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.
In fiscal 2018, the Board of Directors fulfilled its resolution from the previous fiscal year to revise a proposal of the internal control system to make it simpler and easier to understand. The Board of Directors also decided to implement measures concerning the design and operation of internal control for the Groups, specifically to strengthen controls related to rules for management, reporting, and crisis response of group companies.
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
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 first meeting of the Governance Committee included discussion of a wide range of issues related to improving internal control and governance.
Message from the General Manager of the Governance Group
Governance is about Strength
I believe there are two aspects of governance. One is defensive governance. NYK is now working carefully to review its governance system while incorporating the expertise of outside professionals, aimed at addressing inadequate matters that have occurred within the Group and strengthening internal control. The risks facing us will likely become even more varied and complex going forward. Therefore, it is critical for NYK to continuously and steadily evolve its defensive governance. The other is proactive governance. The Ministry of Economy, Trade and Industry is debating corporate governance reforms for Japanese companies in order to enhance their profitability. In Japan, governance is viewed as something managed and bound by rules, but in global business, companies with effective governance are strong companies. For example, governance is an effective criterion for examining the scope of a company’s risk tolerance levels. I hope to deepen the understanding of all NYK Group employees about governance so that they share this awareness and take independent action.
Governance Committee and Stakeholder Dialogue
In fiscal 2018, we established the Governance Committee, whose members mainly include Outside Directors and Audit and Supervisory Board members, as a way to strengthen governance. The committee monitors the status of internal control and provides recommendations to the Board of Directors. At the first meeting of the committee held in February 2019, we found a major gap between the NYK Group’s state perceived by outside officers and that perceived by us internally. In particular, we received feedback that management’s beliefs and vision have not been conveyed enough to the frontlines of our group companies, and that voices from the frontlines have not been escalated up to the top. Until then, I believed NYK had an open culture in this company, but I found myself thinking deeply about these findings from the standpoint of governance. In follow-up conducted after the committee meeting, I recognized the committee itself is to think of dialogue with major outside stakeholders on the theme of governance. One of our roles is to be a driving force behind strengthening governance by conveying frank views based on the broad insight of outside officers to the Group in an easy-to-understand manner.
Strengthening Governance Requires Broad Perspective
Strengthening governance requires that each and every employee of the NYK Group actively get involved in improving the quality of systems for decision making and consensus building. Day-to-day business requires that, as our duties become more advanced and specialized in nature, we dig deeper within the scope of our jobs to find something more. However, I want us to be sensitive to global trends with a slightly broader perspective.
To fulfill our mission statement "Bringing value to life," we need a bird’s eye view of governance and our business while incorporating the needs of social issue solutions. I believe that strengthening governance at each workplace globally will lead to new value creation at the NYK Group.
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 2018
- 122 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 210 group companies overseas (implemented at 58 companies in fiscal 2018).
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.