- Basic Policies
- Corporate Governance Structure Scheme
- Committees on Corporate Governance
- Outside Directors and Outside Audit & Supervisory Board Members
- Remuneration of Directors and Audit & Supervisory Board Members
- Whistle-blowing System
- Approaches to Observe the Corporate Governance Code
- Internal Control Systems
- Evaluation on the Effectiveness of the Board of Directors
Approaches to Observe the Corporate Governance Code
In accordance with the basic principles of the Corporate Governance Code mandated by the Tokyo Stock Exchange, NGK's implementation status is as follows: NGK implements all of the individual principles of Corporate Governance Code.
Disclosure based on the principles of the Japan's Corporate Governance Code
Principle 1-4. Policy on Cross-Shareholdings and Standards for Exercise of Voting Rights Pertaining to Cross-Shareholdings
NGK continuously holds shares of listed companies, which contribute to long-term business development, as cross-shareholdings, primarily in order to maintain and strengthen business relationships.
NGK holds the shares of Morimura Group, which was established by the same founders of NGK, to enhance the brand value of NGK Group. NGK Group companies will mutually work on the improvement of management quality and each company will contribute to the development of the industry focusing on ceramics.
At its Board of Directors' meeting, NGK determines the necessity of the continuous holding of shares as cross-shareholdings by regularly reviewing the significance of holding, stock prices, dividend yields, ratings, and so forth, and NGK gives specific explanations on the purpose and rationality of holding of shares as cross-shareholdings in its annual securities reports.
For voting rights pertaining to cross-shareholdings, NGK exercises voting rights focusing on factors including whether the content of proposals adversely affect the interest of shareholders and, from a medium- to long-term perspective, whether the investee company implements management that emphasizes the enhancement of corporate value and the interest of shareholders.
Principle 1-7. Framework of Procedures for Related Party Transactions
At NGK, transactions with directors and corporate officers are designated as matters to be approved by the Board of Directors in accordance with the procedures pertaining to conflict of interest transactions prescribed in laws and regulations.
NGK deliberates and makes a resolution of said transactions, at its Board of Directors' meeting, in terms of whether or not the content and conditions of transactions are appropriate and do not impair NGK, and discloses the major content of transactions in its business reports and annual securities reports. Transactions with audit & supervisory board members and major shareholders that do not pose a conflict of interest prescribed in laws and regulations are also designated as matters to be approved at the Board of Directors' meeting, as well as disclosed as above.
Principle 3-1. Full Disclosure
1. Company objectives (management philosophy, etc.), management strategies, and management plans
NGK establishes the corporate philosophy "NGK products and technologies must create new value and contribute to the quality of life." Management strategies and management plans are disclosed in the financial results and on the NGK website.
2. Basic approach and basic policies on corporate governance
For the basic approach and basic policies on corporate governance, please refer to page 100 "Basic Policies" of this report.
The basic policies on NGK's corporate governance code are as follows:
- Securing the rights and equality of shareholders
To effectively secure shareholders' rights including voting rights at a General Meeting of Shareholders, NGK complies with appropriate procedures pertaining to the exercise of voting rights by shareholders, and provides information that sufficiently explains to shareholders in both quality and quantity through timely and appropriate information disclosure.
- Appropriate cooperation with stakeholders other than shareholders
Based on its corporate philosophy, NGK endeavors to ensure sustainable growth and create medium- to long-term corporate value by actively promoting appropriate cooperation with various stakeholders, including employees, customers, business partners, creditors, and local communities.
- Ensuring appropriate information disclosure and transparency
Recognizing that appropriate disclosure of information contributes to ensuring the transparency of corporate management as well as improving corporate governance, NGK actively provides not only financial information, such as financial conditions and operating results of NGK, but also non-financial information, such as information related to business strategies and business issues, risks, and corporate governance.
- Responsibilities of the Board of Directors, etc.
Based on recognition that the major responsibilities of the Board of Directors are to present the basic policy on management as well as supervision and monitoring of the performance of duties by directors, NGK will leverage the various committees pertaining to business execution and advisory committees that consist mainly of outside directors/audit & supervisory board members so that the Board of Directors can adequately fulfill their responsibilities.
- Dialogue with shareholders
Based on recognition that constructive dialogue with shareholders is important for the sustainable growth and the enhancement of medium- to long-term corporate value, NGK sincerely responds to dialogue requested by shareholders in cooperation with the relevant divisions as necessary, and works to provide the management with effective feedback on opinions and concerns of shareholders.
3. Disclosure of Policies for Determining the Amount or Calculation Method of Remuneration
The remuneration of directors (excluding outside directors) and corporate officers consists of the three components stated below in an aim to enhance motivation toward a realization of NGK's corporate philosophy and management policy, as well as to clarify the accountability of officers, and to increase fairness and transparency:
- basic remuneration as fixed annual remuneration according to respective positions;
- a performance-linked annual bonus that is linked more to the business performance so as to further clarify the accountability of each director; and
- stock-related remuneration to enhance motivation and morale of directors to improve the medium- to long-term corporate value through appropriate corporate management by further increasing sensitivity toward the NGK stock price and sharing with shareholders both advantages and risks generated by ups and downs of the stock price.
With regard to the ratio between fixed annual remuneration and variable remuneration, the ratio of variable remuneration linked with performance is set so as not to be excessively higher than fixed remuneration from a perspective of putting priority on the stability and enhancement of medium- to long-term performance.
NGK does not pay any performance-linked bonus or stock-related remuneration to outside directors and audit & supervisory board members and only pays basic remuneration since they assume roles in supervising and auditing management from an independent standpoint.
By the resolutions at the General Meetings of Shareholders held in June 2007 and June 2017, NGK has set the maximum amount of remuneration, etc., excluding stock options, or stock-related remuneration of directors at ¥800 million per year, which includes the amount of ¥60 million per year for outside directors. It was also resolved that the maximum amount of remuneration, etc., concerning stock options to be allocated to directors (excluding outside directors) to be set at ¥200 million per year, and the maximum amount of remuneration, etc., of audit & supervisory board members at ¥100 million per year. Board members' remuneration, etc., was capped at 100 million yen per year.
Procedures for determination of remuneration
With regard to the remuneration of officers, NGK will endeavor to ensure fairness and enhance transparency by deliberating on basic policies and procedures for determination of remuneration, the overall remuneration range of directors/audit & supervisory board members, and the amount of remuneration for individual directors/audit & supervisory board members at the Nomination and Compensation Advisory Committee, comprised mainly of outside directors/audit & supervisory board members and reporting the results thereof to the Board of Directors. At the Board of Directors' meeting, matters relating to the remuneration of directors and executive officers will be resolved, compliant to the reporting procedures of the Committee, and the annual amounts of remuneration after the resolution, including bonuses stated in representative director contracts, will be determined. As specific procedures, NGK sets basic remuneration commensurate with managerial positions taking into account factors such as corporate performance and the remuneration levels of relevant industries. NGK determines the performance-linked bonus based on the results and changes of management indices, such as consolidated operating margin, consolidated net sales, and consolidated ROE for each fiscal year. With regard to stock-related remuneration, NGK grants stock compensation-type stock options as a long-term incentive. The exercise price of the stock option is ¥1 per share, and NGK determines the number of stock options according to the respective managerial positions. As terms and conditions of the exercise of rights, the director shall, in principle, exercise his/her rights within five years after the lapse of one year from the date of retirement from the office of officer. The amount of remuneration, etc., of each audit & supervisory board member is determined through consultation between the audit & supervisory board members.
4. Policies and procedures of the Board of Directors in appointing senior management and nominating the candidates for directors and audit & supervisory board members
Policies concerning nomination
NGK is engaged in the manufacturing business supplying raw materials such as ceramics and related products to diverse business domains and a wide range of areas including overseas. NGK's senior management, directors and corporate officers who assume business execution are required to make business judgments and decisions based on their respective profound knowledge in each business field, manufacturing technology, research and development as well as knowledge of finance, legal affairs, and labor affairs, and standing audit & supervisory board members are also required to conduct audit based on their expert knowledge in finance and knowledge obtained through individual business experience. Therefore, in nominating candidates, NGK places emphasis on practical business experience in manufacturing technology, research and development, sales, planning, etc., in each business field, and leadership, as well as on whether or not they have expertise, such as in finance, legal affairs, and labor affairs. With regard to outside directors and outside audit & supervisory board members, NGK selects candidates from among persons who have a high level of expertise in laws, corporate finance and others, as well as knowledge of international affairs and social and economic trends. The Articles of Incorporation of NGK stipulate that the prescribed number of directors shall not exceed fifteen. The above policies are deliberated at the Nomination and Compensation Advisory Committee, comprised mainly of outside directors/audit & supervisory board members, and results thereof are reported to the Board of Directors.
Procedures concerning nomination
With regard to the nomination of candidates for directors and audit & supervisory board members, all representative directors deliberate on each candidate, and to secure the independence of the candidates for audit & supervisory board members, all representative directors obtain approval from the Audit & Supervisory Board. In addition, to ensure fairness and transparency in the nomination process, each candidate is deliberated at the Nomination and Compensation Advisory Committee, and results thereof are reported to the Board of Directors. At the Board of Directors' meeting, candidates for directors and audit & supervisory board members are determined, compliant to the reporting procedures of the Committee, as an agenda (proposal) for the General Meeting of Shareholders.
5. Explanations regarding individual appointments and nominations in appointing senior management and nominating candidates for directors and audit & supervisory board members by the Board of Directors
Reasons for nominating candidates for directors selected at the 152nd General Meeting of Shareholders are described in "Convocation Notice of the 152nd Annual Shareholders' Meeting" posted on the NGK website (https://www.ngk-insulators.com/en/ir/) for reference. Reasons for selecting candidates for audit & supervisory board members (excluding outside audit & supervisory board members) whose re-elections are not due at the 152nd General Meeting of Shareholders are as follows:
- Securing the rights and equality of shareholders
Supplementary Principle 4-1-1. Outline of the Scope of Matters Delegated to the Management
At NGK, matters prescribed by laws and regulations to be resolved at the Board of Directors, and corresponding matters deemed necessary to be resolved at the Board of Directors in light of their significance and characteristics, etc., are decided and resolved at the Board of Directors. The Board of Directors deliberates on the formulation of management strategies and management plans to provide a strategic direction for the achievement of NGK's management philosophies, and delegates decisions on business execution to NGK's management based on such direction.
Matters to be judged and determined by the Board of Directors are specifically prescribed in the Articles of Incorporation and the Board of Directors' Regulations of NGK, which primarily include company-wide unified budgeting, strategic planning such as dissolution, mergers, and alliances of the company, share-handling regulations, determination to call a General Meeting of Shareholders, appointing and removing representative directors, approval of financial statements, business reports, etc., the disposal and acceptance of transfer of important assets (long-term holding securities, land, equipment, etc.), the appointment and dismissal of an important employee, and the establishment and change of important organizations.
NGK has introduced a corporate officer system, thus separating management decision-making and business execution to expedite decision-making, and matters other than the above are decided by the management pursuant to the administrative authority table prescribed separately.
Principle 4-9. Independence Standards for Independent Outside Directors
In addition to the requirements for an outside director under the Companies Act and for an independent director specified by the Tokyo Stock Exchange, NGK may not designate a person who falls under any of the following items as an outside director with independence (hereinafter referred to as the "Independent Outside Director"); provided, however, that if NGK considers that such person, who falls under any of the items, is appropriate as the Independent Outside Director of NGK in light of such person's personality, insight, etc., NGK may designate said person as an Independent Outside Director on the condition that said person satisfies the requirements for an outside director under the Companies Act and for an independent director specified by the Tokyo Stock Exchange as well as on the condition that NGK externally explains the reason why such person is appropriate as the Independent Outside Director of NGK.
In these independence standards, a person who executes business refers to an executive director, executive officer, corporate officer, manager, or other employee, and NGK Group refers to NGK or NGK's subsidiaries or affiliated companies.
- A major shareholder who holds 10% or more of the current voting rights of NGK. If such major shareholder is a corporation, a person who has executed the business of said corporation during the last three fiscal years including the most recent fiscal year.
- A person who currently executes the business of a business partner where the amount of transactions between NGK Group in any of the last three fiscal years including the most recent fiscal year is 2% or more of the consolidated sales of either said business partner or NGK Group.
- A person who has executed the business of a financial institution or other corporation that is a major creditor, which is indispensable for NGK Group's fundraising and on which NGK Group depends to the extent that it is irreplaceable, in the past three fiscal years including the most recent fiscal year.
- An incumbent director or officer of an organization that receives a donation or grant from NGK Group in the amount exceeding ¥10 million per year or 30% of average annual total expenses of such organization, whichever the greater, in any of the last three fiscal years including the most recent fiscal year.
- A certified public accountant, tax accountant or an incumbent employee of an auditing firm or tax accounting firm who served as an accounting auditor or accounting advisor of NGK Group in the past three fiscal years including the most recent fiscal year.
- A person who is a lawyer, certified public accountant, tax accountant, or other consultant who does not correspond to any of the individuals mentioned in 5. above and who, in addition to his/her remuneration as an officer, has received cash and other property benefits of ¥10 million or more per year from the NGK Group in the past three fiscal years including the most recent fiscal year, or an incumbent employee, etc., of a law firm, auditing firm, tax accounting firm, consulting firm, or other advisory firm that does not correspond to any of the firms mentioned in 5. above, which received a payment of more than 2% of its annual consolidated gross sales from NGK Group in any of the last three fiscal years including the most recent fiscal year.
- A person who has executed the business of a company, of which NGK is currently a major shareholder, in the last three fiscal years including the most recent fiscal year.
- Relatives within the second degree of kinship to a person who falls under the items 1 to 7 above.
Supplementary Principle 4-11-1. Views on the Balance Between Knowledge, Experience, and Skills of the Board of Directors as a Whole, and Diversity and Size of the Board
At NGK, the Board of Directors is comprised of persons who have practical experience in business operations in various business fields, such as manufacturing technology, research and development, sales, and planning as well as leadership, persons who have knowledge of finance, legal affairs, and labor affairs, highly independent external personnel who have a high level of expertise in legal affairs, corporate finance, etc., and knowledge, etc., of international affairs, social and economic trends, and the Articles of Incorporation of NGK stipulate that the number of directors shall not exceed fifteen.
NGK recognizes that the appointment of young as well as foreign persons is a priority issue for ongoing consideration in terms of necessity associated with future business expansion.
Supplementary Principle 4-11-2. Status of Directors and Audit & Supervisory Board Members Who Also Serve as Officers at Other Listed Companies
With regard to the status of directors and audit & supervisory board members who also serve as directors and audit & supervisory board members at other companies, NGK discloses such status each year in its convocation notice of the General Meeting of Shareholders, annual securities reports, and report on corporate governance.
Supplementary Principle 4-11-3. A Summary of the Results of Analyses and Evaluation on the Effectiveness of the Board of Directors
The operation of meetings of NGK's Board of Directors has been conducted appropriately in accordance with the applicable laws and regulations, the Articles of Incorporation, and internal regulations, and discussions have been held actively in the meetings. 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. Based on the results of the Board of Directors evaluation conducted in fiscal 2016, the secretariat of the Board of Directors conducted initiatives in fiscal 2017 to improve the effectiveness of the Board of Directors. Such initiatives included interviewing directors and audit & supervisory board members individually, getting opinions on specific measures that can improve the effectiveness of the Board of Directors, and based on results of the interview, enriching discussions regarding themes related to long-term strategies. As a result, in the Board of Directors evaluation conducted in fiscal 2017, the Board of Directors was evaluated as effective, with its strength in how, under the leadership of the Chairman of the Board of Directors, each Director participates to conduct sound and transparent discussions while complying with governance requirements. We were evaluated by the external organization as having continued to retain this strength from the previous fiscal year. On the other hand, the following were raised as issues that needed to be further examined for their status or to be further discussed at Board of Directors' meetings: a succession plan for the chief executive officer, cultivation of senior management, and understanding of risks for important, large-scale projects. Based on these results, NGK will work to continue to maintain and strengthen the effectiveness of the Board of Directors.
Supplementary Principle 4-14-2. Training Policies for Directors and Audit & Supervisory Board Members
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 fulfil their respective responsibilities as an expert in management or as a supervisor 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 periodical provision of information to and opportunities to exchange opinions with outside directors/audit & supervisory board members on the business environment and issues.
Principle 5-1. Policy for Measures and Organizational Structures Aimed at Promoting Constructive Dialogue with Shareholders
NGK strives to provide accurate and prompt explanations concerning business conditions and operational policies and to maximize its corporate value through mutual communication between shareholders and investors. With regard to the requests of meetings, questions at the General Meeting of Shareholders, and inquiries through NGK's website from shareholders and investors, both NGK's Finance & Accounting Department and General Affairs Department, under the direction of directors responsible for these departments, sincerely respond to shareholders and investors in close cooperation with the Corporate Strategy Office, Corporate Communications Department, Legal Department, and other departments where appropriate, thereby working to promote constructive dialogue with shareholders.
NGK also places emphasis on opportunities to conduct direct dialogue with institutional investors, and holds financial results briefings (twice each year) and overseas IR (twice each year) and others with the senior management.
NGK provides feedback to its management by regularly reporting the results of such dialogue to the Board of Directors, thereby leading to the improvement of the efficiency and transparency of management.
NGK conducts dialogue with shareholders and investors for the purpose of improving corporate value and capital efficiency as well as the promotion of sustainable growth, and given that the disclosure of unpublished material facts in the dialogue will impair the equality among shareholders, NGK, in principle, has no intention to disclose unpublished material facts.
For more details, please refer to