Governance Initiatives

Elevating Board effectiveness through diversity and independence

Our Board comprises a total of nine Directors: two Directors who also spearhead business execution as Co-Presidents, one non-executive Director representing the majority shareholder Wuthelam Group, and six Independent Directors. Maximization of Shareholder Value (MSV)—the sole mission of Nippon Paint Group—is synonymous with the maximization of minority shareholder value. All members of the Board share this notion, and we constantly ask ourselves whether we are fulfilling our duties in representing the shareholders. In particular, we are entrusted by our minority and other shareholders to constantly monitor whether the Group is thoroughly capturing the investment opportunities that lead to MSV, and whether the potential risks of the measures proposed by the management team are being assessed with sufficient accuracy. To fulfill these responsibilities, we must make the most of the diverse strengths of each Director, as indicated in the skills matrix, and apply them to our Board discussions to evaluate matters from multiple perspectives.

The activities of our Board are not limited to the scheduled Board meetings. In fact, our Board is “always on.” This aspect vastly minimizes the information gap between execution and oversight, while successfully achieving further separation between the two. The Independent Directors seek to maintain a shared understanding of the latest information by closely communicating with Co-Presidents Wakatsuki and Wee and the top management of partner companies. In addition, regularly updated information such as routine reports on business operations, including IR, is shared promptly among them. Information associated with the Board meeting agenda is also shared in advance according to the meeting schedule. Further, we have designated the Independent Directors’ meetings, free of agenda preparation or minutes-taking, as a forum for open and frank discussions and information exchange toward the maximization of minority shareholder interests. These meetings have been immensely helpful in allowing each Independent Director to make more accurate judgments.

In such ways, the “always-on” Board enables the timely exchange of information and opinions ahead of our Board meetings. We work to achieve more flexible and agile decision-making by positioning the actual Board meetings, where all Directors assemble, as a place to focus on discussing the Group’s growth strategy. We, the Directors, seek to fully draw upon each other’s expertise when we exchange opinions closely or engage in discussions on specific business matters that require decision-making. Through these interactions, we continue to evaluate each other’s contribution to the Board and confirm each other’s independence. As we move forward, we remain committed to achieving more in-depth communication, further refining MSV that Nippon Paint Group pursues, and thereby fulfilling the duties of the Board.

July 31, 2024

Nominating the ideal leader for a turbulent business environment

The Nominating Committee is dedicated to establishing and maintaining the most effective execution and oversight structures essential for achieving MSV. A primary responsibility is identifying and nominating the Representative Executive Officer & President, who is the key figure in executing our growth strategy. In 2020, we nominated a new President, highly qualified to strengthen our governance structure as we transitioned to a Company with Three Committees. This move was also aimed at driving global business growth through the complete integration of our Asian joint ventures and the acquisition of our Indonesia business. In 2021, shortly after the President announced his intention to resign, we swiftly adopted a Co-President structure within approximately a month. This decision was made to better position our Group for further progress through strategic mergers and acquisitions, while also leveraging our existing business foundation to drive organic growth.

In a turbulent business environment, we continuously evaluate future strategies and the ideal leader profile that will contribute to MSV. This approach ensures that we can promptly and flexibly nominate the most suitable candidates for various situations, including unforeseen risk events. For next-generation leaders, we prioritize discovering exceptional talent through our growing internal and external networks, rather than relying solely on uniform selection criteria or pre-established development paths. In partnership with the Compensation Committee, we closely assess whether our current Co-Presidents, other key management personnel, and next-generation leaders can be trusted as senior executives for driving our strategies. This evaluation involves thorough communication and a deep understanding of their overall managerial capabilities and personalities.

Following this approach, we consistently evaluate and nominate Directors responsible for overseeing the execution of duties and promoting bold decision-making by our leaders through appropriate guidance. Looking ahead, the Nominating Committee will continue to uphold its responsibility toward achieving MSV by nominating the most suitable candidates, based on a thorough assessment of our Group's strategies and the broader business environment.

July 31, 2024

Compensation designed to maximize Co-Presidents' motivation to propel their pursuit of MSV

The Compensation Committee is committed to attracting and retaining outstanding talent through appropriate compensation schemes and succession planning. Ultimately, we seek to maximize shareholder value. Specifically, designing the most appropriate compensation schemes for the Co-Presidents, who are crucial to executing our company's growth strategy, is extremely important. We view maximizing the Co-Presidents’ motivation to attain MSV as fundamentally linked to value sharing with shareholders. To achieve this, it is essential to provide compensation that encourages the Co-Presidents to drive our Asset Assembler model forward and take appropriate risks without missing opportunities. Based on extensive deliberation, we have decided to simplify the Co-Presidents’ compensation as much as possible and make it entirely in cash.

We have been working in collaboration with the Nominating Committee and maintained continuous communication with the Co-Presidents while evaluating their performance from multiple perspectives. We have confirmed that they view this as an appropriate assessment and demonstrate stronger leadership toward achieving MSV. Indeed, our Group has achieved strong growth compared to competing companies since their appointment*. Considering the bold decision-making and successful implementation of initiatives that contribute to the improvement of medium- to long-term EPS and PER, we have determined that the current Co-Presidents’ compensation is conducive to the pursuit of MSV.

At the same time, we strive to ensure the appropriateness of compensation schemes for Non-Executive Directors. We focus on determining compensation that stimulates their maximum contributions to both the executive and oversight roles while constantly seeking ways to enable value sharing with our shareholders. The Compensation Committee will continue to engage in sincere deliberations, taking into account the analysis based on compensation benchmarking and other metrics, and strive to make optimal compensation decisions that ultimately contribute to the achievement of MSV.

July 31, 2024

Addressing potential risks in our business model and enhancing the“ Audit on Audit” system

The Audit Committee audits and monitors the execution of duties by the Executive Officers, while simultaneously supporting the Group in achieving MSV. In our business model, where corporate acquisitions are vital as an Asset Assembler, it is crucial to consider the potential impairment risks associated with the goodwill of the companies we acquire. Therefore, proper monitoring of these risks is a key focus for the Audit Committee.

For ongoing M&A, we discuss and confirm that the financial assumption of the target company presented at the Board Meeting is appropriate and that we do not foresee any environmental issues nor litigation risks that can give rise to material losses. We also monitor the post-acquisition status and, for instance, regarding Cromology in Europe, acquired by DuluxGroup in 2022, the Audit Committee has diligently worked to detect any signs of impairment. This has been achieved through careful scrutiny of estimated future cash flow and the rationality of discount rates related to goodwill valuation by interviewing the Co-Presidents and the management of DuluxGroup as well as by exchanging information with the Accounting Auditor.

Furthermore, in 2022, our Company allocated 13.4 billion yen as a provision for accounts receivable from Chinese real estate developers. The Audit Committee has meticulously verified through interviews with the Co-Presidents and local management that effective measures are being implemented. We have concluded that necessary actions, such as modifying previous business practices and minimizing the collection period, have been adopted to mitigate the risk of recurrence. The Audit Committee will continue to focus on these areas in 2024.

Alongside addressing individual cases and incidents, the Audit Committee is steadily upgrading organizational auditing through the “Audit on Audit” system. This approach is based on internal auditing within PCGs and self-evaluation via Control Self-Assessment (CSA). In 2023, we shared best practices concerning audit planning processes of our internal audits and broadened the scope of assessment items related to cybersecurity risks within our CSA. These initiatives are grounded in active discussions at the Group Audit Committee (GAC) meeting, a forum where those who are responsible for the PCG’s internal audit convene. We will continue to evolve the “Audit on Audit” system through effectively utilizing the GAC.

July 31, 2024