Governance

• Basic Philosophy
• Corporate Governance Structure
  • Reasons for Adopting this Corporate Governance Structure
  • Directors' Expertise & Areas of Specialization (Skills Matrix)
• Risk and Compliance Management
  • Compliance Management
  • Risk Management
• Nomination and Compensation Committee
• Reasons for Appointment of Outside Directors, Positions Held Concurrently
• Evaluation of Effectiveness of the Board of Directors
  • Survey
  • Evaluation Results
  • Initiatives for Enhancing Effectiveness
• Compensation for Company Officers
  • Compensation Structure
  • Process for Determining Compensation
• Cross-Shareholdings Policy
  • Reduction in Cross-Shareholdings
• Basic Policy on Constructive Dialogue with Shareholders

Basic Philosophy

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 rganizations, and the creation of systems to ensure timely and air 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 ompany.

Overview of Corporate Governance Structure

As a company with an audit and supervisory committee, OSG's corporate governance structure consists of the Board of Directors, the Audit & Supervisory Committee, and the accounting auditors. The role of the Board of Directors is clearly defined under this structure. Operational executive functions are performed by executive officers, while the Board of Directors is responsible for decision-making and the supervision of operational executive actions. To strengthen decision-making functions, the seven-member Board of Directors includes two members who are also involved in business operations as executive officers. The remaining five directors, of whom four are outside directors, are also members of the Audit & Supervisory Committee. The outside directors also make up the majority of the Board of Directors. By creating this structure, we have enhanced the transparency and independence of the Board of Directors and the effectiveness of its management supervisory role, while bringing in outside perspectives.

In addition, OSG has introduced an executive officer system to ensure effective responses to changes in the business environment, as well as to clarify the roles and responsibilities of the executive organization. The executive officers are solely responsible for the performance of business operations in a timely manner and in accordance with policies decided by the Board of Directors, while continually improving flexibility and efficiency.

Reasons for Adopting this Corporate Governance Structure

By adopting our present corporate governance structure, we have enhanced the ability of the Board of Directors to oversee and supervise management decision-making and the performance of business operations, thereby improving management efficiency and ensuring that management decisions can be made appropriately and strategically. The activities of the Audit & Supervisory Committee, of which four of five members are outside directors, include the auditing of the company's financial position and operations, and the performance of duties by the representative director and executive officers. OSG's five outside directors are independent officers as stipulated in the listing rules. With the five of the Audit & Supervisory Committee, including these highly independent outside directors, as members of the Board of Directors, we believe that we have created a corporate governance structure by providing an environment for effective management supervisory functions and by ensuring that the company is managed transparently and appropriately.

Directors' Expertise & Areas of Specialization (Skills Matrix)

Risk and Compliance Management

In addition to these measures to improve management transparency and fairness and ensure timely information disclosure, we have also established Risk Management Rules as a framework for the creation of risk management structures to maintain management soundness and corporate ethics in the OSG Group. We have also established the Risk and Compliance Management Committee to ensure the effective and efficient implementation of the Risk Management Rules. Its role is to formulate basic risk management policies and consider and implement timely countermeasures after assessing the significance and urgency of risks.

Compliance Management

Basic Philosophy

The OSG Corporate Code of Ethics was established as a set of values and ethics that we thoroughly practice to ensure all directors, executives, and employees at OSG Group companies conduct business activities based on social common sense and comply with laws, regulations, and social standards. The Corporate Code of Ethics comprises two sections: business ethics norms and company action standards. The former are guidelines establishing the basis upon which business activities should be carried out by senior management and employees at OSG Group companies and how they should conduct themselves in order to ensure the prompt and appropriate implementation of fair and appropriate practices. The latter is a detailed code of conduct to ensure implementation of business ethics norms in business activities carried out by senior management and employees at OSG Group companies.

Promotion of Compliance

Even as we comply with laws, regulations, and other rules, OSG has appropriately maintained and reassessed the OSG Corporate Code of Ethics to incorporate training measures when employees are assigned to design, development, or other compliance-related units as part of our training as well as professional education for new employees and others. We have worked to raise our employees' awareness of compliance. Not only do we thoroughly work to uphold conventions such as compliance, adherence, and rule enhancement, but we also strive through training to imbue a sense of pride in our company as well as foster awareness and promote understanding of compliance in each and every one of our employees.

Inernal Reporting System

OSG and the OSG Group have established "Internal Reporting Regulations" regarding organizational and individual violations of laws and regulations, misconduct, and violations of the "OSG Corporate Code of Ethics" in all corporate activities, and have established a system for receiving reports and appropriate handling of consultations, whether internal or external.Upon receiving a report from a whistleblower or a consultant, an investigation team conducts a fact-finding investigation and, as a result of the investigation, applies the penalties stipulated in the employment regulations of each OSG Group company as necessary and takes measures to prevent recurrence.The Whistleblower Supervisor confirms that the recurrence prevention measures have been sufficiently implemented, even after the recurrence prevention measures have been taken, in order to contribute to the protection of whistleblowers and consultants, the prevention and early detection of legal violations, and the reinforcement of compliance management.

Risk Management

Policy

OSG and the OSG Group strive to prevent the occurrence of risks in our business activities, respond to any risks that do occur, and maintain a system for risk management to ensure the smooth operation of our business activities.Risk categories are distinguished as follows: risks arising from the external environment, business processes, business processes, and the internal environment. The main risks that management recognizes as having the potential to materially affect its financial position, results of operations, and cash flows are as follows.

Risk Classification

Risk category	Type of risk
External risks	Economic conditions and market trends
	Trends affecting procurement of raw materials
	Climate change, natural disasters, and pandemics
Business process risks	Stable supply to the market
	Employee working conditions
	Safety and health management for employees
	Information security
Internal risks	Corporate governance and financial risk
	Retaining and training human resources
	Traffic accidents

Information Security

＜Basic Information Security Policy＞
OSG and OSG Group have always responded to customer needs, with cutting tools at the core of our business.
In today's highly information-oriented society, we have established a Basic Information Security Policy in order to maintain the trust of our customers and society by protecting information assets from threats such as accidents, natural disasters, and criminal activity as part of our efforts to continue to provide products and services that satisfy our customers' needs moving forward. This policy acts as the basis for our efforts in relation to information security.

1. Internal system and information security policy development

We will establish the management system required to maintain and improve security. Necessary information security measures will be established as formal rules within OSG and OSG Group.

2. Leadership responsibilities and continuous improvement

In complying with this policy, OSG and OSG Group management will take a leadership role in ensuring the proper management of information assets belonging to OSG and our customers.

3. Compliance with laws, regulations and contractual obligations

Senior management and employees at OSG and OSG Group companies will comply with the security requirements of all relevant laws, regulations, norms and contractual agreements with customers relating to information assets used in the course of business activities.

4. OSG initiatives

Senior management and employees at OSG and OSG Group companies will acquire the knowledge and skills required to maintain and improve information security while ensuring the reliability of our information security initiatives.

5. Handling of violations and incidents

OSG and OSG Group will establish a system for responding to information security incidents and any violations of laws, regulations, norms and contractual agreements with customers with relation to information security. Efforts will also be made to reduce the impact of such incidents and violations.

BCP

OSG and OSG Group have established a Risk and Compliance Management Committee to formula basic risk management policies and systems and to consider then implement timely countermeasures after asessing the significance and urgency of risks

• 1. OSG and the OSG Group have formulated a BCP for the Nankai and Tonankai Trough earthquakes that are expected in recent years, and are conducting training and education.Furthermore, even in the event of a large-scale disaster, we are prepared to provide water, food, and other necessities to employees at each business site until the municipal and national relief systems are in place.

  

• 2. During normal times, the Health and Safety Committee holds monthly meetings to identify hazardous work and dangerous areas, and works to reduce the impact of natural and man-made disasters on production activities.

Number of Occupational Accidents

Company-wide Safety and Health Committee

Nomination and Compensation Committee

OSG has established a Nomination and Compensation Committee as an advisory body for the Board of Directors. Its purpose is to strengthen the independence, objectivity, and accountability of board functions through the appropriate involvement of independent outside directors and the provision of advice in relation to the appointment of directors and executive officers, etc., and compensation. The Nomination and Compensation Committee consists of directors who are also members of the Audit & Supervisor Committee, and four of the five members are independent outside directors. 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.

Please refer to the section headed "Compensation for Company Officers" on the following page for details of OSG's process for determining compensation.

Name of committee	Total members	Internal directors	Outside directors	Outside experts	Chairperson
Nomination and Compensation Committee	5	1	4	0	Outside directors

Reasons for Appointment of Outside Directors, Positions Held Concurrently

＊As of Feb. 16, 2024

Evaluation of Effectiveness of the Board of Directors

To enhance the Board of Directors' functions, OSG began conducting analyses and evaluations of the Board's effectiveness in FY2022. To ensure the FY2023 effectiveness evaluation would be objective and transparent, the support of an external organization was secured and the evaluation conducted in September 2023. A session of the Board of Directors was held in November 2023 to analyze, discuss, and evaluate the results. An overview of those evaluation results is given below.

Description

Targets	All members of the Board of Directors 2 Directors who are not members of the Audit & Supervisory Committee 5 Directors are members of the Audit & Supervisory Committee (4 of whom are outside directors) for a total of 7
Evaluation method	Anonymous questionnaire
Time frame	Responses period (Sep. 15～ Oct. 2, 2023)
Overview of questions	●Composition of the Board of Directors ●Operation of the Board of Directors ●Deliberations by the Board of Directors ●Monitoring function of the Board of Directors ●Performance of Outside Directors (incl. Audit & Supervisory Committee Members) ●Support structure for Directors (incl. Audit & Supervisory Committee Members) ●Training ●Dialogues with shareholders (investors) ●Voluntary initiatives ●Nomination and Compensation Committee ●Summary
Evaluation method	Survey results were consolidated by an external organization and then analyzed, deliberated, and evaluated by the Board of Directors.

Evaluation Results

The survey responses gave a favorable evaluation to the manner in which the Board of Directors is expected to operate and its response to those expectations. There is a recognition that the Board of Directors has maintained its effectiveness overall. On the other hand, more in-depth comments were provided about further enhancing support systems, coordination with internal auditing departments, sharing details of dialogues with shareholders and other investors, as well as exchanging views with outside directors. The results shared an awareness that the Board of Directors faces challenges in encouraging discussion and further improving the functions that it exercises.

Initiatives for Enhancing Effectiveness

Once the OSG Board of Directors has taken into consideration this effectiveness evaluation and conducted a sufficient review of the challenges faced, it intends to respond promptly as well as to continue to further initiatives augmenting its functions. There is a substantial support structure for specific measures addressing challenges that strengthens operational collaboration with executive officers and the secretariat and allows issues to be regularly shared with internal audit divisions. In addition, pertinent details of dialogues with shareholders and investors are shared by personnel handling investor relations.

Compensation for Company Officers

Compensation Structure

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. Since directors who are members of the Audit & Supervisory Committee are independent from the other directors and are not involved in the execution of business operations, their compensation consists solely of fixed compensation.

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.

Variable Compensation

Starting in the fiscal year ended November 2019, the company provides variable compensation in the form of profit-linked bonuses in line with the definition of profit-linked salaries provided in Article 34, Paragraph 1 Item 3 of the Corporation Tax Act, as well as personal assessment bonuses.

Profit-linked Bonuses

Eligibility:	Eligible directors who are serving as executive officers and managing officers
Calculation method:	Profit-linked bonus = Consolidated operating income before provision for the cost of performance-linked bonuses x Rank-based bonus ratio (see table below) The maximum amount for profit-linked bonuses is ¥700 million.

Personal Assessment Bonuses

Eligibility:	Executive officers (excluding the Represntative Director and CEO, COO)
Calculation method:	Personal assessment bonuses are paid according to qualitative assessments of each person's contribution to business performance. The maximum amount for personal assessment bonuses is ¥50 million.

Compensation Based on Allocations of Restricted Stock

Eligibility:	Directors (excluding members of the Audit & Supervisory Committee)

• The amount of compensation is 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. The purpose of this system is to provide an incentive to achieve continual improvement in the company's performance and corporate value and increase the value shared with shareholders.

Process for Determining Compensation

Fixed Compensation, Compensation Based on Allocations of Restricted Stock

In order to determine the amount of compensation for directors (excluding members of the Audit & Supervisory Committee), 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. Based on the response from the Nomination and Compensation Committee, 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 through consultation among those directors.

Variable Compensation

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 using the methods outlined above. 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.

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.

Cross-Shareholdings Policy

Reduction in Cross-Shareholdings

The Board of Directors conducts annual reviews to determine whether to continue holding cross-shareholdings. Those for which the Board of Directors deems there to be no rationale for their continued holding are gradually sold off.
The criteria for such determinations include the purpose of such holdings, risks, relationship with OSG. The cost of capital is also taken into account. As for the exercise of voting rights, the Board of Directors does not make decisions based solely on the short-term performance and share price of the stock of the company held, but comprehensively considers the relationship with OSG in making such determinations.

[Amount: Millions of yen] Figures in parentheses indicate number of stock sold off.

Basic Policy on Constructive Dialogue with Shareholders

Under the leadership of the Representative Director and 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. 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. If necessary, any opinions and concerns gathered through shareholder dialogue are fed back to the Board of Directors and senior management by the executive officer in charge of the unit that carried out the IR activities concerned. 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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