Ikutoshi Matsumura. Executive Director of the Energy. System Business Division Executive Director of the Research & Development Division

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1 Board of Directors Representative Director, Chairman of the Board Representative Director, President Fumiaki Watari Shinji Nishio Representative Directors, Executive Vice Presidents Makoto Satani Directors, Senior Vice Presidents Toshikazu Kobayashi Ikutoshi Matsumura Executive Director of the Energy System Business Division Executive Director of the Research & Development Division Masahito Nakamura Executive Director of the Fuel Retail Sales Division Shigeo Hirai Executive Director of the Corporate Management Division I Kan Ueno Executive Director of the Chemicals Division Directors Akira Kitamura General Manager of the Secretariat Michio Ikeda General Manager of the Corporate Planning & Management Department Hajime Okazaki General Manager of the Central Technical Research Laboratory Hiroshi Ono President and Representative Director of Nippon Petroleum Refining Company, Limited Makoto Koseki President and Representative Director of Nippon Oil Exploration Limited Executive Officers Jun Matsuzawa Yoshiki Hirayama Seijiro Yamazaki Haruo Nakano Shunsaku Miyake Nobuyuki Tanahashi Masahiro Yoshida Michiyasu Kobayashi Ichiro Kurata Hirokazu Matsuo Akira Omachi Toru Tanaka Yasuji Araki Yasushi Kimura Executive Director of the Energy Solution Division Yasuo Kamino Executive Director of the Lubricants & Specialties Business Division Junichi Kohashi Executive Director of the Environment, Safety & Quality Management Division Executive Director of the Manufacturing Technology & Engineering Division Kazuyuki Tanaka Shirou Kikkawa Junichi Kawada Nagayasu Matsuzawa Yuichi Kanemaru Tsutomu Sugimori Hiroji Adachi Naoaki Tsuchiya Executive Director of the Overseas Business Division Executive Director of the Supply Division Makoto Kuramochi Deputy Director of the Overseas Business Division Yukio Yamagata Executive Director of the Corporate Management Division II 46

2 Auditors Standing Corporate Auditors Hiroshi Maru Hideo Tabuchi Corporate Auditors Masao Fujii Hidehiko Haru Masahiro Sakata Diagram of Operational Execution, Audit, and Supervision Election and removal of directors General Meeting of Shareholders Election and removal of auditors Election and removal Management System Board of Directors (Chaired by board chairman) Board of Corporate Auditors Appointment Election and removal Monitoring and supervision Financial audits Independent Auditors Removal Reports Financial audits Operational Execution Representative Director, President Executive Vice Presidents Interviews (Business execution divisions) and information exchange (Auditors) Executive Committee Senior Vice Presidents Executive Officers Body to assist decision-making by the president Executive Officers Appointed by the President Organizational configuration: Company with Board of Corporate Auditors System Reporting directly to the president CSR Department (Internal Audit) Dispatch of officers/personnel Approvals Deliberation of proposed investments Group Companies Internal audit Internal audit Reports Head of Board of Directors: Chairman* Number of directors: 19 Elected outside directors: None Number of corporate auditors: 5 Number of outside auditors: 3 * Except when serving concurrently as president Annual Report 2008 NIPPON OIL CORPORATION 47

3 Basic Approach to Corporate Governance Amid the current increasingly severe competitive environment for energy companies, the Group aims to upgrade its management strategy development capabilities and establish rapid and dynamic decision-making and operational execution that is responsive to changes in the business environment. We also work to ensure the soundness and transparency of management to respond to the trust and confidence of all our stakeholders. These are the foundations of our corporate governance. In line with these beliefs, the Nippon Oil Group has established corporate governance systems with the following features. (1) The term of directors is one year, and directors must be approved by the regular general meeting of shareholders each year. (2) The presidents of principal Group companies are made members of Nippon Oil Corporation s Board of Directors, and management strategy is debated and decided on a Groupwide basis. (3) The Company has selected the Board of Corporate Auditors system. The majority of the corporate auditors comprising the board are outside auditors with specialized expertise. Equipped with stronger and broader authority than before under Japan s Companies Act, they effectively monitor and supervise management and ensure that it is sound and transparent. (4) Nippon Oil is strengthening its Groupwide CSR promotion systems, led by the Nippon Oil Group CSR Meeting. 1. Directors and Executive Officers Nippon Oil Corporation s executive officers are appointed by the Board of Directors. By separating the important business decisions made by the Board of Directors and supervision of the execution of directors duties from the operational functions carried out by executive officers, this system aims to enhance the quality and speed of decision-making and clarify responsibility for business execution. Regarding items defined by laws, regulations, and the Company s Articles of Incorporation, after clarifying standards for agenda items by delineating the Board of Directors regulations and criteria for determining meeting agendas, the Board of Directors makes important management decisions pertaining to operational execution. The representative director, president is responsible for operational execution decisions not covered by the Board of Directors. Before the president executes operational decisions, related issues are thoroughly discussed and examined by the Executive Committee, which is comprised of the president, executive vice presidents, senior vice presidents, and other selected executive officers. Members of the committee at or below the level of executive vice president assist the president in decision-making. The Executive Committee meets once per week, in principle, and its members report on and discuss the current status and future direction of business activities in various divisions as needed. The president indicates the direction of operational policies as necessary and makes decisions on their execution. In accordance with board regulations, important operational decisions made solely by the president are reported to the Board of Directors, while reports on the Executive Committee s consideration and consultation processes and results are made to the Board of Corporate Auditors. Under the leadership of the chairman of the board, the Board of Directors debates and decides items that are to be determined by the Board of Directors. In addition, the Board of Directors conducts interviews regarding reporting items and supervises the operational execution of representative directors and performance of duties by each director. When nominating candidates for director, each nominee is assessed from a variety of angles, and their occupational experience, personality, insight, and other attributes are also examined. A list of those candidates expected to contribute to the Company s management, who are deemed capable of handling the responsibilities of director and able to meet the expectations of shareholders, is submitted to the Board of Directors for further consideration. The final nominees who emerge are then put forth as candidates for election at the regular general meeting of shareholders. With respect to operational execution at Nippon Oil Group companies, the presidents of Group companies Nippon Petroleum Refining Co., Ltd. and Nippon Oil Exploration Limited are added as members of the Board of Directors with the goal of strengthening Group management. Debate and decisions regarding important business plans and other matters such as important capital expenditures and items necessary to the strategic development of Group business at these companies are conducted by or directly reported to the Board of Directors. Similarly, we hold regular meetings attended by Nippon Oil Corporation s chairman, president, executive vice presidents, and senior vice presidents, as well as by the presidents 48

4 of the Group s principal companies, with the aim of maximizing the Group s corporate value. At these meetings members communicate, confirm, and thoroughly implement basic policies and share information and exchange opinions with a view to generating synergies. 2. Auditors The Company s five corporate auditors, three of whom are outside auditors, attend the Board of Directors meetings and pose questions and express opinions at these meetings ahead of the reporting of resolutions deliberated and adopted as well as reporting items. The corporate auditors also monitor whether violations of laws and regulations or the Articles of Incorporation have been committed in the execution of duties performed by the directors. Pursuant to regulations established by the Board of Corporate Auditors and corporate auditing standards, the corporate auditors and the Board of Corporate Auditors have systems in place for conducting comprehensive audits by the corporate auditors as prescribed by law. In addition to the examination of records relating to financial accounts and important meetings, the auditors receive reports from directors and employees of the Company and representative directors and officers of subsidiaries regarding the performance of their duties. These and similar actions comprise audits of the directors performance conducted by the corporate auditors on an ongoing, day-to-day basis. The progress and results of audits which each corporate auditor has conducted based on the audit plan are reported by the auditors at regular meetings of the Board of Corporate Auditors, which in principle are held once monthly. The sharing of results of overall audit activities also takes place at these meetings. In addition, the representative directors and the auditors exchange opinions regarding the management policies of the representative directors, important management issues that the Company must confront, risks that the Company faces, the environment in which corporate auditors conduct audits, efforts to improve audits, and other various important audit-related issues. In order to deepen mutual understanding and the relationship of trust, all five representative directors and all five corporate auditors, including the three outside auditors, hold regular meetings. In fiscal 2007, these meetings took place on four occasions, with the members discussing issues including protective measures against hostile takeovers and shareholder return policies for the Company s Fourth Medium-Term Management Plan. In nominating candidates for corporate auditor, Nippon Oil considers the nominee s ability to fulfill the duties expected of auditors, the possession of specialized expertise, a wealth of experience and an outstanding performance record. Beyond these basic credentials, however, candidates must also embody the highest ethical standards and have a reputation for impartiality, fairness, and honesty. Following consideration by the Board of Directors and approval of the Board of Corporate Auditors, nominees who are deemed to exemplify these qualities are put forth as candidates for election at the regular general meeting of shareholders. Management System Name Board of Board of Directors meeting Corporate Auditors meeting attendance attendance record record Professional background Reason for election Concurrent posts Masao Fujii 12/12 14/14 Former judge in Japan s Supreme Court Following successive judicial appointments, worked as a Justice of Japan s Supreme Court; Nippon Oil Corporation believes that his lengthy experience and expertise will enable him to monitor and supervise management from an objective and fair viewpoint Hidehiko Haru* Masahiro Sakata* Former executive vice president and representative director of Tokyo Electric Power Company (TEPCO) Former member, Bank of Japan Policy Committee Former Deputy Director-General of the Minister s Secretariat, Ministry of Finance Former Director-General of the Cabinet Legislation Bureau With extensive professional experience at TEPCO and as a member of the Bank of Japan Policy Committee, Nippon Oil Corporation believes that he will make use of his rich expertise in operational management and fiscal policy areas to conduct monitoring and supervision of management from an objective and fair perspective. After years of work at the Ministry of Finance and appointment to the Cabinet Legislation Bureau, Nippon Oil Corporation has judged that his abundant expertise in the fields of policy and legislation will enable him to monitor and supervise management from an objective and fair viewpoint * Hidehiko Haru and Masahiro Sakata were newly elected and appointed auditors at the 193rd General Meeting of Shareholders on June 24, Outside director, Marubeni Corporation Auditor, Nippon Yusen Kabushiki Kaisha (NYK LINE) Anderson Mori & Tomotsune Auditor, Tokio Marine & Nichido Fire Insurance Co., Ltd. Auditor, The Nishi-Nippon City Bank, Ltd. Annual Report 2008 NIPPON OIL CORPORATION 49

5 3. Reason for Selecting the Board of Corporate Auditors System Nippon Oil Corporation s Board of Directors is comprised of directors thoroughly familiar with the Group s operations, and they work to maintain and increase the efficiency and responsiveness of management. On the other hand, Nippon Oil believes that augmenting its systems for the performance of audits by corporate auditors, which have been given greater authority by successive revisions of Japan s Companies Act, is a desirable means of maintaining and strengthening management soundness, and it has therefore established its Board of Corporate Auditors. 4. Outside Auditors Three of the five members of the Company s Board of Corporate Auditors are full outside auditors unaffiliated with the Company. Outside auditors use their wealth of experience and knowledge to pose questions and express opinions at Board of Directors meetings regarding agenda items. In fiscal 2007 these included conclusion of a contract for a comprehensive tie-up with Sanyo Electric Co., Ltd. for stationary fuel cell operations and the MOU on management integration with Kyushu Oil Co., Ltd. 5. Creation of Specialized Support Staff for Auditors To augment the auditing capabilities of all the corporate auditors, including the outside auditors, Nippon Oil has established the Secretariat of Corporate Auditors, which has a three-person staff that is completely and clearly independent of the Group s business execution departments as well as of the Group s command systems, including the personnel evaluation system. 6. Compensation of Directors and Corporate Auditors The compensation of each director and corporate auditor is determined, based on consideration of the Company s performance as well as of the role and contribution of each director and corporate auditor, within the scope of the total remuneration figure authorized by the General Meeting of Shareholders, in accordance with internal regulations created by a vote of the Board of Directors in the case of directors and in accordance with internal regulations created by a vote of the Board of Corporate Auditors in the case of auditors. In accordance with resolutions by the Board of Directors and the Board of Corporate Auditors in May 2005, Nippon Oil has abolished its system of retirement allowances for directors and corporate auditors. This decision was made to link compensation for directors and corporate auditors more closely to their term of service and to the Company s business performance. Number of recipients Remuneration amount ( million) Directors Corporate auditors (Outside auditors) 5 (3) 103 (30) 1. The total remuneration includes total bonuses of 165 million paid to directors and of 20 million paid to corporate auditors. 2. Employee salaries and bonuses of 63 million paid to five employee-directors are excluded from the total remuneration. 7. Independent Auditor Nippon Oil has selected Ernst & Young ShinNihon as the independent auditor to perform audits of its financial accounts. In fiscal 2008, these audits were carried out by three certified public accountants (CPAs) employed by Ernst & Young ShinNihon Haruo Senba, Kazuhiko Umemura, and Takao Kamiya. These personnel were assisted in their audits by a 24-member staff that included 10 CPAs and 14 CPA assistants. Total compensation paid to the independent auditor of the Company is as follows: Compensation based on work covered by article 2-1 of the certified public accountant law 79 million Compensation based on work other than that mentioned above 63 million 50