Corporate Governance

Basic Views

In order to fulfill our social responsibility as an enterprise and to realize the corporate philosophy of NH Foods Group (the “Group”), NH Foods Ltd. (“we”, “us”, “our” or the “Company”) has established the most optimal corporate governance system based on the Fundamental Policy on Corporate Governance.
The principles of operation of the Group are to enhance its management transparency and efficiency, to ensure timely and proper decision-making as well as appropriate business operations, to enable proactive and courageous business judgments, and to clarify its responsibility.

NH Foods Group Fundamental Policy on Corporate Governance [534KB / 39 pages]

Corporate Governance System

Directors and the Board of Directors

The Company clarifies that responsibility and authority regarding the management supervisory function lies with directors and responsibility and authority regarding the business execution function lies with executive officers. We have set the number of directors to at least three but no more than 12 to ensure prompt and proper decision making and minimize the scope of liability of that body. We also appoint more than one outside director to ensure transparency. Currently, the Board comprises eight directors (seven men and one woman), which includes three outside directors. A director’s term is one year for the purpose of facilitating annual accountability.

The Board of Directors is held once each month wherein the Chairperson and Director serves as the Chairperson, and makes decisions on the matters set forth in the laws, regulations, and the Articles of Incorporation, as well as other important matters.

The Board of Directors convened 18 times during the fiscal year ended March 31, 2023

Audit & Supervisory Board Members and the Audit & Supervisory Board

The Audit & Supervisory Board carries out part of the supervisory function of the Company in cooperation with the Board of Directors. As an independent body entrusted by shareholders, it audits the execution of duties by directors.

We have set the number of Audit & Supervisory Board members to at least three but no more than five to enable it to fully perform its supervisory function toward the Board of Directors. Also, in principle, over half of the members are outside Audit & Supervisory Board members. Currently, the Board comprises five members (all men), which includes three outside members.

The Audit & Supervisory Board should comprise individuals who have expertise in finance, accounting, and legal affairs, and there should be at least one member who has appropriate knowledge of finance and accounting in particular. The Audit & Supervisory Board meets at least once a month and discusses important matters concerning auditing.

Optional Committees

To enhance the objectivity and transparency of management, the Company has established the following optional committees as advisory bodies to the Board of Directors.

Body No. of members
(male/female)
Chair Objective and other details
Compliance Committee 10
•8 inside officers (8/0)
•2 outside officers (1/1)
President and Representative Director To ensure thorough compliance and raise society’s trust in the Group by comprehensively confirming and reviewing Groupwide compliance and making proposals to the Board of Directors and management committees.
Sustainability Committee 13
•7 inside officers (7/0)
•6 outside officers (4/2)
President and Representative Director To comprehensively review the sustainability initiatives of the Group, and report and make proposals to the Board of Directors.
Executive Appointments Committee 4 outside officers (3/1) Outside director To strengthen the supervisory function of the Board of Directors by enhancing the transparency and objectivity of decisions on the selection of candidates for the positions of representative director, director, and Audit & Supervisory Board member, as well as discussions regarding the dismissal and/or removal of the President and Representative Director and other management members (executive directors and executive officers).
Compensation Committee 4
•1 inside officer (1/0)
•3 outside officers (2/1)
Outside director To strengthen the supervisory function of the Board of Directors by enhancing the transparency and objectivity of decisions regarding compensation for corporate officers (including executive officer)
Board of Independent Officers, Chairperson and President 9
•3 inside officers (3/0)
•6 outside officers (5/1)
To facilitate exchanges of opinion among independent officers and representative directors as a forum for making proposals regarding improvements to the Group’s corporate value and reforms to corporate culture.
Board of Independent Outside Officers 6 outside officers (5/1) Outside director To facilitate discussions between independent directors and Audit & Supervisory Board members as a forum for exchanging information and sharing understandings from an independent and objective perspective.
Internal Control/JSOX Committee 19
•19 inside officers
(19/0)
Officer appointed by the President and Representative Director To evaluate the effectiveness of internal controls at all Group companies and internal controls concerning business processes, as well as to report the results of these evaluations to the Board of Directors and members of management as a basis for manager evaluations.
Risk Management Committee 13
•13 inside officers
Officer appointed by the President and Representative Director To discuss issues and measures concerning risk management (risk prevention and rapid response to business emergencies) and to report matters under consideration by the Committee and the results of discussions to the Board of Directors or at Management Strategy Committee with the aim of contributing to the management of the Group.

Reasons for Election

Outside Directors

Yasuko Kono
Since Ms. Yasuko Kono has considerable experience and knowledge in consumer issues, the Company expects her to make useful recommendations not only with regards to management in general, but also in relation to propulsion and execution of NH Foods Group “The Five Materialities” which are set as social issues to be addressed in order to realize NH Foods Group “Vision 2030” which was developed as a milestone towards the realization of corporate philosophy. Based on the above, the Company determined that Ms. Kono is an appropriate individual as an Independent Outside Director supervising business execution and continues to appoint her as an Outside Director candidate.
Hideo Arase
Since Mr. Arase served as a director responsible for overseas business at a major medical equipment manufacturer and has considerable experience and in-depth knowledge in global business management dealing with changes, the Company expects him to make useful recommendations not only with regards to management in general, but also in relation to “Establish a growth model for Overseas Business” which is a business policy in the “Medium-Term Management Plan 2023” which was developed from a backcasting perspective, in order to realize NH Foods Group “Vision 2030” which was developed as a milestone towards the realization of corporate philosophy. Based on the above, the Company determined that Mr. Arase is an appropriate individual to be an Independent Outside Director supervising business execution and continues to appoint him as an Outside Director candidate.
Tokushi Yamasaki
Since Mr. Yamasaki has expert viewpoint and considerable experience as a corporate analyst, the Company expects him to make useful recommendations not only with regards to management in general, but also in relation to “Shifting to a sustainable business model with profitability” which is a business policy in the “Medium-Term Management Plan 2023” developed from a backcasting perspective, in order to realize NH Foods Group “Vision 2030” which was developed as a milestone towards the realization of corporate philosophy. For these reasons, the Company determined that Mr. Yamasaki is an appropriate individual as an Independent Outside Director supervising business execution and continues to appoint him as an Outside Director.

Audit & Supervisory Board Member (Outside)

Akihiko Shiba
Akihiko Shiba provides advice in a timely manner to ensure the legality and appropriateness of Group management from an objective and fair perspective based on his expert standpoint and abundant experience as an attorney-at-law. He has also served as a member of the Executive Appointments Committee.
Masayuki Kitaguchi
Masayuki Kitaguchi provides advice in a timely manner to ensure the legality and appropriateness of Group management from an objective and fair perspective based on his expert standpoint and abundant experience as an attorney-at-law and certified public accountant. He has also served as an observer at meetings of the Compliance Committee.
Shigeru Nishiyama
Shigeru Nishiyama provides advice in a timely manner to ensure the legality and appropriateness of Group management from an objective and fair perspective based on his expert standpoint and abundant experience as a certified public accountant and a graduate school professor. He has also served as a member of the Sustainability Committee.

Evaluation of Effectiveness of the Board of Directors

The Company has conducted analysis and evaluations of the effectiveness of the Board of Directors in accordance with the NH Foods Group Fundamental Policy on Corporate Governance since FY2015 with the aim of improving the effectiveness of the Board by identifying issues concerning its structure and operation.

NH Foods Group Fundamental Policy on Corporate Governance [534KB / 39 pages]

Evaluation Process

Each year, we carry out a questionnaire survey of all directors and Audit & Supervisory Board members. Also, in order to ensure that officers can be honest with their opinions and to realize objective analysis, responses are delivered directly to a third-party evaluation organization without passing through an internal secretariat. We also conduct interviews with a number of directors.

At a meeting of the Board of Directors on April 28, 2022, there was an exchange of opinions based on a report containing the objective analysis and assessment of the third-party evaluation organization. Analysis and assessment of the Board of Directors was conducted at the Board meetings held on May 6, June 10, and June 24 using the results of the exchange of opinions as a reference.

Response to issues identified in the previous fiscal year
(1) Members and operation of the Board of Directors
(2) Management strategy and business strategy
(3) Corporate ethics and risk management
(4) Evaluation and compensation of the members of management
(5) Communication with shareholders

Evaluation of effectiveness in FY2021 [4.4MB / 14 pages]

Officer Compensation

Basic Policy

The purpose of the officers compensation system at the Company is to further clarify the linkage between officers, compensation and Company’s business performance/shareholder value and to provide an incentive for enhancing corporate value over the medium-to long-term with the aim of realizing the corporate philosophy. System development, compensation levels, system operation, etc., are to be deliberated on by the Compensation Committee, with an independent outside director acting as chairperson, and with the final decision to be made by the Board of Directors. Regarding compensation levels for each individual officer, the reasonableness of these levels is verified every year with reference to the investigation results, etc., of third-party organizations.

Summary of Director Compensation

Compensation for directors (excluding outside directors) comprises monetary compensation (basic compensation and performance-based compensation) and performance-based stock compensation.

Performance-based compensation is not only determined by the fiscal year’s business results. Evaluations of efforts and progress toward achieving the materiarities linked to sustainability are also considered. Non-financial items linked to the environment, society, and the enhancement of governance are also included in the scope of evaluation. Out of the management issues that are factored into annual incentives based on the previous year's results (about 40%), non-financial evaluation items count for about 50%.

Performance-based stock compensation includes malus (reduction of an amount of rights granted but yet to be exercised) and clawback (return of an amount of rights that have been exercised) provisions. These provisions can be exercised in the event of one of the predetermined triggers that include certain wrongdoings, such as a serious breach of duties or material violation of the internal rules. The stock-based compensation subject to return under these provisions shall be the whole or a part of compensation for the fiscal year in which such wrongdoing takes place.

When introducing the plan, we adopted a board benefit trust system for officers in which a set amount of shares in the Company are acquired by a trust using monetary contributions from the Company, and these shares are delivered to recipients, such as directors who are in office during the eligibility period, through the trust.

Plan for the Development of Next-Generation Executives (Selection, Training, and Transfer)

Human-Resources Characters Required for Executives

The Group is working to continuously enhance corporate value by establishing the Plan for the Development of the Next-Generation Executives and defining five Human Resources Characteristic Required for Executives (integrity, devotion, deliberation, endeavor, and empathy). The assessment of corporate officers involves executive officers creating a commitment sheet that incorporates these five requirements, followed by an interview with the President during which the setting and achievement of targets is confirmed. NH Foods Ltd. is also working to cultivate the next-generation of human resources who possess the five requirements by introducing programs such as a selection, training, and transfer program and an executive behavioral characteristic analysis program on a company-wide basis. First, we will enhance the pool of potential executives by revising human resources systems, to create more opportunities for potential next-generation leaders.

Developing Next-Generation Executives

The Group implements next-generation executive planning initiatives in accordance with the process in the Guidelines for Strategic Development of Managerial Human Resources to Improve Corporate Value released by the Ministry of Economy, Trade and Industry. Our plan started in 2018 and as of May 2022, we are engaged in Phase 4 – “Evaluation of the results of development, and reassessment and reevaluation of related measures.” In fiscal 2021, our new executive officers participated in a young managers forum with a view to cultivating next generation executive experience and creating useful contacts outside of the Group.

As part of our newly established training programs for officers, we plan to hold talks on the latest trends in corporate governance at meetings of the Board of Directors and talks by excectives at meetings of the Corporate Executive Committee. We are also introducing a voluntary program for officers run by an external educational institution so that officers can continue to improve their abilities after being appointed and can maintain and further develop the five requirements of our excectives.

Additionally, NH Foods Ltd. is conducting 360-degree evaluation for employees who are the heads of major departments and divisions or above, which incorporates feedback from superiors, peers, and people working under them. These are useful for self-development.

We are carrying out succession planning for CEO and management positions through measures such as disclosing our requirements of executives, applying various external assessment systems, and carrying out education and training. Each year we make improvements, and the details of these improvements are discussed by the Executive Appointments Committee and confirmed by the Board of Directors.

Internal Audits and Group Governance

Internal Audits and Audits by Audit & Supervisory Board Members

The implementation of internal audits has been assigned to 20 employees of the Audit Department and is carried out in coordination with Audit & Supervisory Board members and accounting auditors. These audits include site visits to plants, business offices, and other facilities, as well as at both domestic and overseas subsidiaries, to evaluate their accounting and business operations. The results of internal audits are reported to the Board of Directors. Accounting auditors evaluate the effectiveness of internal controls by holding discussions with the Audit Department to gauge the status of internal audits. They also exchange information concerning audit results.

With regard to audits by Audit & Supervisory Board members, members attend meetings of the Board of Directors, Management Strategy Committee, and other boards and committees in order to confirm business execution by directors. Each quarter, Audit & Supervisory Board members also exchange opinions and proposals with the President and Representative Director, and exchange opinions with outside directors.

Also, in order to monitor the status of business execution, in principle, at least one full-time Audit & Supervisory Board member and one outside Audit & Supervisory Board member participate in interviews with directors twice per year, and executive officers and the heads of major departments and divisions once per year, in order to confirm the situation regarding matters such as business execution, governance and compliance initiatives, workstyle reform, and human resources development. Audits of domestic and overseas Group companies are conducted annually at key business sites mainly selected based on an audit plan formulated at the beginning of each fiscal year, and biannually at other sites. During these audits, interviews are held regarding matters such as the progress of business execution, response to material risks, compliance initiatives, progress on workstyle reform, and requests for the Group. Audit & Supervisory Board members receive a report from internal audit departments once per month with the accounting auditor and the internal audit departments, and observe audits by the internal audit departments and audits by the accounting auditor (including the year-end inventory audit).

The Group Audit & Supervisory Board Members’ Office was established in April 2021 to strengthen the Group’s auditing and internal control functions by facilitating audits of Boards of Directors at subsidiaries by said subsidiary’s Audit & Supervisory Boards and strengthening coordination with relevant departments. It aims to establish an appropriate overall audit framework at each subsidiary and cultivate human resources for building the organizational bodies needed to implement audits. The office coordinates with the Audit Department and Audit & Supervisory Board members to conduct preparatory training for newly appointed Audit & Supervisory Board members at Group companies and support the development of new auditing tools, as well as to facilitate information sharing aimed at improving the quality and effectiveness of audits.

Main Roles and Duties of the Audit & Supervisory Board and Its Members

Item/Audit target Details Full-time Outside
Oversight and auditing of the Board of Directors Attended Board of Directors meetings (18 times)
Auditing of business execution by directors Interviewed the President and Representative Director (4 times, 2 hours each time)
Exchanged opinions with outside directors (4 times, 2 hours each time)
Interviewed executive directors, executive officers, and general managers of major divisions, excluding the above (33 times)
Important meetings other than Board of Directors meetings Full-time Audit & Supervisory Board members attended and shared opinions at meetings
Various Committees Audit & Supervisory Board members attended meetings of committees and other bodies they are responsible for
Internal audit departments Received audit reports (12 times)
Accounting and finance departments Quarterly financial results, accounting auditor activities reports, etc. (7 times)
Accounting auditor Received accounting audit plans, accounting audit reports, reviews of quarterly financial results, etc. (12 times)
Group companies Interviewed representatives of Group companies and thoroughly reviewed documents based on an audit plan as an audit of the Group of companies (40 business locations, including companies that only submitted documents)
Held meetings to exchange opinions with the Group Audit & Supervisory Board Members’ Office and full-time Audit & Supervisory Board members of Group companies (3 times)
Held liaison meetings for the Audit & Supervisory Boards of Group companies (2 times)

Accounting Audits

The Company has concluded an auditing contract with Deloitte Touche Tohmatsu LLC, to carry out audits in accordance with the Companies Act of Japan and the Financial Instruments and Exchange Act. In addition, the department in charge of accounting holds discussions with accounting auditors as necessary with the aim of improving the transparency and correctness of accounting procedures.

Names of CPAs who performed audits Name of Auditing Firm
Koichi Sekiguchi Deloitte Touche Tohmatsu LLC
Takashige Ikeda Deloitte Touche Tohmatsu LLC
Shunsuke Matsumoto Deloitte Touche Tohmatsu LLC

Notes: Assistants who helped with accounting audits included 20 CPAs, 16 CPA-certified individuals, and 37 other individuals.

Cross-Shareholdings

In principle, the Company does not hold shares in cross-shareholdings. However, we may hold shares in cross-shareholdings in cases where it is recognized that cross-shareholding is essential to the sustainable growth of the Group or to improving corporate value, such as for reinforcing alliances in order to maintain business transactions and expand our business, and for smooth fund raising.

Once a year, we review all cross-held shares and closely examine whether factors such as the benefit of holding these shares, the risk of stock price fluctuations, and the credit risk of the issuing company are worth the capital cost, and then comprehensively determine whether holding such shares is appropriate or not.

If we determine that holding certain shares has become less necessary, we will dispose of such shares in an appropriate manner, taking into consideration matters such as stock price and market trends. There are also cases where even though the holding of certain shares has been recognized as significant, they may be disposed of based upon an agreement with the issuing company. As of the end of March 2023, the total market value of our cross-shareholdings was approximately ¥22.9 billion. This amounts to around 2.4% of consolidated assets, which we recognize is not a large proportion, but we will continue to review and shrink all our current investments.

Corporate Governance Report

Corporate Governance Report [648KB / 44 pages]

Table for Implementation Status of the Corporate Governance Code

Table for Implementation Status of the Corporate Governance Code [516KB / 19 pages]