Corporate Social Responsibility (CSR) / Environmental and Social Report 2013

Corporate Governance System

Management Structure

Our Board of Directors is composed of 15 directors and four standing auditors. One of the directors and three of the standing auditors are outside. To facilitate effective, efficient decision making by the Board of Directors, we have established the Management Committee to serve as an independent forum for deliberation, thereby clarifying Board rulings and accelerating the decision-making process.

Auditing Structure

Currently, our Board of Auditors consists of four auditors, three of whom are outside auditors. Auditors sit in on meetings of the Board of Directors and the Management Committee and oversee compliance and management efficiency by communicating with representatives and through operational audits of subsidiaries. We also have a Corporate Audit Office, which operates directly under the auspices of the president and which is charged with assessing the legitimacy and efficiency of operations. Through close communication with the Board of Auditors, as well as with our external auditing firm, this office supports efficient auditing.

Internal Control Structure

As prescribed by Japan's Corporate Law, we established a Basic Policy for Constructing an Internal Control System, i.e., basic guidelines for the creation of an internal control system. In line with this policy, we are reinforcing internal controls by clarifying decision-making authority and business practices, among others. We have also established an Internal Control Committee, which is chaired by the president and meets at the end of each fiscal year to examine business practices and business activities. Under the Internal Control Committee, we have created the Compliance, Risk Assessment and Technological Risk Management taskforces, with the aim of reinforcing compliance and facilitating the comprehensive management of our monitoring of and responses to corporate risks.

Taiyo Nippon Sanso's Corporate Governance Structure

Taiyo Nippon Sanso's Corporate Governance Structure

Compliance Taskforce

We recognize that a company must stay faithful to the values and ethics expected of it as a corporate citizen, operate fairly and appropriately, and act in harmony with the wider society as it pursues its corporate mission. Based on this recognition, we have taken steps to create a robust system for ensuring compliance—including formulating a code of conduct and establishing internal monitoring and auditing frameworks and a helpline—and ensure we are regarded as a trusted corporate citizen.

The Compliance Taskforce, a subcommittee of the Internal Control Committee chaired by the General Manager of the Corporate Administration Division—who is also a senior managing director—meets twice annually, in September and February. In the six months prior to each meeting, the taskforce hears reports from pertinent departments on legal violations within the Taiyo Nippon Sanso Group uncovered as a result of internal audits or spot investigations by the authorities and on the progress of efforts to address previously reported contraventions. The taskforce also considers remedial strategies for newly reported violations, while individual divisions inform pertinent Group companies, which then implement measures to address related issues. In 2011, Japan's Fair Trade Commission issued a cease-and-desist order and a surcharge payment order, i.e., a fine, against Taiyo Nippon Sanso, regarding an alleged pricing cartel.

The Compliance Taskforce also studies Group responses to revisions made to existing laws and regulations and hears reports from divisions regarding Group companies being prosecuted for legal violations. Additionally, this taskforce is responsible for the administration of potential contingent liabilities.

Risk Assessment Taskforce

Companies must effectively manage a wide variety of risks with the potential to affect their operating activities. The risks we face include, but are not limited to, increases in the price of crude oil, foreign exchange and interest rate fluctuations, changing demand trends, technological innovation, moves by customers to shift production offshore, product defects, natural disasters, environmental pollution and occupational accidents. The Risk Assessment Taskforce, a subcommittee of the Internal Control Committee, spearheads risk management for the entire Taiyo Nippon Sanso Group.

The Risk Assessment Taskforce meets once annually, in February. This taskforce, which is charged with identifying and assessing risks with the potential to affect our operations based on risk assessment sheets prepared and submitted by divisions, prepares risk maps illustrating probability on one axis and estimated impact on net income on the other, with the aim of identifying those risks most likely to affect our performance. The Risk Assessment Taskforce also reports on accidents at production facilities, product defects and other risks that have manifested as actual issues during the period and verifies that appropriate systems have been established to manage both types of risks (i.e., those determined through risk mapping and those that have evolved into issues). Should it determine that risks remain for which management systems do not yet exist, the taskforce pinpoints the departments responsible and proposes and carries out appropriate responses. The management of risks associated with major earthquakes is the responsibility of our BCP* Taskforce, which goes into action immediately to ensure our ability to continue operating even in the wake of a significant tremor.

Each year, the Internal Control Committee—acting on reports received from the Risk Assessment Taskforce—identifies priority risks that must be addressed Groupwide in the subsequent fiscal period and outlines a policy for the management thereof. Divisions implement targeted countermeasures in line with this policy.

*BCP = Business continuity planning

Technological Risk Management Taskforce

The Taiyo Nippon Sanso Group places a high priority on the management of risks related to security, product quality and safety, the environment and intellectual property, and has established the Technological Risk Management Taskforce to assess and respond to issues using the plan-do-check-act (PDCA) cycle.

Participation in this taskforce, which is chaired by the president, encompasses division general managers and senior executives from principal Group companies. The taskforce meets to discuss Groupwide risk management and clarify the views of top management, as well as to formulate policies and delineate key issues for each fiscal year, a format that facilitates the effective management of such risks by ensuring consistent awareness across the entire Group. This taskforce encompasses the Safety Management Committee, the Product Quality and Safety Committee, the Environmental Committee and the Intellectual Property Committee. These committees are responsible for outlining specific issues and devising initiatives, as well as managing risks in accordance with regulations applicable to their area of expertise, and report on progress of their efforts to the Technological Affairs Division on a quarterly basis.

Based on reports received from the committees, the Technological Affairs Division reviews the effectiveness of initiatives and conducts management inspections and quality, safety and environmental audits, identifying areas in need of improvement and providing guidance to respective departments. At the same time, the division endeavors to help resolve issues by suggesting corrective actions. Further, having analyzed the initiatives taken by the respective departments and achievements and relevant global trends, the division formulates a proposal for the Group's annual technological risk management policy and outlines core related outstanding issues for the subsequent fiscal year.