Compliance Policy

In its Principles, NEC subscribes to “Uncompromising Integrity and Respect for Human Rights,” and conducts continuous Companywide activities involving everyone from officers to employees with management firmly based on compliance.

Compliance

NEC aims to establish compliance within its corporate culture by ensuring that each officer and employee treats compliance as their own responsibility and practices conduct in accordance with the NEC Group Code of Conduct. Moreover, the Code has been translated into Japanese, English, Chinese, Portuguese, and Spanish. By promoting the Code at consolidated subsidiaries abroad, we are creating a corporate culture in Japan and abroad that gives first priority to compliance. Also, we recognize that the Code should be revised regularly. If a violation is found, the person or persons associated with the infraction will be dealt with according to employee regulations, and consideration will be given toward reflecting the violation in the performance evaluation of the relevant department.

In order to realize effective compliance measures, the general managers of every division have taken leadership and responsibility for discussing and implementing the optimal measures for their divisions with support from the corporate divisions.

Furthermore, identifying compliance as one of NEC’s priority management themes from an ESG perspective—materiality— the Mid-term Management Plan 2025 sets as a goal zero cases of serious involvement with cartels and/or bid-rigging.

Periodic Rotation and Reengagement of Accounting Auditors

Pursuant with regulations such as those that are based on the Certified Public Accountants Act and which concern accounting auditors, the Company manages operations based on the following rules.

Engagement partners may not be engaged for more than seven accounting periods in duties that entail conducting audits of the Company. Lead engagement partners may not be engaged for more than five accounting periods in duties that entail conducting audits of the Company.

For two accounting periods after being replaced, engagement partners may not be engaged in duties that entail conducting audits of the Company. For five accounting periods after being replaced, lead engagement partners may not be engaged in duties that entail conducting audits of the Company.

Medium- to Long-term Targets, Priority Activities and Progress, Achievements, and Issues

Medium- to Long-term Targets and Priority Activities

(Scope: NEC Corporation unless otherwise specified)
Period: April 2021 to March 2026

M: Major non-financial indicators related to materiality

M: Engage in thorough compliance

Establish a Groupwide culture that prioritizes compliance and promote fair trade, drawing from the NEC Group Code of Conduct

FY2023 Goals, Progress, Achievements and Issues, and FY2024 Goals

FY2023 Goals

Engage in thorough compliance

Progress, Achievements and Issues

Engage in thorough compliance

FY2024 Goals

Engage in thorough compliance

Compliance Framework

NEC Corporation enforces and implements compliance with senior management.

Audit & Supervisory Board Members (KANSAYAKU)

(As a result of the transition to a company with a Nominating Committee, etc., the Company does not have Audit & Supervisory Board members (KANSAYAKU) after the June 2023 Ordinary General Meeting of Shareholders.)
The Audit & Supervisory Board Members (the “A&SBMs”) audit the performance of duties within NEC Corporation by regularly discussing reports of audit results received from the Group Internal Audit Division, or reports on the status of operations of the Compliance Hotline, the internal reporting system pertaining to business ethics and violations of laws and regulations.

Chief Legal & Compliance Officer (CLCO)

The CLCO is the deputy chairperson of the Risk Control and Compliance Committee and oversees Companywide compliance promotion activities.

Risk Management and Compliance Department

The Risk Management and Compliance Department formulates and implements various initiatives designed to enforce compliance, including instilling knowledge of the NEC Group Code of Conduct. In addition, the department provides the necessary support, coordination, and guidance to ensure that risk management in the business and corporate staff departments is implemented systematically and effectively.

For example, the department enhances the risk control function for the entire NEC Group by continuously supporting risk control activities in each division including subsidiaries. This is accomplished by collecting external information, investigating using a risk management survey, and exchanging information with subsidiaries worldwide.

In addition, the department regularly listens to and discusses reports on audit results from the Group Internal Audit Division and receives status reports on the operations of the Compliance Hotline, the internal reporting system pertaining to business ethics and violations of laws and regulations.

Group Internal Audit Division

Members of the Group Internal Audit Division include experts in internal audits. The division conducts audits to ensure that NEC is operating lawfully, properly and efficiently. It also points out problems and proposes improvements.

Compliance Promotion at Consolidated Subsidiaries

Compliance in Practice

Compliance Initiatives

Conducting Various Initiatives for NEC Compliance Day

Every November 18, NEC holds its NEC Compliance Day, marking the date on which it received an on-site inspection by the Japan Fair Trade Commission in connection with sales of digital firefighting emergency radio systems. On this day, NEC reaffirms the importance of compliance at NEC Corporation and its subsidiaries in Japan and abroad with a variety of activities meant to spread awareness and ingrain compliance as part of NEC’s corporate culture.

Messages from senior management

Officers, including the president, corporate officers, division general managers, and the presidents of consolidated subsidiaries in Japan and abroad, communicate messages to underscore the importance of compliance to all employees. This includes adherence to the NEC Group Code of Conduct.

Reaffirming the relevance of the Antimonopoly Act violations

Special lecture and compliance award

Compliance quiz

Activities are conducted to enhance understanding of compliance by citing familiar examples.

Study sessions

Corporate departments and others conduct webinars to improve understanding of each system.

Online NEC Compliance Day portal

An online NEC Compliance Day portal is set up on the Company intranet to enable employees to browse activities and information related to the event at any time.

Compliance Training and Education

NEC Corporation and its subsidiaries in Japan conduct web-based training regarding compliance for all corporate officers and employees (including dispatched employees) once a year (completion rates in the training period: NEC Corporation: 98.4%; consolidated subsidiaries in Japan: 97.6%).

Those unable to take the course within the period must commit to taking it in the next round. Also, NEC Corporation is deploying training content for consolidated subsidiaries abroad translated into multiple languages (Japanese, English, Spanish, Portuguese, and Chinese). On NEC Compliance Day we also keep these incidents relevant by reminding employees of the impact of the three incidents related to violations of the Antimonopoly Act.

In addition, the corporate officers and employees participating in this training pledge to consistently maintain unwavering integrity based on the Principles of the NEC Group and act in accordance with the Group’s Code of Conduct. They also announce their own initiatives to ensure a corporate culture of compliance. Furthermore, NEC Corporation uses training for new employees and stratified training for new corporate officers and new division general managers as opportunities to emphasize the importance of conduct that complies with the NEC Group Code of Conduct.

Compliance Awareness Survey

Survey on Compliance Promotion Initiatives

We conducted a survey of all corporate officers and employees in conjunction with web-based training regarding compliance in order to evaluate the status of their initiatives on compliance promotion and their awareness of compliance. Furthermore, in a questionnaire survey conducted after NEC Compliance Day, we asked employees of each division to evaluate the messages delivered by their respective division general manager.

The results of the questionnaire surveys were posted as feedback on the intranet portal and have been useful for proposing and implementing measures to further enforce compliance.

Exchanges of Opinion with Business Divisions

To further increase each division general manager’s ownership of ensuring compliance, in fiscal 2023 the Risk Management and Compliance Department held an exchange of opinions with approximately 28 business divisions and subsidiaries.

Number of, Details on and Measures for Handling Compliance Violation

In fiscal 2023, once again there were no cases of serious involvement with cartels and/or bid-rigging in the NEC Group.

No major issues regarding bribery or competition law violations have occurred that would require public disclosure.

Internal Reporting System

Compliance Hotline (Whistleblowing System for Employees and Business Partners)

The Compliance Hotline is NEC’s whistleblowing system for preventing corruption and fraud, and for other compliance matters in general. We have also established a contact point for the hotline at a third party as an additional contact point in order to enhance convenience and to address a broader range of risks at an early stage. This contact point receives reports from whistleblowers not only among employees of NEC Corporation but also its subsidiaries in Japan and business partners. The identity of whistleblowers who contact the hotline and the nature of their reports are guaranteed confidentiality by the personnel in charge. In addition, whistleblowers will never suffer retaliation for having made a report. In the unlikely event that such retaliation takes place and is confirmed, necessary corrective measures will be taken.

As a response to the Amendment of the Whistleblower Protection Act, we have strengthened the system in place for protecting whistleblowers, which includes the designation of workers dedicated to responding to whistleblowing reports. Another response is the “Audit Committee Hotline,” an internal reporting system that allows whistleblowers to report fraudulent activity by members of the board and/or executive officers to the Audit Committee. We will continue to ensure the protection of whistleblowers and work to establish a system that allows employees and other parties to make reports with peace of mind.

NEC and its consolidated subsidiaries in Japan have taken steps to ensure the protection of confidentiality and prevention of retaliation by establishing the Compliance Hotline Regulations as internal regulations and make them known to employees through training programs and other means.

In fiscal 2023, the number of reported cases was 109. The reported cases included ethical behavior violations, violations against the NEC Group Code of Conduct or Company rules and fraud. All 109 cases have been appropriately handled.

Examples of the measures taken are as follows.

In a report under the category of power harassment, sexual harassment, or any other form of harassment, the facts were confirmed, and the offender was given guidance and transferred, giving consideration to the whistleblower’s wishes.

For NEC’s consolidated subsidiaries abroad, Regional Headquarters (RHQ) also set up multilingual whistleblowing systems operated by third parties in each region, which are available for local officers and employees to use in the native local language (English, Spanish, Portuguese, and Chinese). The consulted/reported cases and their handling by consolidated subsidiaries abroad are shared with NEC Corporation.

The Global Hotline, an additional contact point for subsidiaries abroad, is aimed at early detection and resolution of fraudulent activities involving executives at consolidated subsidiaries abroad. Accordingly, this hotline functions independent of these executives, and we are working to expand the number of companies that can take advantage of this new contact point.

The status of Compliance Hotline implementation and operation (including the internal reporting systems of NEC Corporation subsidiaries) is regularly reported by the Group Internal Audit Division to the Board of Directors and the Audit Committee.

Prevention of Corruption

Policy for Prevention of Corruption

The Company prevents bribery by disseminating and developing its Anti-Bribery Policy and Anti-Bribery Manual. In addition, the NEC Group Code of Conduct covers prevention of bribery and corruption; entertainment, gifts, donations, and political activities; prohibition against involvement in antisocial acts; and prohibition on insider trading. In these ways, we make every effort to completely preclude all forms of bribery and corruption.

Anti-Corruption Framework and Initiatives

The Legal and Compliance Division has formulated the Anti-Bribery Policy and the Anti-Bribery Manual and disseminates them throughout the Company. The manual prevents bribery by stipulating the roles of general managers and specific methods for preventing bribery. These roles and methods include bribery risk assessment regarding a division’s business and operations, including procedures if risk is deemed to be high and due diligence regarding retained parties¹ or partners employed in the Company’s business activities.

For due diligence, NEC stresses the importance of evaluating bribery risk through communication and collection of information by retained parties or partners on behalf of the Company or as its agent, as well as the importance of continued monitoring due to the possibility of risks related to retained parties or partners changing with the passage of time.

Additionally, to counter the risk of bribery in business transactions conducted by retained parties or partners, NEC mandates that contracts include provisions about preventing bribery and has changed the scope of monitoring that is performed.

Retained parties enlisted to assist with sales promotions and winning orders are made aware that there may be additional procedures to take, including with related staff divisions, in accordance with the type of risk.

Furthermore, as the world’s nations work on strengthening their anti-bribery laws, NEC has also developed a Guideline for Provision of Gifts, Hospitality, Travel Expenses and Donations, and provides guidance, support, instructions and more to relevant internal divisions and consolidated subsidiaries in Japan and abroad.

Checking on routine operations is an important part of preventing corruption, and therefore guidelines and rules have been established by the Human Resources and General Affairs Department for hospitality, gifts, and donations, such as political donations, the planning divisions of each business unit for operating expenses, and the Sourcing and Purchasing Department for procurement expenses; expenditures requested by the Company’s divisions are checked to ensure there are no problems.

Political Donations

Competition Law Compliance

Competition Law Compliance Policy

We take active measures to prevent the violation of antimonopoly laws. These measures include setting as a goal zero cases of serious involvement with cartels and/or bid-rigging as a KPI for materiality.

The Company has established the NEC Group Competition Policy, formulating basic considerations on compliance with Japanese and international competition laws to reduce the risk of violations, and broadly disseminates information about this policy within NEC and certain consolidated subsidiaries in Japan and abroad.

Our Response to Past Incidents of Violations

In July 2016, NEC was notified by the Japan Fair Trade Commission of violations of the Antimonopoly Act, related to business transactions with Tokyo Electric Power Co., Ltd. (now Tokyo Electric Power Company Holdings, Inc.) in electric power security communications equipment. NEC was notified again of similar violations in February 2017 related to digital wireless communications equipment for fire rescue, and also for business transactions with Chubu Electric Power Co., Ltd. in electric power security communications equipment. In order to keep these three events fresh in mind and use them as a basis for reflection, we established NEC Compliance Day on November 18, being the date on which we received an on-site inspection by the Japan Fair Trade Commission. In order to promote fair commercial transactions, we consider the commitment of management executives to be the most important element in promoting fair commercial transactions. For this reason, on NEC Compliance Day, the management executives issue a message to all employees to help reaffirm the importance of compliance every year, including promoting fair commercial transactions.

NEC Corporation was also subject to an investigation from the World Bank, on suspicion of violating the World Bank’s procurement guidelines in relation to the planned financing of a tender project in Hanoi, Vietnam, and ultimately reached a settlement agreement with the World Bank in July 2018. On the advice of the World Bank, the Company conducted measures to strengthen its compliance programs, such as revising the NEC Group Code of Conduct and regulations and manuals related to preventing anti-corruption. The World Bank lifted its sanctions on January 19, 2020.

Competition Law Compliance Framework and Initiatives

NEC Corporation promotes compliance with competition laws through cooperation and coordination between the Legal and Compliance Division and other divisions.

Tax Compliance

Tax Policy

In the Group Code of Conduct, NEC members promise that they will:

We also follow that basic approach in relation to tax matters and are striving to optimize them from a medium- to long-term perspective. In addition, on its intranet, NEC provides details about basic rules for corporate taxes and other matters as well as a summary of tax reforms and the “Outline of the Tax Reform.”

With the aim of establishing a common framework for managing tax risks and tax policies, NEC has formulated the NEC Group Tax Governance Policy, which sets out the principles of tax governance to be followed. We do not engage in tax planning solely for tax avoidance, without substantive business objectives. Similarly, we do not transfer profits using tax havens with the intention of tax avoidance.

The Chief Financial Officer (CFO) is responsible for the tax governance of the NEC Group.
The CFO, who is also a member of the Board of Directors, reports to the Audit Committee on any changes to the NEC Group Tax Governance Policy and any significant tax risks that arise.

In Japan, we report the results of our tax returns and tax audits to the CFO and continuously work to implement appropriate tax reporting and prevent fraud.

Transactions between Affiliated Companies

To ensure thorough management of taxation risks in relation to globalization, NEC carries out pricing decisions in transactions between affiliated companies based on the arm’s length principle in accordance with the approach advocated by the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Having understood the intent of the generally accepted rules and guidance regarding international taxes, such as the Action Plan on Base Erosion and Profit Shifting (BEPS), NEC pays taxes in a timely and appropriate manner based on tax rules and treaties for each country, by reflecting its business results, and does not carry out activities aimed at fraudulent avoidance of taxes.

Relationship with Tax Authorities

NEC endeavors to reduce tax uncertainties through prior consultation with tax authorities and by responding in good faith to related information disclosure requests made by tax authorities.

Transparency

NEC complies with the Financial Instruments and Exchange Act and all applicable laws, rules, and regulations in preparing and disclosing its Annual Securities Report. Tax-related disclosures required by applicable laws are also included in the Annual Securities Report.

Starting from fiscal 2017, NEC has disclosed its consolidated financial results in accordance with International Financial Reporting Standards (IFRS). By adopting IFRS, NEC intends to disclose more internationally comparable financial information to capital markets and to further enhance transparency of its financial information.