Governance Initiatives

Exploring New Horizons of Risk Tolerance in Support of Execution

Our Asset Assembler model is a strategic framework for achieving Maximization of Shareholder Value (MSV), grounded in autonomous and decentralized management empowered by deep mutual trust with each partner company. This approach enables us to drive sustainable growth across our existing businesses while executing disciplined and strategic acquisitions to building a portfolio of high-quality assets led by exceptional management teams.

Over the years, our Group has steadily expanded its portfolio through purposeful acquisitions, including DuluxGroup, Betek Boya, and the full integration of our Asian joint venture with the Wuthelam Group, as well as the acquisition of a paint business in Indonesia. Most recently, in March 2025, we acquired AOC, a specialty formulator with a strong presence in the U.S. and European markets. This milestone reflects a deliberate step toward broadening our business domains beyond our traditional “Paint+” and “Paint++” framework.

As we advance our pursuit of MSV through the Asset Assembler model, it becomes increasingly important to raise the risk appetite that can be effectively managed by our executive team and to enhance the Group’s overall risk tolerance. It is a fundamental prerequisite that we continuously ensure the effectiveness of risk management across the entire Group. To that end, we focus on two key pillars: autonomous audits conducted by each partner company in accordance with our Global Code of Conduct (The Nippon Paint Group Global Code of Conduct), and a comprehensive Group-wide audit mechanism operating in our “Audit on Audit” framework.

To effectively fulfill its critical role in monitoring and determining the scope of tolerable risks, the Board of Directors must maintain both diverse perspectives and strong independence. Since FY2020, we have undertaken continuous upgrading of the Board to align its composition with the evolving needs of our growth stage. We have consistently ensured that Independent Directors form the majority, while actively advancing diversity through the appointment of members with deeply varied backgrounds and a high degree of independence. These initiatives are vital to empowering the Board to objectively assess and advise on the potential risks associated with acquisitions. By drawing informed comparisons with our existing businesses and applying their broadranging experiences and multifaceted perspectives, Board members play a pivotal role in constructively challenging and encouraging the executive team.

I firmly believe that each Director’s continued reflection on the appropriate level of risk the executive team should assume, and the resulting strengthening of the Board’s own risk tolerance, plays a critical role in the disciplined accumulation of high-quality assets essential to achieving MSV, while ultimately advancing the interests of minority shareholders. By fostering close and transparent communication between the execution and monitoring functions, we work to eliminate information asymmetries and deepen alignment across the organization. Through ongoing, forward-looking dialogue on our growth strategy, we will extend these efforts and remain committed to making agile and flexible decisions as we move forward.

June 30, 2025

Establishing Optimized Execution and Monitoring Frameworks for Achieving MSV

In March 2025, Nippon Paint Holdings completed the acquisition of AOC, marking a significant milestone in the Group’s Asset Assembler growth strategy, an approach that has been thoroughly discussed and endorsed by the Board of Directors. This strategic move is expected to further accelerate execution across the Group. Looking ahead to the next phase of growth, the Nominating Committee will place priority on identifying and nominating executive candidates who can lead effectively in an increasingly complex and unpredictable business environment. The focus will be on individuals who demonstrate agility, resilience, and adaptability, qualities essential for navigating unforeseen risks and emerging challenges.

Since transitioning to a Company with Three Committees in 2020, we have continuously reviewed and refined our execution and monitoring frameworks to ensure they remain optimal amid a rapidly evolving business environment. These efforts are grounded in our commitment to MSV as our sole mission. As part of this initiative, we have focused on selecting the most suitable individuals to execute and monitor management effectively. In line with this, seven new Directors were appointed and nine Directors retired, strengthening the independence of each Director and further enhancing the Board of Directors’ monitoring capabilities.

On the execution front, the Nominating Committee has assessed the teamwork and performance of key management personnel within the PCGs, under the leadership of the Co-Presidents. The Committee continues to monitor and evaluate the optimal management structure to support effective execution. In terms of succession planning, our approach prioritizes talent identification over standardized development. We aim to foster an environment where exceptional individuals can independently grow and thrive. Rather than relying on uniform selection criteria or structured development programs, we focus on identifying highcaliber talents through both internal and external human networks. In addition, we also evaluate the external executive talents through acquisition opportunities. Through these efforts, we have established a framework to secure suitable talents.

Through these initiatives, the Nominating Committee remains firmly committed to proactively developing and sustaining an optimal execution and monitoring framework, one that is forwardlooking and aligned with our long-term pursuit of MSV.

June 30, 2025

Compensation and Evaluation Decisions That Support Appropriate and Bold Risk-Taking of Co-Presidents

The Compensation Committee focuses on methods of evaluation when designing compensation packages for the Co-Presidents. Aspects of their performance that should be evaluated and the structure of compensation packages that reflect contribution will continuously change in response to the rapidly evolving environment surrounding our company and the stage of our growth strategy. We constantly check, against market comparables, whether our evaluation and compensation decisions positively influence the Co-Presidents and lead to proactive actions, assessing their effectiveness.

In March 2025, the company acquired AOC in the U.S., deciding to expand our portfolio in the paint-related market. This achievement reflects the Co-Presidents’ efforts to promote organic growth of existing businesses and inorganic growth of accumulating excellent assets with appropriate risk-taking. To further advance such significant steps, sustained motivation enhancement is required. In light of this, we have avoided being biased towards short-term and mechanical evaluations that fluctuate due to a single-year performance or market factors. Instead, we have been comprehensively evaluating the Co-Presidents’ performance in terms of their ability to execute our medium- to long-term M&A strategy, by analyzing the new risks arising from such a strategy and examining the impact on our valuations. We also have been collaborating with the Nominating Committee and the Audit Committee, actively communicating with key management personnel to enhance the effectiveness of this comprehensive evaluation.

Our Board is focusing on medium- to long-term strategic discussions aimed at pursuing MSV. In parallel with these efforts, we aim to encourage appropriate and bold risk-taking by the management team, including the Co-Presidents, while enhancing the sound monitoring role of the Board that supports this. This pursuit is our responsibility to share value with our shareholders. We will continue to strive for evaluation and compensation decisions that appropriately drive both execution and monitoring functions.

June 30, 2025

Advancing the “Audit on Audit” Framework

As our Group pursues MSV as an Asset Assembler, the Audit Committee plays a vital role in reinforcing executive risk-taking by ensuring that internal controls are properly structured and operate effectively under the “Audit on Audit” framework.

In FY2024, the Audit Committee prioritized key areas such as the M&A transaction process and cybersecurity risk management. Throughout its monitoring activities, the Committee worked closely with the Audit Department to gather and assess relevant information. Group Audit Committee (GAC) meetings served as an effective forum for confirming key issues with relevant stakeholders. Regarding the goodwill of the acquired companies, the Committee engaged in active dialogue with both the executive team and the Accounting Auditor to evaluate the appropriateness of valuation methods and confirmed that adequate safeguards were in place to mitigate the risk of impairment losses.

With the completion of the AOC acquisition in March 2025, our Group is set to further diversify its portfolio under the Asset Assembler model. In this evolving context, the Audit Committee will need to adopt an audit approach that shares the management’s viewpoint. To meet these expectations, strengthening the effectiveness of organizational audits through the “Audit on Audit” framework will be critical in supporting the executive team. Beginning in FY2025, the Audit Department will step up its efforts by enhancing collaboration with the internal audit units of each PCG and intensifying its monitoring of internal control operations at newly acquired partner companies.

We recognize that GAC meetings, where internal audit units from across the Group convene to share insights, serve as a highly effective platform for advancing the “Audit on Audit” system. Moving forward, we will further enhance the value of these meetings by addressing topics aligned with the evolving business environment.

June 30, 2025