Build a fair, transparent and highly effective governance system

Build a fair, transparent and highly effective governance system

Basic stance

The purpose of the corporate governance of the Nidec Group is to become a conscientious and principled company that earns society’s trust and to increase our corporate value sustainably, based on the motto “High growth, high profit, and high share price.” To this end, we maintain and enhance our internal control, thereby running our business more healthily and efficiently. Furthermore, we disclose information appropriately to increase the transparency of the Company’s business operations.
　We are also committed to ensuring the independence and diversity of the Board of Directors by taking into account, among others, the balance of the knowledge, experience and qualifications of the Board of Directors as a whole and the number of its members, based on its diversity in gender, career history, age, etc. and on Nidec’s business scale. Based on the understanding that corporate governance is one of the highest-priority issues for our sustainable growth and medium- to long-term improvement in corporate value, we will make efforts to enhance the relevant systems.

Initiatives in FY2022

To ensure the effectiveness of the Board of Directors, Nidec annually sends out questionnaires to all members of the Board of Directors, including outside members, to evaluate its effectiveness and analyze current issues. In FY2021, we introduced a third-party (external law firm) evaluation system for objective evaluation and analysis. In FY2022, the supervisory function of the Board of Directors was highly evaluated as in the previous year, and we confirmed that our Board of Directors is functioning properly. Based on the results of the questionnaires, we will continue to formulate measures for constant improvement.
　In November 2022, we established the Nomination Committee as an advisory body to the Board of Directors. The Nomination Committee deliberates on the policy on the appointment of directors and executive officers, the criteria for appointment, and the decision on candidate proposals. In FY2022, five vice presidents were appointed.
　Regarding remuneration of officers for FY2023, after deliberation, the Remuneration Committee reported to the Board of Directors a review of remuneration levels.

Toward the future

To ensure the effectiveness of the Board of Directors, it is important to provide sufficient information and secure opportunities for discussion on each agenda item, as well as to provide appropriate information on the industry and market in advance. These will promote non-executive directors’ understanding of our business. Therefore, we plan to continue to hold preliminary briefings and informal meetings^* attended by the Representative Director and President, Executive General Managers of Business Units, executive officers, and others while enhancing discussions at these meetings.
　The Nomination Committee deliberates on the nomination and appointment process, which is then resolved and stipulated at the Board of Directors’ meeting to enable dissemination of information internally and externally as well as to candidates, thereby enhancing fairness, transparency, and objectivity. In FY2023, the Nomination Committee plans to nominate vice presidents for FY2024. The Committee will also nominate a president for the first time since it was established. We will also continue efforts to improve the effectiveness of the Remuneration Committee by taking necessary measures while taking into account the social situation and requests from our stakeholders.

* Meetings to be held to explain management strategies and businesses, conduct site tours, and share opinions from investors and other stakeholders

History of Nidec’s corporate governance

Corporate governance structure

➊ Board of Directors

Status of operation

The Board of Directors makes material management decisions and oversees the Group’s business operations as a whole. The Board of Directors includes highly independent Outside Members, to enhance the supervisory function of the company’s business operation and improve management transparency and objectivity.

Themes of deliberations at the Board of Directors meetings

Themes of deliberations/reports at the Board of Directors meetings (FY2022)

Questionnaire survey on the effectiveness of the Board of Directors (efforts and evaluation)

Efforts made in FY2022 to ensure effectiveness

• Continued to provide explanation for outside members of the Board of Directors prior to Board meetings so that they can be provided with sufficient information on each item of the agenda and opportunities for discussion.
• Promoted understanding of our business by non-executive directors at informal meetings (explanation of business and online plant tours) and shared information obtained from investors and other stakeholders on a continuous basis.
• Provided information on investment projects by such means as explaining their relationships with the medium- to long-term strategic goals at the Board of Directors’ meetings.
• Disclosed a skills matrix at the time of director appointment, and explained the career background, skills, etc. of the persons appointed as executive directors or other responsible executive positions upon appointment.

FY2022 evaluation results

• In addition to the size, composition (ratio of internal and outside directors, diversity, etc.), meeting frequency and length, and the quality of information and explanation provided to Board members, the Board of Directors was highly evaluated in terms of the following points: “The Board functioned sufficiently on the whole,” “Board materials cover all necessary information,” and “The Board provides sufficient oversight to ensure that the development of potential management successors is carried out in a planned manner with sufficient time and resources given.”
• A third party (an outside law firm) also gave high marks to the effectiveness of the Board of Directors in general, including its composition and operation, and confirmed that a system has been established to facilitate fruitful discussions at Board of Directors’ meetings and that free, lively and fruitful discussions were actually taking place. In addition, the overall supervisory function of the Board of Directors was highly rated, and it was also confirmed that substantial discussions were conducted on issues such as sustainability, which has been increasingly recognized as an important management issue in recent years. This third-party evaluation system has been implemented since FY2021.
• As for issues, several respondents pointed out that Board of Directors’ meeting materials should be provided earlier, while others pointed out the need for deeper discussions on medium- to long-term management strategies and issues. Further improvements are considered necessary.

Skills matrix

➋ Audit and Supervisory Committee

The Audit and Supervisory Committee audits the execution of duties by the Board of Directors’ members, and receives audit reports from the Accounting Auditor.

Composition of members and the chairperson

Cooperation between the Audit and Supervisory Committee and accounting auditors

In addition to quarterly meetings, the Audit and Supervisory Committee and the accounting auditors meet about two or three times a year whenever necessary. In these meetings, they exchange information and opinions on audit results, audit systems, audit plans, audit implementation status and the like.

Cooperation between the Audit and Supervisory Committee and the internal audit department

The Corporate Administration & Internal Audit Department, Nidec’s internal audit department, regularly hold meetings with the Audit and Supervisory Committee to report on the results of the Nidec Group’s internal audits. In addition, the Audit and Supervisory Committee exchanges opinions and shares information with the Corporate Administration & Internal Audit Department as necessary, and requests the Corporate Administration & Internal Audit Department to conduct on-site audits.

➌ Nomination Committee

The Nomination Committee is headed by Takako Sakai, an outside member of the Board of Directors, and consists of two internal members and three outside members of the Board of Directors. The Committee deliberates on the policy and criteria for the appointment of directors and executive officers, etc., as well as the succession plan and the approach to the succession plan, and the proposed candidates for executive vice presidents and president.

➍ Remuneration Committee

The Remuneration Committee consists of two internal members and three outside members of the Board of Directors, headed by Hiroshi Kobe, Representative Director and President (Chief Operating Officer) as the chairperson. The Committee members discuss basic policies and systems for remunerations of directors in response to consultation from the Board of Directors, and reports the results back to the Board of Directors.

Policies on remuneration for Members of the Board of Directors

1. Basic policy

The remuneration for Nidec’s directors is determined based on the following policy, to enhance the company’s global competitiveness and secure the sustainable growth of its businesses.

• Increase motivation toward improving corporate value;
• Contribute to securing talented managerial human resources; and
• Ensure that the level of the remuneration is appropriate for the scale and area of Nidec’s businesses.

2. Composition of the remuneration

• Outside Members of the Board of Directors (excluding those who are members of the Audit and Supervisory Committee)
  Fixed remuneration
• Members of the Board of Directors (excluding those who are Outside Members of the Board of Directors and members of the Audit and Supervisory Committee)
  Fixed remuneration : Variable remuneration (bonuses) : Performance-linked share-based remuneration
  ＝3:1.5:1

3. Procedure to decide the remuneration amounts

The amounts of fixed and variable remunerations for individual directors (excluding members of the Board of Directors who are members of the Audit and Supervisory Committee) are determined by the Board of Directors based on reports submitted by the Remuneration Committee, which is a voluntary advisory body, in accordance with the criteria specified by this policy. Similarly, the details of the performance-linked share-based remuneration are determined by the Board of Directors based on reports submitted by the Remuneration Committee.

4. Forfeiture, etc. of remuneration (clawback/malus)

The amounts of fixed and variable remunerations may be reduced if the recipient has caused serious damage to the company by obtaining the consent of the recipient.
　Based on the performance-linked share-based compensation plan, if any individual to be issued shares should, on or after the day when his/her right to receive compensation is finalized, commit an illegal action such as a material violation of his/her duties or internal rules/regulations, the company may request that the individual pay restitution.

Total amount of remuneration by category of directors and by type of remuneration, and the number of eligible directors

*1 The above performance-linked remuneration includes the amount paid to five members of the Board of Directors who resigned during the 48th period.
*2 The introduction of the performance-linked share-based remuneration system was resolved at the 45th Annual General Meeting of Shareholders held on June 20, 2018. The amounts of expenses recorded for the fiscal year under review according to the Japanese standard are provided above. Outside members of the Board of Directors are not covered by the system.

Total amount of consolidated remuneration, etc. of each director

* Only directors whose total amount of remuneration is 100 million yen or more are presented.

➎ Various committees

➏ Executive Management Meeting

The Executive Management Meeting convenes once a month to assess the present state of business and determine the next course of action, based on the monthly performance data and outcome of discussions at respective meetings where important group-wide concerns are shared among administrative departments, subsidiaries and business units.

➐ Management Committee

The Management Committee, the consultative body to the Representative Director and Chairman, is held and chaired by the President and Chief Executive Officer twice a month in principle to discuss overall operational directions, plans and other important considerations in the execution of business.

Reasons for appointment and major activities of Outside Members of the Board of Directors

*1 During the fiscal year under review, the Board of Directors held 26 meetings, the Audit and Supervisory Committee held 14 meetings, the Audit & Supervisory Board before transition to the Audit and Supervisory Committee held 3 meetings, and the Remuneration Committee met once.
*2 The difference in the number of times held is due to differences in the timing of assuming office.
*3 Ms. Takako Sakai was elected as a member of the Board of Directors at the 49th Annual General Meeting of Shareholders held on June 17, 2022. She had previously attended meetings of the Board of Directors, the Audit and Supervisory Committee, and the Remuneration Committee as a member of the Board of Directors (Audit and Supervisory Committee member); therefore, the number of meetings attended by Ms. Sakai includes those meetings attended as a member of the Board of Directors (Audit and Supervisory Committee member).

Support systems for Outside Members of the Board of Directors

The General Affairs Department, which acts as the secretariat for the Board of Directors, supports the Outside Members of the Board of Directors. The General Affairs Department provides the outside directors with the company’s information in a timely manner, and corresponds to their inquiries through day-to-day communication. With regard to the meetings of the Board of Directors, the General Affairs Department provides all members of the Board of Directors with materials related to the proposals for the meetings and accounting information, at the latest one day before the day of the meeting. In addition, assistance is provided by the Corporate Administration & Internal Audit Department, Nidec’s internal audit department, to Outside Members of the Board of Directors who are Audit and Supervisory Committee Members. When a meeting of the Audit and Supervisory Committee is held, meeting notices are sent out to all the Audit and Supervisory Committee Members by three days prior to the day of the meeting, while documents related to the proposals to be deliberated in the meeting of the Audit and Supervisory Committee are sent to the members, at the latest one day before the meeting. After a meeting of the Audit and Supervisory Committee, meeting minutes are sent to all Audit and Supervisory Committee Members. Furthermore, for Outside Members of the Board of Directors who are Audit and Supervisory Committee Members, various information is reported and provided as necessary by full-time Audit and Supervisory Committee Members and Nidec’s executive officers.
　Outside members of the Board of Directors who are not members of the Audit and Supervisory Committee have informal meetings with the Audit and Supervisory Committee members, where various information is provided by Nidec’s executive officers. They also conduct on-site inspections of the business sites in Japan, in person or online.

Internal control

Basic stance

The Nidec Group commits itself to enhancing its management soundness and transparency by establishing a compliance system generally required of a listed company in Japan, and clarifying its risk management responsibilities. Specifically, through the auditing activities of the Corporate Administration & Internal Audit Department, the Group aims to maintain and improve the effectiveness of its internal control over financial reporting required by Article 24-4-4, Paragraph 1 of the Financial Instruments and Exchange Act. In addition, the Legal & Compliance Department, the Risk Management Committee, the Information Security Committee and the CSR Committee are organized under the Board of Directors, under which the Legal & Compliance Office, the Risk Management Office, the Information System Department, and the IR & CSR Promotion Department are placed as the secretariat respectively, working to create a corporate culture and enhance management systems for internal control.

Initiatives in FY2022

In order to establish a highly effective global internal audit system based on the assumption of sales of 4 trillion yen in FY2025, it is essential to further sophisticate and improve the efficiency of internal audit operations. In FY2022, we worked to prevent errors in financial reporting, visualize risk areas, and deepen audit procedures by strengthening the self-audit system at the field level (all Nidec Group sites) and conducting monitoring at all consolidated sites using DX.

Toward the future

We will continue to enhance the sophistication and efficiency of auditing operations through the use of DX while expanding the target areas. We will also strive to upgrade our human resources by, for example, training auditors with specialized qualifications, language skills, and a deep understanding of the business environment. Currently, an audit system is in place in five locations, Japan (Kyoto), Europe (Amsterdam), Americas (St. Louis), China (Shanghai), and Asia (Singapore), to cover the entire Nidec Group. We will also work to strengthen the audit system in the European region, where the number of companies is increasing significantly.

Corporate governance of Group companies

The Nidec Group companies operate under Nidec’s mission statement and policies, and therefore they are incorporated in Nidec’s internal control system. The Group companies, to which Nidec sends some directors and employees, have sufficient discussions before making decisions on business execution that correspond to the circumstances of each company, based on specialists’ opinions as necessary, thereby endeavoring to assure their independence.

Cross-shareholding

Policy for cross-shareholding

Nidec holds shares in the companies that Nidec has relationships with in terms of trading and cooperation in its business and other areas, when it judges that such shareholding contributes to the company’s corporate value expansion through stabilization of its business from a medium-tolong-term perspective by maintaining and strengthening its relationship with those companies. Nidec assesses its cross-held shares individually at the Board of Directors meeting every year, on not only qualitative aspects such as the purpose of the shareholding, but also on quantitative aspects such as the benefits that can accrue through the shareholding from the perspective of economic rationality. According to the results of the assessment, Nidec intends to reduce the number of shares it holds if the cross-held shares are not expected to bring significant benefits.

Criteria for exercising voting rights for cross-shareholding

With regard to the exercise of voting rights in relation to cross-shareholdings, Nidec makes comprehensive decisions to vote for or against individual proposals to serve the investees’ sustainable growth from the perspective of whether appropriate governance and compliance structures are in place at investee companies.

(Basic views on exercising voting rights)
With regard to the individual proposals submitted to the shareholders’ meetings of the companies Nidec invests in, Nidec decides to vote for or against after confirming the following points: whether the proposals suit the purposes of the shareholding which are to maintain and strengthen the trade and cooperation relationships through medium-to long-term investment; and particularly, whether there are any circumstances that might lead to undermining of the shareholders’ value due to the restructuring of organizations, including asset transfer and mergers. Nidec opposes all proposals that are considered to violate the law or constitute antisocial behavior, in all circumstances.