Corporate Governance｜sustainability｜NDK - NIHON DEMPA KOGYO CO., LTD.

In order to continue being "a corporation that is trusted and respected" by all stakeholders, the Company positions corporate governance as a key management issue. In order to increase its corporate value, NDK is striving not only to improve management efficiency but also to strengthen its management monitoring function and ensure compliance with laws and regulations. Further, NDK is working to enhance its corporate governance based on the following five basic policies.

（a）Constant awareness of the healthiness, efficiency, and speediness of our management
（b）Enhancement of the effectiveness of the Board of Directors
（c）Respecting the rights and ensuring the equality of shareholders
（d）Appropriate information disclosure to ensure transparency
（e）Sustainable relationship building that earns trust from non-shareholder stakeholders as well

History of efforts to enhance corporate governance

Corporate Governance System

For our governance system, the Company has adopted a company with an Audit & Supervisory Board structure. In addition, in order to strengthen the independence, objectivity, and accountability of the Board of Directors with respect to its functions concerning the appointment, removal, and remuneration of Directors and Corporate Officers, we have established an Independent Advisory Council, whose main members are Outside Directors, as an advisory body to the Board of Directors. These mechanisms enable us to further enhance our corporate governance and realize fair, highly transparent, and effective management.

To ensure the appropriateness and transparency of operations within our affiliated companies, NDK has established a governance framework based on the "Group Company Management Regulations" and is committed to strengthening internal controls across the entire group. This framework adopts a matrix management approach that combines vertical oversight by the responsible management division with horizontal support from each functional department. Through this structure, the NDK Group fulfills its social responsibilities while building a governance system aimed at maximizing group-wide benefits and achieving sustainable growth.

To further reinforce group-wide control, we have launched the "Group Internal Control Working Group," which promotes initiatives to standardize approval criteria, decision-making processes, and key regulations. In addition, through activities such as planning and operating the "Management Division Liaison Meeting," we strive to maximize group synergies and enhance the sophistication of internal controls.

Board of Directors

The Company has positioned the Board of Directors as a key body which supervises the status of business execution, and is working to strengthen its monitoring function. To ensure the effectiveness of the Board of Directors, at least one-third of the Board consists of Independent Outside Directors, and the composition of the Board of Directors takes diversity into consideration. The Board deliberates and decides on important management matters, including basic management policies and the Medium-Term Management Plan. In order to enhance corporate value in the medium to long term, the Board of Directors focuses on setting agenda items for deliberation and securing opportunities for discussion.

Audit and Supervisory Board

The Company's Audit & Supervisory Board has been established as an independent body to audit the execution of duties by Directors and is responsible for ensuring the appropriateness of business operations. One Standing Auditor is maintained, and that auditor collects information on internal business execution and shares that information with the Outside Auditors, thereby enhancing the effectiveness of the Company's auditing function. Through periodic meetings, the Audit & Supervisory Board maintains an awareness of the status of business execution and exchanges opinions, contributing to ensuring the soundness of management.

Independent Advisory Council

This is an advisory body to the Board of Directors, chaired by an Independent Outside Director and composed of a majority of Independent Outside Directors. The council issues recommendations to the Board concerning the appointment, removal, and remuneration of Directors and Corporate Officers.

Corporate Officers and the Corporate Officer Committee

We have introduced a Corporate Officer System with the aim of separating management supervision from business execution, and speeding up decision-making in the execution of business. Corporate Officers have been placed in charge of various business areas, and the Board of Directors has transferred significant executive authority in these areas to the relevant Corporate Officers, establishing a system that enables prompt and appropriate decision-making.
The Corporate Officers constitute the Corporate Officer Committee, which serves as their collegial body, with the President as the committee chair. The Corporate Officer Committee formulates business plans based on the Medium-Term Management Plan passed by a resolution of the Board of Directors and engages in discussions concerning business progress management and future business plans. The committee also holds deliberations on important matters related to business execution in consultation with the President. The execution of duties by Corporate Officers is reported to the Board of Directors and is supervised by the Board.

Evaluating the Effectiveness of the Board of Directors

The Company conducts an annual evaluation of the effectiveness of the Board of Directors with the objective of continuously verifying and improving its effectiveness and enhancing corporate value. In fiscal 2025, a questionnaire survey targeting Directors and Audit & Supervisory Board Members was conducted in April, with responses submitted directly to an external organization to ensure anonymity. The aggregated and analyzed results were shared at the regular Board meeting in June, and the Board concluded that its overall effectiveness was generally secured.

Based on this evaluation, at the July Board meeting, the following issues were identified and organized as common understanding:
(1) further enrichment of the number and content of agenda items;
(2) development of training opportunities for officers; and
(3) expansion of opportunities for opinion exchange among internal and external officers.

To address these issues, the Company is strengthening the functions of the Board Secretariat and, in July, established the Corporate Governance Reform Task Force, primarily composed of younger employees, to foster future governance talent. In October, the Task Force compiled and submitted recommendations to improve Board effectiveness. These recommendations included specific improvement measures, some of which have already entered the implementation phase with the Board's agreement. Going forward, the Company will continue to promote initiatives to enhance the effectiveness of the Board of Directors and strengthen governance talent, aiming to further improve corporate value.

Nomination of Candidates for Director

Policy on Nomination

The Board of Directors selects and nominates candidates for the position of Director based on the three perspectives of possessing the appropriate knowledge, experience, and skills; their ability to contribute to increasing the Company's corporate value; and their ability to ensure diversity in the Board of Directors. With respect to the nomination of candidates for Outside Director, in addition to the above points, NDK endeavors to nominate candidates who satisfy the criteria for determining independence as stipulated by the Tokyo Stock Exchange.

Nomination Process

After the nominated candidates are reviewed by the Representative Director, they are questioned by the Independent Advisory Council, which is chaired by an Independent Outside Director, and the Board of Directors makes a decision based on the committee's report.

Director Skill Matrix

As seen in the NDK management philosophies of, "NDK provides high-quality service to customers while staying ahead of the marketplace," and, "NDK is enhancing each individual's character through work," the NDK founder had the firm conviction that, "products are a reflection of the person who makes them." And as such, NDK employees and executives are expected to pursue a path that places quality as the top priority in products and services. The following NDK Director Skill Matrix is a reflection of that belief.

Process for Determining Executive Remuneration

At the March 26, 2021 Board of Directors meeting, the following basic policy concerning the setting of Director remuneration was passed through a Board resolution. Subsequently, at the August 25, 2023 Board of Directors meeting, a resolution to revise it was passed to provide for as mentioned below.

(1) Basic policy

The basic policy for the remuneration system for Directors is that it should be linked to the improvement of corporate value so as to function as a healthy incentive for sustainable growth as a global company and, at the same time, that it should be at a level and of a composition that are appropriate for securing and retaining excellent human resources. In determining individual remuneration amounts, they should be at appropriate levels that take into account individual duties and responsibilities. Specifically, remuneration for the Directors who serve as the Representative Director or as a Corporate Officer is composed of basic remuneration which is fixed remuneration, bonuses which are short-term performance-linked remuneration, and share-based compensation which is medium and long-term performance-linked remuneration. Remuneration for other Directors is composed only of basic remuneration that reflects their duties.

(2) Policy concerning the determination of individual amounts for basic remuneration, etc.

Basic remuneration is a fixed monthly remuneration. It reflects factors including attributes, position, duties, and responsibilities. It is determined after full consideration has been given to factors including remuneration levels at other companies, employee salary levels, and the business climate. The amount is determined by the Board of Directors in accordance with the bylaws concerning remuneration for Directors, taking into account the reports of the Independent Advisory Council, the main members of which are Independent Outside Directors.

(3) Policy concerning the components of short-term performance-linked remuneration (bonuses) and concerning determination of its amount

Bonuses are paid at a certain time each year as cash compensation reflecting performance indicators in order to enhance awareness of the need to improve performance each fiscal year. The amount is determined by the Board of Directors, taking into account the reports of Independent Advisory Council and giving consideration to the level of individual contribution and the success ratio for the consolidated operating income target amount for each fiscal year according to a calculation result based on the calculation formula prescribed by the bylaws concerning remuneration for Directors.

(4) Policy concerning the determination of non-monetary remuneration (share-based compensation)

Share-based compensation is paid as compensation linked to mid- to long-term business performance, and is designed to ensure that Directors share with shareholders not only the benefits of a rise in the Company's stock price, but also the risks associated with a decline in it. The amount of such remuneration is determined by the provisions of the rules for share-based compensation.

(5) The percentages of basic remuneration, performance-linked remuneration, and non-monetary remuneration

The following table shows the approximate percentages of basic remuneration, bonuses, and share-based compensation for Directors in their respective positions at the time of achieving the targets of the Medium-Term Management Plan.

Internal Control Frameworks

1．Frameworks that ensure compliance with laws, regulations, and the Articles of Incorporation for the enforcement of Director and staff duties

（1）Through the maintaining of a Compliance Committee and compliance training for Directors and staff, we promote the establishment, maintenance, and improvement of frameworks for ensuring compliance with laws, regulations, the Articles of Incorporation, etc. The Internal Audit Office conducts audits concerning compliance status, etc. and reports the audit results to the Representative Director and President. We have constructed an Internal Reporting System, and take in internal company information regarding violations of laws and regulations as well as other conduct that is questionable in terms of compliance. We then analyze and apply that information.
（2）Regarding illicit demands, etc. from antisocial forces and groups, our entire organization takes a firm stance, maintains close contact with related agencies, and strives to reject all transaction relationships with antisocial forces, etc., while maintaining absolutely no related relationships whatsoever.
（3）In order to ensure the reliability of financial reports, we follow generally accepted standards for internal control related to financial reports and maintain and implement frameworks for evaluating and reporting the effectiveness of internal control related to financial reports.

2．Frameworks concerning the retention and management of information regarding the enforcement of Director duties

（1）Concerning information pertaining to the enforcement of Director duties, we follow Document Management Rules and record and save information in document or electromagnetic media form, and manage the information. The Document Management Rules designate the Document Administrator, the scope of information that should be saved, the retainment period, and the retaining location.
（2）Directors and Auditors can view these documents at any time, and review them at any time as necessary.

3．Rules for managing the danger of loss and other frameworks

（1）We maintain rules concerning risk management. Cross-sectoral risk status monitoring and companywide response is handled by the Risk Management Committee.
（2）Concerning risks attached to operations handled by each division, each division maintains individual rules and manuals, conducts management based on those rules and manuals, and strives to increase management capability by implementing training.
（3）The Internal Audit Office links to the Risk Management Committee, conducts audits of the status of risk management in each division, and regularly reports the audit results to the Representative Director and President. If risks become possible, prompt and appropriate response based in manuals, etc. is initiated organizationally in an attempt to avoid or minimize damage.

4．Frameworks to ensure enforcement of Director duties is conducted efficiently

（1）To accelerate decision-making and execution of management, we employ an Executive Officer Framework. And the Executive Officer Committee, which is composed of Executive Officers (generally held twice per month), proposes and formulates business plans based on the Midterm Management Policy passed by a resolution in the Board of Directors. Additionally, based on the business plans passed through resolutions of the Board of Directors, this body holds debates concerning business progress management and future business plans, and holds deliberation and resolutions regrading important matters related to operations enforcement. Resolution matters in the Board of Directors are deliberated in the Executive Officer Committee as well, and presented to the Board of Directors.
（2）In the Board of Directors meetings (generally held once per month), in addition to making decisions on matters deliberated upon in the Executive Officer Committee, decisions are also made on matters set forth in law and regulations and important matters including basic management policies. Board meetings also set operations conducted by Executive Officers and oversees the status of operations enforcement pertaining to Executive Officers.
（3）Regarding operations enforcement based in the decisions of the Board of Directors and the Executive Officer Committee, responsibilities, roles, and obligations for each operation are set in the various types of rules including duty division rules, duty authority rules, and partner company management rules. Additionally, each head office and division sets division policies and targets. In this way, we strive for the clarification of responsibilities and streamlining of operations.

5．Frameworks for ensuring appropriate operations in related joint-stock companies and the corporate conglomerates made up of their parent companies and subsidiaries

（1）Following the Partner Company Management Rules, we share information on important matters decided by NDK group companies and construct frameworks for appropriate groupwide business management.
（2）Based on the Partner Company Management Rules, the Executive Officers and departments responsible for subsidiary management manage each subsidiary and request periodic reports concerning operations enforcement from each subsidiary. Furthermore, the Executive Officer Committee receives periodic reports from the Directors of each subsidiary on the status of the enforcement of duties of operations, Directors, etc.
（3）The Risk Management Committee conducts cross-sectoral risk management across the entire NDK group and conducts monitoring that includes subsidiary risk management status.
（4）The Compliance Committee considers and maintains NDK group company compliance frameworks and notifies and familiarizes NDK group companies with compliance matters. Furthermore, the scope of the whistleblowing system in the Whistleblowing Rules covers the entire group. We ensure whistleblower protection and maintain informer secrets. Additionally, we maintain a compliance promotion officer in each group company.
（5）The Auditors and the Internal Audit Office conduct audits of the status of NDK and each group company.

6．Frameworks for staff when an Auditor requests staff to assist in those duties, and
frameworks concerning the ensuring independency of the staff member and the effectiveness of directions from the Director to the staff

When an Auditor needs staff to assist in Auditor duties, an Auditor Assistant (staff) is placed under that Auditor. To ensure the independence of that staff and the effectiveness of directions to that staff, the Standing Auditor must issue prior authorization concerning decisions on human resources related matters such as appointment, transfer, etc. Additionally, performance reviews are designated as being conducted by the Standing Auditor.

7．Frameworks for Directors and staff members to report to Auditors, and frameworks for other reports to Auditors

（1）We maintain a framework for the Directors and staff members of each company to report promptly to an Auditor if matters arise, or could potentially arise, that impact the operations or performance of NDK or the NDK Group, or if a Director or staff member of NDK or an NDK Group company discovers illicit conduct.
（2）The scope of the whistleblowing system in the Whistleblowing Rules covers the entire group. We ensure whistleblower protection and maintain informer secrets. Additionally, the whistleblower administrator issues periodic reports to NDK Auditors regarding the status of whistleblowing from NDK Group Directors and staff members.
（3）To better assess the process of important decision-making and the enforcement status for operations, the Auditors are present at important meetings, such as the Board of Directors meetings and the Executive Officer Committee.

8．Other frameworks for ensuring the effectiveness of audits by Auditors

（1）Auditors periodically exchange information and opinions with the Representative Director, maintain close linkage and share information with the Internal Audit Office, and conduct effective audits concerning company operations, financial status, and other matters.
（2）Furthermore, Auditors maintain close linkage with Accounting Auditors, exchange opinions and information concerning accounting audit results, and conduct rigorous and efficient audits.
（3）If, concerning the enforcement of duties, an Auditor issues a request for advancement of expenses, etc. to NDK pursuant to Article 388 of the Companies Act, NDK will deliberate in the responsible department. It is designated that NDK will promptly process the expenses or accounts payable, unless it can be judged that the expenses or accounts payable in the request are not required for the enforcement of the duties of that Auditor.

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