In recognition of the fact that reliable corporate governance is essential to the continuous creation of social value and the maximization of corporate value, NEC is committed to strengthening its corporate governance practices through:
Assurance of transparent and sound management;
Realization of prompt decision making and business execution;
Clarification of accountability; and
Timely, appropriate and fair disclosure of information.
NEC adopted NEC Corporate Governance Guidelines, which set out the basic framework and policy of the corporate governance system of NEC to help strengthen relationship with its stakeholders, thereby contributing to its sustainable growth and the increase of its corporate value.
NEC's activities regarding Japan's "Corporate Governance Code" that entered into force in June 2015 are described in the Corporate Governance Report and NEC Corporate Governance Guidelines.
Corporate Governance Structure
An overview of the NEC's corporate governance system is as follows:
- (i)NEC has adopted the company with the Audit & Supervisory Board Members (KANSAYAKU) (the "A&SBMs"). NEC considers that the audit by A&SBMs and advices from Outside Directors in making decisions of the material business executions are effective for the sound management of NEC.
- (ii)NEC has introduced a corporate officer system to expedite business execution based on prompt decision making and separate management supervision from business execution. This has involved delegating substantial authority for business execution from the Board of Directors to corporate officers.
- (iii)In order to strengthen a company-wide strategy, NEC has introduced Chief Officers to delegate substantial authority from the President to Chief Officers, aiming to strengthen the corporate functions of the NEC Group.
- (iv)NEC has established the Nomination Committee and the Compensation Committee to enhance objectivity, fairness and transparency of nomination of Directors, representative Directors, the A&SBMs, Chairman of the Board and the President including succession planning for the President, and remuneration of Directors and corporate officers.
Board of Directors
NEC's Board of Directors consists of 10 members, 5 of whom are Outside Directors. To effectively fulfill their roles and responsibilities, the Board of Directors is comprised with consideration given to the balance between diversity, in such factors as career background, specialist field, internationality and gender, and appropriate size. Outside Director's independency is expected to be ensured through the Board of Directors' composition as a whole. NEC judges their independency based on the standards defined by Tokyo Stock Exchange and the "Independence Criteria for Outside Directors and Outside A&SBMs" established by NEC.
The Board of Directors is responsible for making important decisions for NEC's business execution, including decision on its basic management policies, as well as supervising overall business execution.
Executive Committee and Business Progress Committee
The Executive Committee, which comprises around 20 corporate officers, discusses important NEC Group management issues such as policies and strategies. This Committee extensively discusses matters of particular importance prior to submitting them to the meetings of the Board of Directors for approval. In doing so, the Committee enhances the deliberations and ensures appropriate decision making.
The Business Progress Committee comprises corporate officers, managing directors of business units and other members. This Committee reports and deliberate on matters related to the status of the NEC Group's business execution, such as monitoring progress with respect to meeting budgets adopted by the Board of Directors, with the aim of sharing management information and promoting execution efficiency.
NEC has established the Nomination Committee to enhance objectivity, fairness and transparency of nomination of Directors and A&SBMs. The Nomination Committee shall be composed of three or more members selected from among the Directors by resolution of the Board of Directors. The majority of the members of the Nomination Committee are Independent Outside Directors. NEC ensures independence by appointing the chairperson from among such Independent Outside Directors.
This committee deliberates and makes resolutions on (i) nomination for Directors, representative Directors and A&SBMs, (ii) nomination of the Chairman of the Board and the President, including succession planning for the President. The committee reports the results of its deliberations to the Board of Directors.
NEC has established the Compensation Committee to enhance objectivity, fairness and transparency of remuneration of Directors and corporate officers. The majority of the members of the Compensation Committee are Independent Outside Directors. NEC ensures independence by appointing the chairperson from among such Independent Outside Directors.
The Compensation Committee (i) establishes and revises remuneration systems for Directors and corporate officers, and (ii) determines remuneration payments for Directors (including monitoring related to remuneration system operations), and (iii) conducts other important matters pertaining to the remuneration for Directors or corporate officers. The committee reports the results of its deliberations to the Board of Directors.
Audit & Supervisory Board (KANSAYAKU-KAI)
NEC has 5 A&SBMs, 3 of whom are Outside A&SBMs. NEC appoints as A&SBMs the personnel who have the knowledge and experience necessary for audits, such as considerable expertise in finance and accounting or experience as an attorney at law, and strengthen the auditing functions of the A&SBMs. Independency of each Outside A&SBM is ensured at individual level. NEC judges their independency based on the standards defined by Tokyo Stock Exchange and the "Independence Criteria for Outside Directors and Outside A&SBMs" established by NEC.
The A&SB conducts audits of legality, as well as certain level of audits of validity (including internal control auditing) and provides advice to the President based on the results of the auditing. Moreover, the A&SB reports to the Board of Directors on its auditing plan and the results of the audit on a regular basis.
Corporate Auditing Bureau (Internal Auditing Division)
NEC has established the Corporate Auditing Bureau as an internal auditing division of NEC. The Corporate Auditing Bureau performs audits of the NEC Group to ensure legal, appropriate and efficient execution of business activities, and identifies issues and proposes improvements. This Bureau consists of approximately 90 corporate staff members with expertise in internal auditing of the NEC Group. Regarding the audits of NEC's subsidiaries which have their own internal auditing sections, the Corporate Auditing Bureau cooperates with such internal auditing sections.
The Corporate Auditing Bureau reports the audit results to the Board of Directors. The Corporate Auditing Bureau is also taking steps to strengthen cooperation with the Accounting Auditors by reporting on audit results and exchanging opinions with them regularly or as necessary. Furthermore, the Corporate Auditing Bureau is taking steps to strengthen corporation with the internal control division. These steps include reporting the audit results to the internal control division and exchanging opinions with them regularly or as necessary, as well as reporting to them on the status of the "Compliance Hotline," a compliance hotline for employees and contractors to report issues concerning possible breaches of corporate ethics, compliance and other similar matters.
Compliance Department (Internal Control Division)
NEC has established the Compliance Department as an internal control division. Approximately 40 corporate staff members belong to the Compliance Department including members who are in charge of ensuring compliance, risk management and ensuring reliability of financial reporting.
The Compliance Department is taking steps to strengthen corporation with the Board of Directors, A&SBMs and Accounting Auditors by reporting on the status of implementation of the internal control system and exchanging opinions with them regularly.
Directors and Audit & Supervisory Board Members (KANSAYAKU)
Please refer to (i) NEC's overview of the directors, corporate officers, nomination committee members, compensation committee members and A&SBM (KANSAYAKU), (ii) reasons for nomination and attendance at meeting of outside directors and A&SBM (KANSAYAKU), (iii) independence criteria for outside directors and outside A&SBM (KANSAYAKU), and (iv) remuneration for directors and A&SBM (KANSAYAKU).
Internal Control Systems
NEC has established and implemented its internal control system based on the basic policy for maintenance of the system of the company to ensure the properness of operations as provided in item (vi) of Article 362(4) of the Companies Act adopted by resolution of the Board of Directors (the "Policy").
NEC shall endeavor to establish and implement its internal control system more effectively, through continuous evaluation of the status of the establishment implementation of its internal control system under the Policy as well as taking measures necessary for its improvement, and conducting consistent reviews of the Policy responding to changes in the business environment.
Information Disclosure Structure
NEC recognizes the importance of providing timely, proper and fair disclosure to obtain a fair evaluation of its corporate values from the capital markets and stipulates "Disclosure Policy". NEC manages and discloses its information, such as information regarding business management and operation, in accordance with applicable laws and regulations, including the listing regulations of Tokyo Stock Exchange and fair disclosure rules under Financial Instruments and Exchange Act. NEC ensures the accuracy of the information to be disclosed and make sure that the disclosures are made in a timely, appropriate and fair manner.
Information Disclosure Structure
In order to ensure timely, appropriate and fair disclosure, NEC has established a communication structure for reporting material information among relevant divisions and subsidiaries.
In addition to establishing NEC's website targeted for individual investors and holding briefings for individual investors regularly, NEC makes efforts to enhance disclosure of corporate information on financial information, such as financial standing and operating results, and non-financial information, such as business strategies and business issues, risk, and governance on NEC's website, posting specific and clear corporate information on NEC's website (such as presentation materials used at briefings both in Japanese and English and video streaming) and strengthening global IR activities (including interviews with major overseas investors).
Adoption of Anti-Takeover Measures
NEC does not adopt anti-takeover measures.
NEC believes that the ultimate decision as to the person who should control the financial and business policy of NEC shall be made by the shareholders of NEC. However, in the event that a person or entity (the "Proposer") proposes to purchase the substantial number of the shares of NEC with an intent to control NEC or proposes the takeover of NEC, NEC believes it is the responsibilities of the Board of Directors (i) to request the Proposer to provide appropriate information on the reasonableness of the consideration and other conditions of the proposal and the influence such action may have on the management policy and business plan of NEC, (ii) to evaluate the information provided and consider whether such proposal has merit in promoting the corporate value of NEC and the common interest of the shareholders, and (iii) to express the opinion of NEC for purposes of assisting the shareholders to make decisions whether or not to accept the proposal. In addition, NEC believes that, in the particular circumstances, it may be required to negotiate with the Proposer or to present alternative proposals to the shareholders.
Currently, NEC has not adopted a policy of defensive measures that will become effective when a proposal is made by a Proposer. It is NEC's intention, however, that if (i) the sufficient information is not provided by the Proposer, (ii) the shareholders are not afforded the time sufficient to consider the proposal or (iii) NEC decides that the proposal would have an adverse effect on the corporate value of NEC or the common interest of the shareholders, NEC will decide and implement reasonable countermeasures that are practicable at the time of the proposal and acceptable to the shareholders.