Effectiveness of the Board of Directors
Election of Board Members, Executive Officers, and Audit & Supervisory Board Members
With respect to the nomination of candidates for the Board of Directors and Audit & Supervisory Board, all representative directors discuss matters related to each candidate. The Nomination and Compensation Advisory Committee, of which external directors make up a majority, then deliberates matters related to each candidate, and reports the results to the Board of Directors. As for candidates for the Audit & Supervisory Board, approval is obtained from the Audit & Supervisory Board in order to secure the independence of Audit & Supervisory Board members. With consideration given to the report made by the Nomination and Compensation Advisory Committee, candidates for the Board of Directors and Audit & Supervisory Board are determined by resolution of the Board of Directors and their confirmation is set as an agenda item for the General Meeting of Shareholders. Members of the Board of Directors and Audit & Supervisory Board are then appointed by resolution of the General Meeting of Shareholders. Also, to further clarify the directors’ mission and responsibilities, the term of office for directors is one year.
Training Policies for Executives
Taking into account that directors and Audit & Supervisory Board members assume the duty of care of a good manager as a fiduciary of NGK, NGK has established training policies to provide the following opportunities to improve their skills and knowledge so that they can adequately fulfill their respective responsibilities as experts in management or as supervisors of business execution.
- Training for internal officers relating to the Companies Act, Financial Instruments and Exchange Act, competition laws, and corporate governance and compliance.
- The provision of individual explanations from the relevant divisions to outside directors/Audit & Supervisory Board members, mainly relating to the items brought up at the Board of Directors’ meetings as well as the periodic provision of information to, and opportunities to exchange opinions with, outside directors/Audit & Supervisory Board members on the business environment and other issues.
Evaluation on the Effectiveness of the Board of Directors
With regard to its effectiveness, the Board of Directors issues a survey at the end of every fiscal year to directors and Audit & Supervisory Board Members. The results are reported at the Board of Directors’ meeting, after the analysis and evaluation by an external organization, and NGK implements specific initiatives to enhance the effectiveness of the Board of Directors based on issues identified in the results of this evaluation.
Regarding the evaluation of the Board of Directors conducted in fiscal 2020, a survey with a total of 50 questions and an open-ended section was conducted at the beginning of April 2021, and the results thereof were reported at a meeting of the Board of Directors held on June 10. Regarding the overall evaluation, we received the following comments from the external organization.
Based on the results of this evaluation, NGK will continue endeavoring to maintain and strengthen the effectiveness of the Board of Directors, including implementing specific measures suited to actual circumstances at the Company.
- The foundational elements required of the Board of Directors have been maintained, such as leadership, commitment, and its sound culture and operation. The Board of Directors also raised additional issues in order to make improvements.
- Owing to the above, the external organization considers that the Board of Director possesses continuous effectiveness.
- In addition to continuing issues previously identified, including the understanding of risks for important, large-scale projects, and the analysis of past management decisions, etc., new issues were identified to further increase effectiveness, including medium- to long-term strategy, the optimal use of funds, and the enhancement of risk management, etc.
- In particular, there was an increasing awareness of issues within NGK related to the composition of the Board of Directors, as well as operational issues such as the establishment of proposals, etc. Therefore, continuing review of the ideal composition and functions of the Board of Directors and more focused discussions on medium- to long-term strategy and risk management are expected to contribute to further improvements in the effectiveness of the Board of Directors.
Measures to Boost Effectiveness
Management Succession Planning
In December 2018, the Board of Directors approved the NGK Group Chief Executive Officer Succession Plan, which establishes the required qualities, development policies, selection procedures, and other items for chief executive officer successors. Based on this, the President provides the Nomination and Compensation Advisory Committee with a planning progress report each year, and its appropriateness is reviewed.
Policy on Cross-Shareholdings
NGK holds shares of listed companies that contribute to the NGK Group’s long-term business development as cross-shareholdings, primarily in order to maintain and strengthen business relationships. In addition, NGK holds the shares of each company in the Morimura Group, which was established by the same founders of NGK, for the mutual benefit of enhancing management quality, as the Morimura Group brand forms a part of NGK’s corporate value through its philosophy and heritage. As all cross-shareholdings are a part of the asset portfolio, they are positioned as assets to supplement the amount of liquidity considered necessary in the business plan. NGK constantly strives to reduce the scale of cross-shareholdings from the perspective of capital efficiency. Furthermore, the scale of cross-shareholdings may fluctuate due to factors including changes in overall business trends and risks, financial conditions, and the status of NGK’s business relationship with each business partner. Regarding the specific stocks held, at its Board of Directors’ meeting, NGK regularly reviews the appropriateness of the continuous holding of shares as cross-shareholdings along with the capital policy, by determining the significance of holding from the business relationship, the safety of ratings and so forth, and the efficiency of dividend yields and so forth. On the other hand, when comparing cross-shareholdings to NGK’s cost of capital, evaluations based solely on shares are not conducted. Instead, ROIC management is conducted for each business with differing risks and expected returns, and cross-shareholdings are evaluated after being included in each business’s balance sheet. After verification, in fiscal 2020, four specified equity securities held for investment purposes were sold for a total of 2.033 billion yen.
Number of Stocks and Balance Sheet Amount
|Number of stocks||Total balance sheet amount
(millions of yen)
|Shares other than unlisted shares||40||41,258|
Stocks for Which Number of Shares Increased in FY2020
|Number of stocks||Share number increase total acquisition amount (millions of yen)||Reason for share number increase|
|Shares other than unlisted shares||1||378||Due to change in classification from shares of affiliated companies as a result of a decrease in investment ratio.|
Stocks for Which Number of Shares Decreased in FY2020
|Number of stocks||Share number decrease total sale amount (millions of yen)|
|Shares other than unlisted shares||4||2,033|