OSG : Corporate Governance Report 2021/12/23

Corporate Governance Report

Last Updated: December 23, 2021

OSG Corporation

President Nobuaki Osawa Contact: Junichi Kawamura, Accounting Manager

Stock Exchange Code: 6136 https://www.osg.co.jp/en/index.html

The corporate governance of OSG Corporation (the "Company") is described below.

• Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other

Basic Information

1. Basic Views

Under our corporate philosophy of achieving a global presence, we regard compliance with laws, regulations, and social norms as a fundamental part of our management policies, together with fairness and transparency in our business activities. We also believe that these qualities contribute to sustainable corporate development and the improvement of corporate value. Measures to enhance corporate governance, including the establishment of efficient and transparent management organizations, and the creation of systems to ensure timely and fair disclosure of accurate information, are among our most important management priorities.

One of the ways in which we enhance our corporate governance is by raising compliance awareness among directors, executive officers and employees of OSG and its Group companies through the dissemination of the OSG Philosophy and the OSG Corporate Code of Ethics, which provide specific guidelines designed to raise ethical standards within the Company.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated

[Supplementary Principle 2.4.1]

The Company recognizes the importance of securing diversity of human resources as a medium- to long- term policy. While we are actively appointing women, foreign nationals, and midcareer hires, we have not yet set quantifiable numerical targets. However, we recognize that the number of appointments to managers is not sufficient. Going forward, we will continue to promote measures for securing diversity and consider targets as well.

[Supplementary Principle 3.1.3]

The Company plans to disclose our sustainability initiatives in our Medium-term Management Plan. We also plan to disclose and provide information on investments in human capital and intellectual property that we consider to be consistent with our own management strategy and management issues. We plan to collect and analyze the necessary data on the impact of climate change-related risks and earning opportunities on our business activities and income, and to disclose our findings based on the TCFD framework.

[Supplementary Principle 4.2.2]

The Board of Directors has formulated a basic policy for the Company's sustainability initiatives from the perspective of increasing corporate value over the medium- to long-term.

In addition, our Sustainability Committee confirms the progress of initiatives in our priority sustainability- related areas, the associated risks and opportunities to ensure that they contribute to the sustainable growth of the Company.

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[Principle 4.11 Preconditions to Ensure the Effectiveness of the Board of Directors and the Audit and Supervisory Committee]

Our Board of Directors consists of two directors (excluding directors who are members of the Audit & Supervisory Committee) and six directors who are members of the Audit & Supervisory Committee. Of those six directors who are members of the Audit & Supervisory Committee, five are outside directors.

Of the six directors who are members of the Audit & Supervisory Committee, the head of the Audit & Supervisory Committee has experience as both a director and executive officer of the Company. The five outside Audit & Supervisory Committee Members boast a range of experience as corporate managers, personnel involved in corporate management, academics, and lawyers. In addition the head of the Audit & Supervisory Committee has experience in finance department and relevant knowledge of finance and accounting.

The Company's two representative directors and the head of the Audit & Supervisory Committee boast a wealth of knowledge and experience in international business development. However, we recognize that there are some issues that need to be addressed in terms of gender diversity.

Of the Company's 16 executive officers, two are foreign nationals, six are currently working overseas, and four have experience of former overseas postings.

[Supplementary Principle 4.11.3]

We will consider determining and implementing procedures for analyzing and evaluating the effectiveness of the Board of Directors as a whole based on the self-evaluations of each director, and disclosing a summary of those results.

[Disclosure Based on the Principles of the Corporate Governance Code] Updated

[Principle 1.4 Cross-Shareholdings]

The Company can acquire and hold shares of other listed companies as cross-shareholdings if we judge doing so to be beneficial for improving the Group's medium- to long-term corporate value from the perspective of building medium- to long-term relationships with business partners and facilitating and strengthening business alliances, etc. Each year, the Board of Directors examine the benefits and suitability of these cross-shareholding by considering the medium- to long-term economic rationale for holding each individual stock and the contribution it makes to maintaining and strengthening a comprehensive relationship with each business partner. We intend to sell off holdings that have become less significantly important in stages after taking into account the financial situation of the companies involved.

In addition, we will exercise the voting rights pertaining to the listed stocks appropriately after carefully examining shareholder meeting agenda proposals and confirming that those proposals will help enhance the corporate value of the relevant company and promote the common interest of its shareholders.

[Principle 1.7 Related Party Transactions]

The Company requires any conflict of interest or competitive transactions by directors, etc. (including related parties other than directors) to be preapproved by the Board of Directors, and the subsequent result of these transactions to be preapproved and reported by the Board of Directors.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

Given the fact that the Company's retirement pension plan is a defined contribution corporate pension, there is no management of corporate pension reserves and no impact on the financial situation of the Company.

[Principle 3.1 Full Disclosure]

(i) Management philosophy and management strategies

We disclose annual reports and other documents on our Company website at the following URL: https://www.osg.co.jp/en/about_us/company/philosophy.html

We also disclose our Medium-term Management Plan: https://www.osg.co.jp/en/about_us/ir/policy/plan.html

1. Basic policies on corporate governance
   Our basic views on corporate governance is described in section I.1. Basic Views. Our basic corporate governance policy is as follows:

1. The Company respects the rights of shareholders and strives to ensure substantive shareholder equality.
2. The Company strives to cooperate appropriately with all stakeholders.

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1. The Company seeks to ensure appropriate information disclosure and proactively provide non-financial information as well.
2. The Board of Directors will determine the direction of the Company's corporate strategy, etc. and appropriately fulfill its roles and responsibilities.
3. The Company will engage in constructive dialogue with shareholders in order to help achieve sustainable growth and enhance corporate value over the medium- to long-term.

(iii) Compensation structure, etc. of directors

Compensation for directors (excluding directors who are members of the Audit & Supervisory Committee) consists of fixed basic compensation, variable compensation linked to business performance, and allocations of restricted stock. Compensation for directors who are members of the Audit & Supervisory Committee consists solely of fixed compensation.

The total amount of fixed compensation is determined within the upper limit defined by a resolution of the 103rd Ordinary Shareholders' Meeting held on February 20, 2016. Compensation is set at ¥396 million per year for directors (excluding directors who are members of the Audit & Supervisory Committee), and ¥84 million per year for directors who are also members of the Audit & Supervisory Committee. To determine the amount of compensation, the Board of Directors delegates the Representative Director to prepare proposed compensation amounts according to standards set by the Company. The proposed amounts are then referred to the Nomination and Compensation Committee, and based on the Committee's response, the amounts are then finalized by a resolution of the Board of Directors. The amount of compensation for directors who are also members of the Audit & Supervisory Committee is determined by a resolution of the Audit & Supervisory Committee.

Variable compensation is linked to the Company's business performance. The Representative Director is delegated by the Board of Directors to calculate the proposed amounts for profit-linked bonuses and personal assessment bonuses for eligible directors who are serving as executive officers and managing officers using the methods determined by the Company. These proposed amounts are then submitted to the Nomination and Compensation Committee. Based on the report from the Nomination and Compensation Committee, the Board of Directors determines the final amounts to be paid, subject to approval of the total amount through a resolution of an ordinary shareholders' meeting.

Compensation based on allocations of restricted stock (for directors (excluding directors who are members of the Audit & Supervisory Committee)) are determined within the upper limit defined by a resolution of the 106th Ordinary Shareholders' Meeting held on February 16, 2019. The maximum total value of shares allocated to eligible directors is set at ¥200 million a year, and the maximum total number of the Company's ordinary shares that can be issued or disposed of is 100,000 per year. To determine the amount of compensation, the Board of Directors delegates the Representative Director to prepare proposed compensation amounts according to standards set by the Company. The proposed amounts are then referred to the Nomination and Compensation Committee and, based on the Committee's response, the amounts are then finalized by a resolution of the Board of Directors.

Finally, the Company discontinued the payment of retirement bonuses for corporate officers at the conclusion of the 92nd Ordinary Shareholders' Meeting held on February 19, 2005.

(iv) Appointment and nomination of director candidates

Persons who are deemed suitable to be directors of OSG, on the basis of their extensive experience, advanced knowledge, and high-level specialist capabilities, are selected and nominated as candidates for membership of the Board of Directors. The Board of Directors then makes decisions on appointments after seeking advice and receiving a response from the Nomination and Compensation Committee.

(v) Reasons for appointment of director candidates

The Company describes its reasons for appointing individual directors in the Notice of the Ordinary Shareholders' Meeting and discloses each director candidate's past experience in the same notice.

(vi) Appointment/dismissal of directors

The Board of Directors makes decisions on the appointment or dismissal of directors after receiving advice from the Nomination and Compensation Committee.

[Supplementary Principle 4.1.1]

The Company's Board of Directors determines matters stipulated by laws and regulations and important matters relating to the management of the whole Group and also supervises the execution of duties by directors and executive officers. The standards for doing so are stipulated in the Company's Rules Governing the Board of Directors and Rules Governing the Executive Officer Committee. Examples of important

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management-related items include matters related to the nomination and compensation of corporate officers and matters related to important business execution. Other matters are delegated to the CEO and other executive officers to be guided by the standards stipulated in our Rules on Administrative Authority.

[Principle 4.9 Independence Standards and Qualification for Independent Directors]

The Company selects candidates for independent outside directors based on the independence standards determined by the Tokyo Stock Exchange.

[Supplementary Principle 4.10.1]

Regarding agenda proposals pertaining to nomination and compensation, the proposals are drafted by the Representative Director, who then consults and receives advice from the Nomination and Compensation Committee (five out of six members are independent outside directors), and are then decided following deliberations by the Board of Directors, which includes five independent outside directors (five out of eight members are independent outside directors).

[Supplementary Principle 4.11.1]

Our basic approach is to ensure that the Company's Board of Directors is composed within the upper limits stipulated in our Articles of Incorporation, which is, 16 directors who are not members of the Audit & Supervisory Committee and six directors who are members of the Audit & Supervisory Committee. We also aim to ensure that the Board is of an appropriate size to ensure effective debate and is staffed by members who guarantees diversity and boasts a balanced range of knowledge, experience, and abilities, etc. associated with each business.

In addition, the expertise (skill matrix) of directors who are not members of the Audit & Supervisory Committee and directors who are members of the Audit & Supervisory Committee will be disclosed in the Notice of the Ordinary Shareholders' Meeting to be held in February 2022.

[Supplementary Principle 4.11.2]

Outside directors and other directors allocate the time and effort necessary to their duties as directors to ensure they appropriately fulfill their roles and responsibilities, and keep concurrent positions within a reasonable range. The status of the concurrent appointments is described in the Notice of the Ordinary Shareholders' Meeting.

[Supplementary Principle 4.14.2]

The Company provides information to directors, including Audit & Supervisory Committee Members, as an opportunity to acquire the necessary knowledge and to fully understand roles and responsibilities.

The Company also provides relevant information to outside directors on the occasion of their appointment and regularly thereafter to help deepen understanding of the Group's management philosophy, management policy, business activities, and organization. In addition, we provide directors, including outside directors, with opportunities to acquire any knowledge of business, finance, organization, etc. required to fulfill their roles and responsibilities and offer financial support to fund such training.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]

(i)(ii) Under the leadership of the President, the Management Planning Department coordinates the activities of units involved in IR activities and maintains collaboration among these units on a day-to-day basis.

1. The Management Planning Department actively responds to requests for IR information, including telephone inquiries from investors and small meetings. OSG holds quarterly meetings to present its financial results, as well as half-yearly financial presentations by top management.
2. If necessary, any opinions and concerns of shareholders gathered through dialogue are fed back to the Board of Directors and senior management by the unit that carried out the IR activities concerned.
3. When engaging in dialogue with investors, OSG takes care over the management of insider information by ensuring that such dialogue, whether at financial presentations or small meetings, centers on strategies for the achievement of sustainable growth and the improvement of OSG's corporate value from a medium- to long-term perspective.

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2. Capital Structure

	Foreign Shareholding Ratio	From 20% to less than 30%
[Status of Major Shareholders]
Updated
	Name/Company Name		Number of Shares Owned	Percentage (%)
	The Master Trust Bank of Japan, Co., Ltd. (Trust	13,039,700	13.28
	Account)
	Custody Bank of Japan, Ltd. (Trust Account)		5,753,600	5.86
	SSBTC CLIENT OMNIBUS ACCOUNT		4,157,794	4.23
	NORTHERN TRUST CO.(AVFC) RE FIDELITY	3,358,675	3.42
	FUNDS
	OSG Agent Association		3,219,367	3.28
	OSG Stock Holding Association		2,566,869	2.61
	Osawa Scientific Studies Grants Foundation		2,350,000	2.39
	Sumitomo Mitsui Banking Corporation		2,100,000	2.14
	THE BANK OF NEW YORK MELLON 140051	2,095,700	2.13
	Nomura Trust and Banking Co., Ltd. (Investment	1,967,600	2.00
	Trust Account)
	Controlling Shareholder (except for Parent	-
	Company)
	Parent Company	None

Supplementary Explanation Updated

The status of major shareholders is as of November 30, 2021. The Company holds 5,164 treasury shares.

3. Corporate Attributes

	Listed Stock Market and Market Section		Tokyo Stock Exchange First Section and Nagoya Stock
		Exchange First Section
	Fiscal Year-End	November
	Type of Business	Machinery
	Number of Employees (consolidated) as of the	More than 1,000
	End of the Previous Fiscal Year
	Sales (consolidated) as of the End of the		From ¥100 billion to less than ¥1 trillion
	Previous Fiscal Year
	Number of Consolidated Subsidiaries as of the	From 50 to less than 100
	End of the Previous Fiscal Year

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