1.Basic Policies on Internal Control Systems and Implementation of Policies
NIPPON EXPRESS HOLDINGS has established the following basic policy regarding the development of internal control systems by resolution of the Board of Directors, and has established and operates internal control systems in accordance with this policy:
＜The “NX GROUP Basic Policy of the Internal Control System”＞
In accordance with Article 399-13, Paragraph item 1(ィ) and 1(ㇵ) of the Companies Act (decisions on the development of systems to ensure the appropriateness of business operations) and Article 110-4, Paragraphs 1 and 2 of the Ordinance for Enforcement of the Companies Act, the following basic policy has been established regarding the “development of systems to ensure that the execution of duties by directors complies with laws and regulations and the articles of incorporation, as well as the development of other systems specified by ordinance of the Ministry of Justice as necessary for ensuring the appropriateness of a stock company’s business operations (referred to as “internal control systems”)” at NIPPON EXPRESS HOLDINGS, INC. (hereinafter referred to as “NXHD”) and the NX GROUP:
(ⅰ) “Systems to ensure that the execution of duties by directors and employees complies with laws and regulations and the articles of incorporation”
- The NXHD board of directors consists of directors, including outside directors, and in accordance with laws, regulations, and the provisions of the articles of incorporation’s “Board of Directors Regulations” and “Board of Directors Meeting Agenda Standards,” makes decisions on important matters that affect the entire group and oversees the execution of business operations. Outside directors shall be appointed to maintain and strengthen the board’s role in overseeing the performance of duties by directors.
- NXHD’s Representative Director and other directors shall report to the board of directors on the performance of their duties and other important matters in accordance with the provisions of the Board of Directors Regulations and Board of Directors Meeting Agenda Standards.
- The NXHD’s Audit and Supervisory Committee shall conduct audits in accordance with the provisions of the “Regulations of the Audit and Supervisory Committee” and the “Audit and Supervisory Committee Auditing Standards” to ensure that directors perform their duties properly in accordance with laws, regulations, and the articles of incorporation.
- NXHD’s directors, executive officers, and employees (hereinafter referred to as “Executives and Employees”) shall act in line with the “NX GROUP Charter of Conduct,” and perform their duties accordingly. The NX GROUP Charter of Conduct serves as a set of standards to ensure compliance with the “NX GROUP Corporate Philosophy,” which is the common philosophy of the NX GROUP, as well as laws, regulations, the articles of incorporation, other internal rules, and social norms.
- In order to ensure thorough compliance by Executives and Employees, NXHD shall appoint a Compliance Committee, establish a Compliance Promotion Division, and lay out necessary regulations such as the “NX GROUP Compliance Regulations,” “NX GROUP Anti-Bribery Regulations,” and “NX GROUP Competition Law Compliance Regulations,” thereby implementing a compliance system that supports legitimate and fair corporate activities by the group as a whole.
- NXHD shall establish the "NX GROUP Whistleblowing System ‘NX Speak Up’ Regulations" and the "NX GROUP Whistleblowing System ‘NX Global Speak Up’ Regulations" and establish the internal reporting system for the prevention, early detection, and remedy of violations of laws and regulations, misconduct, and other violations of corporate ethics by Executives and Employees.
- The Representative Director of NXHD shall be responsible for the establishment and operation of systems to ensure the appropriateness of financial reporting, and shall establish various procedures to ensure the reliability of financial reporting in the form of the “NX GROUP Regulations on Financial Reporting Internal Controls” and the “NX GROUP Accounting Regulations.” In addition, the internal control department, accounting department, etc. shall establish and operate the necessary systems, etc., shall conduct ongoing evaluations to ensure that the establishment and operation of internal controls over financial reporting are functioning effectively and appropriately, and make any necessary improvements.
- NXHD’s internal auditing department shall conduct audits as stipulated in the “NX Group Auditing Regulations” to ensure that Executives and Employees perform their duties properly in accordance with laws, regulations, the articles of incorporation, and other relevant rules.
(ⅱ) “Basic Policy on Elimination of Antisocial Forces and Current Development Status”
- NXHD and its subsidiaries shall fully recognize that it is the social responsibility of a company to conduct its business operations in a manner that prevents any transactions with antisocial forces and groups, and shall take a firm stance in practicing social justice.
- The basic policy of blocking all relationships with antisocial forces shall be clearly stated in the “NX GROUP Charter of Conduct” and the “Compliance Regulations of NX GROUP,” and an educational system shall be established to ensure that all Executives and Employees comply with the basic policy. In addition, NXHD shall set up relevant departments, such as a risk management department and a legal department, to collect information from specialized organizations, etc. on a regular basis, and to raise awareness within NXHD on how to deal with antisocial forces in order to eliminate them.
- In preparation for any problems that arise, we will, in accordance with a firm policy of never providing funds to antisocial forces, establish a system to promptly deal with the problem by closely cooperating with relevant administrative agencies, legal advisors, and other external specialized organizations.
(ⅲ) “Systems related to the retention and management of information pertaining to the execution of the duties of a director”
Important documents related to the execution of business operations, such as the minutes of Board of Directors meetings and Board of Executives, and documents and other information (including electromagnetic records) relating to directors’ performance of their duties shall be properly stored, disposed of, and managed in accordance with the “Document Regulations,” and NXHD’s directors including Audit & Supervisory Committee members may inspect these documents as necessary.
(ⅳ) “Rules and other systems related to management of the risk of loss”
- NXHD shall set up a risk management Department to prevent risks that may have a significant impact on NXHD’s operations and to establish a risk management system that enables prompt and appropriate responses to emergencies that may arise. NX GROUP defines risk management as preventive activities to limit the occurrence of risks and minimize the damage when they occur, and crisis management as measures to deal with risks that have occurred, and will establish a system to manage these in an integrated manner.
- Regarding risk management, NXHD shall establish the “NX GROUP Risk Management Regulations” and a “Risk Management Committee” in order to identify the risks facing the NX GROUP and take measures to avoid their effects in advance or minimize them after the fact. The Risk Management Committee identifies risks that may have a significant impact on NXHD’s operations, designates a department to deal with each risk, investigates potential countermeasures in cooperation with group companies, and works to prevent risks arising. Reports on the status of risk countermeasures shall be received from group companies and relevant departments and confirmed, and regular reports shall be made to the board of directors.
- Regarding crisis management, NXHD shall establish the “NX GROP Crisis Management Regulations” and a “Crisis Management Committee” to develop a crisis management system to prepare for the risk of loss and enable prompt and appropriate responses to emergencies. In addition to establishing standards for reporting from group companies for each type of crisis that may arise, NXHD shall establish a meeting body for each important crisis, such as “disaster countermeasures,” “infectious disease countermeasures.” Even in normal times, NXHD shall consider measures necessary for business continuity in the event of an emergency, and shall promptly establish a countermeasures headquarters to respond to crises when they occur.
- For risks related to information systems, NXHD shall establish an information security department and a System Risk Countermeasures Committee to discuss countermeasures against information security risks and to respond to any security incidents in cooperation with the Crisis Management Committee.
- In order to prevent the risk of loss that may occur in the course of business, NXHD’s internal auditing department shall, in accordance with the “NX Group Audit Regulations,” audit the status of the risk management system and the crisis management system, as well as providing guidance, advice and recommendations.
(ⅴ) “Systems to ensure that the execution of the duties of a director is performed efficiently”
- In accordance with the provisions of the “Board of Directors Regulations” and the “Standards for Deliberation at Board of Directors” the board shall meet to make resolutions on important management policies and strategies, as well as to supervise the execution of duties by directors.
- In order to ensure prompt decision-making and to strengthen the oversight role of the board of directors, NXHD shall introduce a “Corporate Officer system.” Under this system, the execution of NXHD’s business is carried out by executive officers who are appointed by the Board of Directors and assigned duties based on matters resolved on by the board, with the board also overseeing their activities.
- Decisions on important business operations shall be delegated to the President and executive directors by resolution of the Board of Directors, within the scope specified by laws and regulations and in accordance with the Articles of Incorporation. A “Board of Executives” shall be established as a consultative body for executive divisions to discuss important matters in group management, including important business operations delegated by the Board of Directors, and individual matters regarding the execution of business operations shall be delegated to the executive officers responsible for business execution to the fullest extent possible. Delegated matters shall be clearly defined in the “Regulations on Operational Authority” and the “Approval Authority Table.”
- With respect to key group management issues, NXHD shall establish a Sustainability Promotion Committee for sustainability strategies and an Investment Committee for M&A strategies, with these specialized committees holding discussions and making necessary reports. In addition, decisions regarding the establishment of important policies and the implementation of important M&A transactions shall be made by submitting proposals to the NXHD board of directors, and their progress shall be reported to the board on a regular basis.
- Various measures based on management policies and important matters decided by the Board of Directors and the Board of Executives are directed and communicated to individual executive officers and representatives of group companies at meetings of the “Board of Officers” and the “NX GROUP Management Committee” to facilitate information sharing and advance integrated group management.
(ⅵ) “Systems to ensure the propriety of business activities of NXHD and the corporate group consisting of NXHD and group companies”
- NXHD shall establish the “NX GROUP Corporate Philosophy” as a common philosophy for the management of its
subsidiaries, the “NX GROUP Charter of Conduct” as a common guideline for all group employees to embody this philosophy, and the “NX GROUP Business Plan” as a business strategy to achieve a long-term vision based on this philosophy. In order to conduct management of subsidiaries in accordance with these business policies, the “NX GROUP Governance Regulations” and respective group regulations shall be established to define requirements to be observed by subsidiaries.
- Directors and representatives of subsidiaries shall, in accordance with the “NX GROUP Governance Regulations,” the “Group Approval Authority Table,” and other group rules and regulations established by NXHD, report important matters relating to corporate management to NXHD department in charge of administrative operations.
- In order to deal with various risks associated with subsidiaries, NXHD’s risk management department shall establish a risk management system for the group, and subsidiaries shall manage risks in cooperation with the NXHD department in charge of administrative operations. Regarding crisis management, NXHD shall establish the “NX GROUP Crisis Management Regulations” and a “Crisis Management Committee” to develop a crisis management system to prepare for the risk of loss and enable prompt and appropriate responses to emergencies. Even in normal times, NXHD shall consider measures necessary for business continuity in the event of an emergency. In such an event, a countermeasures headquarters shall be promptly established, and the departments of NXHD and its subsidiaries involved in the risk of loss will cooperate to respond. For risks related to information security, NXHD shall establish an information security department and a System Risk Countermeasures Committee. A risk management system shall be developed in cooperation with subsidiaries’ information security departments, and the response to any security incidents shall be conducted in cooperation with the Crisis Management Committee.
- The business of the NX GROUP shall be conducted by the subsidiary operating companies, and the President and Representative Director of NXHD shall supervise these group businesses. The President and Representative Director of NXHD shall, within the scope of their mandate from board of directors, delegate responsibilities and authority for the execution of business operations by subsidiaries. These shall set be forth in the “NX GROUP Governance Regulations,” the “Group Approval Authority Table,” and other relevant regulations. NXHD designates a subsidiary company that manages a specific region or a specific business as the “Presiding Company.” The Presiding Company shall draw up a business plan for the region or business it oversees based on the “NX GROUP Business Plan,” bring together the subsidiaries under its management, and work to implement the plan. Subsidiaries shall promote their businesses in accordance with these policies and establish a Board of Directors or a meeting body to deliberate important matters in accordance with the laws and regulations of each country, and shall execute their duties in accordance with the Regulations of Board of Directors that clarify the responsibilities and roles of these meeting bodies. NXHD and Presiding Companies shall oversee the execution of these subsidiaries duties through part-time directors dispatched to subsidiaries 's Board of Directors and by other means. The representatives of subsidiaries and the directors responsible for them shall report to the board of directors on the progress of business plans and the development of internal control, risk management, and other systems, and shall also regularly report to the President and Representative Director of NXHD and the relevant departments in charge.
- With respect to the execution of business operations by subsidiaries, the NX GROUP Charter of Conduct shall be established as common guidelines for the group, and subsidiaries’ Executives and Employees shall act in line with the charter and perform their duties accordingly. In order to conduct sound, transparent, and fair business activities in accordance with laws, regulations, social norms such as morals and ethics, and internal rules and regulations, NXHD’s compliance promotion division shall establish regulations such as the “Compliance Regulations of NX GROUP,” the “Anti-Bribery Regulations of NX GROUP,” and the “Competition Law Compliance Regulations of NX GROUP.” Subsidiaries’ compliance promotion divisions shall follow these regulations to establish effective compliance systems that take into account the business characteristics, regional characteristics, etc. of each subsidiary, and shall perform the necessary inspections and oversight to confirm the effectiveness of these systems.
- In order to prevent violations of laws and regulations, misconduct, and other violations of corporate ethics at subsidiaries, or to detect and remedy such violations at an early stage, NXHD has established the "NX GROUP Whistleblowing System ‘NX Speak Up’ Regulations" and the "NX GROUP Whistleblowing System ‘NX Global Speak Up’ Regulations" and has developed a system to establish whistleblowing contact points that can be used by the Executives and Employees of subsidiaries, thereby enhancing the effectiveness of compliance.
- With respect to systems for ensuring the appropriateness of financial reporting by subsidiaries, the representatives of subsidiaries shall be responsible for establishing and operating effective internal controls over financial reporting at the business locations under their control in accordance with the “NX GROUP Regulations on Financial Reporting Internal Controls,” “NX GROUP Accounting Regulations,” etc. Ongoing evaluations shall be performed regarding the status of such systems’ establishment and operation, and the status of such evaluations shall be reported to the Representative Director of NXHD. In addition, the NXHD internal control department, accounting department, etc. shall conduct ongoing evaluations to ensure that the establishment and operation of internal controls over financial reporting are functioning effectively and appropriately, and issue instructions regarding any necessary improvements.
- In order to perform their duties regarding a consolidated business perspective and consolidated financial statements, the NXHD’s Audit & Supervisory Committee shall conduct auditing for NXHD’s subsidiaries.
- In order to prevent inappropriate transactions or accounting procedures between NXHD and its subsidiaries, etc., the NXHD’s Audit & Supervisory Committee shall collaborate with NXHD’s internal audit department, the Audit & Supervisory board members and audit department of the subsidiaries, exchange information, and strive to conduct efficient audits.
- NXHD’s internal audit department shall conduct audits as stipulated in the “NX GROUP Auditing Regulations” to ensure that the business operations of subsidiaries are properly conducted in accordance with laws, regulations, the articles of incorporation, and other relevant rules, as well as providing guidance, advice, and recommendations.
(ⅶ) “Matters related to directors and employees who assist the Audit & Supervisory Committee in its duties and matters related to ensuring the effectiveness of instructions to such directors and employees.”
Regarding matters related to assisting the duties of NXHD’s Audit & Supervisory Committee, the “Audit & Supervisory Committee Staff” of the Internal Auditing Division, which is NXHD’s internal audit department, shall follow the instructions of the Audit & Supervisory Committee.
(ⅷ) “Matters related to the independence of the directors and employees in the preceding item from directors excluding directors who are members of the Audit & Supervisory Committee”
The prior consent of the Audit & Supervisory Committee shall be obtained for the appointment of Audit & Supervisory Committee Staff.
(ⅸ) “Systems for directors excluding directors who are members of the Audit & Supervisory Committee and employees to report to the Audit & Supervisory Committee, systems for directors, company auditors, employees and staff executing operations of the NXHD’s subsidiaries or persons who receive reports from these persons to report to the NXHD’s Audit & Supervisory Committee, and systems to ensure that persons who make such reports are not treated disadvantageously for doing so.”
NXHD directors excluding directors who are members of the Audit & Supervisory Committee and the directors and company auditors, etc. of subsidiaries shall report the following matters to the NXHD’s Audit & Supervisory Committee without delay, either directly or via the NXHD department in charge of administrative operations. In addition, laws and regulations shall be observed to ensure that those who make such reports are not treated disadvantageously for doing so;
- Important business matters and implementation status of internal audits
- Serious violations of laws, regulations, or the articles of incorporation, or misconduct in connection with the performance of duties
- Matters that may cause significant damage to NX GROUP
(x) “Other systems to ensure that audits by the Audit & Supervisory Committee are conducted effectively”
- In addition to attending meetings of the Board of Directors, NXHD’s Audit & Supervisory Committee members shall attend meetings of the Board of Executives, the Board of Officers and other important company meetings in order to understand important decision-making processes and the status of the execution of business operations. In the event that they are unable to attend such meetings, the Audit & Supervisory Committee members shall receive explanations of the matters discussed and inspect the relevant materials.
- NXHD’s Audit & Supervisory Committee and its members shall hold regular meetings with the Representative Director to exchange opinions on business policies, issues NXHD & NX GROUP should address, risks facing NX GROUP, the state of the environment for audit by the Audit & Supervisory Committee, important auditing issues, etc., and strive to deepen mutual recognition and trust.
- NXHD’s Audit & Supervisory Committee shall, in accordance with the rules on “Important Documents to be Distributed to Audit & Supervisory Committee,” inspect major approval request documents and other important documents relating to the execution of business operations, request explanations from directors excluding directors who are members of the Audit & Supervisory Committee, executive officers or employees as necessary, and express their opinions.
- NXHD’s Audit & Supervisory Committee shall collaborate with the Internal Audit Division and the accounting auditors to improve the effectiveness of audits.
- In order to ensure that audits by the NXHD Audit & Supervisory Committee are organized and efficient, the appointment and dismissal of the head of NXHD’s Internal Auditing Division, which is the Group’s internal audit control division, shall be subject to the prior approval of the Audit & Supervisory Committee.
- The NXHD Audit & Supervisory Committee may receive reports from NXHD’s Internal Auditing Division on audit results and other audit-related matters on a regular basis or at any time when necessary, and may give specific instructions to the Internal Auditing Division as necessary. In addition, the authority of the Audit & Supervisory Committee to give instructions and orders to the Internal Auditing Division shall be ensured, including the authority to give instructions to the Internal Auditing Division regarding the formulation of internal audit plans and other important audit-related matters, and in the event of any conflict between the instructions of the Audit & Supervisory Committee and those of the President, the instructions of the Audit & Supervisory Committee shall take precedence.
- If deemed necessary, NXHD’s Audit & Supervisory Committee may engage attorneys, certified public accountants, consultants, and other outside experts to support the Audit & Supervisory Committee’s audits, and NXHD shall bear any costs incurred in doing so.
Internal control systems function as summarily shown in the "Corporate Governance Organization Chart."
Corporate Governance Structure
(ⅺ) Overview of Operation of Internal Control Systems
Our company made the transition to a Company with an Audit and Supervisory Committee based on the resolution of the Ordinary General Meeting of Shareholders held on March 28, 2024. In fiscal 2023 (the fiscal year ended December 31, 2023), our company developed and operated the system based on the "Basic Policy for the Development of Internal Control Systems" of the Company with a Board of Corporate Auditors, which was the organization before the transition to a Company with an Audit and Supervisory Committee.
The operation of NXHD’s internal control systems in FY2023 was described below:
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Major initiatives regarding compliance
The “NX GROUP Code of Conduct” has been laid down as a code of conduct for directors and employees to act in compliance with laws, the Articles of Incorporation and other internal rules and social norms. The “Compliance Regulations of NX GROUP” have been established to give concrete form to this Code of Conduct and serve as guidelines for all employees to ensure ethical conduct in compliance with laws and regulations. In terms of specific activities in FY2023, we have established a Compliance Committee chaired by the President (which meets four times a year) to promote compliance throughout the NX GROUP, and are working to ensure thorough compliance on the part of employees, including the appointment of compliance managers and compliance coordinators at Nippon Express Co., Ltd and other group companies and education using Compliance Handbooks, e-learning, internal newsletters, and other media.
In addition, we have introduced and are operating NX GROUP Whistleblowing System “NX Speak Up” and “NX Global Speak Up” aimed at the prevention or early detection and correction of violations of laws and regulations, misconduct, and other breaches of corporate ethics by employees. Furthermore, we conduct a regular compliance awareness survey of group employees to ascertain their awareness of compliance and link this result to the implementation of training and various other measures, thereby working to help a culture of compliance take root throughout the group.
The Compliance Management Division shall report semiannually to the Board of Directors on the situation regarding the implementation of these compliance-related initiatives, and the Board of Directors received these reports and oversaw their implementation accordingly in FY2023.
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Initiatives regarding systems for the retention and management of information related to the execution of duties by directors
Information (documents and minutes) related to decision-making at meetings of the Board of Directors and other important meetings, as well as approval documents, are prepared, stored and managed in accordance with laws, regulations and internal company rules, and a system is in place for Directors to immediately access such information when necessary.
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Major initiatives regarding risk management and crisis management
Our company has established a Risk Management Committee (which was held four times in FY2023, changed to 2 times in FY2024) and a Crisis Management Committee (which was held two times in FY2023) and a Risk and Crisis Management Control Division to regularly conduct inventory and assess risks and study measures to prevent the occurrence of risks in the NX GROUP. In addition, we have developed an initial response manual and business continuity plan in case of an emergency, as well as conducting crisis management drills. The Risk and Crisis Management Control Division plays a central role in coordinating with group companies, while officers of all relevant divisions facilitate the development and operation of systems necessary to manage risks in their respective areas of responsibility which may cause losses to the group. In fiscal 2023, we reviewed the composition of each committee member, formulated a basic policy business continuity policy common to the group and formulated and updated business continuity plans for each group company, with the purpose of further promoting group-wide risk and crisis management initiatives.
In particular, in response to the growing global cybersecurity risks, such as the proliferation of ransomware and other cyber-attacks, the NX GROUP, led by NXHD, strengthened its cybersecurity promotion system, held meetings of the System Risk Management Committee (which was held twice in FY2023) to discuss responses to system risks, communicated measures to group companies, and provided education to employees through e-learning and other means, as well as various cyber security-related training programs.
The Risk and Crisis Management Control Division reports to the Board of Directors semiannually on the situation regarding the implementation of these risk and crisis management initiatives, and on a case-by-case basis regarding emergent risks such as COVID-19 and serious accidents, while the board provides oversight accordingly.
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Major initiatives to ensure efficient execution of duties by directors and executive officers, etc.
Regarding major initiatives to ensure efficient execution of duties by directors and executive officers, please refer to “(v) Execution of Duties” in “2. Matters Regarding Functions of Execution of Duties, Auditing and Supervision, Appointment, Decisions on Compensation, etc. (Overview of Current Corporate governance).”
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Major initiatives regarding Audit & Supervisory Board audits and internal control audits
Regarding major initiatives of the company with a Audit & Supervisory Boards prior to the change of institution relating to Audit & Supervisory Board audits and internal control audits, see “(iv) Audits” in “2. Matters Regarding Functions of Execution of Duties, Auditing and Supervision, Appointment, Decisions on Compensation, etc. (Overview of Current Corporate governance).”
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Revision of the Basic Policy for the Development of Internal Control Systems
At the Ordinary Meeting of Shareholders held on March 28, 2024, our company transitioned from a Company with an Audit & Supervisory Board to a Company with an Audit & Supervisory Committee. In conjunction with the consideration of this transition, discussions were held regarding revisions to ensure that the Board of Directors and Audit & Supervisory Committee function effectively and that duties delegated to the Representative Director and President and subordinate executive divisions by the Board of Directors are performed efficiently and effectively. The basic policy regarding internal control systems was developed to reflect the areas to be restructured in accordance with the new organization, discussed at the Board of Directors meetings held in January and March 2024, and revised after a resolution at the March 28, 2024, meeting.
