COMPANY

Corporate Governance

Complete Compliance

	Corporate Governance Organization
		Taiyo Nippon Sanso continues to assess ways to modify its corporate governance system to enhance transparency and suitability to the nature of its businesses. Our management team consists of the Board of Directors, which has 16 members, and the Board of Auditors, comprising four standing corporate auditors. To further ensure objectivity on the full spectrum of management issues and prevent poorly considered decisions, one of the directors on the Board is external. During the period under review, the Board of Directors convened six times and the attendance rate was 50%. In a process designed to ensure transparency and stringent monitoring, we have also established a Board of Auditors, which includes two independent auditors and is tasked with conducting rigorous internal audits. This Board of Auditors convenes four times annually to hear the results of audits conducted by our independent accountants. They also meet to hear the Auditing Office’s annual internal audit plans and results thereof.

	Compensation for Directors
		Compensation for directors and auditors in the period under review was as shown below. Regarding the granting of incentives to directors, we have adopted a scheme using cash dividends per share—a standard for calculating retirement benefits—thereby linking compensation to performance. This system is also designed to ensure directors act in the interest of shareholders by giving them a direct interest in the Company just like shareholders.

	Compensation for Directors in Fiscal 2006 Breakdown
		Compensation to directors  ¥415 million  Compensation to corporate auditors  ¥80 million  Retained earnings applied to directors’ bonuses  ¥93 million  Reference:  Compensation for audit certificate  ¥36 million

	Accountability
		Taiyo Nippon Sanso recognizes ensuring the timely disclosure of corporate and financial information as a key component of corporate governance and is taking steps to fulfill its obligation to provide adequate explanations to investors as well and to ensure investor feedback is properly communicated to management. In an effort to translate this commitment into action, senior management attend two presentations for analysts and institutional investors annually, where they participate in question-and-answer sessions with participants on such topics as the Company’s performance, forecasts for subsequent periods and the formulation and progress of medium-term management strategies and endeavor to respond in a manner that provides both information and insight.

	Risk Management and Compliance
		As a company engaged primarily in the provision of high-pressure gases, Taiyo Nippon Sanso recognizes the need to manage risks in four categories: security, safety, quality assurance and the environment. To oversee risk management and address related issues Companywide, we have established the Technology Risk Management Committee. In addition, as part of our effort to establish an effective internal control framework, we have adopted a system that enables directors to more effectively fulfill their responsibilities. At the same time, we have tasked individual directors with setting targets at the beginning of each term for the divisions they oversee and tracking each division’s progress toward achieving these targets on a quarterly basis, thereby enhancing efficiency. Even with the best-conceived corporate governance policy, we risk losing public confidence and incurring incalculable damage to the entire Taiyo Nippon Sanso Group and our shareholders without an effective compliance system. Recognizing this, we have published the Taiyo Nippon Sanso Group Code of Conduct, which outlines standards of conduct for all employees to observe in relation to compliance with laws and ordinances, corporate ethics and internal guidelines. To enforce this code, we have also established a Compliance Committee, upon which all internal directors sit, and set up a compliance helpline, thereby enabling employees to promptly report suspected violations and enhancing management awareness.