Corporate structure analysis to Nippon Yusen
Corporate governance structure is a set of institutional arrangements to dominate the relationship between investors, managers and employees who have significant interests in the company. Corporate governance structure includes: 1. How to configure and exercise control; 2. How to evaluate and supervise the board of directors, managers and workers; 3. How to design and implement incentive mechanism. The purpose of the corporate governance structure is to clearly define the rights, responsibilities and interests of the shareholders, the board of directors and the manager, and to form a balance between each other.
Corporate governance plays an important role in controlling the firm’s operations (Fama, 1980; Fama & Jensen 1983). The thesis is going to analyze the corporate structure of Nippon Yusen to learn more about Japanese corporate structure, as world’s leading shipping company, it has been abiding by the principle 2: Structure the board to add value, principle 4: safeguard integrity in corporate reporting and principle 8: Remunerate fairly and responsibly
Corporate governance, is a set of procedures, practices, policies, laws and institutions that affect how to lead, manage and control the company. Corporate governance also includes the relationship between the company’s internal stakeholders and the many objectives of corporate governance. Key stakeholders include shareholders, managers and directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, government policy managers, the environment and the community as a whole.
According to the different powers of investors, the corporate governance structure can be divided into two modes: external control mode and internal control mode. The corporate governance structure of the external control model is represented by the United States and Britain, and also known as the Anglo-American corporate governance structure (also known as the neoclassical corporate governance model). The main feature of this model is that the company’s shares are scattered, the shareholders’ management capacity is extremely limited, but in the developed capital market , the stock liquidity is good, the majority of shareholders can form a constraint on the behavior of the company and the choice of agents through the market transactions in the stock market. Internal control mode of corporate governance structure represented by Germany, Japan, also known as civil law corporate governance structure. The main feature of this model is the company’s equity is more concentrated, especially exist the phenomenon of of mutual holdings between companies and banks to hold a large proportion of the company, the dependence on the stock market is relatively small.
- ASX Principles of Nippon Yusen
principle 2: Structure the board to add value
Nippon Yusen is the world’s leading shipping company, founded in 1885, headquartered in Tokyo, is committed to providing safe, high quality logistics and liner shipping services. As of April 2008, the Nippon Yusen has a container fleet capacity of 410,000 TEU, ranking ninth in the world, the market share of 3.4%. Among the three major Japanese liner carriers, the Nippon Yusen has the largest container fleet, but it is also rapidly becoming a growing player in the field of logistics services. NYK’s mission is to maximize the use of information technology for customers to provide logistics and transport services. It also provides inland transport and related international logistic services. In addition, the provision of luxury warehouses and a variety of recreational boat positions is also flourished. Since the establishment of the company in 1885, the Nippon Yusen has grown steadily after experiencing numerous challenges and has been among the top shipping companies in the world. Nippon Yusen knows that long distance commercial trade plays a very important role in the development of world economy and culture, and therefore has been committed to providing safe, high quality logistics and liner shipping services. The Nippon Yusen have made outstanding contribution to the development of the international community.
3. Corporate structure
NYK’s Corporate Governance Organisation Chart
3.1. The board of directors
A. To the maintain a good corporate governance practices and procedures, the company clarify the role of the Board of Directors as the highest authority in the enterprise, collectively responsible for directing and supervising the Company’s affairs. The board of directors is a governance mechanism that protects the company and the owner of the equity capital, whose core function is to bring the manager and the shareholders’ interests together
The board’s deliberations system and regular communication mechanism of the board of directors is well established, it clarifies the way of communication of the board of directors. In the case of NYK, The Board meets regularly and held meetings. Each directors have the right to include matters in the agenda for each meeting. Meeting minutes are kept by the secretary of the meeting.
The size of the board of directors is 12 members to ensure efficient decision making process. The directors are composed of internal directors and outside independent directors to supervision the performance of board.
B. The independent director system. Three directors in the board are Independent non-executive director, with the responsibility to supervise the board and protect the interest of shareholders. The independent directors are secreted outside the audit and supervision board and who have no interest conflict with the company, in this way, the company is trying to increase the transparency of the company.
C. Audit and supervisory board
2 internal and 2 independent outside audit and other supervisory board members forms to board to conduct auditing the the board of directors. Accounting auditors report to the audit and supervisory board and board of directors. Audit Committee is establied to review, to identify legitimacy, compliance and effectiveness, and make recommendations and comments to strengthen the management, improve economic efficiency of an monitoring economic activities. The Audit Committee report to the board of directors as well.
D. Separate the roles of executive corporate officer and Chairman.
The duties of the chief executive is separated from the duties of the chairman of the board. The chief executive was entrusted by the owner to mange the operation of the company. The Company has formulated the division of responsibilities of Chairman and chief executive. Emphasize rules and regulations so that stakeholders, mainly shareholders, boards of directors and managers could carry out mutual checks and balances on each other and avoid authoritarian situation.
3.2 Remuneration system
The remuneration policy of the company is publicized and transparent. A remuneration committee is established to consult the chairman or chief executive for remuneration proposal based on the skills, knowledge and performance of each director. The remuneration system report to the board of directors.
Remuneration for internal directors and corporate officers is comprised of basic remuneration based on individual responsibilities, and performance-based remuneration linked to corporate performance, and a certain proportion of the remuneration shall be paid in the form of stock-based remuneration. Bonus shall be proposed at the General Meeting of Shareholders as an annual incentive, in consideration of the management condition such as performance of the Company.
3.3 Internal Control system
Internal control is led by the president to achieve the purposes of delivering reliable financial report, conform to the current law, effective operation and safeguard assets. Financial report should be present for an assessment of the company’s performance.
The company’s internal control activities include audit of domestic companies and audit of overseas companies. For the domestic companies, 19 companies are audited, IT risk management and security are often conducted. As for the oversea companies, 72 companies are audited in Europe, Americas, South Asia and East Asia.
4. Evaluation of the corporate structure
The corporate structure is formed by the directors, and audit and supervisory board. The directors also include 3 independent directors who could supervise the company. In this way, there are two organizations which could supervise the performance of the board, independent directors and the audit and supervisory board, to make sure and increase the transparency of the company.
In 2015 year meeting, the board propose that decrease the number of internal director by 2 and increase outside director, which also enhance the transparency and monitoring to the company and strengthening the governance even further.
Internal control system is established. Internal control formed by the enterprises in order to realize the business objectives, protect the safety and integrity of the resources, ensure the authenticity of the accounting information and ensure the coordinated operation of the economic activities of the departments. This process provides reasonable assurance that the efficiency of the operation, the reliability of the financial report, and the compliance of the relevant laws and regulations, which are carried out by the board of directors, the manager class and other employees.
After analysis to the corporate structure of the company, we found that model of corporate governance of Nippon Yusen is learning from the model of United Kingdom and the United States, especially in the aspect of increase the monitoring strength from outside the company, the Japanese company structure is getting close to the Anglo-American. Due to changes in the environment and the lack of Japanese corporate governance mechanism, Japan continues to absorb the advantages of United Kingdom and the United States’ corporate governance control in the following aspects. Good corporate governance provides a framework that is essential for effective management. The board of directors should make commitment to the management of the company. After the diversification of the ownership structure, the introduction of independent director system will standardize the decision-making process, which is an effective corporate governance the group company need, to ensure the interest of small shareholders. The company should be transparent and information disclosed in a timely manner. When the company grow bigger, the difficulty of exchanging information between the management and the owner of the company increased , the transaction cost of information exchange between organizations has increased dramatically, it is also crucial to disclose information timely and transparently, which means the internal system should be effective enough.
NYK, (2016) Nippon Yusen, http://www.nyk.com/english/ir/library/nyk/pdf/2016_nykreport_08.pdf, Feb.28th, 2017