Governance

• Basic Philosophy
• Corporate Governance Structure
  • Directors' Expertise & Areas of Specialization (Skills Matrix)
• Risk and Compliance Management
  • Compliance Management
  • Risk Management
• Nomination and Compensation Committee
• Reasons for Appointment of Outside Directors, Positions Held Concurrently
• Evaluation of Effectiveness of the Board of Directors
  • Survey
  • Evaluation Results
  • Initiatives for Enhancing Effectiveness
• Compensation for Company Officers
  • Compensation Structure
  • Process for Determining Compensation
• Cross-Shareholdings Policy
  • Reduction in Cross-Shareholdings
• Dialogue with shareholders and investors

Basic Philosophy

Based on our corporate philosophy of maintaining a global presence, we regard compliance with laws, regulations, and social norms as a fundamental part of our management policies, together with fairness and transparency in our business activities. We also believe these qualities contribute to sustainable corporate development and enhancement of corporate value. Measures to enhance corporate governance, including the establishment of efficient and transparent management organizations, are among our most important management priorities for achieving these objectives. One of the ways in which we enhance corporate governance is by raising compliance awareness among directors, executive officers, and employees of OSG and our group companies through dissemination of the OSG Philosophy and OSG Company Ethics Pledge, which provide specific guidelines designed to raise ethical standards within the company.

Overview of Corporate Governance Structure

Having selected to establish an audit and supervisory committee, OSG's corporate governance structure consists of the Board of Directors, Audit & Supervisory Committee, and accounting auditors. The role of the Board of Directors is clearly defined under this structure. Operational execution functions are performed by executive officers, while the Board of Directors is responsible for decision-making and the supervision of operational execution actions. To strengthen decision-making functions, the seven-member Board of Directors includes two members who are also involved in business operations as executive officers. The remaining five directors, four of whom are outside directors, are also members of the Audit & Supervisory Committee. All of OSG's four outside directors are independent officers as stipulated in the listing rules. With the five members of the Audit & Supervisory Committee, including these highly independent outside directors, also having seats on the Board of Directors, we believe we have put in place a corporate governance structure that verifies and ensures management transparency and appropriateness so as to provide an environment in which management oversight functions effectively.
In addition, OSG has adopted an executive officer system to ensure effective responses to changes in the business environment, as well as to clarify the roles and responsibilities of the executive organization. The executive officers are solely responsible for the performance of business operations in accordance with policies determined by the Board of Directors. They strive to make performance more expeditious and efficient in a timely manner.

Directors' Expertise & Areas of Specialization (Skills Matrix)

Risk and Compliance Management

In addition to measures to improve management transparency and fairness as well as ensure timely information disclosure, OSG has also established Risk Management Rules, which are the framework for creation of risk management structures to maintain management soundness and corporate ethics in the OSG Group. We have also established a Risk and Compliance Management Committee to ensure effective and efficient implementation of the Risk Management Rules. The committee's role is to formulate basic risk management policies, as well as consider and implement timely countermeasures after assessing the significance and urgency of risks.

Compliance Management

Basic Philosophy

The OSG Company Ethics Pledge was established as a set of values and ethics that we thoroughly practice to ensure all directors, executives, and employees at OSG Group companies conduct business activities based on social common sense and comply with laws, regulations, and social standards. The Company Ethics Pledge comprises two sections: business ethics norms and company action standards. Business ethics norms are guidelines establishing the basis upon which business activities should be carried out and how personnel should conduct themselves in order to ensure the prompt and appropriate implementation of fair and appropriate practices.
Company action standards are a detailed code of conduct to ensure the implementation of the business ethics norms.

Promotion of Compliance

Even as we comply with laws, regulations, and other rules, OSG has appropriately maintained and reassessed the OSG Company Ethics Pledge to incorporate training measures when employees are assigned to design, development, or other compliance-related units as part of our training as well as professional education for new employees and others. We have worked to raise our employees' awareness of compliance. Not only do we thoroughly work to uphold conventions such as compliance, adherence, and rule enhancement, but we also strive through training to imbue a sense of pride in our company as well as foster awareness and promote understanding of compliance in each and every one of our employees.

Inernal Reporting System

OSG Group has established internal reporting standards, which provide a mechanism to ensure that reports and consultations are appropriately handled regardless of whether they are received from within the company or without, as concerns organizational or individual violations of laws and regulations in any corporate activity, personal violations of laws and regulations, fraudulent activities, and actions in violation of the OSG Company Ethics Pledge. Upon receipt of a report or consultation from an individual, an investigation team endeavors to discern the facts. If the results of the investigation so dictate, disciplinary provisions in the employment regulations of the relevant OSG Group company are applied, and measures taken to prevent any recurrence. After recurrence prevention measures have been adopted, the director in charge of internal reporting confirms the adopted measures are functioning sufficiently and contributing to strengthening corrective compliance management as well as early detection, in addition to preventing any legal or regulatory violations and protecting the person who came forward with the notification or consultation.

Risk Management

Risk Management Policy

OSG Group strives to ensure the smooth operation of our business by preventing potential risks from arising, responding to risks that do occur, and establishing a system for risk management.
Risks are divided into those associated with the external environment, risks associated with business processes, and risks associated with our internal environment. Risks that management recognizes as likely having a major impact on our financial position, business performance, and cash flow are listed in the table bellow.

Risk Classification

Risk category	Type of risk
External risks	Economic conditions and market trends
	Trends affecting procurement of raw materials
	Climate change, natural disasters, and pandemics
Business process risks	Stable supply to the market
	Employee working conditions
	Safety and health management for employees
	Information security
Internal risks	Corporate governance and financial risk
	Retaining and training human resources
	Traffic accidents

Information Security

＜Basic Information Security Policy＞
OSG Group has always responded to customer needs, with cutting tools at the core of our business.
In today's highly information-oriented society, we have established a Basic Information Security Policy in order to maintain the trust of our customers and society by protecting information assets from threats such as accidents, natural disasters, and criminal activity as part of our efforts to continue to provide products and services that satisfy our customers' needs moving forward. This policy acts as the basis for our efforts in relation to information security.

1. Internal system and information security policy development

We will establish the management system required to maintain and improve security. Necessary information security measures will be established as formal rules within OSG Group.

2. Leadership responsibilities and continuous improvement

In complying with this policy, OSG Group management will take a leadership role in ensuring the proper management of information assets belonging to OSG Group and our customers.

3. Compliance with laws, regulations and contractual obligations

Senior management and employees at OSG Group companies will comply with the security requirements of all relevant laws, regulations, norms and contractual agreements with customers relating to information assets used in the course of business activities.

4. OSG initiatives

Senior management and employees at OSG Group companies will acquire the knowledge and skills required to maintain and improve information security while ensuring the reliability of our information security initiatives.

5. Handling of violations and incidents

OSG Group will establish a system for responding to information security incidents and any violations of laws, regulations, norms and contractual agreements with customers with relation to information security. Efforts will also be made to reduce the impact of such incidents and violations.

BCP (Business Continuity Plan)

As part of our Business Continuity Plan (BCP), OSG conducts annual drills under the guidance of upper management, while taking into consideration the projected impact on each business site. These drills are based on an estimated earthquake model using the results of a comparison of the impacts of large earthquakes and tsunamis that have repeatedly occurred in the Nankai Trough area in the past.
Furthermore, we are also dedicating effort to preventing workplace injuries, identifying everyday safety risks, and educating employees about safety.

• 1. OSG has formulated a BCP that takes into account an earthquake along the Nankai Trough in the South Sea or Southeast Sea segment (which is an event forecast to occur in the near term), and we conduct training and educational exercises. Moreover, even if a large-scale disaster occurs, a secure living environment with essentials such as water and food is always assured and ready for employees at each business site until a relief system can be established by the municipal or national government.

  

• 2. During times of non-emergency, the Safety and Health Committee, which meets monthly, identifies hazardous work, hazardous equipment, and other such r isks, and strives to mitigate the impact of a natural disaster or human error on production.

Number of Occupational Accidents

Company-wide Safety and Health Committee

Nomination and Compensation Committee

OSG has established a Nomination and Compensation Committee as an advisory body for the Board of Directors. Its purpose is to strengthen the independence, objectivity, and accountability of board functions through the appropriate involvement of independent outside directors and the provision of advice in relation to the appointment of directors and executive officers, etc., and compensation. The Nomination and Compensation Committee consists of directors who are also members of the Audit & Supervisor Committee, and four of the five members are independent outside directors. Persons who are deemed suitable to be directors of OSG, on the basis of their extensive experience, advanced knowledge, and high-level specialist capabilities, are selected and nominated as candidates for membership of the Board of Directors. The Board of Directors then makes decisions on appointments after seeking advice and receiving a response from the Nomination and Compensation Committee.

Please refer to the section headed "Compensation for Company Officers" on the following page for details of OSG's process for determining compensation.

Name of committee	Total members	Internal directors	Outside directors	Outside experts	Chairperson
Nomination and Compensation Committee	5	1	4	0	Outside directors

Reasons for Appointment of Outside Directors, Positions Held Concurrently

＊As of Feb. 21, 2025

Evaluation of Effectiveness of the Board of Directors

To enhance the Board of Directors' functions, OSG began conducting analyses and evaluations of the Board's effectiveness in FY2022. To ensure the FY2024 effectiveness evaluation would be objective and transparent, the support of an external organization was secured and the evaluation conducted in September 2024. A session of the Board of Directors was held in November 2024 to analyze, discuss, and evaluate the results. An overview of those evaluation results is given below.

Description

Targets	All members of the Board of Directors 2 Directors who are not members of the Audit & Supervisory Committee 5 Directors who are members of the Audit & Supervisory Committee (4 of whom are outside directors) for a total of 7
Evaluation method	Anonymous questionnaire
Time frame	Response period (Sep. 17 - Oct. 2, 2024)
Overview of questions	●Composition of the Board of Directors ●Operation of the Board of Directors ●Deliberations by the Board of Directors ●Monitoring function of the Board of Directors ●Performance of Outside Directors (incl. Audit & Supervisory Committee Members) ●Support structure for Directors (incl. Audit & Supervisory Committee Members) ●Training ●Dialogues with shareholders (investors) ●Voluntary initiatives ●Nomination and Compensation Committee ●Summary
Evaluation method	Survey results were consolidated by an external organization and then analyzed, discussed, and evaluated by the Board of Directors

Evaluation Results

The survey responses gave a favorable evaluation to the manner in which the Board of Directors is expected to operate and its response to those expectations. There is a recognition that the Board of Directors has maintained its effectiveness overall. On the other hand, more in-depth comments were provided about further enhancing support systems, coordination with internal auditing departments, sharing details of dialogues with shareholders and other investors, as well as exchanging views with outside directors. The results shared an awareness that the Board of Directors faces challenges in encouraging discussion and further improving the functions that it exercises.

Initiatives for Enhancing Effectiveness

Once the OSG Board of Directors has taken into consideration this effectiveness evaluation and conducted a sufficient review of the challenges faced, it intends to respond promptly and to continue to further initiatives augmenting its functions. There is a substantial support structure for specific measures addressing challenges that strengthens operational collaboration with executive officers and the secretariat and allows issues to be regularly shared with internal audit divisions. In addition, pertinent details of dialogues with shareholders and investors are shared by personnel handling investor relations.

Compensation for Company Officers

Compensation Structure

Compensation for directors (excluding directors who are members of the Audit & Supervisory Committee) consists of fixed basic compensation, variable compensation linked to business performance, and allocations of restricted stock. Since directors who are members of the Audit & Supervisory Committee are independent from the other directors and are not involved in the execution of business operations, their compensation consists solely of fixed compensation.

Fixed Compensation

The total amount of fixed compensation is determined within the upper limit defined by a resolution of the 103rd Ordinary Shareholders' Meeting held on February 20, 2016. Compensation is set at ¥396 million per year for directors (excluding directors who are members of the Audit & Supervisory Committee), and ¥84 million per year for directors who are also members of the Audit & Supervisory Committee.

Variable Compensation

Starting in the fiscal year ended November 2019, the company provides variable compensation in the form of profit-linked bonuses in line with the definition of profit-linked salaries provided in Article 34, Paragraph 1 Item 3 of the Corporation Tax Act, as well as personal assessment bonuses.

Profit-linked Bonuses

Eligibility:	Managing directors and eligible directors who are serving as executive officers
Calculation method:	Amount of profit-linked bonus = Consolidated operating income X Rank-based bonus standard coefficient (table below) *Maximum of ¥700 million

Personal Assessment Bonuses

Eligibility:	Managing officers
Calculation method:	Personal assessment bonuses are paid according to qualitative assessments of each person's contribution to business performance. The maximum amount shall be ¥50 million.

Compensation Based on Allocations of Restricted Stock

Eligibility:	Directors (excluding members of the Audit & Supervisory Committee)

• The amount of compensation is determined within the upper limit of total compensation determined by resolution of the 106th Ordinary Shareholders' Meeting held on February 16, 2019. The maximum total value of shares allocated to eligible directors (excluding members of the Audit & Supervisory Committee) is set at ¥200 million per year, and the maximum total number of the company's ordinary shares that can be issued or disposed of is 100,000 per year. The purpose of this system is to provide an incentive to achieve continual improvement in the company's performance and corporate value as well as to increase value shared with shareholders.

Process for Determining Compensation

Fixed Compensation, Compensation Based on Allocations of Restricted Stock

In order to determine the amount of compensation for directors (excluding members of the Audit & Supervisory Committee), the Board of Directors delegates the Representative Director to prepare proposed compensation amounts according to standards set by the company. The proposed amounts are then referred to the Nomination and Compensation Committee. Based on the response from the Nomination and Compensation Committee, the amounts are then finalized by a resolution of the Board of Directors. The amount of compensation for directors who are also members of the Audit & Supervisory Committee is determined through consultation among those directors.

Variable Compensation

Variable compensation is linked to the company's business performance. The Representative Director is delegated by the Board of Directors to calculate the proposed amounts for profit-linked bonuses and personal assessment bonuses using the methods outlined above. These proposed amounts are then submitted to the Nomination and Compensation Committee. Based on the report from the Nomination and Compensation Committee, the Board of Directors determines the final amounts to be paid, subject to approval of the total amount by a resolution of the ordinary shareholders' meeting.

The company discontinued payment of retirement bonuses for corporate officers at the conclusion of the 92nd Ordinary Shareholders' Meeting held on February 19, 2005.

Cross-Shareholdings Policy

Reduction in Cross-Shareholdings

The Board of Directors conducts annual reviews to determine whether to continue the practice of cross-shareholdings. Those for which the Board of Directors deems there to be no rationale for their continued holding are gradually sold off. The criteria for such determinations include the purpose of such holdings, risks, and the relationship with OSG.
The cost of capital is also taken into account. As for the exercise of voting rights, the Board of Directors does not make decisions based solely on the short-term performance and share price of the stock of the company held, but comprehensively considers the relationship with OSG in making such determinations.

[Amount: Millions of yen] Figures in parentheses indicate number of stock sold off.

Dialogue with shareholders and investors

At OSG, our Strategic Planning Center oversees departments related to investor relations (IR) activities under a structure helmed by our President and COO. Not only do we actively accept IR interviews by phone, small-group meetings, and factory tours among other means, but also semi-annually host President and COO financial results briefings both in person and online to directly explain to people the company's business performance and medium- to long-term efforts.
Instead of just reporting our short-term performance, we repeatedly engage in constructive dialogues with investors and shareholders, focusing on our endeavors for achieving sustainable growth and enhancing corporate value over the mid- to long-term. Incidentally, when having these conversations, we take special care in properly managing insider information.
The opinions and requests we receive through the dialogues are shared at our board of directors' and management meetings. After earnest considerations by our management team, we reflect the feedback in our management policy and specific measures as needed.

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