Corporate Governance

Based on the Our Philosophy (Purpose, Vision, Value Creation Process) and The Japan Steel Works Group Basic Sustainability Policy, we recognize that it is essential to earn the trust of all stakeholders, including shareholders, customers, business partners and employees, in order to simultaneously create social value and enhance sustainable corporate value. As such, we will continue to strengthen corporate governance to ensure the transparency, soundness and effectiveness of management.

We have established Corporate Governance Policy of The Japan Steel Works, Ltd. for the purpose of indicating the basic approach to corporate governance.

▼Corporate Governance Policy of The Japan Steel Works, Ltd.

Overview of Corporate Governance Structure

The Japan Steel Works, Ltd. (“the Company”) has adopted the structure of a company with an audit and supervisory board.
The Board of Directors consists of ten directors (five of whom are outside directors) and the Audit & Supervisory Board consists of four Audit & Supervisory Board members (two of whom are outside Audit & Supervisory Board members).
The term of office for directors is set at one year. The Company has also introduced an executive officer system that separates management decision-making and supervisory functions from business execution functions conducted by executive officers, thereby speeding up decision-making, strengthening supervision and improving business execution. Since April 1, 2023, the Company has implemented a system that, in principle, ensures that in the case of head office divisions directors and executive officers, and for business divisions executive officers and other employees, are each responsible for oversight and business execution for the tasks they are delegated or assigned by the Board of Directors. This clearly delineates business execution of the business divisions from supervision by the Board of Directors.
Audit & Supervisory Board members attend important meetings including those of the Board of Directors, the Executive Board and the Management Council. Once every fiscal half in principle they visit plants, sales locations and Group companies, and receive reports on necessary information from each division. They also exchange opinions with directors, executive officers and other keypersons, and based on these exchanges, advise management from an objective and impartial standpoint, while strictly monitoring the execution of duties by directors.

Reasons for adopting a corporate governance structure

Each director reports the status of business execution at important meetings such as the Board of Directors Meeting, Management Strategy Meetings, and Division Performance Report Meetings, thereby ensuring mutual supervision among directors. Executive officers (9, including 3 concurrently serving as directors) are appointed by the Board of Directors and are responsible for business execution and decision-making related to business execution within the scope of their mandate, and report on the status of business execution at the aforementioned Management Strategy Meetings and Division Performance Report Meetings, etc. The directors' supervision of the executive officers' business execution is ensured. In addition, outside directors attend meetings of the Board of Directors and Liaison Councils of outside officers to participate in management decision-making and provide opinions on management from an objective and neutral standpoint.

Each corporate auditor may attend the important meetings mentioned above and other meetings, and regularly conducts audits of head office divisions, business divisions, and group subsidiaries. In addition, each corporate auditor receives reports from each division on risk management, compliance, etc., as necessary, and exchanges opinions with each director, executive officer, and key employees as appropriate, in order to gain an understanding of the directors' execution of their duties and to provide opinions to the directors at the above meetings from an objective and neutral standpoint.

Based on the above, we have adopted the current corporate governance system because we have a system that can adequately fulfill the monitoring function of management.

Corporate Governance Structure

• The Liaison Council of Outside Officers was established as a venue to provide outside officers with advance explanations about the agenda for Board of Directors meetings, and as a forum for outside directors and executive officers to verify, report on, and exchange opinions about business execution.

Building a Stronger Governance System

Role and Composition of Governance Bodies

Board of Directors

Executive Board

Remuneration Advisory Committee

Nomination Advisory Committee

Management Council

Audit & Supervisory Board

Liaison Council of Outside Directors and Outside Corporate Auditors

Major Matters Discussed at the Board of Directors Meetings in FY2023

• • New medium-term management plan JGP2028
  • Revision of Nomination and Remuneration Advisory Committee regulations
  • Review of cross-shareholdings
  • Evaluation of the effectiveness of the Board of Directors
  • Organizational culture reform
  • Risk management
  • Human capital/talent development strategy
  • Integrated report
  • R&D framework
  • Report on the status of compliance line operations
• • Status of operations of internal control systems
  • Measures to prevent recurrence of inappropriate conduct
  • Basic Sustainability Policy
  • Executive appointments and governance structure
  • Feedback on IR/SR activities
  • Analysis on the exercise of voting rights
  • Progress report on digital transformation promotion
  • Business portfolio with an awareness of capital costs
  • Corporate governance report
  • Skill matrix

Reasons for Appointment of Outside Directors

JSW believes that the function and role of outside directors in corporate governance is to strictly supervise the execution of duties by directors and to make management judgments and decision-making from a neutral and objective standpoint with no conflict of interest with the Company, and from an independent standpoint with no risk of conflict of interest with general shareholders. To that end, the Company has appointed five outside directors.
The roles expected of outside directors are stipulated in the Corporate Governance Policy.

Succession Planning for the President and Procedures for Selection and Dismissal

• Formulation and Implementation of Succession Plan for the President

  With respect to the formulation and implementation of the succession plan for the president, the Nomination Advisory Committee holds appropriate discussions, considering the qualities of the candidate, such as experience, ability and character, based on the JSW Philosophy and management strategies, and reports to the Board of Directors as necessary.

• Appointment Criteria and Procedures

  The appointment of the president is decided by the Board of Directors after receiving a report from the Nomination Advisory Committee based on the succession plan.

• Dismissal Criteria and Procedures

  Dismissal of the president is decided by the Board of Directors if circumstances make it difficult for the president to carry out his or her duties, or if his or her suitability comes into question, after receiving this recommendation from the Nomination Advisory Committee.

Support for Outside Directors and Officer Training

• Support for Outside Directors

  For the purpose of deepening their understanding of JSW Group, outside directors are provided with information on the Group's business, finances, organization and other topics at appropriate times after assuming office. In addition, the General Affairs Division at the head office serves as the secretariat for the monthly meeting of the Liaison Council of Outside Officers, which provides outside officers including Outside Audit & Supervisory Board members, with advance briefings on matters to be resolved or deliberated at meetings of the Board of Directors, reports on the state of operations and important management matters of the Company and its Group, and provides opportunities for question-and-answer sessions.
  They also attend the president's report meetings at each plant twice a year where they are given the opportunity to observe work on-site and meet with plant management. Moreover, outside officers also receive materials at least three days prior to Board of Directors meetings, separate to the aforementioned advance briefings provided at meetings of the Liaison Council of Outside Officers.

• Officer Training

  In order to deepen the understanding of the roles and responsibilities required of directors and Audit & Supervisory Board members, the Company invites outside experts to lead study sessions as needed.
  In addition to the above, opportunities for inside officers to participate in external training, workshops, and programs are provided as-needed on an ad hoc basis.

Evaluation of Board of Directors' Effectiveness

The Board of Directors continues to enhance its functions by conducting an annual questionnaire-based analysis and evaluation.
The following is a summary of the analysis and evaluation for fiscal 2023.

Analysis and evaluation methodology

• (1) During February 2024, an anonymous questionnaire was administered to all directors and Audit & Supervisory Board members. The planning of the subjects covered and the collection and tabulation of the survey results were outsourced to a third-party organization.

• (2) The Board of Directors Secretariat compared the results of the questionnaire with previous evaluations, and recompiled and analyzed the results, including identifying subjects given low evaluations and extracting important comments from the open-ended responses. In addition, the secretariat compiled and analyzed data on discussion times in fiscal 2023 and verified differences between annual activity plans and actual results.

• (3) At the March and April 2024 Board of Directors meetings, the board discussed its effectiveness from the perspective of improving the medium-to-long-term corporate value of the entire Group, based on the compiled results of the questionnaire, the re-tabulation and analysis of those results by the Board of Directors Secretariat, and advice from a third-party organization.

Results of the FY2022 Analysis and Evaluation and an Overview of FY2023 Initiatives

In response to the four issues identified in the fiscal 2022 effectiveness evaluation, the Board of Directors proceeded forward with the following actions in fiscal 2023. As a result, the effectiveness evaluation for fiscal 2023 confirmed that improvements have been steadily made for each of the issues and that effectiveness has been generally ensured.

FY2023 Analysis & Evaluation Results and Future Initiatives

Based on the fiscal 2023 effectiveness evaluation and the Group’s Materiality, we identified the following as major issues to be addressed in fiscal 2024.

Evaluation of the Audit & Supervisory Board's Effectiveness

The Audit & Supervisory Board evaluates its own effectiveness so as to clarify areas of its activities that require consideration or improvement. These are then reflected in audit plans for the following fiscal year. By doing so, the board aims to improve the quality of its audits and its effectiveness overall.
As part of the evaluation, the four Audit & Supervisory Board members, the president, one outside director, and the general manager of the Internal Auditors Office, answer a questionnaire about the effectiveness of the board's responsibilities, composition, and operations; Group audits; interaction with the Board of Directors; its three-way audits; and internal controls.

Fiscal 2023 evaluation results verified that audit activities were generally implemented appropriately and effectively in response to the areas for improvement raised in the previous year’s reflection, which were (1) ensuring diversity and expertise by appointing a female certified public accountant as an auditor, (2) exchanging opinions with auditors of major subsidiaries for Group governance, (3) conducting regular exchanges of opinion with outside directors (four times a year), and (4) providing recommendations for establishing an ERM system and reporting to the Board of Directors.
Meanwhile, areas for improvement for the next fiscal year include (1) providing recommendations for further enhancement of internal control audits and reporting to the Board of Directors, (2) regular consultations with subsidiary auditors for Group governance, (3) exchanges of opinions with outside directors on important topics, (4) bolstering cooperation in the three-way audit, and (5) strengthening audits related to ERM efforts, information security, and compliance, all of which we will strive to improve.

As audit policies for fiscal 2024, we are actively (1) auditing internal controls of the corporate group from the perspective of group management and group governance, (2) verifying proper companywide risk control based on the three lines model, (3) focusing on the construction and operation status of internal controls and the state of efforts in each department during the term as well as following up on these and the execution status of the PDCA cycle in business execution at the end of the term, (4) developing a cooperative system with JSW Group auditors, and (5) bolstering cooperation with the Internal Auditors Office and accounting auditors.

Officers' Remuneration

The Company’s policy for determining the directors’ remuneration (the “policy for determining”) was partially revised at the Board of Directors meeting held on April 5, 2024, with the aim of enhancing incentive effectiveness for achieving the medium-term management plan JGP2028 and further promoting shared interests with shareholders.

(Outline of the revision of the policy for determining and review of the officers’ remuneration system)
The Company has eliminated bonuses across the board and increased the proportion of stock-based remuneration as a longterm incentive for representative directors. The Company has also changed evaluation indicators for performance- and resultslinked remuneration (variable remuneration) to include consolidated operating income, consolidated ROE (return on equity), and results of medium-to-long-term initiatives. These changes are designed to fortify incentives (short and medium-to-long term) to achieve the JGP2028 medium-term management plan.

Analysis and Evaluation Method

• Basic Policy for Directors’ Remuneration

  The maximum amount of directors’ remuneration is decided by resolution of the General Meeting of Shareholders.
  The basic policy is to set remuneration that provides sound incentives for sustainably enhancing corporate value, at a level corresponding to respective roles and responsibilities, and that ensures fairness and transparency in remuneration-related decision processes.
  The Company regularly verifies the appropriateness of the level and composition of directors’ remuneration based on benchmarks from companies of similar size and relevant industry/type and salary levels of the Company’s employees.

• Procedures for Determining Directors’ Remuneration

  The directors’ remuneration is determined by the Board of Directors after receiving a report from the Remuneration Advisory Committee. However, the allocation of annual remuneration by position and individual allocation may be delegated to the president by resolution of the Board of Directors. In this case, the president makes decisions in accordance with the content of the report.

• Composition of Directors’ Remuneration

  The composition and percentage breakdown of directors’ remuneration are as follows:

  

  • (1) Representative director & president and representative director & executive vice president
    The composition shall be annual remuneration (1) base portion, (2) companywide performance-linked portion, and (3) efforts to improve medium-to-long-term corporate value and stock-based remuneration.
    The approximate ratio of fixed remuneration (1) base portion: variable remuneration (2) and (3): stock-based remuneration is 55:33:12.
  • (2) Inside directors
    The composition shall be annual remuneration ((1) base portion, (2) companywide performance-linked portion, (3) results-linked portion, and (4) efforts toward medium-term action plan items and quality/safety/compliance initiatives as medium-to-long-term measures) and stock-based remuneration.
    The approximate ratio of fixed remuneration ((1) base portion): variable remuneration ((2), (3) and (4)): stock-based remuneration is 60:30:10.
  • (3) Outside directors
    Outside directors, who are responsible for supervisory functions, shall be paid only fixed remuneration (base portion of annual remuneration) in consideration of their independence from management, objectivity, and in light of their supervisory duties, which include mutual checks on directors.

  

• Matters Relating to the Method of Calculation of Directors’ Remuneration, etc.

  The summary of each type of remuneration is as follows. Variable remuneration is calculated by comparing actual performance against quantitative evaluations such as companywide performance and results-linked portions, as well as qualitative assessments of efforts contributing to medium-to-long-term growth and other indicators, and multiplying the percentage of achievement by the base amount of remuneration for each position.

  • (1) Base portion
    The base portion is fixed remuneration determined on the basis of the particular position and the number of years the position has been held by the individual.
  • (2) Companywide performance-linked portion
    The companywide performance-linked portion is variable remuneration that is determined on the basis of the consolidated performance of the previous fiscal year and consists of a consolidated operating income portion and a consolidated ROE (return on equity) portion.
    This indicator was selected because of its importance in terms of indicating how performance directly links to the companywide performance targets in the medium-term management plan.
  • (3) Results-linked portion
    The portion linked to results is determined as variable remuneration based on the performance evaluation for the previous fiscal year of the division for which the director is in charge.
  • (4) Evaluation of representative directors’ efforts to improve medium-to-long-term corporate value
    The Company consults the Remuneration Advisory Committee on the results of efforts to achieve Materiality (Creating Value and Solving Social Issues through JSW Group’s Businesses and Bolstering JSW Group’s Management Foundation for Sustainable Growth), which it then reviews and incorporates into remuneration.
  • (5) Evaluation of inside directors’ efforts toward medium-tolong-term measures
    The Company consults the Remuneration Advisory Committee on the results of efforts toward medium-term action plan items and quality/safety/compliance initiatives, which it then reviews and incorporates into remuneration.
  • (6) Stock-based remuneration
    Stock-based remuneration is granted in the form of restricted transferable shares as remuneration for the purpose of providing medium-to-long-term incentives to increase corporate value and to further the sharing of value with shareholders. The number of shares to be allocated shall be the number of shares obtained by dividing the standard amount by position according to the director’s position by the closing price of the Company’s shares on the Tokyo Stock Exchange on the day before the date of resolution by the Board of Directors regarding the execution of the restricted stock remuneration allocation agreement.
    Moreover, in consideration of the period of time it takes management measures to contribute to business performance, the restricted transfer period is set by the Board of Directors in advance for a period between three and five years (currently five years in accordance with the five-year medium-term management plan JGP2028).
• Remuneration for Audit & Supervisory Board Members, etc.

  The remuneration of each Audit & Supervisory Board member shall consist only of fixed remuneration (base portion of annual remuneration) from the viewpoint of emphasizing independence and objectivity with respect to management.

Group Governance

JSW Group consists of The Japan Steel Works, Ltd. and 44 subsidiaries (32 consolidated, 12 non-consolidated).
The Group operates the Industrial Machinery Products Business, Material and Engineering Business, and other businesses in Japan and around the world.

For Group companies, the JSW business division with primary responsibility leads the formulation of management policies and short- and medium-term management plans and monitors their progress. In order to enhance the effectiveness of these efforts, we assign full-time or part-time directors or Audit & Supervisory Board members with the responsibility of supervising and auditing the execution of duties at Group companies, in principle, thereby ensuring that the execution of duties by directors, etc., and employees at Group companies complies with laws and regulations and the Articles of Incorporation. In addition, regarding risks relating to specific functions, such as quality control, health and safety, environmental management, and export control administration, each Group company participates in the various committees formed by the relevant divisions of the Company, or follows the regulations developed by the Company, and appropriately manages these risks.

Each company in the Group also appoints individuals to be in charge of general affairs, accounting, and IT matters related to internal control. The appointed individuals receive guidance and training from the Internal Control Committee Office and conduct self-assessment of implementation and operation of internal control in step with risk assessment.
The status and results of the self-assessment of internal control operations are systematically reported to the office and each company. The Internal Audit Division also monitors the governance and risk management status of each company by directly or indirectly auditing the status of each company and the methods and results of self-assessments.

The whistleblowing system will operate not only for domestic Group companies but is being rolled out sequentially for other international Group companies as well, starting with China.

Cross-Shareholdings