Corporate Governance (184KB)

64	NEC Integrated Report 2021		65

Management That Supports Corporate Value Creation

Corporate Governance

Reliable corporate governance is essential to the continuous creation of social value and the maximization of corporate value. Therefore, NEC Corporation (the "Company") is committed to strengthening its corporate governance practices through 1) Assurance of transparent and sound management; 2) Realization of prompt decision-making and business execution; 3) Clarification of accountability, and 4) Timely, appropriate, and fair disclosure of information.

Overview of Corporate Governance System

NEC Corporation has adopted the Company with the Audit & Supervisory Board Members (KANSAYAKU) ("A&SBMs") corporate structure to provide a double-check process: the Board of Directors supervises business execution and the Audit & Supervisory Board (KANSAYAKU-KAI) ("A&SB") audits the legitimacy and appropriateness of the Company's decision-making and activities.

Furthermore, we have established a hybrid structure by utilizing a corporate officer system and Nomination and Compensation Committee, which we established voluntarily and comprises a majority of Outside Directors. In this way, we separate business execution from the supervision of management while striving to ensure management transparency, soundness, and timely decision-making.

In the future, we will continue to focus our efforts on enhancements and improvements of this system in order to realize more effective corporate governance in response to changes in the business environment.

GENERAL MEETING OF SHAREHOLDERS

Management and Supervision			Members
Board of	Purpose, Activities, and Number of Meetings
The Board of Directors holds regular meetings once a month as a general rule and extraordinary meetings as		12 Directors
Directors	necessary to determine important matters related to business execution, including business realignment,
	funding plans, and financing and investment, as well as matters concerning business plans.	Chairman of the Board
	Main Matters Discussed in Fiscal 2021 (Number of Meetings: 15)	(Chair of the Board of Directors)
	Items Related to Management Policies and	Items Related to Governance	● 7 non-executive		● 5 corporate
	Management Strategy	• Report on internal auditing			officers
	• Proposals for the Mid-term Management Plan	• Report on the status of implementation of the
	2025	internal control system (including Priority Risks)
	• Capital and business alliances	• Evaluation of the effectiveness of the Board of
	• Technology and intellectual property strategy for	Directors
	business expansion	• Candidate selection for Directors and A&SBMs
	• Acquisition-based business expansion strategy	• Sale of cross-shareholdings
	• Global 5G strategy		Outside Directors		Inside Directors (6)
	• DX strategy for the "new normal"
	• Measures for cyber security		(6, including 5 independent)	Female
	• Marketing strategy
	• Activities to promote sustainability (materiality,				Directors
	the environment, human rights initiatives, etc.)
	• Human resources strategy

Nomination and	The Nomination and Compensation Committee deliberates on the nomination of Directors, A&SBMs, the		4 Directors
Compensation	Chairman of the Board and Vice Chairman of the Board, and the President (including succession planning for
Committee	the President), and on the structure and level of compensation for Directors and corporate officers from an	All non-executive
objective, transparent, and fair perspective, reporting the results of its deliberations to the Board of Directors.	Inside Director (1)	Outside Directors (3)
	Main Matters Discussed in Fiscal 2021 (Number of Meetings: 9)	Nobuhiro Endo	Kaoru Seto
		(Chairperson)
	Nomination-related	Focus Discussion Items		Kuniharu Nakamura
	• Nomination of Directors, A&SBMs, and important	• Succession planning for the President: Succession		Masatoshi Ito

Elect and Dismiss

Cooperate

Accounting

Auditors Audit

Cooperate

Elect and DismissElect and Dismiss

Management /

Report

Supervision

AUDIT &

Audit

BOARD OF DIRECTORS

NOMINATION AND

SUPERVISORY BOARD

COMPENSATION COMMITTEE

Cooperate

Supervise

CORPORATE AUDITING

EXECUTIVE

BUSINESS PROGRESS

BUREAU

COMMITTEE

COMMITTEE

corporate officers	according to succession selection flow
• Succession planning for the President	• Strengthening of the Board structure and succes-
• Strengthening of the Board structure	sion planning for Outside Directors: Discussions
Compensation-related	about the strengthening of the Board structure
• Decision on bonus payment for Directors	and role; creation of rules for succession planning
• Decision on additional trust, and monitoring of	for Outside Directors
operations (payment status) in the stock compen-		The Chairperson is appointed
sation system
• Monitoring of payment amounts to Directors		among Outside Directors.
based on remuneration system

		Discuss and report on imp-			Report on the status of
		ortant management issues			business execution
		Internal audits	CORPORATE OFFICERS	Supervise		CHIEF OFFICERS
Business		Supervise
		BUSINESS UNITS/CORPORATE STAFF/AFFILIATED COMPANIES
Execution

Business Execution

Overview of NEC's Succession Plan

Succession Plan for the	Next candidates/Future candidates
President
Succession Plans for Group
Key Position					Companywide Pool
General managers of business units/
Corporate officers/					of Human Resources
Presidents of major affiliates
Personnel ranked lower than					(approx. 1,000
				personnel)
general managers

We secure human resources with high potential to form a Companywide pool of human resources, giving consideration to diversity, including people from all social strata, women, foreign nationals, and young people. We select and train suitable human resources to be future ­presidents and executives.

	Purpose, Activities, and Number of Meetings	Members
Executive	The Executive Committee discusses important NEC Group manage-	Around 20
Committee	ment issues such as policies and strategies. This committee extensively	corporate officers
	discusses matters of particular importance prior to putting them
	forward to the meetings of the Board of Directors for approval. In doing
	so, the committee enhances the deliberations and ensures appropriate
	decision-making.
	Number of Meetings in Fiscal 2021: 16
Business	The Business Progress Committee deliberates and reports on matters	Corporate officers
Progress	related to the status of the NEC Group's business execution, such as	and general
Committee	monitoring progress with respect to budgets adopted by the Board of	managers of
	Directors, with the aim of sharing management information and pro-
	moting business execution efficiency.	business units,
	Number of Meetings in Fiscal 2021: 12	and others

Audit & Supervisory Board (KANSAYAKU-KAI) ("A&SB")

The Audit & Supervisory Board holds regular meetings once a month as a general rule and extraordinary meetings as necessary, and decides on audit policies, standards, the annual auditing plan, and other matters and receives status reports on audits and on other matters from each A&SBM.

Main Activities in Fiscal 2021 (Number of Meetings: 17)

• Creation of audit policy and plan	• Receipt of oral reports on audits from the account-
• Discussion and drafting of audit report	ing auditor and the Corporate Auditing Bureau
• Matters related to the selection and dismissal of	• Evaluation of the effectiveness of the A&SB
accounting auditor
• Confirmation of establishment and implementa-
tion of internal control system
• Exchange of opinions with the President regarding
priority management issues

5 A&SBMs

Inside A&SBMs (2)

Outside A&SBMs

(3, all independent A&SBMs)

Female A&SBM

In appointing Directors and A&SBMs, when an appointee serves as a Director or A&SBM of other public companies, it is desirable that the number of concurrent positions does not exceed the numbers specified as follows:

• When an appointee serves as an executive of NEC Corporation or another company: Only one company in addition to the company where the appointee serves as an executive

• In cases other than the above: Up to four companies in addition to NEC Corporation

However, if a Director or A&SBM serves in multiple roles concurrently at group companies of NEC Corporation or another listed company, the concurrent roles within the group companies shall be deemed as roles in one company.

66	NEC Integrated Report 2021		67

Management That Supports Corporate Value Creation

Corporate Governance

Main Initiatives for Strengthening Corporate Governance

Strengthen Management and Supervisory Functions

2001

2010

2012

2019

2021

Established Compensation

Ratio of Outside Directors: 45.5%

Added one independent director

Committee

to the Board of Directors

❶

Established Nomination and Compensation

Majority of Directors are non-executive

Committee

To ensure independence and objectivity in the Nomination

and Compensation Committee, changed to a four-member

structure consisting of three Outside Directors (including

❶ Enhancements to the Board of Directors System

chairperson) and one non-executive Inside Director

In fiscal 2021, the Nomination and Compensation Committee

independent directors among the Board and promoting deeper

engaged in heavy deliberations focusing on measures aimed at

discussion during Board meetings. This increases the proportion

enhancing the structure and role of the Board of Directors in

of independent directors, women, and foreign nationals on NEC's

order to improve corporate value further. After defining the career

Board of Directors, raising its overall independence and diversity.

skills of the Board of Directors needed as a whole and evaluating

the Board's current composition, it became clear that it was nec-

essary to strengthen corporate governance and deepen multifac-

After strengthening

eted discussions on Companywide strategies at Board meetings.

Independent

36％

42％

In response, we have added one independent outside director

from fiscal 2022. This increase in the number of independent

Non-executive

55％

58％

outside directors, who possess specialized experience and knowl-

Female

9％

17％

edge in risk management, sustainability, and global management,

Foreign national

0％

8％

is aimed at increasing the diversity and the proportion of

Evaluation of Career Skills of the Board of Directors

Years served

Corporate

Technology

Global business

Financial

Risk

Sustainability

Marketing

accounting

as Director

management

M&A

management

ESG

Chairman of the Board

Nobuhiro Endo

12

●

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〇

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●

Vice Chairman of the Board

Takashi Niino

10

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〇

〇

●

●

●

(Representative Director)

President and CEO

Takayuki Morita

5

●

〇

●

●

●

●

●

(Chief Executive Officer)

(Representative Director)

Senior Executive Vice President

Norihiko Ishiguro

3

〇

●

〇

〇

●

〇

and Member of the Board

Executive Vice President, CHRO

Hajime Matsukura

4

〇

〇

〇

●

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〇

(Chief Human Resources Officer)

and Member of the Board

Executive Vice President, CTO

Motoo Nishihara

2

●

●

〇

〇

〇

〇

(Chief Technology Officer)

and Member of the Board

Member of the Board

Kaoru Seto

3

●

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〇

●

●

●

Member of the Board

Noriko Iki

3

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●

Member of the Board

Masatoshi Ito

2

●

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〇

●

●

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Member of the Board

Kuniharu Nakamura

2

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●

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Member of the Board

Jun Ohta

1

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●

●

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Member of the Board

Christina Ahmadjian

―

〇

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〇

〇 Areas in which Director has deep insight ● Areas in which Director has extensive experience in addition to deep insight

Strengthen Execution Structure and Revise Remuneration for Directors and A&SBMs

2011		2017	2019
Instituted Chief Officer position			Increased the ratio of performance-based remuneration
		for executive directors						❷
and strengthened			Ratio of basic remuneration: bonuses: stock compensation = 5:3:2
Companywide strategies			Corporate officers appointed with one-year mandate contracts to clarify
				responsibilities and authority
		Introduced stock compensation system
		Extended the authority delegated to the Chief Officers to strengthen
		corporate functions and accelerate the speed of decision-making
❷ Revisions to Remuneration for Directors and A&SBMs
For the purpose of continuously improving corporate value and		remuneration levels of other companies whose business contents
strengthening its competitiveness, NEC Corporation's basic policy	and scale are similar to those of the Company.
on the remuneration for Directors and A&SBMs is to set a level		In 2017, we introduced the stock compensation system, and in
and structure appropriate for a global company, which enables us	2019, we increased the ratio of performance-based remuneration
to secure excellent human resources and serves as an incentive		for executive directors. The ratio of bonuses and performance-
to improve performance of the NEC Group. In order to ensure		based stock compensation is calculated based on a standard
objectiveness and properness of the remuneration for Directors	amount before reflecting the degree of achievement of the
and A&SBMs, the level of the remuneration is determined upon		performance targets.
the results of a third-party's investigation regarding the
Basic Remuneration	Bonuses	Stock Compensation
• Basic Remuneration		• Bonuses				• Performance-based Stock Compensation
Fixed remuneration paid monthly		Short-term incentive			Medium- to long-term incentive
For some executive directors, basic remu-		Bonuses are performance based and the	Stock compensation is performance based and
neration increases or decreases based on		­payment rate is from 0% to 200%.	the payment rate is from 0% to 100%.
performance (performance indicators		Bonuses consist of a Group-wide performance-	Indicators:
include non-financial indicators such as
practical implementation of the NEC Way		based component and a business-unit perfor-	NEC Group's consolidated revenue, adjusted
and our "materiality"-priority manage-		mance-based component. The ratio between	operating profit, and adjusted net profit
ment themes from an ESG perspective).		these two components is determined for each	attributable to owners of the parent in the
		job title.				applicable fiscal year
		Indicators for Group-wideperformance-based	• Fixed Stock Compensation
		component:
		NEC Group's consolidated revenue, operating
		income, and free cash flows
		Budget indicators for business-unit perfor-
		mance-based component:
		Consolidated revenue, operating income,
		and free cash flows, etc., for the business
		units overseen by each Director
		Mid-term plan indicators for business-unit
		performance-based component:
		Set for individual Directors

• Non-executiveInside Directors do not receive bonuses.
• Outside Directors and inside and outside A&SBMs are only entitled to basic remuneration.
• Shares from stock compensation are granted after three years from the beginning of the applicable period.
• Under the stock compensation system, provisions have been included that allow NEC Corporation to take action in cases where compliance breaches or inappropriate accounting treatment have been confirmed. In such cases, NEC Corporation may withhold all or part of the rights to receive a grant of NEC Corporation's shares prior to the granting of NEC Corporation's shares; or after the granting of NEC Corporation's shares, NEC Corporation may demand the return of all or part of the granted shares of NEC Corporation.

For more details on remuneration for Directors and A&SBMs, please refer to NEC's Corporate Governance Report.

68	NEC Integrated Report 2021		69

Management That Supports Corporate Value Creation

Corporate Governance

Amounts of Remuneration for Fiscal 2021

Messages from Outside Directors

		Basic Remuneration	Bonuses	Performance-Based Stock	Fixed Stock Compensation
		Compensation
			Total amount		Total amount		Cost posting relating		Cost posting relating
		Headcount	Headcount	Headcount	to stock	Headcount	to stock
		(in millions of yen)	(in millions of yen)	compensation	compensation
							(in millions of yen)		(in millions of yen)
	Directors	12	400	5	184	6	126	6	42
	(of which Outside
	Directors)	（6）	（60）	－	－	－	－	－	－
	A&SBMs	6	96	－	－	－	－	－	－
(of which Outside
A&SBMs)	（4）	（36）	－	－	－	－	－	－

Among the above recipients, the following has a total remuneration amount of 100 million yen or higher.

Takashi Niino: Total remuneration amount: 134 million yen (basic remuneration: 78 million yen; bonus: 57 million yen)

Guidelines on Officer Ownership of NEC Corporation Shares

NEC Corporation has established "Guidelines on Ownership of Company Shares" for Directors (excluding Outside Directors) and corporate officers regarding the holding of more than a certain number of shares.

Continuing to Increase and Improve Effectiveness

NEC Corporation conducts an analysis and evaluation of the effectiveness of the Board of Directors once a year to improve effectiveness further. The following is a summary of the evaluation of the effectiveness of the Board of Directors for fiscal 2021.

Kuniharu Nakamura

Outside Director

Pursuing the Ideal Way for Companies to

Foster Human Resources from a

Long-term Perspective

This past year has been one of great change in the business environment. As digital transformation gains traction and businesses abroad develop further, I feel that the way a company handles human resources needs to be reframed.

To build a connection between a company and its human resources, the company needs to make its direction clear and create the sense of a common mission. It also needs to ensure that its business contributes toward a sustainable society and

Christina Ahmadjian

Outside Director

Emphasizing Diversity and Working to

Maximize Corporate Value

as a Common Goal

I have spent a lot of time researching corporate governance, business administration, and organizational theory. Looking specifically at organizational reforms for companies, I have also conducted training regarding organizational reforms at Japanese and Western companies. From this experience, I have learned that for a board of directors to be effective, it needs to focus on diversity while making sure its members are working to maximize corporate value as a common goal. To make this

Procedure of the analysis and evaluation

Summary of the evaluation results

Initiatives going forward

To further increase effectiveness of the Board of Directors, the Company conducted a questionnaire and individual interviews targeting all members of the Board of Directors and the A&SBMs in order to elicit opinions on the items listed below. After identifying issues and points of improvement through this process, plans for improvement going forward were deliberated at an ordinary Board of Directors held in February 2021.

1) Regarding the role and functions of the Board of Directors

2) Regarding more effective use of Outside Directors' insights and opinions

3) Regarding the NEC Group's corporate governance system

1) Regarding the roles and functions of the Board of Directors

The Board of Directors fulfills its role appropriately and performs its functions sufficiently, which include deliberations regarding broad, Companywide management strategies and corporate governance. The Company needs to consider improvements in line with such points as the use of Outside Directors' insights and opinions and selection of themes for deliberation based on changes in the external environment and their impacts and risks.

2) Regarding more effective use of Outside Directors' insights and opinions

While it has been useful to clarify the expected role of Outside Directors in fiscal 2020, the Company needs to consider improvements such as further enhancement of information provision for Outside Directors and investigation of more effective deliberation formats according to themes (off-site meetings, etc.).

3) Regarding the NEC Group's corporate governance system

The current corporate governance system was deemed appropriate overall; however, it is important for the Company to continue looking into optimal systems based on the ideal direction of the NEC Group. The evaluation also reflected a desire for the Company to consider further strengthening the Board of Directors' supervisory functions over the medium to long term.

1. Review the management methods of the Board of Directors to better obtain the diverse opinions and advice of Outside Directors, which include measures involving the content and delivery method of information provided to Outside Directors.
2. Select themes for deliberation based on the changes in the external environment and their impacts and risks related to the NEC Group.
3. Clarify the role of the Board of Directors in building an ideal corporate governance system for the NEC Group, and strengthen the supervisory functions required to fulfill that role.

that the employees who carry out this business can attach their own goals and dreams to their efforts. What we need to keep in mind when thinking about fostering human resources is what we want NEC to achieve and become in 10 to 15 years' time, and what qualities and capabilities its human resources need to realize these goals. This is something we are always discussing, from both the viewpoint of the Company's strategy and its human resources. When fostering human resources, it is important to clarify what kind of work a person needs to do and what kind of experience a person needs to have in order to acquire these capabilities. It is also important that candidates for leadership are taken from a diverse pool of human resources and are chosen based on whether they have the necessary qualifications, regardless of age, gender, or nationality, whether their qualifications were developed inside or outside the Company, or what field they come from. By securing a breadth of experience, the Company can develop a good set of human resources and build itself into a place where everyone can support each other. There are many excellent people at NEC, but NEC's business could be even bigger if these people could step outside of their own areas of responsibility and understand what is going on in other divisions, and then prompt the various fields involved to compound upon

possible, the board needs to think from a long-term perspec- tive, utilizing the individual characteristics of each member, thinking of what actions to take going forward, and what issues may arise. The board also needs to ensure mutual respect and shared values to achieve sustainability.

As for the directors that make up the board, just having some kind of managerial experience is not enough. When you look at global tech companies you find examples of women, people of different nationalities, entrepreneurs in their 30s, young tech experts, and other kinds of people flourishing as directors, which goes to show that companies need a set of human resources with a wide range of attributes. In Japan, there are many companies that conduct businesses globally but whose boards of directors are fully composed of Japanese nationals. With this common scenario, it is necessary to increase the number of members with different backgrounds, not only Japanese with overseas experience.

What is more, although there are cases where women and foreign nationals are truly included, in many more cases, the old ways of working do not really change and the only people who are truly accepted are those who fit that traditional mold. It will be difficult to bring in diverse human resources unless companies review this approach and make drastic changes.

In addition, the Company also conducts evaluations of the effectiveness of the Nomination and Compensation Committee and the A&SB.

For more details on evaluations of the effectiveness, please refer to NEC's Corporate Governance Report.

elements of each other. This is no easy task, but you need to work with this sort of plan.

NEC's businesses are changing and will continue to change. I expect that in combining NEC's superior technologies more of its human resources will share in a common vision, and that they will reach across borders to play an active role in achieving this vision. All of this will allow NEC to grow even more.

Japanese companies need to put in the effort in order to achieve this goal of true diversity and inclusion. This requires the proper amount of time to develop people from younger generations and expand the future pipeline of talent.

As a new director, I intend to direct my efforts toward discussing methods to this end during meetings of the Board, providing useful information and training Board members.