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


a. Reasons for Adopting a Company Structure with an Audit & Supervisory Board

NSSMC, with its core business being steelmaking, has adopted a company structure with an Audit & Supervisory Board, because NSSMC believes that the following structure is effective in ensuring management efficiency and soundness: the Board of Directors, consisting of Executive Directors with intimate knowledge of NSSMC’s businesses and Outside Directors with vast experience and deep insights, makes decisions 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.

b. Composition, Roles, etc. of Attendees at the Meetings of the Board of Directors

Currently, in addition to eleven (11) Executive Directors, three (3) Outside Directors and seven (7) Audit & Supervisory Board Members (three (3) full-time Audit & Supervisory Board Members who were former employees of NSSMC and four (4) Outside Audit & Supervisory Board Members), who do not engage in the execution of business, attend meetings of NSSMC’s Board of Directors. Non-executive Members of the Board account for approximately half (10 out of 21) and Outside Directors and Outside Audit & Supervisory Board Members account for one third (7 out of 21) of all attendees at the meetings of the Board of Directors.

Of the above, the Outside Directors contribute to the Board of Directors’ decision-making from diverse perspectives and its enhancement of the function of supervising management by, among others, expressing their respective independent opinions, at the Board of Directors and other opportunities, and exercising their voting rights, based on their vast experience in, and deep insights into, such areas as corporate management and international affairs and economies.

To ensure the soundness of management, full-time Audit & Supervisory Board Members who were employees of NSSMC, with intimate knowledge of NSSMC’s businesses, and Outside Audit & Supervisory Board Members, with deep insights, attend meetings of the Board of Directors and express their opinions from an independent standpoint. Further, in collaboration with NSSMC’s Accounting Auditor, Internal Control and Audit Division, and other divisions, they audit, among others, the status of performance of responsibility by the Directors and the status of NSSMC’s assets on a day-to-day basis.

At NSSMC, as just described, all attendees at the meetings of the Board of Directors appropriately fulfill their roles and responsibilities to promptly make decisions corresponding to changes in the management environment and to ensure multifaceted and sufficient 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, the Chairman, 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 exchange opinions.

c. Appropriate Information Disclosure

To enhance management transparency and advance a correct understanding by stakeholders on the management situation of the Group, NSSMC not only seeks to disclose information in accordance with applicable laws and regulations and the rules of financial instruments exchanges, but also seeks to disclose financial and non financial information at an appropriate timing, in an easily understandable manner, and accurately.

d. Establishment and Operation of the Internal Control System

To comply with applicable laws and regulations, and ensure the integrity of financial reports and the effectiveness and efficiency of business and affairs, NSSMC establishes and appropriately operates an internal control system, and strives to continually improve it. To create a sound and open organization, NSSMC establishes the internal control environment by emphasizing dialogue in and outside the workplace, regularly conducting attitude surveys with all employees, and establishing a whistleblower system to receive consultation and reports not only from employees of NSSMC and the Group companies, but also from temporary workers and employees of contractors and suppliers, and their families.

e. Regular Examination and Review of Corporate Governance

NSSMC regularly examines and reviews, at the Board of Directors, the corporate governance structure, its operating situation, and other relevant facts and circumstances, including the analysis and evaluation of the effectiveness of the Board of Directors as a whole so that NSSMC will be able to make improvements autonomously, considering the opinions of Outside Directors and Outside Audit & Supervisory Board Members. For the specific initiatives and situations regarding the NSSMC’s corporate governance, please see each item of this report.

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 (13 full-time and 20 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 700 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) to improve NSSMC’s corporate value in the mid- to long-term through maintaining and strengthening business transaction relationships, maintaining and developing alliance,and smoothly promoting business activities, among other things. In addition, regarding these strategic shareholdings, NSSMC examines the economic rationale of the holding at the Board of Directors, regularly every year, by quantitatively evaluating the significance of holding them, and the performance and financial conditions, among others, of investee companies.

(2) Basic Policy on Exercise of Voting Rights Concerning Strategic Shareholdings
Regarding the exercise of voting rights concerning strategic shareholdings, each responsible division of NSSMC carefully examines the contents of the agenda of the General Meeting of Shareholders of an investee company, comprehensively evaluates the contribution 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 the Board of Directors, and discloses these in the “Business Report. ”Directors’ compensation consists only of monthly compensation in cash, and is all based upon performance of NSSMC, in order to provide incentives for the Group’s sustainable growth and improvement of its corporate value.

Specifically, NSSMC sets the base amount of compensation for each Director’s rank taking into consideration each Director’s required skills and responsibilities, 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 within the limits approved by the General Meetingof Shareholders.

Regarding Audit & Supervisory Board Members’ compensation, NSSMC determines the monthly compensation for each Audit & Supervisory Board Member, within 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 is full- or part-time.

NSSMC abolished its retirement benefits for Directors and Audit & Supervisory Board Members in 2006. Furthermore, the policies relating to bonuses were deleted from the “Policies regarding the Decision on the Amount of Remuneration for Directors and Audit & Supervisory Board Members” in 2013, and bonuses have not been paid to the Directors and Audit & Supervisory Board Members.

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

     The Nomination and Compensation Advisory Committee conducts discussions and deliberations
     on a wide-range of topics including the system of Directors’ compensation and the
     appropriateness of the compensation levels by position, taking into account the survey results
     of directors’ compensation levels of other companies obtained from third-party research
     organizations.
   
     Each Audit & Supervisory Board Member’s compensation is determined by discussions of the  
     Audit & Supervisory Board Members.
    
     * In fiscal 2017, we held the Nomination and Remuneration Advisory Committee twice, in
        February and July.

Directors' Attendance Rate of the Board of Directors Meetings and their Material Concurrent Positions


Title
Name
Status of attendance at the Board of Directors (Fiscal 2017)
Material concurrent positions (as of June , 2018)

Inside Director
Shoji MUNEOKA
Attended 13 out of 13 Board of Directors meetings in fiscal 2017

Same as above
Kosei SHINDO
Same as above
Vice Chairman, The Japan Iron and Steel Federation
Vice Chair, KEIDANREN (Japan Business Federation)
Same as above
Eiji HASHIMOTO
Same as above
Chairman, WISCO-NIPPON STEEL Tinplate Co., Ltd.
Same as above
Toshiharu SAKAE
Same as above
Chairman, The Japan Ferrous Raw Materials Association
Same as above
Shinji TANIMOTO
Same as above   

Same as above
Shinichi NAKAMURA   
Same as above
Vice Chairman, Baosteel-NSC Automotive Steel Sheets Co., Ltd.
Same as above
Akihiko INOUE
(Appointed as director in June 2018)
Vice President, The Iron and Steel Institute of Japan
President, The Japan Research and Development Center for Metals
Same as above
Katsuhiro MIYAMOTO
Same as above

Same as above
Shin NISHIURA
Same as above
Director, Nippon Steel & Sumikin Pipe Co., Ltd.
Same as above
Atsushi IIJIMA
Same as above
Director, Nippon Steel & Sumikin Metal Products Co., Ltd.
Director, Nippon Steel & Sumikin Coated Sheet Corporation
Director, Guangzhou Pacific Tinplate Co., Ltd.
Director, Baosteel-NSC Automotive Steel Sheets Co., Ltd.
Same as above
Yutaka ANDOH
Same as above
 
Outside Director
Mutsutake OTSUKA
Attended 13 out of 13 Board of Directors meetings in fiscal 2017
Executive Advisor to the Board of East Japan Railway Company
Outside Audit & Supervisory Board Member, Electric Power Development Co., Ltd.
Outside Director, JXTG Holdings, Inc.
Same as above
Ichiro FUJISAKI
Attended 12 out of 13 Board of Directors meetings in fiscal 2017
Outside Director, ITOCHU Corporation
President, The America-Japan Society, Inc.
Same as above
Noriko IKI
(Appointed as director in June 2018)
Director of Japan Institute for Women’s Empowerment & Diversity Management

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 Director's Relationship with NSSMC


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

[Reasons for Designation as an Independent Director]
Although he engaged in the execution of business of East Japan Railway Company which 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% of the consolidated net sales of NSSMC, the said company is not a specified associated service provider of NSSMC. In addition, his other material concurrent positions are 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 independence standards 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 is well-qualified for the position by his deep insights into international affairs, economies, cultures and other matters that he accumulated at the Ministry of Foreign Affairs of Japan, and his vast experience serving as the Ambassador Extraordinary and Plenipotentiary 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 a corporate member, the said society is not a specified associated service provider of NSSMC. The annual membership fee paid to the said society by NSSMC is 180,000 yen. In addition, his other material concurrent position is only as an outside director at the other company, 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. 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.
 Noriko Iki [Reasons for Appointment as an Outside Director]
NSSMC believes that Ms. Iki is well-qualified for the position by her deep insights into employment, labor, and promotion of active role engagement for diverse human resources that she accumulated at Ministry of Health, Labour and Welfare (“MHLW”) and her vast experience serving as Director-General of the Tokyo Labour Bureau of MHLW, the Ambassador Extraordinary and Plenipotentiary and other key positions.

[Reasons for Designation as an Independent Director]
Although she serves as President of Japan Institute for Women’s Empowerment & Diversity Management, to which NSSMC pays the membership fee as a supporting member, the said institute is not a specified associated service provider of NSSMC. The annual membership fee paid to the said institute by NSSMC is 640,000 yen. She does not conflict with the independence standards 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 her and the general shareholders as stated above, NSSMC has designated her 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 is well-qualified for the position by his deep insights and vast experience as a company executive.

[Reasons for Designation as an Independent Audit & Supervisory Board Member]
Although he engaged until March 2016 in the execution of business of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (currently, MUFG Bank, 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 not only 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 concurrent positions are 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 independence standards 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 Audit & Supervisory Board Member.
Hioshi Obayashi [Reasons for Appointment as an Outside Audit & Supervisory Board Member]
NSSMC believes that Mr. Obayashi is well-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 are 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 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.
Jiro Makino [Reasons for Appointment as an Outside Audit & Supervisory Board Member]
NSSMC believes that Mr. Makino is well-qualified for the position by his deep insights into national finances in general that he accumulated at the Ministry 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 is well-qualified for the position by his deep insights and vast experience as a certified public accountant who is familiar with corporate accounting.

[Reasons for Designation as an Independent Audit & Supervisory Board Member]
His material concurrent position is only as an outside audit & supervisory board member at another company, and he does not engage in the execution of business of the said company. 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.

 See details on the Corporate Governance Report-II-1; [Directors] and [Audit & Supervisory
 Board Members].

The Evaluation of the Effectiveness of the Board of Directors


At NSSMC, the office of the Board of Directors (General Administration Division) conducts quantitative analysis through comparison of the number of the agenda items submitted for deliberation or reported to the Board of Directors and the number of hours of deliberation, as well as the attendance rate and the number of opinions expressed by each Director and Audit & Supervisory Board Member with these of prior years; and the Board of Directors, taking into account each Director’s and Audit & Supervisory Board Member’s self-assessments and opinions on the operation of the Board of Directors obtained through individual interviews with them, annually analyzes and evaluates the effectiveness of the entire Board of Directors and utilizes such analysis and evaluation to improve the future operation and administration of the Board of Directors.

The Board of Directors, at its meeting held in April 2018, analyzed and evaluated the effectiveness of the Board of Directors for fiscal year 2017, confirming that the Board of Directors functions effectively because, among other reasons, all of the matters submitted for deliberation or reported to the Board of Directors pursuant to the Companies Act or NSSMC’s rules were resolved or confirmed, after discussion among Directors and Audit & Supervisory Board Members, from the point of view of improvement of NSSMC’s corporate value in the mid- to long- term or other various perspectives, with relevant information being provided in advance. In addition, from the standpoint of further enhancing the effectiveness of the Board of Directors, NSSMC has decided to spend further time on the deliberations of current major issues and other topics and the status reports on the implementation of important management issues, as well as the Mid-Term Management Plan, based on the opinions voiced by each Director and Audit & Supervisory Board Member in the effectiveness evaluation for fiscal year 2017.
 

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