Nabtesco Corporate Governance Basic Policy

Basic Policies for the Construction of an Internal Control System

Our company is conducting business by promoting transparent business management and maintaining high ethical standards, as well as ensuring the observation of laws and regulations, so that our group can increase corporate value in a sustainable manner and become a company capable of winning the trust of stakeholders.

(1) regardless of the regular ladder-line, we can now directly report to the Compliance Division.

Given the content of business operations covered by our group and their characteristics, our company has adopted an executive officer system and an in-house company system as a means of expediting decision-making and clarifying who is responsible for executing certain business operations. As a means of controlling these systems, we have established corporate governance under which the Board of Directors, Corporate Auditors/the Board of Corporate Auditors and Accounting Auditors have been set up to clearly divide the functions of business execution; managerial decision-making and supervision; and the supervision of management.

In addition, our company has established the Management Committee, an organization tasked with carrying out the deliberation of important issues relating to executing the business operations of the company and its group companies. Corporate Auditors are supposed to attend a meeting sponsored by the Management Committee. This committee will deliberate over important issues to be discussed at the Board of Directors and clarify focal points, before presenting these issues to the Board of Directors. The prior deliberations are meant to promote appropriate decision-making and enhance the efficiency of decision-making at the Board of Directors.

By improving and reinforcing the corporate governance systems mentioned above, we will maintain expeditiousness and flexibility in business execution, strengthen our overall corporate governance, and clarify where responsibility lies, thus realizing efficient and transparent business management, which is considered helpful in enhancing the corporate value of the Nabtesco Group.

The numbers attached to the provisions in this policy display corresponding relationship with those in the individual provisions of japan's Corporate Governance Code in the Tokyo Stock Exchange Listing Regulations.

Decision made by: Board of Directors

Person in charge of administration: General

Manager, General Administration Dept.

Enactment date: October 30, 2015

Effective date: October 30, 2015

Based on the resolution of the Board of Directors, Nabtesco has enacted the following basic policy to set out the basic approach, framework and policy with regard to corporate governance.

Basic Approach to Corporate Governance (2-1, 3-1(ii)

Article 1

Based on its corporate philosophy, which states, The Nabtesco Group, with our unique motion control technology, will provide safety, comfort and a sense of security in daily lives as well as any form of transportation, and through the implementation of The Nabtesco Way, Nabtesco endeavors to enhance its corporate governance with the aim of realizing its sustainable growth, enhancing its medium- to long-term corporate value and earning the greater trust of its stakeholders.

General Meeting of Shareholders (Basic Principle1,1-2)

Article 2

Nabtesco endeavors to develop an environment whereby its shareholders are ensured a sufficient period of time to consider the agenda of the General Meeting of Shareholders and can appropriately exercise their voting rights.

Nabtesco sends the notice of convocation of the Ordinary General Meeting of Shareholders three weeks prior to the Meeting.
Nabtesco makes the notice of convocation available to the Tokyo Stock Exchange and on its website prior to sending it to shareholders.
Nabtesco develops an environment whereby it is ensured all shareholders who cannot attend the General Meeting of Shareholders can appropriately exercise their voting rights through the online voting system and a dedicated platform for exercising voting rights.
Nabtesco discloses English translations of reference materials for the General Meeting of Shareholders to the Tokyo Stock Exchange and on the company's website as a reference for its shareholders in Japan and overseas in exercising their voting rights.

Basic Capital Policy (1-3, 1-6)

Article 3

Nabtesco engages in business management in consideration of return on assets (ROA) and return on equity (ROE) targets in order to maintain and improve shareholder value. It is our policy to maintain high credit ratings and raise capital through debt financing.

In implementing capital policies that may result in significant dilution effects, Nabtesco considers the necessity and rationality of such at the Board of Directors Meeting and provides sufficient explanations to its shareholders to ensure that the interest of existing shareholders is not impaired.
Nabtesco pays out dividends by setting a certain consolidated dividend payout ratio.

Basic Policy on Strategic Shareholdings and Exercising of Voting Rights Concerning Strategic Shareholdings(1-4)

Article 4

With the aim of maintaining and strengthening business relationships with its business partners, etc., Nabtesco holds listed stocks strategically only in cases where such shareholdings contribute to sustaining and enhancing its corporate value.

Nabtesco verifies the benefits and rationality of strategic shareholdings at the Board of Directors Meeting in light of the risk and return of each key stock every year.
With regard to voting rights concerning its strategic shareholdings, Nabtesco examines the details of agenda items and exercises its voting rights after making decisions comprehensively from the viewpoint of whether or not such proposals contribute to the enhancement of the corporate value of the issuers.

Related Party Transactions (1-7)

Article 5

Nabtesco shall obtain the approval of its Board of Directors when conducting competing transactions and transactions involving any conflict of interest between its Directors and Executive Officers that are stipulated in laws and regulations. In addition, when conducting such transactions, Nabtesco shall disclose material facts pursuant to laws and regulations.

In order to prevent insider trading of Nabtesco shares, etc. by its related parties, the company specifies matters that must be adhered to with regard to the management of its material facts as well as the trading, etc. of Nabtesco shares, etc. by its officers and employees, etc. and ensure strict compliance with them.

Takeover Defense Measures (1-5)

Article 6

Nabtesco has not adopted takeover defense measures.

In cases where Nabtesco shares become the target of a tender offer, the Board of Directors will request such tender offeror, etc. to provide explanations on measures to realize sustainable growth for the company as well as to enhance its medium- to long-term corporate value.

Collaboration with Stakeholders (Basic Principle 2, 2-1)

Article 7

Nabtesco endeavors to engage in appropriate collaboration with its stakeholders by fully recognizing that its sustainable growth and the generation of medium- to long-term corporate value are the results of resources provided and contributed by stakeholders.

Nabtesco considers the interests of a range of stakeholders including customers, employees, shareholders, business partners, local communities, the environment, etc.

Code of Corporate Ethics and Code of Conduct (2-2, 2-2(i))

Article 8

Having formulated the Nabtesco Group Code of Corporate Ethics and the Nabtesco Group Code of Conduct with the objective of ensuring that corporate activities are conducted in accordance with a standard of ethics that is higher than the legal standard, Nabtesco thoroughly promotes corporate ethics.

Sustainability Report (2-3, 2-3(i))

Article 9

Nabtesco issues its Integrated Report once a year as a means of reporting to its stakeholders information on the Groups management strategies, business situation, management system and financial performance, and CSR initiatives and activities in order to achieve sustainable development in a multifaceted manner.

Promotion of Diversity (2-4)

Article 10

Nabtesco endeavors to attain a diverse workforce through non-discriminatory hiring in terms of sex, nationality and disability.

Nabtesco makes efforts to develop an environment where each individual employee can fully demonstrate his/her capabilities and unique personal characteristics.

Criteria for Information Disclosure (Basic Principle 3)

Article 11

Nabtesco discloses information pursuant to the Companies Act, Financial Instruments and Exchange Act and other laws and regulations as well as the Timely Disclosure Rules stipulated by the Tokyo Stock Exchange, on which Nabtesco shares are listed. In addition, Nabtesco endeavors to disclose both financial and non-financial information that is not necessarily subject to disclosure as per above in cases where such information is deemed to be useful in helping investors make informed decisions.

External Accounting Auditors (3-2)

Article 12

At Nabtesco, the Board of Corporate Auditors and the accounting and finance department cooperate with each other in securing an audit schedule and audit structure in order to ensure that audits by Accounting Auditors are adequately conducted.

Organizational Structure (4-10)

Article 13

Nabtesco has chosen Company with Board of Auditors as its organizational structure under the Companies Act.

Roles and Responsibilities of the Board of Directors (Basic Principle 4, 4-1, 4-1(i), 4-2, 4-3, 4-5)

Article 14

To recognize fiduciary responsibilities to shareholders and enhance its sustainable medium- to long-term corporate value as well as its earnings power, capital efficiency, etc., the Board of Directors has the roles and responsibilities specified in the following items :

Establish the corporate philosophy, corporate strategy, etc. and determine its strategic directions.
Develop an environment to support adequate risk-taking by management.
Supervise Directors, Executive Officers, etc. effectively from an independent and objective standpoint.

Delegation to Management (4-1(i))

Article 15

Nabtesco establishes Group regulations for responsibility and authority and specifies matters to be resolved, deliberated and reported at the Board of Directors Meeting as well as matter to be delegated to management. Specifically, matters that require resolution by the Board of Directors pursuant to laws and regulations and provisions of the Articles of Incorporation and significant management-related matters shall be determined by the Board of Directors and all other matters shall be delegated to management.

Composition of the Board of Directors (3-1(iv), 4-8, 4-11, 4-11(i))

Article 16

The Board of Directors shall comprise no more than ten Directors, two or more of whom shall be Independent Outside Directors.

With the aim of maximizing the functions of Directors in order to fulfill the roles and responsibilities of the Board of Directors, Nabtesco elects candidates who have excellent characters, insights, capabilities, expertise and ethics as well as ample experience both internally and externally to ensure a balance and diversity of insights, capabilities, experiences, etc. on the Board of Directors.

Operations of the Board of Directors (4-12, 4-12(i))

Article 17

The Board of Directors shall endeavor to foster a culture that respects free and open-minded constructive discussions and opinion exchange. Details of its operations are specified in the Regulations of the Board of Directors. In order to ensure that Outside Directors can participate actively in discussions, the Secretariat for the Board of Directors ensures sufficient information provision by determining handouts, deliberation matters, the annual schedule, etc. in advance while ensuring appropriateness in terms of frequency of meetings, deliberation time, the number of items to be deliberated, etc.

Independent Outside Directors (4-6, 4-7, 4-8(i), 4-9)

Article 18

Nabtesco elects two or more Independent Outside Directors who can provide advice that contributes to the enhancement of its sustainable medium- to long-term corporate value as well as to the supervision of management, etc.

All Independent Outside Directors shall have ample experience, broad insights and diverse stakeholder perspectives as well as meet all of the in-house Criteria for the impartiality of Outside Directors and Outside Corporate Auditors .
Independent Outside Directors shall convene and hold meetings comprising only Independent Outside Directors and Outside Corporate Auditors as required and endeavor to exchange information and share awareness through free discussions based on their objective standpoints, which are independent from business execution.

Roles and Responsibilities of the Board of Corporate Auditors (4-4, 4-5, 4-13(iii))

Article 19

The Board of Corporate Auditors recognizes fiduciary responsibilities to shareholders; proactively exercises its rights concerning audits on the execution of Directors duties, election and dismissal of External Accounting Auditors and remuneration for audit services from an independent and objective standpoint; and adequately expresses opinions at the Board of Directors Meeting, etc.

The Board of Corporate Auditors aims to collaborate with its internal control department and audit department through the Audit Council, and collaborates with the Independent Outside Directors to exchange information and share awareness as required.
The Board of Corporate Auditors fulfills its roles and responsibilities in accordance with procedures and audit criteria, etc. stipulated in the Regulations of the Board of Corporate Auditors and the Criteria for Audits by Corporate Auditors.

Composition of the Board of Corporate Auditors (4-4(i), 4-11)

Article 20

The Board of Corporate Auditors comprises no more than five Corporate Auditors, more than half of whom shall be Independent Outside Corporate Auditors.

With the aim of maximizing the functions of Corporate Auditors to fulfill the roles and responsibilities of the Board of Corporate Auditors, Nabtesco elects several candidates who have superior characters, insights, capabilities, expertise and ethics as well as ample experience both internally and externally; one or more of whom shall have a considerable degree of knowledge and experience in the fields of finance and accounting.
The Board of Corporate Auditors ensures its effectiveness by organically combining the strong independence of Independent Outside Corporate Auditors with the advanced information-gathering capability of Corporate Auditors in order to fulfill the roles and responsibilities of the Board of Corporate Auditors specified in the preceding paragraph.
All Independent Outside Corporate Auditors shall meet all of the in-house Criteria for the impartiality of Outside Directors and Outside Corporate Auditors.

Nomination Committee (4-1(iii), 4-10, 4-10(i))

Article 21

Nabtesco has established the Nomination Committee as a consultative body of the Board of Directors to deliberate the nomination of candidates for Director, Corporate Auditor and CEO positions and report to the Board of Directors.

The Nomination Committee comprises three members including more than one Independent Outside Director or Outside Corporate Auditor.
The Board of Directors establishes fair rules on the operations of the Nomination Committee.

Remuneration Committee (3-1(iii), 4-10, 4-10(i))

Article 22

Nabtesco has established the Remuneration Committee as a consultative body of the Board of Directors to deliberate the remuneration, etc. of management personnel and report to the Board of Directors.

The Remuneration Committee comprises three members including more than one Independent Outside Director or Outside Corporate Auditor.
The Board of Directors establishes fair rules on the operations of the Remuneration Committee.

Nomination of Directors, Corporate Auditors, etc. (3-1(iv), 4-3(i), 4-11(i))

Article 23

In electing its management executives and nominating candidates for Director and Corporate Auditor positions, the Board of Directors nominates and elects those who can contribute to the growth of the entire Group and the enhancement of its management in light of their experience and capabilities. With regard to Corporate Auditors, the Board of Directors nominates candidates upon the approval of the Board of Corporate Auditors.

The Board of Directors receives reports from the Nomination Committee in order to strengthen the independence, objectivity and accountability of the election, etc. specified in the preceding paragraph.

Remuneration, etc. of Management Personnel (3-1(iii), 4-2, 4-2(i))

Article 24

In deciding the remuneration, etc. of management personnel, the Board of Directors in order to strengthen independence, objectivity and accountability receives reports from the Remuneration Committee and makes decisions at its meetings.

In order to ensure that remuneration, etc. of management personnel functions as a sound incentive toward the Groups sustainable growth, the following policy has been set out :

Remuneration, etc. of management comprises monthly compensation, which is made up of fixed compensation and short-term performance-linked compensation, and stock compensation-type stock options, which are offered in consideration of medium- to long-term performance. Net sales, operating profit, ROA and ROE are used as the major performance indicators. However, the compensation standard and its configuration are reviewed as necessary and as appropriate according to changes in the business environment.
Remuneration, etc. of Independent Outside Directors shall be fixed compensation only, due to their roles and from the perspective of upholding independence.

Remuneration, etc. of Corporate Auditors shall be decided in consultation with Corporate Auditors. Compensation to Corporate Auditors shall be fixed compensation only, with no performance-based compensation, due to the nature of the audit functions.

Assessment of Effectiveness of the Board of Directors (4-11(iii))

Article 25

The Board of Directors conducts analysis and assessment of the effectiveness of the Board of Directors every year based on the self-assessment, etc. of each Director and discloses a summary of such results.

Information-gathering by Directors and Corporate Auditors and Support System (4-13, 4-13(i), 4-13(ii))

Article 26

Nabtesco proactively develops a support system for Directors and Corporate Auditors in order to ensure that Directors and Corporate Auditors can fulfill their roles and responsibilities effectively.

Directors and Corporate Auditors shall proactively obtain information in the form of information provided by the company and advice, etc. from external specialists in order to fulfill their roles and responsibilities effectively.

Self-improvement and Training for Directors and Corporate Auditors (4-14, 4-14(i), 4-14(ii))

Article 27

Prior to joining the Group, newly appointed Directors and Corporate Auditors receive training provided by the companys legal and compliance officers or external training organizations with regard to their roles and responsibilities including corporate governance and legal responsibilities. However, Independent Outside Directors and Outside Corporate Auditors receive such training as necessary in light of their own knowledge, capabilities, expertise, etc.

When joining the company, newly appointed Independent Outside Directors and Independent Outside Corporate Auditors are provided with explanations on the Nabtesco Groups corporate philosophy, businesses, finance, organization, etc. in order to deepen their understanding of the Groups business operations. In addition, Nabtesco provides newly appointed Independent Outside Directors and Independent Outside Corporate Auditors with opportunities to visit and inspect its plants or offices, etc. as necessary.
All Directors and Corporate Auditors participate in training sessions that are held regularly in order to update their knowledge.

Internal Control (4-3(ii))

Article 28

Nabtesco develops the Basic Policies for the Construction of an Internal Control System pursuant to the Companies Act, etc. The Board of Directors regularly checks if such policies are implemented effectively.

Constructive Dialogue (Basic Principle 3, 5, 5-1, 5-1(i), 5-1(ii))

Article 29

Nabtesco appoints a management personnel in charge of IR to oversee the entirety of communications with shareholders and investors, and endeavors to realize constructive dialogue with its shareholders and investors through collaboration among relevant departments centering on an IR department. Specifically, the company actively offers opportunities for dialogues through the promotion of communications such as individual meetings with shareholders and investor, a range of publications, etc. for complementation of timely information disclosure, presentations by the company, regarding of the result and business, etc.

In holding dialogues with shareholders and investors, Nabtesco not only discloses information in a timely and appropriate manner but also announces its efforts to enhance corporate value and shareholder value while aiming to grasp shareholdersand investors views of the company and share them internally through feedback to management and relevant departments.
Insider information (undisclosed material facts) shall be managed appropriately in accordance with the internal regulations.
The Nabtesco Way
Nabtesco has been conducting business across a number of sectors, capitalizing on its motion control technology to make significant advances within the areas of transportation (railroad vehicles, aircraft, automobiles, etc.), industry, livelihood-related fields and the environment (robots, construction machinery, automatic doors, etc.).

We contribute to the creation of a safe and comfortable society through the provision of highly reliable products, many of which enjoy large market shares.

We have established The Nabtesco Way in October 2012. The Nabtesco Way is a collective term that means our Corporate Philosophy, Our Promises, and Action Guidelines. We have set these Guidelines by examining the uniqueness of the Nabtesco Group, borne by our predecessors from their efforts and wisdom in developing the Group, and also by incorporating new values to be implemented by Group members toward the future, in order to clearly show the management approach to be taken by our top executives and general managers as well as our strong commitment to quality manufacturing.

「Corporate Philosophy」

The Nabtesco Group,

with our unique motion control technology,

will provide safety, comfort and a sense of security in daily

lives as well as any form of transportation.

「Our Promises」

1.Value close communications with our customers worldwide

2.Value each individual's spirit of challenge and innovation

3.Continue to expand our business and profit

4.Continue to reinforce our sense of ethics and highly transparent business activities

5.Value the environment and promote harmony with local communities and cultures

「Action Guidelines」

【Action Guidelines for Top Management】

We shall manage the Nabtesco Group,

focusing on the following four points to ensure

its sustainable growth as a global corporate group.

1.Communicate the Present Situation and Future Vision of the Company (Organization) to Employees.

2.Encourage Active Discussions and Align All Members to a Common Direction.

3.Ensure Succession.

4.Manage in a Manner that Increases the Nabtesco Brand and Corporate Value.

【Action Guidelines for All Group Members】

・Build Trust:Work diligently (kotsukotsu) and expeditiously

・Provide Value:Think ahead from customer's perspectives

・Take on Challenges:Enhance our skills

・Develop Human Resources:Employees are essential assets

・Foster Teamwork:Discuss fully (tokoton) among all members
・Realize our Dreams:Pursue higher reliability and quality

・Make Daily Improvement:Step forward for future growth

・Ensure Transparency:Be open, fair and honest

・Hold a High Work Ethic:Make individual conscientious effort

・Be Considerate of the Global Environment:Do not waste (mottainai)

・Keep Harmony with Local Communities and Cultures:Engage in local activities

By implementing these promises, we will realize "All Stakeholders' Dreams.'
Criteria for the impartiality of Outside Directors and Outside Corporate Auditors
The Company considers an Outside Director/Corporate Auditor to be impartial, if all of the following requirements are met.

The Outside Director/Corporate Auditor is not a person who executes business of the Company or an affiliate thereof (hereinafter collectively referred to as the Group);
The Outside Director/Corporate Auditor is not a current major shareholder (*) of the Company or a person who executes its business

*Person who directly or indirectly holds more than 5% of all voting rights or a person who is listed among the top 10 shareholders in the most recent shareholder registry;
The Outside Director/Corporate Auditor is not a person who executes business of a major lender (*) of the Group;

*A financial institution group (person who belongs to the consolidated group to which the Groups direct lender belongs) from which the Group borrows funds and the Groups total amount of borrowing from such financial institution group exceeds 2% of the Groups consolidated total assets as of the end of the previous fiscal year;
The Outside Director/Corporate Auditor is not a major business partner (yearly transaction amount exceeds 5% of consolidated net sales) or a person who executes its business;
The Outside Director/Corporate Auditor is not a person for whom the Group is a major business partner (yearly transaction amount exceeds 5% of the counterpartys consolidated net sales) or a person who executes its businesss;
The Outside Director/Corporate Auditor is not a consultant, accounting professional, or a legal professional who receives a large amount of money (more than ¥6 million yearly) other than the remuneration for directorship/auditorship from the Group (including cases where the organizations such as corporation and association to which such Outside Director/Corporate Auditor belongs receive the remuneration);

The Outside Director/Corporate Auditor is not a spouse or a relative within the second degree of consanguinity of a person who executes business of the Group;
The Outside Director/Corporate Auditor has not fallen under requirements (1) through (6) for the past three years.

Revised on May 28, 2015

The Basic Policies for the Construction of an Internal System for the Nabtesco Group shall be stipulated as follows.

The Chief Executive Officer (CEO) shall be the top executive responsible for the promotion of internal control.

The Board of Directors shall examine the maintenance of internal control systems on a continual basis in line with changes in the business environment and social needs, revisions to laws and regulations, risk diversification and other factors, and shall conduct a review yearly and whenever else necessary.