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, and has established and operates internal control systems in accordance with this policy.
＜NIPPON EXPRESS HOLDINGS “Basic Policy on Relating to the Establishment of an Internal Control System”＞
In accordance with Article 362, Paragraph 4, Item 6 of the Companies Act (decisions on the development of systems to ensure the appropriateness of business operations) and Article 100, Paragraphs 1 and 3 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.
- NXHD’s A & S board members shall conduct audits in accordance with the provisions of the “Regulations of the A & S Board” and the “A & S Board Members Auditing Standards” to ensure that directors perform their duties properly in accordance with laws, regulations, and the articles of incorporation.
- NXHD’s directors, corporate 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, the company 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.
- The Company shall establish an internal whistleblowing system, “Nippon Express Speak-Up,” for the prevention, early detection, and remedy of violations of laws and regulations, misconduct, and other violations of corporate ethics by Executives and Employees.
- 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 NX Group Compliance Rules, and an educational system shall be established to ensure that all Executives and Employees comply with the basic policy. In addition, the Company 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 the company 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 Officers, 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 and A & S board members may inspect these documents as necessary.
(ⅳ) “Rules and other systems related to management of the risk of loss”
- The company shall set up a risk management Department to prevent risks that may have a significant impact on the company’s operations and to establish a risk management system that enables prompt and appropriate responses to emergencies that may arise. The 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, the company shall establish “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 the company’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, the company shall establish “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, the company shall establish a meeting body for each important crisis, such as “disaster countermeasures,” “infectious disease countermeasures.” Even in normal times, the company 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, the company 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 Board of Directors Meeting Agenda Standards, the board shall meet to pass resolutions on important matters regarding the execution of business operations and to oversee directors’ performance of their duties.
- In order to ensure prompt decision-making and to strengthen the oversight role of the board of directors, the company shall introduce a corporate officer system. Under this system, the execution of the company’s business is carried out by corporate 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.
- Regarding the execution of business operations, the Board of Officers shall be established to discuss important matters related to the group’s business, and individual matters regarding the execution of business operations shall be delegated to the corporate 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, the company 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.
(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 the company, report important matters relating to corporate management to the company 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, the company shall establish “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, the company 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, the company 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. Of the company’s subsidiaries, the company that oversees a specific region or a specific business is designated as the controlling company. The controlling 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 control, and work to implement the plan. Subsidiaries shall establish a board of directors and shall have regulations for the board of directors that clarify its responsibilities and roles, and part-time directors dispatched from NXHD to the board of directors of subsidiaries shall supervise the performance of the subsidiaries’ duties. 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 “NX Group Compliance Regulations,” “NX Group Anti-Bribery Regulations,” and “NX Group Competition Law Compliance Regulations.” 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 such.
- 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 a group whistleblowing system, “Nippon Express Speak Up,” 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.
- In order to perform their duties regarding a consolidated business perspective and consolidated financial statements, NXHD’s A & S board members shall conduct auditing for the company’s subsidiaries.
- In order to prevent inappropriate transactions or accounting procedures between NXHD and its subsidiaries, etc., NXHD’s A & S board members shall collaborate with the A & S board members 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 employees who are requested by the company’s auditors to assist them in their duties and matters related to ensuring the effectiveness of instructions to such employees.”
Regarding matters related to assisting the duties of NXHD’s A & S board members, the audit staff of the Internal Auditing Division, which is the company’s internal audit department, shall follow the instructions of the A & S board members.
(ⅷ) “Matters related to the independence of the employees in the preceding item from directors”
The prior consent of the A & S board shall be obtained for the appointment of audit staff.
(ⅸ) “Systems for directors and employees to report to the company auditors, systems for directors, company auditors, employees and staff executing operations of the company’s subsidiaries or persons who receive reports from these persons to report to the company’s auditors, and systems to ensure that persons who make such reports are not treated disadvantageously for doing so.”
NXHD directors and the directors and A & S board members, etc. of subsidiaries shall report the following matters to the NXHD A & S board members 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 the company
(x) “Other systems to ensure that audits by company auditors are conducted effectively”
- In addition to attending meetings of the board of directors, NXHD’s A & S board members shall attend meetings of the executive board 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 A & S board members shall receive explanations of the matters discussed and inspect the relevant materials.
- NXHD’s A & S board and its members shall hold regular meetings with the Representative Director to exchange opinions on business policies, issues the company should address, risks facing the company, the state of the audit environment, important auditing issues, etc., and strive to deepen mutual recognition and trust.
- NXHD’s A & S board members shall, in accordance with the rules on “Important Documents to be Distributed to A & S Board Members,” inspect major approval request documents and other important documents relating to the execution of business operations, request explanations from directors, corporate officers or employees as necessary, and express their opinions.
- NXHD’s A & S board members shall collaborate with the Internal Audit Office and the accounting auditors to improve the effectiveness of audits.
- If deemed necessary, NXHD’s A & S board members may engage attorneys, certified public accountants, consultants, and other outside experts to support the A & S board members’ audits, and the company 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, NXHD was established on January 4, 2022 as a result of the transition to a holding company structure. The “Basic Policy for the Development of Internal Control Systems” was adopted by the Board of Directors as a policy aimed at taking over the system of Nippon Express Co., Ltd, a listed company prior to the adoption of the holding company structure, and expanding its functions so that internal control and risk management will function more effectively on a group-wide basis.
The operation of NXHD’s internal control systems is described below.
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, 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 (yearly) 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 reports semiannually to the Board of Directors on the situation regarding the implementation of these compliance-related initiatives, and the board provides oversight accordingly.
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 and members of the Audit & Supervisory Board to immediately access such information when necessary.
Major initiatives regarding risk management and crisis management
The Company has established a Risk Management Committee (which meets four times a year) and a Crisis Management Committee (which meets twice a year, or as needed) 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 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 (twice a year) to discuss responses to system risks, communicated measures to group companies, and provided training to employees through e-learning and other means.
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, while the board provides oversight accordingly.
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).”
Major initiatives regarding Audit & Supervisory Board audits and internal control audits
Regarding major initiatives 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).”
Revision of the Basic Policy for the Development of Internal Control Systems
With the transition to a holding company structure, NXHD was established on January 4, 2022 as a listed company to replace Nippon Express Co., Ltd. Based on Nippon Express’ internal control system, and reflecting the restructuring of the system to match the new group management structure, the Basic Policy on the Development of Internal Control Systems was discussed at a meeting of the Nippon Express Co., Ltd.`s Board of Directors held in November 2021, and was resolved on and established by the NXHD Board of Directors at the time of the company’s establishment.