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Financial Information:
Annual Report 2005
NSK views corporate governance
as a framework dedicated to maximizing shareholder value and increasing
management transparency, whereby parts of the organization responsible
for business execution, under the supervision of the Board of Directors,
expand the business and improve profitability. NSK has long been
active in taking steps to improve its level of corporate governance.
To further enhance management responsiveness, the Company adopted
the “Company With Committees System” for corporate governance
after amending its Articles of Incorporation at the Annual Meeting
of Shareholders held on June 29, 2004.
Corporate
Governance Structure
NSK’s key management organization is the Board of
Directors. The Board is responsible for deciding on basic
management policies and other important management
matters, while serving as a supervisory body that monitors
business execution by executive officers. In terms of
committees, NSK has established the Audit, Compensation,
and Nomination committees, each of which is composed
of a majority of independent directors.
Responsibility for business execution is largely vested
in the CEO, who delegates authority to executive officers
appointed by the Board of Directors. These executive
officers are responsible for actually implementing management
decisions on the CEO’s behalf. Also involved in
business execution is the Operating Committee, a body
that assists in decision-making processes regarding how
operations are carried out. As of June 29, 2005, NSK
had 12 directors, including four independent directors,
and a total of 35 executive officers, including the CEO.
Seven of the 12 directors hold concurrent posts as executive
officers, ensuring that the Board of Directors’ monitoring
functions are closely attuned to how businesses are
being managed.
In addition to the 143rd Annual Meeting of Shareholders,
the Board of Directors, Compensation Committee,
Nomination Committee, and Audit Committee
convened 10, 4, 3, and 12 times, respectively, during
fiscal 2004, ended March 31, 2005.
One year after adopting the “Company With Committees
System,” NSK believes it has created a governance
framework that will allow it to boost management responsiveness,
enhance supervisory functions and strengthen
monitoring functions pertaining to business execution.
Within this framework, NSK will initiate successive PDCA
(Plan, Do, Check, Act) cycles while it strives to heighten
management efficiency and further increase shareholder
value.
Internal
Monitoring System and
Risk Management Structure
1. Establishment of Internal Audit Office
On June 29, 2004, NSK reorganized and reestablished the
former Audit Office as the Internal Audit Office. This office
comes under the direct supervision of the CEO and liaises
with the Audit Committee, serving as an internal auditing
division responsible for monitoring the legality, propriety
and efficiency of business operations. In addition to checking
the status of the NSK Group’s internal monitoring
system, the Internal Audit Office issues advisories and
proposes improvements based on audit results.
2. Establishment of Compliance Division-Headquarters
On June 29, 2004, NSK merged its former legal affairsrelated
divisions into the Compliance Division-Headquarters
in a bid to maintain strict observance of laws, regulations,
and rules on corporate ethics throughout the NSK Group.
The Compliance Division-Headquarters is charged with
enacting training programs that promote ongoing awareness
of the NSK Group’s social and public responsibilities as
a good corporate citizen. At the same time, this organization
is also tasked with planning, proposing, implementing and overseeing
legal compliance matters.
3. Establishment of Disclosure Working Team
Prompted
by the amendment in January 2005 of regulations
pertaining to the listing of shares on the Tokyo
Stock Exchange, NSK on February 28, 2005, established a
Disclosure Working Team within the Corporate Planning
Division-Headquarters, a section responsible for developing
the Company’s internal monitoring system. This team
serves as an in-house mechanism for conducting timely and adequate
disclosure of important corporate data
with the potential to affect the decisions of prospective
investors. Aside from collecting and managing information
suitable for disclosure, the Information Disclosure
Team works closely with internal auditing divisions to
ensure that NSK has the in-house systems required to
carry out timely and appropriate information disclosure.
Audit
Committee Audits, Internal Audits,
and Independent Auditor’s Audits
NSK is strengthening its group audit functions as a
means of reinforcing its corporate governance structure.
1. Audit Committee Audits
The Audit Committee is composed of three non-executive
directors, two of whom are independent directors
and, with the cooperation of the internal monitoring
organizations such as the Internal Audit Office, executes
audits in the following three areas:
| a) |
Governance audits: This audit examines whether the
Company is taking adequate steps to achieve its goals
of “fulfilling its social responsibilities and securing an
adequate level of profit expected of a business entity in
order to increase shareholder value” as designated in
the first clause of NSK’s Corporate Governance Policy. It
also examines the Company’s attitude toward securing
transparency and protecting shareholders’ rights. |
| b) |
Corporate risk management audits: The audit examines
whether adequate management of business risks are
being implemented to respond to changes in
environment, and to check whether internal control
systems are being adequately and effectively established
and utilized. |
| c) |
Audit of Board of Directors’ and executive
officers’ operations
as required by the Japanese Commercial Code
and the law for special provisions for the Commercial
Code: This audit is conducted to ensure that the Board
of Directors and executive officers have not committed
any wrongful acts or violated any laws, regulations and
the Company’s Articles of Incorporation in the course of
executing their duties and responsibilities. |
2. Internal Audits
The Internal Audit Office carries out on-site audits of
Group organizations according to an audit schedule,
which is prepared based on the results of routine monitoring
activities and periodic risk assessments. The Internal
Audit Office works as an internal check function as well as
supporting business process improvement activities.
3. Independent Auditor’s Audits
Ernst & Young ShinNihon, the independent accounting
firm, has been solicited to audit NSK’s financial results.
The Audit
Committee, Internal Audit Office and the independent auditor
share each other’s
audit results, as well as exchange opinions among each other on a regular
basis.
Inclusion
in the Pension Fund
Association’s Corporate Governance Fund
In recognition of NSK’s corporate governance measures, the
Japan-based Pension Fund Association has included the Company
in its Corporate Governance Fund set up in 2004.
NSK’s Corporate Governance Structure
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