Internal Control System
The NYK Group maintains an Internal Control Committee that acts as a complementary body to the Board of Directors. This committee is chaired by the president and monitors the status of internal control in four areas: reliability of financial reporting, legal compliance, operating effectiveness and efficiency, and protection of assets. In the event an issue is found, the committee implements corrective measures to ensure the relevant department performs appropriate and effective internal control operations.
The Internal Control Committee monitors the activities of Corporate Departments that determine companywide systems and internal committees and meetings responsible for cross-functional systems with the objectives of verifying the operating status and strengthening the internal control systems.
To establish a more solid group management base, in fiscal 2019 the Group worked to enhance operations of its internal control system with the support of external experts through actions that included implementing a review of the Company rules and strengthen the internal audit function. Furthermore, to strengthen internal governance and spread awareness groupwide, we made efforts to facilitate two-way communication and actively transmit information through events such as talk sessions and by establishing a governance portal site. Through these efforts, we are working to improve understanding of governance among all employees.
Committees Dedicated to the Four Objectives
- Internal Control Committee
- Risk Management Committee
1. Committees related to the reliability of financial reporting
- Internal Control Committee (JSOX)
- Information Disclosure Committee
2. Committees related to law compliance
- Executive Committee Overseeing Thorough Law Compliance
- Compliance Committee
- Global Compact Promotion Committee
- Safety and Environmental Management Committee
3. Committees related to operating effectiveness and efficiency
- Human Resources Planning Committee
- Investment Management Conference
- Investment and Credit Committee
- Financial Policy Conference
- Group Management Council
- Group IT Policy Meeting
- Save Bunker Committee
4. Committees related to safeguarding assets
- Disaster Measures Headquarters
- Information Security Management Committee
Activities to Strengthen Governance and Spread Awareness
- Conducted talk sessions
Three events in January 2020, with a total of 135 participants
Four events from July to September 2020, with a total of 399 participants
- Launched governance portal site
Launched in January 2020, the site serves as a platform to transmit such information as the Group's efforts to strengthen governance and to communicate messages from executive officers
- Posted regular articles in Group magazine
Provided information related to governance on a monthly basis
- Launching of e-learning
From fiscal 2020, we plan to implement governance-themed e-learning for both domestic and overseas group companies
NYK established a Governance Group in January 2019. The Company is also formulating a governance structure to facilitate active efforts to grasp and report issues and propose ways to improve, and has established a Governance Committee comprising independent Outside Directors, Audit and Supervisory Board members, and internal directors to provide highly objective and independent viewpoints on governance issues.
The Governance Committee includes two internal directors with an extensive knowledge of the status of the Group's internal control system and Outside Directors and Audit and Supervisory Board members to provide opinions from an objective point of view. The majority of the committee is outside members to create an atmosphere conducive to decisions that reflect opinions from outside the Company. The committee monitors and evaluates the Group's governance and the business execution of management from an objective perspective and shares its assessments with the Board of Directors to enable executive board members to quickly identify internal control issues and implement effective improvement measures. The committee also monitors the progress of the Company's governance improvement action plans, engages in deliberations and discussions about improvements related to strengthening the Company's governance system and improvements related to internal control activities, and gives its recommendations and reports to either the Board of Directors or the Internal Control Committee.
Message from the Chief Compliance Officer
Initiatives to Strengthen Corporate Governance
Director, Managing Executive Officer,
Chief Compliance Officer,
Chief Executive of General Affairs Headquarters
I have spent the past year working to enhance our corporate governance framework. There are two issues that I have addressed. The first was a review of management's decision-making process. We changed the positioning of the Committee of Corporate Officers (currently, the Meeting of Executive Officers)-which was previously tasked with business execution-and newly formed the Management Meeting, comprising executive directors and chief executives. We also clarified the president's decision-making authority as the person responsible for execution and made the decision-making process of the meeting faster and more transparent. Furthermore, to raise the quality of the discussions themselves, we strengthened the systems for organizing and providing high-quality information. Matters of significant importance are to be resolved by the Board of Directors. In the process of proposing matters to the Board, the process of examination and meeting agenda items formulated by the internal execution side are presented in detail to enhance the discussions of and resolution by the Board of Directors.
The second issue was to further enhance internal controls. The NYK Group has over 34,000 officers and employees working at about 200 companies. We have thus created an internal control framework for ensuring that management's intentions are shared across all organizations and levels of the Group and realized. Generally, an internal control framework is categorized into first defense (management within operating divisions), second defense (management support from corporate divisions), and third defense (internal audit divisions). In line with this categorization, we have clarified the location and function of responsibility for each category and organized a chain of command. We have also revised the Company Rules, renewing them to clarify areas of responsibility and the officers in charge thereof, in a universally understandable manner. Now that we have improved clarity of our rules, we hope to quickly identify issues and autonomously move to improve them, while increasing the sophistication of our internal audit methods and concentrating the Group's relevant resources to make the internal audits themselves more effective.
Action Plan for Strengthening Corporate Governance
Having formulated an action plan for realizing effective operations, we are now implementing it sequentially.
Toward Even Better Corporate Governance
The Governance Committee has now entered the second half of its time-limited activities. In the second year, fiscal 2020, we will consolidate the advances in our internal control initiatives, which we executed in the first year, and shift our focus toward getting the process for autonomously continuing improvements on track. As part of these efforts, we have started "Governance Talk" sessions among senior management and young employees. The sessions are used to precisely confirm that the new corporate governance frame-work is operating correctly and that participants understand their responsibilities under the new Company rules. We will widen the scope of these sessions to include Group companies in Japan and overseas, aiming to increase awareness of corporate governance among all Group employees. In the process, we will rectify any issues that we find with the framework. Once this PDCA cycle enters its second iteration, we will be able to confirm that the abovementioned first to third lines of defense are functioning soundly, thus seeing the Governance Committee complete its mission. I was appointed to the legal department in 2014, and the task assigned to me by the Company at that time was to reform the department into one that will play an essential role for the Group now and into the future. The background to this task was an infringement of the Antimonopoly Act that occurred in 2012 (see page 74 for details). Regrettably, compliance violations continued to occur thereafter within the Group. Since my appointment, I have promoted reforms, but, in fact, we have only just arrived at the base camp of the mountain we are to climb. By "base camp," I mean that, by working to deal with these issues, we have finally reached a point where we can see a wider view and are determined to continue climbing even further alongside with many others toward achieving an appropriate level of corporate governance. Over the past few years, the number of groups colleagues that have also started out on this journey has increased. As we hear about the various expectations of our stakeholders, I hope that our operating divisions, corporate divisions, and internal audit division will advance together step by step toward the summit.
Internal Control over Financial Reporting
In regard to internal control over financial reporting, the Group has designed and operated internal controls in conformance with the practice standards mandated in the Financial Instruments and Exchange Act. In future, the Group will work to ensure the reliability of financial reporting by continually upgrading and effectively operating the internal control system.
Internal Auditing Activities
Audit of domestic companies
Internal auditors make suggestions on the soundness, effectiveness, and efficient operation of business management. Internal auditors also follow up on the progress of improvements based on suggestions.
The Internal Audit Chamber's internal auditors perform internal audit activities for the Company and 140 domestic group companies.
Major auditing activities in fiscal 2019
- 113 domestic group companies were audited during the year.
- 2A specific theme was selected and emphasized for the audit of the NYK headquarter and its branches.
- 3An audit of payment control at both NYK and domestic group companies was made to check whether cash flow is adequately controlled.
Audit of overseas companies
Internal auditors belonging to the four group regional headquarters conduct periodic internal audits of approximately 240 group companies overseas (implemented at 53 companies in fiscal 2019).
Findings that audits identify are reported not only to the officer responsible at the headquarter who provides direction and oversight but also to the regional heads overseas to help raise the overall level of internal control in each region.
The staff of the Internal Audit Chamber and the internal auditors overseas contribute to enhancement of the internal control of the NYK Group as a whole by conducting the audits based on the same philosophy and rules and in accordance with the Fraud Risk Assessment* programe.
- *Fraud Risk Assessment:
This assessment makes use of anonymous replies collected from employees to identify the probability of risk associated with each potential fraud case by analyzing the possible financial impact and the likelihood of occurrence. Management shares the results and supports the preparation of related fraud-prevention measures. After conducted fraud risk assessments, we amended the code of conduct, revised individual operational procedures, and had compliance officers conduct training on fraud prevention.