Conversation with OSG Outside Directors and Chairman

Governancesystem, there is also a sense of solidarity within the group regarding
compliance and internal controls. It is also important that President
Osawa and I go out to our local subsidiaries and talk with ourmanagers about OSG s management policies and business plansfrom the same viewpoint maintained by these managers. I believe it
is essential that we have clear rules and straightforward communication with people of different races and cultural backgrounds.

Diversity of OSG s leadership and Board ofDirectors
Ishikawa：OSG has two representative directors. As Chairman andCEO, I chair the Board of Directors. Nobuaki Osawa, who isPresident and COO, chairs the Executive Committee. It is my role tooversee the execution of business operations and determine thegeneral direction in which OSG is oriented. President & COO Osawa
has all authority for executing business operations. There may also
be companies where approval by the chairman is necessary when alarge amount of money is at stake, but the authority and decisions
regarding business execution at OSG are centralized in thePresident & COO. OSG is structured in a way that clearly delineates
operational execution and oversight, so this makes it less likely
mistakes will occur.
Takahashi：The positions of CEO and COO vary from company tocompany. However, if their respective authorities are not clearlydeﬁned, then internal communication might get complicated. At
OSG, these two positions function like wheels on a car supporting
each other based upon a relationship of trust. That is one reason I
believe OSG practices sound management.
Outside director

Chairman & CEO

Outside director

Chair, Nomination and Compensation Committee

Chair, Board of Directors

Deputy chair, Nomination and Compensation Committee

Yoshiyuki Sakaki

Norio Ishikawa

Akito Takahashi

Roundtable Discussion with OSG Outside Directors and Chairman

OSG Governance Reforms and Functions
Exercised by the Board of Directors
Governance reform initiatives andachievements
Ishikawa：Since 2016, it has been our aim to construct a structure
for governance beﬁtting a listed company while also maintaining
the unifying force demonstrated by our founder. In 2016, ten of thefourteen seats on the Board of Directors were held by insidedirectors. Today, there is a total of seven directors, of which four areindependent outside directors, constituting a majority. This has
greatly enhanced the independence of the Board of Directors.
Sakaki：The governance reforms that I have participated in so far
have been from a position outside the company. Now, outsiders
comprise a majority of the Board of Directors. Five of the sevenmembers are non-executive directors. The Nomination andCompensation Committee is comprised of ﬁve non-executive
directors, and both the chair and deputy chair positions are held byoutside directors. Neither the Chairman nor President are members

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OSG Re port 2022of the Nomination and Compensation Committee.
Takahashi：Another particular feature of OSG s governance is its
highly-effective global governance, which encompasses its
overseas subsidiaries. When we have questions or don t understandsomething, outside directors take a proactive stance in asking
employees at OSG Group s overseas sites. It is probably tedious tohave to respond to each and every one of the crazy questions posedby outside directors, but I believe such dialogues also serve aschances for us to discover risks and opportunities that may havebeen overlooked. I have a strong sense that the OSG Group intends
to exercise management in a way that harnesses outside
viewpoints, so we outside directors are able to conﬁdently exercise
our oversight.
Ishikawa：We are constantly reﬁning the OSG management system
which applies to group companies. Financial data of groupcompanies is checked monthly, so investment decisions can bemade quickly. In addition to maintaining a management accounting

Sakaki：When the previous chairman was CEO, Norio Ishikawa
served as President & COO, so he has built upon that experience as
he has worked to strengthen OSG s governance. A governancesystem with a Board of Directors on which outside directors hold amajority of seats is the best framework for OSG at this time. In termsof the diversity of the Board of Directors as well, we have worked on
the challenge of ensuring diversity while also scaling down thenumber of directors. Although the current outside directors also
provide gender diversity, I feel that, in the future, it will be more
important to maintain the perspectives of technological development
and global management strategy, which foster innovation in themanufacturing industry.
Takahashi：I also believe that OSG ensures a healthy diversity evenas there are naturally certain limits on the number of directors.
When I joined discussions among the outside directors, I have often
been inspired myself. So, I think that we have been able to provide
multifaceted knowledge to the business execution side. I think that,as Yoshiyuki Sakaki pointed out, skills in global management aswell as technology and global development, both of which spurinnovation, will be necessary components in the future. Options arealso available for achieving these perspectives, such as having atechnical advisor, who is more closely involved with actualdevelopment, provide expertise about product development. With
regard to global management, OSG might need to further expand
the pool of next-generation management resources, mainlyindividuals with extensive overseas experience.
Ishikawa：As our business expands further overseas, it will be vitalfor us to have expertise and insight of management from overseas.
With only Japanese people coming up with new ideas, there is thelikelihood that we will make mistakes characteristic of the Japanese.
So, we have created a system for having talented people fromoutside the company at our local subsidiaries provide oversight ofmanagement at our group management companies in Europe,Asia, and the Americas. Although it is also important for the Board ofDirectors of the OSG Headquarters be globally-minded, we alsoneed to ﬁnd ways to incorporate an outside perspective into thecomposition of the directors at our group management companies.
Takahashi：OSG has set up a Nomination and Compensation
Committee, which is comprised mainly of outside directors who
deliberate queries submitted to the committee by the Board ofDirectors. The compensation scheme sets out a clear formula for
calculating performance-linked compensation. This has also been
made available publicly, thereby eliminating any arbitrariness. We
recognize that we will need to deliberate whether to add capital
productivity as well as ESG-related metrics to the standard forassessing performance-linked compensation. I believe it isimportant for nominations as well that there be proper participationin the nomination process, including taking a proactive stancetoward posing questions when something feels amiss about aselection presented by the executive leadership.
Sakaki：Prior to establishment of the Nomination and Compensation
Committee, it was difﬁcult for outside directors to participate in theprocess of determining compensation and nominations. I feel weare now able to provide accountability to stakeholders by having an
outside perspective in the process rather than simply allowing thetop people to exercise their choices as they see ﬁt. I also hope wewill be able to engage in more substantial discussions about plansfor developing successors and expanding the pool of humanresources for the next generation of management.
Ishikawa：We have also put inquiries to the committee about
compensation amounts and performance assessments of executive
directors in addition to the CEO and COO. There are three metrics
that serve as the standard for assessing the performance ofexecutive directors. They are the sales growth rate, amount ofoperating income, and the rate of operating income. We hope thatcommittee members will discuss approaches to compensation andevaluation metrics in a way that keeps pace with changes in thetimes. What are your thoughts about the functions and roles of
Audit & Supervisory Committee?
Takahashi：Because there will always be aspects of what ishappening on the front lines that those of us non-executive
members of the Audit & Supervisory Committee will not be in aposition to directly ascertain, I believe it is important tocommunicate with full-time statutory committee members.
Personally, my focus in on the number and types of reports received
under the whistle-blower notiﬁcation system. It has been pointed
out that a culture of speaking up is not well rooted when it comesto quality assurance problems in the manufacturing industry as
evidenced by those which have surfaced during the past few years.
Don t you think it is important to have a culture in place enabling a
prompt and appropriate response if a scandal arises?
Sakaki：By coordinating information with outside auditors, talking
with full-time statutory Audit & Supervisory Committee members,
and receiving regular reports from the internal audit department,
we have been striving to get a handle on what sort of issues need to
be promptly responded to when something happens internally.
OSG also has more and more sites overseas, so there have beencalls to further enhance internal auditing. Monthly management
accounting data is able to be checked the following month and thishas contributed to enhancing the efﬁciency of internal audits.
Ishikawa：So that the Board of Directors, which is comprised of amajority of outside directors, functions properly, a constant effort isrequired of each and every director. We will continue to reassess theway that governance should optimally be exercised so that we may
meet the expectations of our shareholders as well as all of our otherstakeholders.

OSG Repor t 2022

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