- Basic Philosophy
- Corporate Governance Structure
- Risk and Compliance Management
- Nomination and Compensation Committee
- Reasons for Appointment of Outside Directors, Positions Held Concurrently
Under our corporate philosophy of achieving 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 that these qualities contribute to sustainable corporate development and the improvement of corporate value. Measures to enhance corporate governance, including the establishment of efficient and transparent management rganizations, and the creation of systems to ensure timely and air disclosure of accurate information, are among our most important management priorities.
One of the ways in which we enhance our corporate governance is by raising compliance awareness among directors, executive officers and employees of OSG and its Group companies through the dissemination of the OSG Philosophy and the OSG Corporate Code of Ethics, which provide specific guidelines designed to raise ethical standards within the ompany.
Overview of Corporate Governance Structure
As a company with an audit and supervisory committee, OSG's corporate governance structure consists of the Board of Directors, the Audit & Supervisory Committee, and the accounting auditors. The role of the Board of Directors is clearly defined under this structure. Operational executive functions are performed by executive officers, while the Board of Directors is responsible for decision-making and the supervision of operational executive 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, of whom four are outside directors, are also members of the Audit & Supervisory Committee. The outside directors also make up the majority of the Board of Directors. By creating this structure, we have enhanced the transparency and independence of the Board of Directors and the effectiveness of its management supervisory role, while bringing in outside perspectives.
In addition, OSG has introduced 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 a timely manner and in accordance with policies decided by the Board of Directors, while continually improving flexibility and efficiency.
Reasons for Adopting this Corporate Governance Structure
By adopting our present corporate governance structure, we have enhanced the ability of the Board of Directors to oversee and supervise management decision-making and the performance of business operations, thereby improving management efficiency and ensuring that management decisions can be made appropriately and strategically. The activities of the Audit & Supervisory Committee, of which four of five members are outside directors, include the auditing of the company's financial position and operations, and the performance of duties by the representative director and executive officers. OSG's five outside directors are independent officers as stipulated in the listing rules. With the five of the Audit & Supervisory Committee, including these highly independent outside directors, as members of the Board of Directors, we believe that we have created a corporate governance structure by providing an environment for effective management supervisory functions and by ensuring that the company is managed transparently and appropriately.
Directors' Expertise & Areas of Specialization (Skills Matrix)
Risk and Compliance Management
In addition to these measures to improve management transparency and fairness and ensure timely information disclosure, we have also established Risk Management Rules as a framework for the creation of risk management structures to maintain management soundness and corporate ethics in the OSG Group. We have also established the Risk and Compliance Management Committee to ensure the effective and efficient implementation of the Risk Management Rules. Its role is to formulate basic risk management policies and consider and implement timely countermeasures after assessing the significance and urgency of risks.
The OSG Corporate Code of Ethics 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 Corporate Code of Ethics comprises two sections: business ethics norms and company action standards. The former are guidelines establishing the basis upon which business activities should be carried out by senior management and employees at OSG Group companies and how they should conduct themselves in order to ensure the prompt and appropriate implementation of fair and appropriate practices. The latter is a detailed code of conduct to ensure implementation of business ethics norms in business activities carried out by senior management and employees at OSG Group companies.
Promotion of Compliance
Even as we comply with laws, regulations, and other rules, OSG has appropriately maintained and reassessed the OSG Corporate Code of Ethics 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 and the OSG Group have established "Internal Reporting Regulations" regarding organizational and individual violations of laws and regulations, misconduct, and violations of the "OSG Corporate Code of Ethics" in all corporate activities, and have established a system for receiving reports and appropriate handling of consultations, whether internal or external.Upon receiving a report from a whistleblower or a consultant, an investigation team conducts a fact-finding investigation and, as a result of the investigation, applies the penalties stipulated in the employment regulations of each OSG Group company as necessary and takes measures to prevent recurrence.The Whistleblower Supervisor confirms that the recurrence prevention measures have been sufficiently implemented, even after the recurrence prevention measures have been taken, in order to contribute to the protection of whistleblowers and consultants, the prevention and early detection of legal violations, and the reinforcement of compliance management.
OSG and the OSG Group strive to prevent the occurrence of risks in our business activities, respond to any risks that do occur, and maintain a system for risk management to ensure the smooth operation of our business activities.Risk categories are distinguished as follows: risks arising from the external environment, business processes, business processes, and the internal environment. The main risks that management recognizes as having the potential to materially affect its financial position, results of operations, and cash flows are as follows.
|Type of risk
|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
|Corporate governance and financial risk
|Retaining and training human resources
＜Basic Information Security Policy＞
OSG and OSG Group have 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 and OSG Group.
- 2. Leadership responsibilities and continuous improvement
- In complying with this policy, OSG and OSG Group management will take a leadership role in ensuring the proper management of information assets belonging to OSG and our customers.
- 3. Compliance with laws, regulations and contractual obligations
- Senior management and employees at OSG and 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 and 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 and 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.
OSG and OSG Group have established a Risk and Compliance Management Committee to formula basic risk management policies and systems and to consider then implement timely countermeasures after asessing the significance and urgency of risks
- 1. OSG and the OSG Group have formulated a BCP for the Nankai and Tonankai Trough earthquakes that are expected in recent years, and are conducting training and education.Furthermore, even in the event of a large-scale disaster, we are prepared to provide water, food, and other necessities to employees at each business site until the municipal and national relief systems are in place.
- 2. During normal times, the Health and Safety Committee holds monthly meetings to identify hazardous work and dangerous areas, and works to reduce the impact of natural and man-made disasters on production activities.
OSG's Covid-19 Response
When the Covid-19 outbreak initially emerged in 2020, OSG launched response teams. These teams coordinated with local governments, hospitals, and testing institutions to respond swiftly whenever infections appeared in Japan as well as overseas. The teams also gathered and interpreted information on the constantly changing situation. In our workplaces, we strived to educate personnel on preventing infection as well as discrimination against employees testing positive for the virus. At our production sites, we switched to working in shifts and adopted other measures so that our plants would not have to shut down. We had personnel work from home if their workplace allowed such arrangements. From July to August 2021 and again in March and November 2022, we set up vaccination centers at our offices for employees, their families, and supplier personnel. Approximately 5,000 people were able to complete the vaccination protocol.
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
|Nomination and Compensation Committee
Reasons for Appointment of Outside Directors, Positions Held Concurrently
Supervisory Committee member
|Reasons for appointment
|Positions held concurrently
|Mr. Sakaki possesses extensive experience and broad knowledge acquired over a long academic career. He was judged to be someone who would participate in board meetings from an independent perspective and contribute to corporate management auditing and supervision. In addition, he is not associated with any OSG-affiliated company, major supplier or customer. It was deemed that he presents no risk of conflicts of interest with general shareholders. Therefore, the decision was made to appoint him as an outside director.
|Mr. Takahashi has extensive experience, advanced knowledge, and specialized skills gained through his career as an attorney. As a legal expert, he was judged to be a person who would participate in board meetings from an independent perspective and contribute to management auditing and supervision. In addition, he is not associated with any OSG-affiliated company, major supplier or customer. It was deemed that he presents no risk of conflicts of interest with general shareholders. Therefore, the decision was made to appoint him as an outside director.
|In addition to an academic career spanning many years, Mr. Hara has extensive experience in and knowledge of corporate management. He was judged to be a person who would participate in board meetings from an independent perspective and contribute to management auditing and supervision. In addition, he is not associated with any OSG-affiliated company, major supplier or customer. It was deemed that he presents no risk of conflicts of interest with general shareholders. Therefore, the decision was made to appoint him as an outside director.
|Ms. Yamashita has extensive experience, advanced knowledge, and specialized skills gained through her career as a certified public accountant. As an expert in accounting and tax affairs, she was judged to be a person who would participate in board meetings from an independent perspective and contribute to corporate management auditing and supervision. In addition, she is not associated with any OSG-affiliated company, major supplier or customer. It was deemed that she presents no risk of conflicts of interest with general shareholders. Therefore, the decision was made to appoint her as an outside director.
*As of February 17, 2023
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 this effectiveness evaluation would be objective and transparent, the support of an external organization was secured and the evaluation conducted in June 2022. An extraordinary session of the Board of Directors was held in August 2022 to analyze, discuss, and evaluate the results. An overview of those evaluation results is given below.
|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)
|Responses received (June 10 - June 24, 2022)
|Overview of questions
|Survey results were consolidated by an external organization and then analyzed, deliberated, and evaluated by the Board of Directors.
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 as well as to continue to further initiatives augmenting its functions.
Compensation for Company Officers
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.
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.
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.
|Eligible directors who are serving as executive officers and managing officers
|Profit-linked bonus = Consolidated operating income before provision for the cost of performance-linked bonuses x Rank-based bonus ratio (see table below)
The maximum amount for profit-linked bonuses is ¥700 million.
Rank-based bonus ratio
|Chairman, Representative Director, and CEO
|President, Representative Director, and COO
Personal Assessment Bonuses
|Executive officers (excluding the Represntative Director and CEO, COO)
|Personal assessment bonuses are paid according to qualitative assessments of each person's contribution to business performance.
The maximum amount for personal assessment bonuses is ¥50 million.
Compensation Based on Allocations of Restricted Stock
|Directors (excluding members of the Audit & Supervisory Committee)
- The amount of compensation is determined within the upper limit defined by a resolution of the 106th Ordinary Shareholders' Meeting held on February 16, 2019. The maximum total value of shares allocated to eligible directors is set at ¥200 million a 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 and increase the 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 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 through a resolution of an ordinary shareholders' meeting.
The company discontinued the payment of retirement bonuses for corporate officers at the conclusion of the 92nd Ordinary Shareholders' Meeting held on February 19, 2005.
Basic Policy on Constructive Dialogue with Shareholders
Under the leadership of the Representative Director and President, the Management Planning Department coordinates the activities of units involved in IR activities and maintains collaboration among these units on a day-to-day basis. The Management Planning Department actively responds to requests for IR information, including telephone inquiries from investors and small meetings. OSG holds quarterly meetings to present its financial results, as well as half-yearly financial presentations by top management. If necessary, any opinions and concerns gathered through shareholder dialogue are fed back to the Board of Directors and senior management by the executive officer in charge of the unit that carried out the IR activities concerned. When engaging in dialogue with investors, OSG takes care over the management of insider information by ensuring that such dialogue, whether at financial presentations or small meetings, centers on strategies for the achievement of sustainable growth and the improvement of OSG's corporate value from a medium- to long-term perspective.