Basic Policy on Internal Control Systems
NEC Corporation("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, executive officers, and employees
- (1)Directors and executive officers shall, through NEC Group Management Policy that contains rules and concepts to be shared by NEC and its subsidiaries (hereinafter collectively referred to as the "NEC Group"), take the lead in practicing the NEC Group Code of Conduct that were adopted to establish business ethics standards for the NEC Group and to ensure compliance by directors, executive officers 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)The division responsible for managing the NEC Group Code of Conduct (hereinafter "compliance-promotion division") shall prompt an understanding and implementation of the NEC Group Code of Conduct throughout the NEC Group, and the division responsible for internal audit 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)An executive officer shall report to Audit Committee's members designated by the Audit Committee on any material violation of or suspected violation of laws, regulations 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 the NEC Group Code of Conduct at an early stage by organizing and prompting the use of the whistleblowing system.
- (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. Compliance-promotion 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.
- (7)NEC shall comprehensively collect the important corporate information required to be disclosed and disclose the important corporate information in accordance with applicable laws and regulations in a timely and appropriate manner.
2.Matters regarding the retention and management of information relating to the performance of duties by directors and executive officers
- (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, executive officers and employees in accordance with applicable laws and the Rules on Document Management.
- (3)NEC shall store and manage documents necessary for the performance of duties by directors or executive officers, 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, executive officers, and the Audit Committee.
- (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)The officer responsible for corporate risk management shall organize the corporate risk management system, centered on the Risk Control and Compliance Committee, and supervise the NEC Group's risk management as well as conducting risk factor analysis and implementing measures.
- (3)Risk Control and Compliance Committee shall deliberate on important matters related to risk management, and oversee the implementation of the NEC Group's risk management system.
- (4)Division responsible for corporate risk management shall provide necessary support, coordination and instructions so that risk control activities at business divisions and corporate staff departments shall be systematically and effectively implemented.
- (5)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 control activities.
- (6)Corporate staff departments 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 control activities, and furthermore give group-wide guidance and support to risk control activities conducted by business divisions and subsidiaries related to such assignment.
- (7)Business divisions and corporate staff departments shall sort out risks which disturb the proper and effective operations of their own divisions and their responsible subsidiaries, and properly conduct risk control activities.
- (8)Risk Control and Compliance 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 Executive Committee (a corporate-level meeting consisted of the President (Representative Executive Officer) and the executive officers appointed by the President (Representative Executive Officer); the same shall apply hereinafter) and the Board of Directors.
- (9)Business divisions and corporate staff departments 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 departments concerned and the division responsible for corporate risk management. If the risks are of particular seriousness, they shall provide report to executive officers concerned and the Audit Committee's members designated by the Audit Committee. In case necessary, they shall provide report to Executive Committee and the Board of Directors.
- (10)Division responsible for internal audit shall conduct audits of the NEC Group's risk management system and the status of implementation of risk management.
4.Systems for ensuring the efficient performance of duties by directors and executive officers
- (1)The Board of Directors shall delegate its authorities to executive officers and promote timely decision-making and effective performance of duties.
- (2)The Board of Directors shall resolve on midterm corporate management goals of the NEC Group, and shall monitor implementation of those goals.
- (3)Executive officers shall timely make decisions through Executive Committee and other corporate-wide meetings and efficiently conduct business, in accordance with midterm corporate management goals decided by the Board of Directors.
- (4)The performance of the duties by directors and executive officers shall be properly reported to the Board of Directors.
- (5)Executive officers and 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 the 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)Corporate staff departments shall stipulate and operate effective controls for their responsible area to ensure proper operations as the NEC Group.
- (6)Division responsible for internal audit shall conduct audits of subsidiaries' proper operations.
- (7)From the perspective of proper and efficient operations of the 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 departments 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 the Financial Instruments and Exchange Act 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 Audit Committee and the independence of such employees
NEC shall establish the office of the Audit Committee to assist the Audit Committee in performing their duties. The staff of the office of the Audit Committee shall perform their duties to ensure the effectiveness of the Audit Committee. The matters regarding the staff, including but not limited to personnel changes, shall be agreed by the Audit Committee to ensure the independence of the staff.
8. Systems of reporting to the Audit Committee
- (1)Directors, executive officers and employees shall report to the Audit Committee on the status of the performance of their duties on a periodic basis or as required. NEC shall give instructions to the subsidiaries so that directors, the Kansayaku and employees of the subsidiaries shall report to NEC's Audit Committee on the status of the performance of their duties or other topics, as required by NEC's Audit Committee.
- (2)The head of the division responsible for internal audit shall review and periodically report to the Audit Committee on the status of operation of the whistleblowing system within the NEC Group. In the event he/she believes that there occurred any violation of the NEC Group Code of Conduct by any director or executive officer of the NEC Group or there arises an urgent matter, the head of the division responsible for internal audit and/or compliance-promotion division shall immediately report the relevant facts to the Audit Committee's members designated by the Audit Committee.
- (3)NEC shall not make detrimental treatment to directors, executive officers and employees of the NEC Group on the ground of reporting through whistleblowing system, and/or reporting to the Audit Committee on the status of the performance of duties or other relevant topics.
9. Systems for ensuring the effective audit by the Audit Committee
- (1)An Audit Committee's member designated by the Audit Committee shall attend at the meetings of Executive Committee and such other important meetings as they deem necessary.
- (2)The Audit Committee shall collaborate with the division responsible for internal audit and provide them guidance. The committee may give them instructions when deemed necessary.
- (3)The Audit Committee shall have access to the information stored in internal information systems such as accounting information system at any times.
- (4)The Audit Committee shall periodically receive reports from the accounting auditors and the division responsible for internal audit and exchange opinions with them.
- (5)NEC shall bear the reasonable expenses for the performance of duties by the Audit Committee, as required by the Audit Committee.
This basic policy shall be amended with the resolution by the Board of Directors. However, for minor changes in words and terms, including but not limited to the changes related to amendment in laws or organizational changes, etc., the President (Representative Executive Officer) is authorized to resolve such amendments.