Corporate Governance Initiatives
Toward further strengthening of the corporate governance system
Strengthening corporate governance is one of the highest priority management issues that we are tackling at Nishimatsu Construction. In FY2016, we transitioned into a company with an Audit and Supervisory Committee and worked to ensure the efficacy of the oversight functions of the Board by bringing in Audit and Supervisory Committee members as part of the Board. In FY2021, we began implementing a Company President Succession Plan and Next-generation Manager Training Plan. In FY2022, we are working to strengthen our management supervision function by inviting two persons with management experience at listed companies to serve as external directors. Through these efforts, we will strive to further strengthen our corporate governance system.
Characteristics of Corporate Governance
Composition of the Board of Directors and Audit and Supervisory Committee
The Company’s Board of Directors is comprised of six executive directors and four directors who are Audit and Supervisory Committee members. Five of the Executive Directors are General Managers and one is an external director (who has management experience at a listed company). The Audit and Supervisory Committee comprises one full-time internal director and three external directors (one has experience at a general trading company, one is a certified public accountant, and one has management experience at a listed company). As such, all of these external directors possess specialized knowledge in fields considered to be important for business management.
Currently, the ratio of external directors on the Board of Directors is 40%. Going forward, we will continue verifying the skill sets of those on the Board of Directors and will work to improve the efficacy of the Board.
Selection Criteria for Director Candidates
Candidates for directors shall be selected from those who have a wealth of knowledge, experience, competence, have excellent character and high ethical standards.
Candidates for Executive Directors shall be selected from those who have extensive knowledge and experience in the Civil Engineering Business, Building Business, International Business, Urban Development & Real Estate Business, and who have excellent knowledge of financial accounting.
We will appoint candidates for directors who are Audit and Supervisory Committee members who are judged to be capable of auditing and supervising appropriately, with emphasis on their expertise and background.
External director candidates will be selected with an emphasis on independence, and those with specialized knowledge and experience in corporate management are selected. We also take into consideration the diversity of the Board of Directors.
Reasons for Appointing External directors
| Position | Full Name | Reason for appointment |
|---|---|---|
| External Directors | Hidetaka Matsuzaka | Mr. Matsuzaka possess a wealth of experience during his tenure at Osaka Gas Co., Ltd., and has a broad insight cultivated as Representative Director of the company. We have appointed him as an external director because we believe he is an appropriate person who can supervise our management from an objective point of view. |
| External Directors (Audit and Supervisory Committee members) |
Jun Ikeda | Mr. Ikeda possesses a wealth of experience from his work at Mitsubishi Corporation and also has wide ranging knowledge from serving as representative director and president of a subsidiary of the same company. Since June 2016, he has fulfilled the role of Director and Audit and Supervisory Committee member, monitoring and supervising Nishimatsu Construction’s management from an independent stand point. For these reasons, we deem him to be a suitable human resource for auditing and supervising Nishimatsu Construction’s management from an objective point of view and appointed him an External Director and Audit and Supervisory Committee member |
| External Directors (Audit and Supervisory Committee members) |
Noriko Suzuki | Ms. Suzuki possesses specialized knowledge as a certified public accountant and has a wealth of experience related to accounting in the real estate industry. Therefore, we have appointed her as an External Director and Audit and Supervisory Committee member. |
| External Directors (Audit and Supervisory Committee members) |
Toshihiro Kubo | Mr. Kubo possesses a wealth of experience during his tenure at Kubota Corporation, he also possesses a wide range of knowledge cultivated as Representative Director of Kubota Corporation. We have appointed him as an external director who is a member of the Audit and Supervisory Committee because we believe he is an appropriate person who can supervise our management from an objective point of view. |
Analysis and evaluation of the effectiveness of the Board of Directors
To confirm whether the Board of Directors is appropriately fulfilling its duties of promoting sustainable corporate growth and increasing medium- to long-term corporate value, we analyze and evaluate the Board’s effectiveness once a year and strive to strengthen and improve its functions.
We conducted the FY2021 analysis and evaluation from February 2022 to April of the same year. An overview of the evaluation process, evaluation results, and initiatives going forward is given below.
- (1) Evaluation process
- Led by the Audit and Supervisory Committee, all directors were given a survey with five categories of questions covering: the composition and operation of the Board of Directors, internal control, risk management and compliance, the director compensation scheme, medium-term and long-term management plans, and the Nomination and Compensation Committee. The five items above were issues to be considered in the evaluation of the effectiveness of the Board of Directors for the previous fiscal year, and opinions were also heard on what kind of initiatives are necessary in the future to resolve these issues.
To ensure anonymity, statistical compilation for the survey was entrusted to a third-party organization, then the Audit and Supervisory Committee analyzed and reviewed the data before making a report to the Board of Directors.
- (2) Overview of evaluation results
- The Audit and Supervisory Committee presented its views on the above five items and recommended targets and priorities that should be set and discussions that should proceed systematically in order to achieve concrete results.
- 1Composition and operations of the Board of Directors
It is necessary to form a consensus on how the Board of Directors should be organized, including a verification of its skill set. There is also room for reconsideration of the standards for submitting proposals to the Board of Directors and the presented and reference materials that serve as the basis for judgement.
- 2 Internal control, risk management, compliance
Time should be set aside for more in-depth discussions on internal control, risk management and compliance.
- 3Director compensation scheme
Although performance-linked compensation and stock compensation were introduced in FY2021, it is necessary to continuously review and verify the Director compensation scheme in order to further improve corporate value.
- 4Long-term vision
Discussion of the long-term vision is the most important agenda for realizing our Corporate Philosophy, providing value to stakeholders and transforming into a company with overall capabilities, and it is necessary to secure opportunities for intensive discussion.
- 5Nomination Committee, Compensation Committee
Continued deliberations are needed on the nature, position, and functions of the Nominating and Compensation Committee.
- 1Composition and operations of the Board of Directors
- (3) Initiatives going forward
- In light of the above suggestions and reports, the general manager of the Management Division will work with the Board of Directors Administrative Office (General Affairs Department) to formulate matters to be deliberated and their schedule for the year.
Director Compensation Scheme
Overview of our director compensation scheme
(excluding Audit and Supervisory Committee members)
Compensation for directors (excluding Audit and Supervisory Committee members and other directors who are external directors) is comprised of base compensation and performance-linked compensation. Compensation for external directors (excluding those who are Audit and Supervisory Committee members) shall be limited to base compensation.
Base compensation, as fixed (monthly) compensation determined in accord with the director’s position, is calculated taking into account Nishimatsu Construction’s employees’ salary levels, standard salary levels in the business community, and other factors.
Performance-linked compensation fluctuates according to the degree to which performance targets were met. It includes a base level of compensation in accord with each director’s position, with this base level multiplied by a performance-linked coefficient in order to calculate the final amount. In order to calculate the final amount, evaluation indices covering the director’s contribution to corporate value are set for each position and job title, and the degree to which initial performance targets were met, as well as yearon-year performance are evaluated each fiscal year.
Performance-linked compensation is paid partly in cash, as a short-term incentive, and partly in stock, as a long-term incentive. The cash portion is paid as a bonus in July of each year and the stock portion is conferred every June in the form of conversion points for the Board Benefit Trust. When a director retires from his or her position as director, cumulative points are converted into shares of stock and delivered to the beneficiary.
The ratios of base compensation and performance-linked compensation are appropriately determined taking into account Nishimatsu Construction’s management strategies, business environment, and the level of difficulty of achieving job responsibilities and targets, while also referencing relevant changes at other companies in our industry. Within performance-linked compensation, there is generally a 1-to-1 ratio of cash-based compensation to stock-based compensation. Furthermore, for stock-based compensation, a minimum level is set that is the same as the minimum level for performance-linked compensation.
Based on these policies, the President drafts a preliminary proposal, then consults with the Nomination and Compensation Committee, whose input is taken into account and decided on by the Board of Directors (Base compensation and performance-linked compensation are determined in March and June, respectively, each year).
Overview of compensation scheme for directors who are Audit and Supervisory Committee members
Directors who are Audit and Supervisory Committee members receive only base compensation that takes into consideration the compensation of directors who are not Audit and Supervisory Committee members, as well as the standard salary levels in the business community. Said base compensation is determined through discussions among all directors who are Audit and Supervisory Committee members.
