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Compliance

Governance

Compliance Framework

NEC Corporation works with senior management to enforce and implement compliance.

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. Below are some examples of the department’s activities.

  • The department enhances the risk control function for the entire NEC Group by continuously supporting risk control activities in each division, as well as at subsidiaries. This is accomplished by collecting external information, applying 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 reports on the status of operations of the Compliance Hotline, the whistleblowing system pertaining to business ethics and violations of laws and regulations.

Details about the CLCO and Risk Control & Compliance Committee are provided below.

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

  • The presidents of our consolidated subsidiaries take ownership of drafting and implementing compliance measures with guidance and support from the Risk Management and Compliance Department, corporate departments and business units.
  • In regard to consolidated subsidiaries outside Japan, the five Regional Headquarters (RHQ) around the worldfurther strengthen compliance, including among local subsidiaries.
  • NEC has also established channels for reporting compliance-related issues regularly, and as the need arises, from the consolidated subsidiaries in and outside Japan to the Headquarters in Japan.

Strategy

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 acts with integrity ( judgement and behavior) in accordance with the NEC Group Code of Conduct. Moreover, the Code is available in Japanese, English, Chinese, Portuguese, and Spanish. By promoting the Code at consolidated subsidiaries outside Japan, we are creating a corporate culture worldwide that gives top priority to compliance.
Also, we recognize that the Code must be reviewed regularly to confirm whether revisions need to be made. If a violation is found, the person or persons associated with the violation will be dealt with according to employee regulations, and consideration will be given to reflecting the violation in the performance evaluation of the relevant division.

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—Mid-term Management Plan 2025 sets forth a KPI of zero cases of serious involvement with cartels and/or bid-rigging.

Periodic Rotation and Reengagement of Accounting Auditors

Pursuant to 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.

Policy for Prevention of Corruption

Company efforts to prevent bribery include 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; prohibition on insider trading; and prohibition of any act contrary to the Company’s interests. In these ways, we make every effort to completely preclude all forms of bribery and corruption.

Competition Law Compliance Policy

One of the initiatives to eliminate serious compliance violations is the reinforcement of non-financial measurement methodologies to underpin sustainable growth of the Company and society, a goal of Mid-term Management Plan 2025. To this end, we are working to prevent cartels, bid-rigging, and other violations of competition laws.

Furthermore, in the NEC Group Code of Conduct the Company has stipulated guidelines for fair competition and strives to thoroughly prevent violations of competition laws.

In addition, the Company has established the NEC Group Competition Policy, formulating basic considerations on compliance with competition laws in and outside Japan to reduce the risk of violations, and broadly disseminates information about this policy within NEC Group companies around the world.

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.) involving electric power security communications equipment. NEC was notified again of similar violations in February 2017 involving digital wireless communications equipment for fire rescue, and also for business transactions with Chubu Electric Power Co., Ltd. involving electric power security communications equipment.
In order to keep these three events fresh in mind and to 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, every year on NEC Compliance Day, management executives issue a message to all employees to help reaffirm the importance of compliance, including promoting fair commercial transactions.

Tax Policy

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

  • Comply with international rules, applicable laws and regulations, this Code of Conduct, and in-house policies and guidelines in every aspect of the Company’s activities at all times, and also understand the cultures and customs of countries and regions, and act in good faith in accordance with a good social conscience based on high ethical standards; and
  • Keep all financial records, accounting records, and all other records accurately and fairly, and not perform accounting processing in an improper manner or any other act that may cause any loss or damage to the Company.

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 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 response 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. In accordance with the intent of the generally accepted international tax rules and guidance, 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.

Risk Management (Including Opportunity Generation)

Conducting Various Initiatives for NEC Compliance Day

Every November 18, NEC holds 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. In fiscal 2024, we conducted a variety of activities throughout November under the theme of “Let’s think! Let’s discuss! Let’s act! My NEC Group’s Integrity” to spread awareness and ingrain compliance as part of NEC’s corporate culture.

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.

Messages from Senior Management

Officers, including the president, corporate officers, division general managers, and the presidents of consolidated subsidiaries in and outside Japan, 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

To keep the three Antimonopoly Act violations committed by the Company relevant, we distribute videos of lectures given by employees who were involved in the cases at the time, along with retrospective interviews with executives from the sales divisions and the Legal Department.

Sessions and Special Lectures by NEC Group Company Presidents

We promote understanding of how to practice integrity and make compliance a part of NEC’s corporate culture through discussion sessions conducted by the president of NEC Corporation and the presidents of other NEC Group companies, as well as special lectures by experts.

Compliance Award

Departments that take ownership and actively work to ensure compliance are recognized, and the activities of each department are enhanced by showcasing specific initiatives.

Employee Awareness

We implement various initiatives to raise awareness among employees, including integrity theme talks, study sessions, and compliance quizzes.

Compliance Awareness Survey

Survey on Compliance Promotion Initiatives

We conducted a survey of all corporate officers and employees in conjunction with compliance training in order to evaluate the status of initiatives on compliance promotion and awareness of compliance. Furthermore, in a questionnaire survey conducted in connection with 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 2024 the Risk Management and Compliance Department held an exchange of opinions with 12 business divisions and subsidiaries.

Whistleblowing System

Compliance Hotline (Whistleblowing System for Employees and Business Partners)

The Compliance Hotline is NEC’s whistleblowing system for preventing corruption, fraud, and 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,” a whistleblowing system that allows whistleblowers to report fraudulent corporate officer activity 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 the prevention of retaliation by establishing the Compliance Hotline Regulations as internal regulations and to make them known to employees through training programs and other means.

In fiscal 2024, the number of reported cases was 58. The reported cases included ethical behavior violations, violations of the NEC Group Code of Conduct or Company rules and fraud. All 58 cases have been appropriately handled.

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

The Global Hotline has also been established as an additional contact point, aimed at early detection and resolution of fraudulent activities involving executives at consolidated subsidiaries outside Japan. Accordingly, this hotline functions independently of these executives.

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

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 stipulates the roles of general managers and specific methods for preventing bribery. These roles and methods include bribery risk assessments 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 nations around the world 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 the like to relevant internal divisions and consolidated subsidiaries in and outside Japan.

Checking on routine operations is an important part of preventing corruption, and therefore guidelines and rules have been established by the 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. At the same time, expenditures requested by Company divisions are checked to ensure there are no problems.

In addition, to thoroughly enforce the prohibition of any act intended for personal benefit or third-party interests contrary to the legitimate interests of the Company, NEC has established guidelines for required procedures in the event of conflicts of interest, and provides training to and receives pledges from all employees.

In fiscal 2024, we conducted training titled “Anti-Bribery and Anti-Corruption” in multiple languages (English, Chinese, Portuguese, Spanish, Indonesian, Thai, and Vietnamese), primarily for employees of subsidiaries outside Japan operating in countries and regions with a high risk of bribery. The completion rate was 96.1%. This training promoted understanding of the risks of bribery and corruption and how to address them.

  • 1.
    Our Anti-Bribery Policy follows a risk-based approach. It defines enlisted agents, intermediaries or other third parties involved in certain operations that are assumed to have a relatively high risk of bribery as “retained parties.”

Competition Law Compliance Framework and Initiatives

In order to comply with competition laws, we have formulated the “NEC Group Competition Policy,” the “Rules for Prevention of Cartels, Bid-Rigging, and Bid Obstruction” and the “Rules for Prevention of Dumping,” which we publicize and use throughout the Company to promote compliance with competition laws.

In addition, we monitor email using multiple AI technologies to detect signs of competition law violations at an early stage.

Furthermore, we confirm the competition risk status of each NEC Group company, and according to the risks relevant to each company, we implement regulations and measures necessary for preventing violations of competition laws.

In fiscal 2024, we conducted training on competition law together with Anti-Bribery and Anti-Corruption training in eight languages for subsidiaries outside Japan, achieving a completion rate of 96.1%. This training promoted understanding of the risks of violating competition law and the measures required for compliance.

Indicators and Goals

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

Medium- to Long-term Goals 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 promotes fair trade, drawing from the NEC Group Code of Conduct

FY2024 Goals, Progress, Achievements and Issues, and FY2025 Goals

FY2024 Goals

Engage in thorough compliance

  • Eliminate serious compliance violations (number of serious violations: 0)
  • Raise the completion rate of compliance training for all employees (completion rate: 98% or higher)
  • Ensure awareness of the Compliance Hotline (90%)

Progress, Achievements and Issues

Engage in thorough compliance

  • Eliminated serious compliance violations (number of serious violations: 0)
  • Raised the completion rate of compliance training for all employees (99.1% completion rate)
  • Ensured awareness of the Compliance Hotline (94.6%)

FY2025 Goals

Engage in thorough compliance

  • Eliminate serious compliance violations (number of serious violations: 0)
  • Raise the completion rate of compliance training for all employees (98% or higher)
  • Ensure awareness of the Compliance Hotline (90% awareness)

Compliance Indicators and Goals

Number of, Details on and Measures for Handling Compliance Violations

Compliance violations in fiscal 2024 were as follows:

There were zero cases of serious involvement with cartels and/or bid-rigging.

There were zero major issues regarding bribery or competition law violations requiring public disclosure.

There were zero criminal penalties imposed on the Company due to accusations of insider trading from the Securities and Exchange Surveillance Commission.

Compliance Training and Education

NEC Corporation and its subsidiaries in and outside Japan conduct compliance training for all officers and employees (including temporary workers) once a year (completion rates for NEC Corporation, consolidated subsidiaries in Japan and consolidated subsidiaries outside Japan: 99.1%, 97.4% and 96.1%, respectively).

In addition, in connection with NEC Compliance Day we keep the three Antimonopoly Act violations committed by the Company relevant by reminding employees of their impact.

Furthermore, 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 officers and new division general managers as opportunities to emphasize the importance of conduct that complies with the NEC Group Code of Conduct.

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