Corporate Governance

Basic Approach

Nippon Sanso Holdings' Board of Directors has formulated the Principles of Corporate Governance, which provide guidance on corporate governance. Realizing the Company's sustainable growth and long-term increase in corporate value, and benefiting all stakeholders, including shareholders, customers, employees, suppliers, and local communities, involves ensuring the fairness and transparency of decision-making. Moreover, we are working to enhance corporate governance, believing that its essence lies in making effective use of our management resources, and to increase the vitality of management through swift and conclusive decision-making.

• Principles of Corporate Governance

Measures to Strengthen Corporate Governance

Evaluation of the Board of Directors' Effectiveness

Our Principles of Corporate Governance stipulate that the Board of Directors carry out an annual analysis and evaluation of its overall effectiveness based on self-evaluations by each director, and make a summary of the results public in a timely and appropriate manner. The Board of Directors continues to conduct analyses and evaluations of its effectiveness and make constant efforts to enhance it. Based on the overview and results of the Board of Directors' effectiveness evaluation for FYE2023, the Board conducted the following main initiatives in FYE2024.

• Evaluation of the Board of Directors' Effectiveness

Corporate Governance Structure

Nippon Sanso Holdings' governance is characterized by rapid decision-making and appropriate allocation of management resources. This is achieved by delegating authority to the operating companies in each of the four geographic hubs and the Thermos business, which support an industrial gases business model that produces gases on the site of consumption. As a group that has global business operations, supervision of management decisions and business execution requires a multifaceted valuation of a wide range of risks based on expert knowledge informed by close contact with the front lines. We have therefore adopted the “company with an Audit & Supervisory Board” corporate governance model, under which the Board of Directors is responsible for making decisions related to business execution above a certain scale, including M&As and investments, and the Audit & Supervisory Board members themselves audit business activities.

Committee 

Committee	Overview
Board of Directors	Chairperson: President CEO Composition: Nine directors, with a majority of five being independent outside directors. Two of the directors are non-Japanese and two are women. In order to enable accurate management decisions, we consider diversity in the composition of the Board of Directors in terms of skills and experience. The Board meets monthly in general to discuss important matters and receive reports on the status of NSHD’s businesses. The Board also supervises the execution of business by the President CEO.
Audit & Supervisory Board（ASB）	Composition: Four full-time members, including three outside members (two of whom are independent outside members) The ASB is an independent body entrusted by the shareholders to audit the decision-making process of directors and the state of business execution by management. The board conducts its business in accordance with applicable laws, regulations, the Company’s Articles of Incorporation, and other rules. Each member of the Board engages in audit activities from a neutral and objective perspective, bringing their expertise to the audit process. The board conducts a detailed discussion of the results of its audit activities, making recommendations as necessary, and strives to ensure sound management. The Board conducts the following types of activities in accordance with audit policies and plans as determined by the board on an annual basis. (i)Attendance at important internal meetings (Board of Directors’ meetings, Management Committee meetings, etc.) (ii)Interviews with directors, executive officers, and other members of senior management. (iii)Inspection of important decision-making documents, etc. (ⅳ) Audits of Japanese and overseas group companies. The Board strives to improve the effectiveness of audits through close coordination with the Company’s internal audit division, internal control division, and accounting auditor. The board also engages in the regular exchange of information and opinions with outside directors. We have established an independent office for the Board. This office is staffed with full-time employees who assist members of the board in their duties and under their direction.
Advisory Committee on Appointments and Remuneration	Chairperson: Katsumi Nagasawa (independent outside director) Composition: President CEO and five independent outside directors The Committee receives requests for advice from the Board of Directors regarding the selection of candidates for directors and Audit & Supervisory Board members, appointment and dismissal of the President CEO and executive officers, selection of the successor to the President CEO, appointment and dismissal of the Chairperson and President in the significant directly owned subsidiaries and revision of internal rules regarding remuneration of directors. The Committee reports the results of its deliberations back to the Board of Directors. Since the majority of the members of the Committee are independent outside directors, it is able to ensure independence from the parent company in the appointment of management team members, thereby helping to ensure transparency and objectivity in the decision-making of the Board of Directors.
Executive Management Committee	Chairperson: President CEO Composition: President CEO, executive officers, and members of the Audit & Supervisory Board Based on the Group’s basic policies as determined by the Board of Directors, the Committee deliberates and makes decisions on important matters related to the execution of duties by the President CEO.
Global Strategy Review Committee (In principle, once a year)	Chairperson: President CEO Composition: President CEO, executive officers, officers, members of the Audit & Supervisory Board and persons appointed by the Chairperson Prior to the making of a resolution on the NSHD Group’s budgets for the next fiscal year, the Committee confirms the details of each operating company’s strategy and deliberates on the optimal allocation of resources across the entire Group. It also formulates the Group’s management strategy and manages its progress. Among items determined by the Committee, specific measures for technical risks are decided at Technological Risk Liaison Committee meetings and other meetings held between NSHD and each operating company, then deployed globally.
Global Risk Management Committee (In principle, once a year)	Chairperson: President CEO Composition: President CEO, members of the Audit & Supervisory Board, Group CCO, executive officers, officers, the persons who are responsible for the regional risk management (operating company presidents etc.), and persons appointed by the Chairperson The Committee deliberates on the selection of the Group’s material risks, matters related to countermeasures, basic policy on risk management for all Group companies, and matters related to regulations and plans. * CCO: Chief Compliance Officer
Global Compliance Committee (In principle, once a year)	Chairperson: Group CCO* Composition: Regional CCO* (Each region; Japan, North America, Europe, East Asia, Southeast Asia ＆ India, Australia, and Taiwan) The Committee is convened in principle by the Group CCO to ensure the effectiveness of the Group’s compliance. At the meetings, the Compliance Promotion Policy and compliance promotion activities in each area are shared, and individual issues are discussed as necessary. * CCO: Chief Compliance Officer

Yearly schedule

Relationship with the Parent Company

We concluded a basic agreement with our parent company, Mitsubishi Chemical Group Corporation (MCG), on May 13, 2014. Under this agreement, MCG committed to respecting our autonomy, supporting and cooperating with us under the MCG Group Management Regulations. In turn, we conduct all business functions independently, including management, finance, sales, and research and development.
In situations where the interests of the parent company conflict with shareholders other than shareholders of the parent company, the directors of Nippon Sanso Holdings act to avoid harm to the interests of the shareholders other than the shareholders of the parent company. We have appointed five independent outside directors and two full-time independent outside Audit & Supervisory Board members. These individuals oversee the Company to ensure there are no conflicts of interest between the parent company and shareholders other than shareholders of the parent company. Furthermore, we have voluntarily established the Advisory Committee on Appointments and Remuneration^*, which ensures independence from the parent company in the selection of a management team. While parent company MCG is a holding company, the Nippon Sanso Holdings Group and Mitsubishi Chemical Corporation, the main operating company of the MCG Group, engage in transactions, totaling ¥7,058 million in FYE2023.

^* This is a voluntary committee of the Company that advises the Board of directors on selection of candidates for directors and Audit & Supervisory Board members as well as the appointment and dismissal of the Representative Director, President CEO and other executive officers.

Appointment of corporate officers

We believe that for the Board of Directors to function effectively it must consist of a diverse team of directors who have a broad range of knowledge and experience in corporate management. Therefore, we have defined the knowledge and experience that play an important role in the management of our group and summarized them in the following skill matrix. We will strive to further enhance the effectiveness of the Board of Directors while placing personnel with these knowledge and experience in the right places at the right time. The Board of Directors requests the Advisory Committee on Appointments and Remuneration for advice on the selection of candidates for director, and the committee creates a list of candidates after giving consideration to the composition of the Board of Directors, the qualities required of directors, and, for those who are to assume important responsibilities, their activities and achievements as director to date. The list is submitted as a proposal to the Board of Directors. In addition, we have established criteria for determining the independence of outside directors and corporate auditors, and selects as candidates for directors and corporate auditors those who meet such criteria.

• Independence Standards for Outside Directors and Outside Audit & Supervisory Board Members
• Members of the Board of Directors, Audit & Supervisory Board Members, and Executive Officers
• Skills Matrix of Corporate Officers

Remuneration for Officers

Remuneration for directors and Audit & Supervisory Board members is determined by resolution at the annual General Meeting of Shareholders in line with the total compensation limits for directors and Audit & Supervisory Board members. The amount of remuneration for each director is determined in accordance with the remuneration standard resolved at the Board of Directors by the Representative Director, President CEO, who is delegated by the Board of Directors, while remuneration for each Audit & Supervisory Board member is determined by discussion among the Audit & Supervisory Board members. We have established the Advisory Committee on Appointments and Remuneration, which comprises multiple independent outside directors and the President CEO and is chaired by an outside director. The committee deliberates the appropriateness of remuneration proposed after being consulted by the Board of Directors and the Audit & Supervisory Board and reports the results of its deliberations to the Board of Directors and the Audit & Supervisory Board. Directors' remuneration consists of "basic monthly remuneration," which is fixed by rank, "performance-linked bonuses," which is linked to business performance, and "non-financial KPI-linked bonuses," which is linked to the achievement rate of lost time injury frequency rate and rate of receiving compliance training set forth in the medium-term management plan, and the amount paid to each person reflects this. In addition, directors and outside directors whose main duties are as officers of subsidiaries are paid only the fixed basic monthly remuneration for remuneration as directors of Nippon Sanso Holdings.
Remuneration for Audit & Supervisory Board members, including outside members, consists of base salary.

Succession planning

Developing the Next Generation of Leaders

We recognize that fostering the next generation of management personnel is an important issue in our Group governance structure. The Advisory Committee on Appointments and Remuneration has been discussing a development plan for our next generation of managers. Part of these discussions concerns the qualities required of the next generation of management and policies for training. As the Nippon Sanso Holdings Group expands globally, we must develop human resources who have experience not only in Japan but also overseas, and have a thorough knowledge of our business.
We are aware of the small number of female managers in our European operations, and have implemented an active succession program for women to resolve this issue. In October 2020, each of the 15 participants in this 18-month program was assigned a member of management, including the President CEO, as a mentor. Top managers offered their mentees the benefit of experience, advice on overcoming challenges, and more. The program is designed to develop the next generation of managers, and we intend to introduce the program to other regions based on our success in Europe.

Training for Top Management

Facing an even faster pace of global business, we offer ongoing management training programs to foster decision-making skills reflecting the broad-based knowledge and insight required of our top managers. In November 2021, we conducted training for full-time directors, Audit & Supervisory Board members, and executive officers of Nippon Sanso Holdings and Taiyo Nippon Sanso, designed to deepen their understanding of the latest laws and regulations regarding corporate governance, and to reaffirm the importance of handling their practical operations in accordance with the requirements of the internal control system (risk management) and laws and regulations, bearing in mind specific recent instances of corporate misconduct.

Status of Compliance with the Corporate Governance Code

In addition, we have submitted a "Corporate Governance Report", describing the status of our corporate governance measures as to the Tokyo Stock Exchange as follows. (The document below is  submitted on November 15, 2023.)

• Corporate Governance Report