Corporate Governance

For the Group’s sound and sustainable growth, and improvement of its corporate value in the mid-to long-term, in response to the delegation of responsibilities by and trust from all stakeholders, including shareholders and business partners, NSSMC has established a corporate governance structure appropriate for the Group’s business.

Corporate Governance Report

Basic Structure of Corporate Governance


NSSMC, with its core business being steelmaking, has adopted a company structure withan Audit & Supervisory Board, because NSSMC believes that the following structure iseffective in ensuring management efficiency and soundness: the Board of Directors,which consists mainly of Directors familiar with the business of NSSMC, makesdecisions on basic management policies and the execution of important business matters; and the Audit & Supervisory Board Members, with considerable legal authority, independently supervise the performance of responsibilities by Directors.

To ensure management soundness, full-time Audit & Supervisory Board Members, whoare familiar with the business of NSSMC, and Outside Audit & Supervisory Board Members, who have deep insights into respective professional fields, collaborate with NSSMC’s accounting auditor, the Internal Control & Audit Division and others, andsupervise daily, among other things, the performance of responsibilities by Directors andthe status of NSSMC’s assets. Further, in order for the Board of Directors to makedecisions from diverse perspectives and enhance its function of supervising management, NSSMC has several Outside Directors who have deep insights into corporatemanagement, or other matters. Currently, in addition to 11 Executive Directors, twoOutside Directors and seven Audit & Supervisory Board Members (four of which areOutside Audit & Supervisory Board Members) who do not engage in the execution of business, attend meetings of NSSMC’s Board of Directors to ensure multifaceted andsufficient deliberations, and objective decision-making.At NSSMC, in order for all Outside Directors and Outside Audit & Supervisory Board Members to obtain the necessary information and sufficiently fulfill their roles, theChairman, the President, other senior management, and Senior Audit & Supervisory Board Members regularly hold meetings with those Outside Directors and Outside Audit& Supervisory Board Members to share the management challenges, and exchangeopinions.

To enhance management transparency and advance a correct understanding bystakeholders on the management situation of the Group, NSSMC not only seeks todisclose information in accordance with applicable laws and regulations and the rules offinancial instruments exchanges, but also seeks to disclose financial and non-financialinformation at an appropriate timing, in an easily understandable manner, and accurately.d. To comply with applicable laws and regulations, and ensure the integrity of financialreports and the effectiveness and efficiency of business and affairs, NSSMC establishesand appropriately operates an internal control system, and strives to continually improveit. To create a sound and open organization, NSSMC establishes the internal controlenvironment by emphasizing dialogue in and outside the workplace, regularly conductingattitude surveys with all employees, and establishing a whistleblower system to receiveconsultation and reports not only from employees of NSSMC and the Group companies,but also from temporary workers and employees of contractors and suppliers, and theirfamilies.

NSSMC regularly examines and reviews, at the Board of Directors, the corporategovernance structure, its operating situation, and other relevant facts and circumstances,including the analysis and evaluation of the effectiveness of the Board of Directors as awhole so that NSSMC will be able to make improvements autonomously, considering theopinions of Outside Directors and Outside Audit & Supervisory Board Members.

Relationship Diagram


The following is a diagram illustrating the relationship regarding NSSMC’s organization and internal control.



 (Note)

1: The execution of important matters concerning the management of NSSMC and NSSMC Group is determined at the Board of Directors (held once or twice per month) after deliberations in the Corporate Policy Committee (held once a week, in principle) comprised of the Chairman, President, Executive Vice Presidents, and other members, pursuant to NSSMC’s rules.

2: As corporate organizations engaging in deliberations before the Corporate Policy Committee and the Board of Directors, there are 23 company-wide committees in total, including the Ordinary Budget Committee, the Plant andEquipment Investment Budget Committee, the Investment and Financing Committee, the Fund Management Committee, the Technology Development Committee, the Environment Management Committee, and the Risk Management Committee, depending on each purpose.

3: NSSMC has established an operational organization for its internal control systems. This organization consists of the Internal Control & Audit Division (14 full-time and 21 concurrently with their other posts), which is responsible for the internal control plan and internal audits, and functional divisions responsible for managing risk in each field (about 670 staffs). NSSMC has also designated a person in charge of risk management (about 150 for NSSMC) and a person responsible for risk management (about 550 in group companies) who are engaged in planning and promoting autonomous internal-control activities in each division and Group company.

4: As far as the Group companies are concerned, each company establishes and develops an internal control system based on its autonomous internal control, and the responsible divisions of NSSMC provide assistance in their improvement, where necessary. Furthermore, the General Manager for the Internal Control & Audit Division of NSSMC identifies and evaluates the situation of internal control of NSSMC Group as a whole, and gives guidance and advice to each responsible division and each Group company.

Policy on Strategic Shareholdings


(1) Policy on Strategic Shareholdings
NSSMC holds strategic shareholdings (all shares except shares of NSSMC’s affiliates) toimprove NSSMC’s corporate value in the mid- to long-term through maintaining andstrengthening business transaction relationships, maintaining and developing alliance,and smoothly promoting business activities, among other things. In addition, regardingthese strategic shareholdings, NSSMC examines the economic rationale of the holding atthe Board of Directors, regularly every year, by quantitatively evaluating the significanceof holding them, and the performance and financial conditions, among others, of investeecompanies.

(2) Basic Policy on Exercise of Voting Rights Concerning Strategic Shareholdings
Regarding the exercise of voting rights concerning strategic shareholdings, eachresponsible division of NSSMC carefully examines the contents of the agenda of the General Meeting of Shareholders of an investee company, comprehensively evaluates thecontribution to improvement of the corporate value of NSSMC and the investee company, and thereby exercises its voting rights appropriately.

Board Policies and Procedures in Determining the Compensation of Directors


(1) Policies on Determining the Compensation
NSSMC has determined the “Policies regarding the Decision on the Amount of Compensation for Directors and Audit & Supervisory Board Members” at theBoard of Directors, and discloses these in the “Term Report. ”Directors’ compensation consists only of monthly compensation in cash, and isall based upon performance of NSSMC, in order to provide incentives for theGroup’s sustainable growth and improvement of its corporate value.

Specifically, NSSMC sets the base amount of compensation for each Director’srank taking into consideration each Director’s required skills andresponsibilities, and this base amount varies within a specific range, based on NSSMC’s consolidated net profit or loss and the ordinary profit or loss of the steelmaking segment in the previous fiscal year, in view of the connection with the mid-term management plan, and the amount of each Director’scompensation is determined with in the limits approved by the General Meetingof Shareholders.

Regarding Audit & Supervisory Board Members’ compensation, NSSMCdetermines the monthly compensation for each Audit & Supervisory Board Member, with in the limits approved by the General Meeting of Shareholders,by considering the Audit & Supervisory Board Member’s responsibilities,depending on its rank and whether the Audit & Supervisory Board Member isfull- or part-time.

(2) Procedures for Determining the Compensation
Each Director’s compensation is resolved at the Board of Directors afterdiscussion at the “Nomination and Compensation Advisory Committee,”comprised of the Chairman, the President, and three members designated bythe President from among the Outside Directors and Outside Audit & Supervisory Board Members.

Each Audit & Supervisory Board Member’s compensation is determined bydiscussions of the Audit & Supervisory Board Members.

Independence Standards of Independent Directors and Audit & Supervisory Board Members


NSSMC decides the independence of Outside Directors and Outside Audit & Supervisory Board Members in accordance with the independence standards set by financial instruments exchanges inJapan (e.g. Tokyo Stock Exchange), considering each individual’s personal relationship, capital relationship, transaction relationship, and other interests with NSSMC.

Outside DirectorsRelationship with NSSMC


Name Reasons of Appointment
Mutsutake Otsuka [Reasons for Appointment as an Outside Director]
NSSMC believes that Mr. Otsuka iswell-qualified for the position by his deep insights and vast experience as acompany executive.

[Reasons for Designation as an Independent Director]
 Although he engaged in the execution of business of East Japan Railway Companywhich has a business relationship with NSSMC for transactions of steel and other products /services until March 2012, he does not currently engage in the execution of business of the said company. Since the amount of transactions with the said company accounted for less than 1% ofthe consolidated net sales of NSSMC, the said company is not a specified associated service provider of NSSMC. In addition,his other material concurrent positionsare only as an outside director and outside audit & supervisory board member at other companies, and he does not engage in the execution of business of the said companies. He does not conflict with the independencestandards as set by each financial instruments exchange on which NSSMC is listed (e.g. Tokyo Stock Exchange), and does not have any special interests with NSSMC. Because NSSMC believes that there is no possibility of a conflict of interest between him and the general shareholders as stated above, NSSMC has designated him as an Independent Director.
Ichiro Fujisaki [Reasons for Appointment as an Outside Director]
NSSMC believes that Mr. Fujisaki iswell-qualified for the position by his deepinsights into international affairs,economies, cultures and other matters thathe accumulated at the Ministry of ForeignAffairs of Japan, and his vast experienceserving as the Ambassador and other key positions.

[Reasons for Designation as an Independent Director]
Although he serves as President of the America-Japan Society, Inc., to which NSSMC pays the membership fee as acorporate member, the said society is not a specified associated service provider of NSSMC. The annual membership fee paid to the said society byNSSMC is 180,000 yen. In addition,NSSMC made a donation of 3,000,000yen for the 100th anniversary of the said society in July 2016. In addition, hisother material concurrent position isonly as an outside director at the othercompany, and he does not engage in the execution of business of the said company. He does not conflict with the independence standards as set by each financial instruments exchange on which NSSMC is listed (e.g. TokyoStock Exchange), and does not have any special interests with NSSMC. Because NSSMC believes that there is no possibility of a conflict of interest between him and the general shareholders as stated above, NSSMC has designated him as an Independent Director.

Outside Audit & Supervisory Board Members’ Relationship with NSSMC


Name Reasons of Appointment
Katsunori Nagayasu [Reasons for Appointment as an Outside Audit & Supervisory Board Member]
NSSMC believes that Mr. Nagayasu iswell-qualified for the position by his deep insights and vast experience as acompany executive.

[Reasons for Designation as an Independent Audit &Supervisory Board Member]
Although he engaged until March 2016in the execution of business of TheBank of Tokyo-Mitsubishi UFJ, Ltd.,which is one of the lenders for NSSMC,he does not currently engage in the execution of business of the said bank.Since NSSMC has procured capital notonly from the said bank but from several financial institutions, the said bank is not a specified associated service provider of NSSMC. In addition, his other material concurrentpositions are only as an outside directorand outside audit & supervisory board member, etc. at other companies, and he does not engage in the execution of business of the said companies. He does not conflict with the independencestandards as set by each financial instruments exchange on which NSSMC is listed (e.g. Tokyo Stock Exchange), and does not have any special interests with NSSMC. Because NSSMC believes that there is no possibility of a conflict of interest between him and the general shareholders as stated above, NSSMC has designated him as an IndependentAudit & Supervisory Board Member.
Hioshi Obayashi [Reasons for Appointment as an Outside Audit & Supervisory Board Member]
NSSMC believes that Mr. Obayashi iswell-qualified for the position by his deep insights as a legal professional and vast experience that he accumulated as Prosecutor-General and other key positions.

[Reasons for Designation as an Independent Audit & Supervisory Board Member]
His material concurrent positions areonly as an outside director and outsideaudit & supervisory board member atother companies, and he does not engage in the execution of business ofthe said companies. He does not conflict with either the independence standardsor attribute information as set by each financial instruments exchange onwhich NSSMC is listed (e.g. the TokyoStock Exchange), and does not have any special interests in NSSMC. Because NSSMC believes that there is no possibility of a conflict of interest between him and the general shareholders as stated above, NSSMC has designated him as an IndependentAudit & Supervisory Board Member.
Jiro Makino [Reasons for Appointment as an Outside Audit & Supervisory Board Member]
NSSMC believes that Mr. Makino iswell-qualified for the position by his deep insights into national finances in general that he accumulated at theMinistry of Finance, and vast experience serving as a National Tax Agency Commissioner, and other key positions.

[Reasons for Designation as an Independent Audit & Supervisory Board Member]
He does not conflict with either the independence standards or attribute information as set by each financial instruments exchange on which NSSMC is listed (e.g. the Tokyo Stock Exchange), and does not have any special interests in NSSMC. Because NSSMC believes that there is no possibility of a conflict of interest between him and the general shareholders as stated above, NSSMC has designated him as an Independent Audit & Supervisory Board Member.
Seiichiro Azuma [Reasons for Appointment as an Outside Audit & Supervisory Board Member]
NSSMC believes that Mr. Azuma iswell-qualified for the position by his deep insights and vast experience as acertified public accountant who isfamiliar with corporate accounting.

[Reasons for Designation as an Independent Audit & Supervisory Board Member]
He does not conflict with either the independence standards or attribute information as set by each financial instruments exchange on which NSSMC is listed (e.g. the Tokyo Stock Exchange), and does not have any special interests in NSSMC. Because NSSMC believes that there is no possibility of a conflict of interest between him and the general shareholders as stated above, NSSMC has designated him as an Independent Audit & Supervisory Board Member.


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