Last updated : December 12, 2011

Corporate Governance (1)

NTT is committed to supporting the sound development of its Group companies and establishing a foundation of trust. To fulfill that commitment, NTT continues to enhance its management systems.

Strengthening Corporate Governance and the Internal Control System

Basic Philosophy

As the holding company of the NTT Group, NTT believes that raising the effectiveness of corporate governance is an important management issue for meeting the expectations of various stakeholders, including shareholders and other investors, as well as customers, business partners, and employees, and for maximizing corporate value. Accordingly, the NTT Group is working to strengthen corporate governance based on its fundamental policies of ensuring sound management, conducting appropriate decision-making and business activities, clarifying accountability, and maintaining thorough compliance.

Board of Directors and Board of Corporate Auditors

NTT maintains a Board of Directors with 12 members, including two outside directors. In principle, the Board of Directors meets once per month to make decisions and report on important management issues.

NTT also maintained a Corporate Auditor system and maintains a Board of Corporate Auditors with five members, three of whom are outside corporate auditors.

Executive Officers Meeting and Committees

The important corporate matters to be decided are, in principle and in advance, discussed by NTT's Executive Officers Meeting. The Executive Officers Meeting comprises the President, Senior Executive Vice Presidents, directors with management responsibilities and the heads of staff organizations, and meets around once a week, with a total of 26 meetings held in the fiscal year ended March 2011. In addition, committees have been created under the Executive Officers Meeting to discuss specific issues related to the management strategies of NTT Group companies. These committees are in principle chaired by the President or a Senior Executive Vice President, and meetings are attended by relevant directors and other personnel as necessary.

Audits by Corporate Auditors

NTT's corporate auditors audit the performance of directors' duties from the viewpoint of appropriateness. The corporate auditors are working with the Independent Auditor periodically to exchange information on audit plans and audit results to bolster the audit system, in addition to conducting audits in partnership with the corporate auditors of group companies.

Policies Concerning the Compensation of Directors and Auditors, and its Total

Policies

In regard to matters concerning the compensation of directors, in order to improve objectivity and transparency, NTT established the Appointment and Compensation Committee, comprised of four directors, including two outside directors, and such matters are decided by the Board of Directors after deliberation by this committee.

Compensation of directors (excluding outside directors) consists of a base salary and a bonus. The base salary is paid monthly on the basis of the scope of each director's roles and responsibilities. The bonus is paid taking into account NTT's business results for the current term. Also, directors make monthly contributions of at least a certain amount for the purchase of NTT shares through the Director Shareholders Association, to reflect NTT's medium- and long-term business results in compensation. Purchased shares are owned by the directors during their terms of office.

In order to maintain a high level of independence, compensation of outside directors consists of a base salary only, and is not linked to NTT's business results.

Compensation of corporate auditors is determined by resolution of the Board of Corporate Auditors and consists of a base salary only, for the same reasons as those cited above with respect to outside directors.

Establishment and Promotion of Risk Management Framework

The NTT Group faces a rapidly changing business environment, including intensified competition in the information and telecommunications sector. In this context, NTT Group companies are exposed to an increasing amount of business risk.

The NTT Group strives to minimize the impact of losses that could result from the materialization of risk by anticipating and preventing the occurrence of potential risks. As part of these efforts, NTT has formulated a standard manual and distributed it to all Group companies so that the entire Group can work together to conduct risk management. In addition, each Group company has formulated its own manuals and other guidelines, which reflect its specific business operations, business environment, and other factors. These materials are used to control business risks.

Internal Control Systems

NTT has established a basic policy on the maintenance of an internal control system for the NTT Group through a resolution of the Board of Directors to put in place a structure for ensuring the appropriate execution of duties within each Group company, while continuing efforts to establish further rules and systems related to internal controls based on the above-mentioned basic policy.

In terms of ensuring the reliability of the internal control over financial reporting based on the U.S. Sarbanes-Oxley Act and Japan's Financial Instruments and Exchange Law, the NTT Group is working to document business processes and conduct repeated tests to provide reasonable assurance as to effectiveness of internal control over financial reporting.

NTT's Internal Control Office plays a primary role in monitoring the status and verifying the effectiveness of internal controls across the Group as a whole through such measures as conducting standardized audits that target all Group companies and checking the status of progress of internal audits in each Group company, as well as leading efforts to improve the Group's internal control systems.

Corporate Governance Structure (Including an Outline of the Internal Control System)

Defining Accountability

NTT strives to maintain appropriate, timely and fair information disclosure and is aware that obtaining proper corporate valuations in the market through such disclosure is essential. Accordingly, NTT conducts presentations on financial results, and promptly discloses information on the NTT website to clarify the NTT Group's accountability to stakeholders.

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