Basic Policy on Internal Control Systems
NEC has stipulated its basic policy on internal control systems as set forth below.
NEC shall endeavor to establish and operate its internal control systems more effectively, through continuous evaluation of the implementation of the internal control systems under this policy as well as taking measures necessary for its improvement, and conducting consistent reviews of this policy responding to changes in the business environment.
1.Systems for ensuring compliance with the laws and NEC's Articles of Incorporation in the performance of duties by directors and employees
- (1)Directors and corporate officers shall, through NEC Group Management Policy that contains rules and concepts to be shared by NEC and its subsidiaries (the "NEC Group"), take the lead in practicing NEC Group Charter of Corporate Behavior and the NEC Group Code of Conduct that were adopted to establish business ethics standards for NEC Group and to ensure compliance by directors and employees of the NEC Group with laws and regulations, the Articles of Incorporation and internal rules, and promote their thorough understanding by way of repeatedly transmitting information about importance of complying with them.
- (2)Internal Control Division shall prompt an understanding and implementation of NEC Group Charter of Corporate Behavior and NEC Group Code of Conduct throughout the NEC Group, and the Corporate Auditing Bureau shall conduct internal audits on the NEC Group's compliance with laws and regulations, the Articles of Incorporation and internal rules and make reports on any deficiencies or non-compliance and proposals for improvements.
- (3)A director shall report to audit & supervisory board members (KANSAYAKU) (the "Kansayaku") on any material violation of laws and regulations or any material facts relevant to the violation of laws and internal rules immediately upon his or her finding, and shall also report to the Board of Directors without delay.
- (4)NEC shall endeavor to uncover any violation of laws and regulations within the NEC Group or any violation or suspected violation of NEC Group Charter of Corporate Behavior or NEC Group Code of Conduct at an early stage by prompting the use of "Compliance Hotline", a compliance hotline, reporting to the Corporate Auditing Bureau and an independent third party organization.
- (5)Risk Control and Compliance Committee shall deliberate on investigating causes of, formulating preventative measures on, and disclosing the information of, irregularities within the NEC Group. Internal Control Division shall promote preventative measures formulated by the Risk Control and Compliance Committee.
- (6)NEC shall interdict any and all relationship with antisocial factions and groups which threaten the order and safety of the civil society, and respond to them in corporate-wide and uncompromising manner in close association with outside professionals such as the police.
2.Matters regarding the retention and management of information relating to the performance of duties by directors
- (1)As for information security, NEC shall clearly provide the responsibilities of relevant organizations regarding information security, and shall establish information security management systems designed to continuously implement measures to maintain and improve information security pursuant to the Basic Rules on Information Security. Furthermore, NEC shall deliberate about concrete measures for information security at Information Security Strategy Committee, and promote such measures across the NEC Group.
- (2)NEC shall properly create, store and control various types of documents and records relating to the duties of directors and employees in accordance with applicable laws and the Basic Rules on Document Management.
- (3)NEC shall store and manage documents necessary for the performance of duties by directors, including the minutes of general meetings of shareholders, the minutes of meetings of the Board of Directors, the minutes of Executive Committee, and authorization documents relating to the matters of importance on business operations, in an easily retrievable form for the review at any time by directors and the Kansayaku.
- (4)NEC shall properly manage trade secrets pursuant to the Rules for Trade Secret Management in accordance with management rules corresponding to the degree of confidentiality.
- (5)NEC shall strictly control personal information in accordance with laws, regulations and the Rules of Protection of Personal Information.
3.Rules and other systems for risk management
- (1)NEC shall implement risk management systems effectively and comprehensively under the consistent policy throughout the NEC Group in accordance with the Basic Rules on Risk Management.
- (2)Business divisions shall endeavor to identify risks related to their assignment, select risks against which they should introduce control measures on a priority basis, decide on concrete risk control policies and measures, and properly conduct risk controls.
- (3)Corporate staff divisions shall endeavor to identify risks related to their assignment, select risks against which they should introduce control measures on a priority basis, decide on concrete risk control policies and measures, properly conduct risk controls, and furthermore give group-wide support to risk control activities conducted by business divisions and subsidiaries related to such assignment.
- (4)Business divisions and corporate staff divisions shall sort out risks which disturb the proper and effective operations of their own divisions, and properly conduct risk controls.
- (5)Internal Control Division shall provide necessary support, coordination and instructions so that risk management systems at business divisions and corporate staff divisions shall be systematically and effectively implemented.
- (6)Risk Control and Compliance Committee shall deliberate on important matters related to risk management, and oversee the implementation of NEC Group's enterprise risk management system.
- (7)Executive Committee shall deliberate fully on the matters of importance from a perspective of risk management, such as the strategy to control important management risk, and the matters of particular importance shall be reported to the Board of Directors.
- (8)Business divisions and corporate staff divisions shall, when they recognize presence of serious risks or any sign of emergence of serious risks related to NEC Group's business, promptly report the situation to the corporate staff divisions concerned and the Internal Control Division, and, if the risks are of particular seriousness, report them to directors and the Kansayaku.
- (9)The Corporate Auditing Bureau shall conduct audits of NEC Group's enterprise risk management system and the status of implementation of risk management, directly or through cooperation with internal auditing sections of subsidiaries if they have such sections.
4.Systems for ensuring the efficient performance of duties by directors
- (1)The Board of Directors shall delegate its authorities to corporate officers and promote timely decision-making and effective performance of duties.
- (2)The ordinary meetings of the Board of Directors shall be held once a month in principle and extraordinary meetings shall be held where necessary to make decisions in a timely manner.
- (3)The Board of Directors shall resolve on midterm corporate management goals of the NEC Group and annual budget, and shall monitor implementation of those goals and budget.
- (4)Corporate officers shall efficiently conduct business in accordance with midterm corporate management goals and budgets decided by the Board of Directors. The Business Progress Committee, which is comprised of corporate officers and executive general managers, shall review the performance as compared with the budgets, which shall be reported to the Board of Directors.
- (5)The performance of the duties by directors and corporate officers shall be properly report to the Board of Directors.
- (6)Corporate officers and other employees shall competently and efficiently perform their duties in accordance with the Rules on Internal Authorization and the Rules on Authorization for Daily Operation.
5.Systems for ensuring the proper operation of NEC Group
- (1)NEC shall, through the NEC Group Management Policy, give instructions and assistance to subsidiaries for the establishment of the systems ensuring compliance with laws and regulations and fairness of the operation of business.
- (2)NEC shall, in order to improve the soundness and efficiency of management systems in the NEC Group, dispatch directors and the Kansayaku where necessary and decide on a division in charge of supervising each of the subsidiaries, and such division in charge shall receive reports from, and consult with, such subsidiary regarding matters of importance on business operations.
- (3)When required for improving the soundness of management systems as well as ensuring proper operations of the NEC Group, matters of importance on business operations of subsidiaries shall require the approval by NEC, and matters of particular importance shall be discussed at NEC's Executive Committee and submitted to the Board of Directors of NEC for approval.
- (4)A division in charge of supervising the subsidiary shall give instructions and assistance to the subsidiary so that it shall sort out risks which disturb its proper and effective operations and properly conduct risk controls.
- (5)The Corporate Auditing Bureau shall conduct audits of NEC Group’s proper operations, directly or through cooperation with internal auditing sections of subsidiaries if they have such sections.
- (6)The Kansayaku of NEC shall conduct audit of subsidiaries, which includes visits to subsidiaries. The Kansayaku of NEC shall also cooperate with the Kansayaku of subsidiaries in order to ensure the proper operation of NEC Group, by exchanging their opinions on the audit and other measures.
- (7)From the perspective of proper and efficient operations of NEC Group, NEC shall endeavor to conduct improvement and standardization of business processes, and further strengthen its internal control utilizing information systems. Each division and subsidiary of NEC shall perform such activities with the support of corporate staff divisions concerned.
6.Systems for ensuring reliability of financial reporting
- (1)Internal control over financial reporting of the NEC Group shall be evaluated, maintained and improved in accordance with Financial Products Exchange Law of Japan and other applicable laws and regulations, both domestic and overseas.
- (2)Each division and subsidiary of NEC shall ensure the appropriate financial reporting in performing their own duties, through segregation of duties and daily monitoring.
7. Matters regarding employees assisting the Kansayaku and the independence of such employees from directors
NEC shall establish the Audit and Supervisory Board Members' Office with full-time employees to assist the Kansayaku in performing their duties. Matters regarding such employees, including performance review, personnel change and disciplinary action, shall be approved by the Kansayaku.
8. Systems of reporting to the Kansayaku by directors and employees and other systems regarding reporting to the Kansayaku
- (1)Directors and employees shall report to the Kansayaku on the status of the performance of their duties, as required by the Kansayaku. NEC shall give instructions to the subsidiaries so that directors, the Kansayaku and employees of the subsidiaries shall report to NEC's Kansayaku on the status of the performance of their duties, as required by NEC's Kansayaku.
- (2)Designated employees, including general managers of the Corporate Auditing Bureau, the Corporate Controller Division, the Internal Control Division and the Legal Division shall make monthly, quarterly or other periodical report to the Kansayaku.
- (3)General Manager of the Corporate Auditing Bureau shall review and periodically report to the Kansayaku on the status of operation of "Compliance Hotlines", hotlines for internal reporting within NEC Group. In the event he/she believes that there occurred any violation of NEC Group Charter of Corporate Behavior and NEC Group Code of Conduct by any director of NEC Group or there arises an urgent matter, General Manager of the Corporate Auditing Bureau and/or the Internal Control Division shall immediately report the relevant facts to the Kansayaku.
- (4)NEC shall not make detrimental treatment to directors and employees of the NEC Group on the ground of reporting through a hotline for internal reporting, and/or reporting to the Kansayaku on the status of the performance of duties of directors and employees.
- (5)Documents evidencing approval of important matters shall be submitted to the Kansayaku for their review.
9. Systems for ensuring the effective audit by Kansayaku
- (1)The Kansayaku shall attend at the meetings of the Board of Directors and such other important meetings as they deem necessary.
- (2)Full-time Kansayaku shall be provided with an office for his/her use.
- (3)The Kansayaku shall have access to the information stored in internal information systems such as accounting information system at any times.
- (4)Meetings of the Audit & Supervisory Board (KANSAYAKU-KAI) shall be held once a month and extraordinary meetings shall be held where necessary and the Kansayaku shall exchange information and consult with each other on the status of audits. Furthermore, the Kansayaku shall periodically receive reports on financial audit from independent accounting auditors and exchange opinions with them.
- (5)NEC shall bear the reasonable expenses for the performance of duties by the Kansayaku, as required by the Kansayaku.