Corporate Social Responsibility (CSR) / Environmental and Social Report 2014

Corporate Governance System

Management Structure

Our Board of Directors is composed of 17 directors and the four standing auditors who are members of the Audit & Supervisory Board. Three of the standing auditors are outside auditors. 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 Audit & Supervisory Board consists of four members, three of whom are outside auditors. Audit & Supervisory Board members 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 Audit & Supervisory Board, as well as with our external auditing firm, this office supports efficient auditing.

Internal Control Structure

As prescribed by Japan’s Companies Act, 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

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 event a legal violation is uncovered within the Taiyo Nippon Sanso Group in the six months prior to each meeting as a result of internal audits or spot investigations by the authorities, the taskforce hears reports from pertinent departments 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 and conduct pertinent checks with the aim of preventing the occurrence of similar incidents. 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 electricity rates, the price of crude oil and other resources, 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 related issues.

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, as well as conducts management inspections and 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.

Overseeing Technological Risk Management

Taiyo Nippon Sanso conducts management inspections and safety and environmental audits of its own sites and those of Group companies to manage technological risks related to, among others, security, the environment and product quality. In fiscal year 2014, approximately 300 sites were inspected and/or audited.

Management inspections, which are conducted by the general manager of the pertinent Taiyo Nippon Sanso division or branch, are designed to assess the status of safety and environmental initiatives at Group companies from a management perspective. Safety and environmental audits, the main goals of which include reinforcing compliance and preventing accidents, are conducted by the Technical Audit Office—every five years, in principal—at all Group companies, including those overseas.

Prior to safety and environmental audits, pertinent sites and Group companies perform advance self-checks using an audit checklist, based on which the Technical Audit Office verifies findings through direct observation. In fiscal year 2013, safety and environmental audits were conducted at 40 sites belonging to 28 companies. In fiscal year 2014, attention focused on Taiyo Nippon Sanso sites, with inspections to verify compliance, safety and environmental risk management conducted at 49 sites belonging to four companies. Sites are encouraged to promptly address issues uncovered by, among others, preparing plans outlining corrective actions and reporting when such actions are complete. As of August 2014, corrective actions had been completed by all sites audited in fiscal year 2013 and by 92% of those audited in fiscal year 2014.

Intellectual Property Activities

Policy on Intellectual Property Activities

With the aim of securing competitive advantages and contributing to income, we promote the strategic acquisition, maintenance and active use of intellectual property in our various businesses. Additionally, guided by the principle of compliance, we are committed to respecting the intellectual property rights of third parties, as well as to responding appropriately in the event our own intellectual property rights are violated.

System of Compensation for Inventions

To ensure the effective management of intellectual property, we have established various systems that together comprise the core of our regulations for the management of intellectual property. One of these is a system of compensation for inventions, whereby any employee who has devised an invention in the course of performing his or her job is eligible for compensation when a patent application is filed, when the patent is registered and when the patent contributes to income. Compensation was paid for 200 registered patents in fiscal year 2013 and for 220 in fiscal year 2014.

Patent Applications in Japan (Taiyo Nippon Sanso Corporation)Breakdown of Patent Portfolio by Business Area