wealth of knowledge and experience related to financial accounting and business auditing.
At NGK, matters prescribed by laws and regulations to be resolved at the Board of Directors, and corresponding matters deemed necessary to be resolved at the Board of Directors in light of their significance and characteristics, etc., are decided and resolved at the Board of Directors. The Board of Directors deliberates on the formulation of management strategies and management plans to provide a strategic direction for the achievement of NGK's management philosophies, and delegates decisions on business execution to NGK's management based on such direction.
Matters to be judged and determined by the Board of Directors are specifically prescribed in the Articles of Incorporation and the Board of Directors' Regulations of NGK, which primarily include company-wide unified budgeting, strategic planning such as dissolution, mergers, and alliances of the company, share-handling regulations, determination to call a General Meeting of Shareholders, appointing and removing representative directors, approval of financial statements, business reports, etc., the disposal and acceptance of transfer of important assets (long-term holding securities, land, equipment, etc.), the appointment and dismissal of an important employee, and the establishment and change of important organizations.
NGK has introduced a corporate officer system, thus separating management decision-making and business execution to expedite decision-making, and matters other than the above are decided by the management pursuant to the administrative authority table prescribed separately.
In addition to the requirements for an outside director under the Companies Act and for an independent director specified by the Tokyo Stock Exchange, NGK may not designate a person who falls under any of the following items as an outside director with independence (hereinafter referred to as the "Independent Outside Director"); provided, however, that if NGK considers that such person, who falls under any of the items, is appropriate as the Independent Outside Director of NGK in light of such person's personality, insight, etc., NGK may designate said person as an Independent Outside Director on the condition that said person satisfies the requirements for an outside director under the Companies Act and for an independent director specified by the Tokyo Stock Exchange as well as on the condition that NGK externally explains the reason why such person is appropriate as the Independent Outside Director of NGK. In these independence standards, a person who executes business refers to an executive director, executive officer, corporate officer, manager, or other employee, and NGK Group refers to NGK or NGK's subsidiaries or affiliated companies.
At NGK, the Board of Directors is comprised of persons who have practical experience in business operations in various business fields, such as manufacturing technology, research and development, sales, and planning as well as leadership, persons who have knowledge of finance, legal affairs, and labor affairs, highly independent external personnel who have a high level of expertise in legal affairs, corporate finance, etc., and knowledge, etc., of international affairs, social and economic trends, and the Articles of Incorporation of NGK stipulate that the number of directors shall not exceed fifteen. NGK recognizes that the appointment of young as well as foreign persons is a priority issue for ongoing consideration in terms of necessity associated with future business expansion.
With regard to the status of directors and audit & supervisory board members who also serve as directors and audit & supervisory board members at other companies, NGK discloses such status each year in its convocation notice of the General Meeting of Shareholders, annual securities reports, and report on corporate governance.
The operation of meetings of NGK's Board of Directors has been conducted appropriately in accordance with the applicable laws and regulations, the Articles of Incorporation, and internal regulations, and discussions have been held actively in the meetings. With regard to its effectiveness, the Board of Directors issued a survey on the fiscal year ended March 31, 2017 to all directors and audit & supervisory board members. The results were reported at the Board of Directors' meeting, after the analysis and evaluation by an external organization. As a result, the Board of Directors is considered to be effective, with its strength in members being committed and able to conduct sound and transparent discussions while reliably monitoring compliance and complying with governance requirements. Moreover, based on these results, NGK will work to continue to maintain and strengthen the effectiveness of the Board of Directors, such as further enriching discussions on the most important issues (significant themes related to long-term strategies).
Taking into account that directors and audit & supervisory board members assume the duty of care of a good manager as a fiduciary of NGK, NGK has established training policies to provide the following opportunities to improve their skills and knowledge so that they can adequately fulfil their respective responsibilities as an expert in management or as a supervisor of business execution.
NGK strives to provide accurate and prompt explanations concerning business conditions and operational policies and to maximize its corporate value through mutual communication between shareholders and investors.
With regard to the requests of meetings, questions at the General Meeting of Shareholders, and inquiries through NGK's website from shareholders and investors, both NGK's Finance & Accounting Department and General Affairs Department, under the direction of directors responsible for these departments, sincerely respond to shareholders and investors in close cooperation with the Corporate Strategy Office, Corporate Communications Department, Legal Department, and other departments where appropriate, thereby working to promote co nstructive dialogue with shareholders. NGK also places emphasis on opportunities to conduct direct dialogue with institutional investors, and holds financial results briefings (twice each year) and overseas IR (twice each year) and others with the senior managements.
NGK provides feedback to its management by regularly reporting the results of such dialogue to the Board of Directors, thereby leading to the improvement of the efficiency and transparency of management.
NGK conducts dialogue with shareholders and investors for the purpose of improving corporate value and capital efficiency as well as the promotion of sustainable growth, and given that the disclosure of unpublished material facts in the dialogue will impair the equality among shareholders, NGK, in principle, has no intention to disclose unpublished material facts.