Corporate Governance｜sustainability｜NDK - NIHON DEMPA KOGYO CO., LTD.

In order to continue being "a corporation that is trusted and respected," NDK positions corporate governance as a key management issue. And in order to increase corporate value, we not only engage in management streamlining, but also in the strengthening of our management monitoring function and the thoroughness of our legal compliance, and enhance our corporate governance with the following five points as our basic policy.

（a）Constant awareness of the healthiness, efficiency, and speediness of our management
（b）Enhancement of the Board of Directors viability
（c）Respecting the rights and ensuring the equality of shareholders
（d）Appropriate information disclosure to ensure transparency
（e）Sustainable relationship construction that earns trust from non-shareholder stakeholders as well

Our Corporate Governance enhancement history

1985	Installed Internal Audit Office
2006	Formulated Basic Policy concerning Internal Control System Construction
2008	Revised Basic Policy concerning Internal Control System Construction
2011	Terminated Executive Retirement Benefit Framework
2014	Initiated Executive Officer Framework
2015	Appointed External Director　Revised Basic Policy concerning Internal Control System Construction Formulated NDK Group Action Guidelines
2018	Installed Independent Advisory Committee (issues recommendations concerning the appointment, removal, and remuneration for Directors and Executive Officers) under the Board of Directors
2019	Revised NDK Group Action Guidelines
2021	Formulated Basic Policy concerning Director Remuneration and Executive Remuneration Bylaws
2023	Introduction of the performance-linked share-based compensation plan Revised Basic Policy concerning Director Remuneration Added items for discussion of medium- to long-term management issues to the agenda for the Board of Directors

NDK Corporate Governance System Overview

Board of Directors

Oversees decision-making concerning basic management policy and the enforcement of important operations, and the enforcement status of Executive Officers.

Audit and Supervisory Board

Audits the enforcement of Director duties. One Standing Auditor is maintained, and that auditor shares information regarding company operations, etc., with the Part-Time Auditors.

Independent Advisory Council

With an Independent External Director as the committee chair, this body advises the Board of Directors concerning　the appointment, removal, and remuneration of Directors and Executive Officers.

The Executive Officer Committee

The Executive Officer Committee, which is composed of Executive Officers and chaired by the Representative Director, proposes and formulates business plans based on the Midterm Management Policy passed by a resolution in the Board of Directors. Additionally, based on the business plans passed through resolutions of the Board of Directors, this body holds debates concerning business progress management and future business plans, and holds deliberation and resolutions regrading important matters related to operations enforcement.

Executive Officers

Our system calls for Executive Officers to have the responsibility for and authority to conduct operations enforcement, with the goal of accelerating management decision-making and action.

Director candidate appointment

Appointment policy

We appoint individuals as Director candidates from the viewpoints of: (1) possessing the appropriate knowledge, experience, and skills, (2) possessing the ability to contribute to increasing the NDK corporate value, and (3) ensuring diversity in the Board of Directors. Furthermore, regarding the appointment of candidates for External Directors, we strive to select candidates who, in addition to the above, fulfill the independence standards of the Tokyo Stock Exchange.

Appointment process

The Representative Director reviews the candidate, the Independent Advisory Committee chaired by an Independent External Director gives advice concerning the candidate, and the Board of Directors makes the final decision, taking that advice into consideration.

Director Skill Matrix

As seen in the NDK management philosophies of, "NDK provides high-quality service to customers while staying ahead of the marketplace," and, "NDK is enhancing each individual's character through work," the NDK founder had the firm conviction that, "products are a reflection of the person who makes them." And as such, NDK employees and executives are expected to pursue a path that places quality as the top priority in products and services. The following NDK Director Skill Matrix is a reflection of that belief.

Remuneration for Directors

At the March 26, 2021 Board of Directors meeting, the following basic policy concerning the setting of Director remuneration was passed through a Board resolution. Subsequently, at the August 25, 2023 Board of Directors meeting, a resolution to revise it was passed to provide for as mentioned below.

(1) Basic policy

The basic policy for the Remuneration System for Directors is that it should be based on the increase in the corporate value so as to function as a healthy incentive for the sustainable growth of the company as a global one and, at the same time, that it should be at the standard and of the structure that are appropriate for securing and supporting excellent human resources. In determining individual remuneration amounts, they should be at the appropriate standards that take into account the individual duty responsibilities. Specifically, remuneration for the Directors who serve as the Representative Director or Executive Officers is composed of the basic remuneration as fixed remuneration, the bonus as short-term performance-linked remuneration as well as share-based compensation as medium- and long-term performance-linked remuneration. Remuneration for other Directors is composed only of basic remuneration that reflects their duties.

(2) Policy concerning the setting of individual amounts for basic remuneration, etc.

Basic remuneration is a fixed monthly remuneration. It reflects factors including attributes, position, and job responsibilities. It is set with comprehensive consideration to factors including the standards of other companies, the standards of salaries to employees, and the business climate. The amount is set by the Board of Directors in accordance with the bylaw concerning remuneration for Directors, in consideration of advice offered by the Independent Advisory Committee, of which Independent External Directors are a major component.

(3) Policy concerning the components of short-term performance-linked remuneration (bonus) and concerning determination of its amount

The bonus is a cash remuneration which reflects performance indexes for raising the Directors' consciousness of increasing each fiscal year's performance. It is paid during a set period annually. The amount is determined by the Board of Directors, considering advice from the Independent Advisory Committee and taking into account the level of individual contribution and the success ratio for the consolidated operating profit target amount for each fiscal year according to a calculation result based on the calculation formula prescribed by the bylaw concerning remuneration for Directors.

(4) Policy concerning the setting of non-monetary remuneration (share-based compensation)

The share-based compensation is paid as the remuneration linked with medium- and long-term performance, whose structure shall make us and our shareholders share not only the benefit gained by the rise of our company's share price but the risk to be brought by the decline of the share price. The amount of such remuneration is determined by the provisions of the rules for share-based remuneration.

(5) The percentages of basic remuneration, performance-linked remuneration and non-monetary remuneration

See below for the rough indication of percentages of basic remuneration, bonus, and share-based compensation for Directors at each executive position at the time of achieving the targets for the medium-term management plan.

Executive position	Basic remuneration	Bonus	Share-based compensation
Directors who serve as the Representative Director or Executive Officers	63%	27%	10%
Other Directors	100%	0%	0%

Internal Control Frameworks

1．Frameworks that ensure compliance with laws, regulations, and the Articles of Incorporation for the enforcement of Director and staff duties

（1）Through the maintaining of a Compliance Committee and compliance training for Directors and staff, we promote the establishment, maintenance, and improvement of frameworks for ensuring compliance with laws, regulations, the Articles of Incorporation, etc. The Internal Audit Office conducts audits concerning compliance status, etc. and reports the audit results to the Representative Director and President. We have constructed an Internal Reporting System, and take in internal company information regarding violations of laws and regulations as well as other conduct that is questionable in terms of compliance. We then analyze and apply that information.
（2）Regarding illicit demands, etc. from antisocial forces and groups, our entire organization takes a firm stance, maintains close contact with related agencies, and strives to reject all transaction relationships with antisocial forces, etc., while maintaining absolutely no related relationships whatsoever.
（3）In order to ensure the reliability of financial reports, we follow generally accepted standards for internal control related to financial reports and maintain and implement frameworks for evaluating and reporting the effectiveness of internal control related to financial reports.

2．Frameworks concerning the retention and management of information regarding the enforcement of Director duties

（1）Concerning information pertaining to the enforcement of Director duties, we follow Document Management Rules and record and save information in document or electromagnetic media form, and manage the information. The Document Management Rules designate the Document Administrator, the scope of information that should be saved, the retainment period, and the retaining location.
（2）Directors and Auditors can view these documents at any time, and review them at any time as necessary.

3．Rules for managing the danger of loss and other frameworks

（1）We maintain rules concerning risk management. Cross-sectoral risk status monitoring and companywide response is handled by the Risk Management Committee.
（2）Concerning risks attached to operations handled by each division, each division maintains individual rules and manuals, conducts management based on those rules and manuals, and strives to increase management capability by implementing training.
（3）The Internal Audit Office links to the Risk Management Committee, conducts audits of the status of risk management in each division, and regularly reports the audit results to the Representative Director and President. If risks become possible, prompt and appropriate response based in manuals, etc. is initiated organizationally in an attempt to avoid or minimize damage.

4．Frameworks to ensure enforcement of Director duties is conducted efficiently

（1）To accelerate decision-making and execution of management, we employ an Executive Officer Framework. And the Executive Officer Committee, which is composed of Executive Officers (generally held twice per month), proposes and formulates business plans based on the Midterm Management Policy passed by a resolution in the Board of Directors. Additionally, based on the business plans passed through resolutions of the Board of Directors, this body holds debates concerning business progress management and future business plans, and holds deliberation and resolutions regrading important matters related to operations enforcement. Resolution matters in the Board of Directors are deliberated in the Executive Officer Committee as well, and presented to the Board of Directors.
（2）In the Board of Directors meetings (generally held once per month), in addition to making decisions on matters deliberated upon in the Executive Officer Committee, decisions are also made on matters set forth in law and regulations and important matters including basic management policies. Board meetings also set operations conducted by Executive Officers and oversees the status of operations enforcement pertaining to Executive Officers.
（3）Regarding operations enforcement based in the decisions of the Board of Directors and the Executive Officer Committee, responsibilities, roles, and obligations for each operation are set in the various types of rules including duty division rules, duty authority rules, and partner company management rules. Additionally, each head office and division sets division policies and targets. In this way, we strive for the clarification of responsibilities and streamlining of operations.

5．Frameworks for ensuring appropriate operations in related joint-stock companies and the corporate conglomerates made up of their parent companies and subsidiaries

（1）Following the Partner Company Management Rules, we share information on important matters decided by NDK group companies and construct frameworks for appropriate groupwide business management.
（2）Based on the Partner Company Management Rules, the Executive Officers and departments responsible for subsidiary management manage each subsidiary and request periodic reports concerning operations enforcement from each subsidiary. Furthermore, the Executive Officer Committee receives periodic reports from the Directors of each subsidiary on the status of the enforcement of duties of operations, Directors, etc.
（3）The Risk Management Committee conducts cross-sectoral risk management across the entire NDK group and conducts monitoring that includes subsidiary risk management status.
（4）The Compliance Committee considers and maintains NDK group company compliance frameworks and notifies and familiarizes NDK group companies with compliance matters. Furthermore, the scope of the whistleblowing system in the Whistleblowing Rules covers the entire group. We ensure whistleblower protection and maintain informer secrets. Additionally, we maintain a compliance promotion officer in each group company.
（5）The Auditors and the Internal Audit Office conduct audits of the status of NDK and each group company.

6．Frameworks for staff when an Auditor requests staff to assist in those duties, and
frameworks concerning the ensuring independency of the staff member and the effectiveness of directions from the Director to the staff

When an Auditor needs staff to assist in Auditor duties, an Auditor Assistant (staff) is placed under that Auditor. To ensure the independence of that staff and the effectiveness of directions to that staff, the Standing Auditor must issue prior authorization concerning decisions on human resources related matters such as appointment, transfer, etc. Additionally, performance reviews are designated as being conducted by the Standing Auditor.

7．Frameworks for Directors and staff members to report to Auditors, and frameworks for other reports to Auditors

（1）We maintain a framework for the Directors and staff members of each company to report promptly to an Auditor if matters arise, or could potentially arise, that impact the operations or performance of NDK or the NDK Group, or if a Director or staff member of NDK or an NDK Group company discovers illicit conduct.
（2）The scope of the whistleblowing system in the Whistleblowing Rules covers the entire group. We ensure whistleblower protection and maintain informer secrets. Additionally, the whistleblower administrator issues periodic reports to NDK Auditors regarding the status of whistleblowing from NDK Group Directors and staff members.
（3）To better assess the process of important decision-making and the enforcement status for operations, the Auditors are present at important meetings, such as the Board of Directors meetings and the Executive Officer Committee.

8．Other frameworks for ensuring the effectiveness of audits by Auditors

（1）Auditors periodically exchange information and opinions with the Representative Director, maintain close linkage and share information with the Internal Audit Office, and conduct effective audits concerning company operations, financial status, and other matters.
（2）Furthermore, Auditors maintain close linkage with Accounting Auditors, exchange opinions and information concerning accounting audit results, and conduct rigorous and efficient audits.
（3）If, concerning the enforcement of duties, an Auditor issues a request for advancement of expenses, etc. to NDK pursuant to Article 388 of the Companies Act, NDK will deliberate in the responsible department. It is designated that NDK will promptly process the expenses or accounts payable, unless it can be judged that the expenses or accounts payable in the request are not required for the enforcement of the duties of that Auditor.

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