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Governance

Corporate Governance

We will continue to develop a highly practical corporate governance structure and enhance our systems.

Basic Philosophy

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.

Corporate Governance Structure

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 eight-member Board of Directors includes two members who are also involved in business operations as executive officers. The remaining six directors, of whom five 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.

Board of Directors

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 five of the six 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 six members 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.

Risk and Compliance Management Committee

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.

Compliance

Basic Philosophy

The OSG Corporate Code of Ethics Policy Statement was established as a set of values and ethics to ensure that all senior management and employees at OSG and OSG Group companies carry out business activities based on social common sense while complying with laws, regulations and social standards. The Corporate Code of Ethics Policy Statement consists of the following two sections.

Business ethics norms
Guidelines that establish the basis on which business activities carried out by senior management and employees at OSG and OSG Group companies should be performed in order to ensure the prompt and appropriate implementation of fair and appropriate practices.
Company action standards
A detailed code of conduct to ensure the implementation of the business ethics norms in business activities carried out by senior management and employees at OSG and OSG Group companies.

Education

Education is provided as part of the new employee education and vocational education that employees receive when moving to a workplace that is involved in design, development or compliance.

Internal Reporting

Internal reporting standards have been established in order to provide a mechanism to ensure that the receipt of reports and consultations with regards to violations of laws and regulations, fraudulent activities, and actions in violation of the Corporate Code of Ethics Policy Statement by people and/or organizations are handled appropriately both internally and externally.

Risk Management

Management Policy

OSG and OSG Group strive to ensure the smooth operation of our business by preventing the occurrence of possible risks, responding to risks that do occur, and establishing a system for risk management.
These risks are divided into the following categories.

  • External risks
  • Business process risks
  • Internal risks

Information Security

<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.

BCP

OSG and OSG Group have established a Risk and Compliance Management Committee to formulate basic risk management policies and systems and to consider then implement timely countermeasures after assessing the significance and urgency of risks.

  • 1. We strive to reduce the impact of both natural and human-induced disasters on our production activities, and disaster prevention drills are held twice per year in order to minimize danger to employees. Safety and Health Committees also meet once per month and receive accident reports in addition to identifying dangerous work and machinery on a site-by-site basis. Even in the event of a large-scale disaster, a secure living environment with essentials such as water and food will be provided for employees at each site until a relief system can be established by municipal or the national governments.
  • 2. A safety confirmation system has been established as a means of ensuring the safety of senior management and employees in the case of a natural disaster or accident. Training demonstrations are performed every month, and the system is set up to operate in the same way in the event of a real incident.
  • 3. We strive to maintain a consistent level of quality between factories in Japan and overseas. The main factories in Japan are designated as mother factories and technical guidance, training and quality audits are carried out at OSG Group manufacturing companies in Japan and overseas.

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 five of the six 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 6 1 5 0 Internal directors

Reasons for Appointment of Outside Directors, Positions Held Concurrently

Outside director Audit &
Supervisory Committee member
Reasons for appointment Positions held concurrently
Takeo Nakagawa In addition to an academic career spanning many years, Dr. Nakagawa 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. Since Dr. Nakagawa is not associated with any OSG affiliated company or major supplier or customer, he was deemed to present no risk of conflicts of interest with general hareholders, and it was therefore decided to appoint him as an outside director. Representative Director and Chairman, Fine Tech Corporation
Outside Director, TSUGAMI CORPORATION Director,
Osawa Scientific Studies Grants Foundation
Kyoshiro Ono Mr. Ono has extensive experience and wide-ranging knowledge gained through his work as an executive officer in another company. He was judged to be a person who would participate in board meetings from an independent perspective and contribute to management auditing and supervision. OSG has a business relationship with ONOCOM Co., LTD., of which Mr. Ono was a director until January 2016, pertaining to the purchase of equipment. This is a normal business relationship between the two corporations. Since Mr. Ono has no direct personal interest in the transactions, there is no risk of a conflict of interest between him and general shareholders. The company judges that there are no issues whatsoever concerning Mr. Ono's independence.
Yoshiyuki Sakaki Professor Sakaki has wide-ranging knowledge and experience gained through his long academic career. He was judged to be a person who would participate in board meetings from an independent perspective and contribute to management auditing and supervision. Since Professor Sakaki is not associated with any OSG affiliated company or major supplier or customer, he was deemed to present no risk of conflicts of interest with general shareholders, and it was therefore decided to appoint him as an outside director. President, Shizuoka Futaba Gakuen Councilor,
Osawa Scientific Studies Grants Foundation
Akito Takahashi Mr. Takahashi has extensive experience and advanced knowledge and specialist 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. Since Mr. Takahashi is not associated with any OSG affiliated company or major supplier or customer, he was deemed to present no risk of conflicts of interest with general shareholders, and it was therefore decided to appoint him as an outside director. Outside Director, Nippon Carbon Co., Ltd.
Outside Director, Oriental Consultants Holdings Co., Ltd.
Kunihiko Hara 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. Since Mr. Hara is not associated with any OSG affiliated company or major supplier or customer, he was deemed to present no risk of conflicts of interest with general shareholders, and it was therefore decided to appoint him as an outside director. Designated Professor, Nagoya University
(Innovation Strategy Office)

*As of February 22, 2020

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: Eligible directors who are serving as executive officers and managing officers
Calculation method: 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

Rank President, Representative Director, and CEO Senior Managing Officer, Director Managing Officer
Percentage 0.405% 0.183% 0.162%

Personal Assessment Bonuses

Eligibility: Executive officers (excluding the Representative Director and CEO) and managing officers
Calculation method: 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

Eligibility: 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

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.