Corporate Social Responsibility (CSR) / Environmental and Social Report 2015

Corporate Governance System

Internal Control System

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 the Compliance, Risk Assessment and Technological Risk Management committees with the aim of reinforcing compliance and facilitating the comprehensive management of our monitoring of and responses to corporate risks, each of which is required to report periodically to the Board of Directors.

Taiyo Nippon Sanso’s Corporate Governance Structure

Taiyo Nippon Sanso's Corporate Governance Structure

Compliance Committee

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 and to ensure we are regarded as a trusted corporate citizen.

The Compliance Committee, which is chaired by our new Chief Compliance Officer (CCO), meets twice annually, in September and February. In the six months prior to each meeting, the committee hears reports from pertinent departments on any compliance violations uncovered within the Taiyo Nippon Sanso Group and on the progress of efforts to address previously reported contraventions and prevent the recurrence thereof. The committee also considers remedial strategies for newly reported violations, while individual divisions inform pertinent Group companies, which then implement measures to address related issues. Committee members notify both the divisions to which they are attached and the Group companies overseen by those divisions regarding reported compliance violations and perform relevant checks to prevent similar violations from occurring. The CCO collates information on violations and measures under consideration and briefs the Management Committee and the Board of Directors. The Compliance Committee also considers Group responses to revisions made to existing laws and regulations, as well as hears reports from divisions regarding Group companies being prosecuted for legal infringements and oversees the administration of potential contingent liabilities.

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. Additionally, on April 23, 2015, the Financial Services Agency of Japan issued an order to impose an administrative penalty against a company for engaging in insider trading of shares of Taiyo Nippon Sanso Corporation. Prior to this, we convened a third-party committee chaired by attorney Masaharu Miura, former chief prosecutor for the Fukuoka High Public Prosecutor’s Office, to verify our insider information management system. The committee submitted its report to us on April 24, 2015. Having acknowledged the gravity of this violation, which involved an officer of Taiyo Nippon Sanso passing insider information to another company, we subsequently revamped our insider information management system and are currently working to fortify our compliance system by implementing the recommendations of the third-party committee, which include creating the position of CCO and establishing an Internal Control Promotion Office to spearhead efforts to advance compliance.

Risk Risk Assessment Committee

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 Committee, which is chaired by the individual responsible for Groupwide internal control management, spearheads risk management for the entire Taiyo Nippon Sanso Group.

The Risk Assessment Committee meets once annually, in February. This committee, 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 Committee 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 committee pinpoints the departments responsible and proposes and carries out appropriate responses. The individual responsible for Groupwide internal control management collates information on risks and measures under consideration and briefs the Management Committee and the Board of Directors.

The management of risks associated with major earthquakes is the responsibility of our BCP* Taskforce, which goes into action immediately in the wake of a significant tremor, thereby ensuring our ability to continue operating without interruption.

*BCP is an acronym for business continuity planning.

Technological Risk Management Committee

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 Committee to assess and respond to related issues.

The Technological Risk Management Committee, which is chaired by the general manager of the Technological Affairs Division and encompasses division general managers, branch managers and the general manager of the Human Resources Division, has established dedicated teams to manage risks related to operational safety, product quality and safety, the environment and intellectual property. Charged with coordinating the activities of these teams, the Technological Risk Management Committee promotes the management of technological risks by meeting four times annually to ensure an accurate grasp of technological risk management initiatives, identifying latent risks and addressing risks that have manifested as actual issues. The Technological Risk Management Committee also analyzes the outcome of such initiatives, the results of safety and environmental audits and relevant global trends, and uses its findings to formulate a proposal for the Group’s annual technological risk management policy.

Each February, the Technological Risk Management Committee holds the Technological Risk Management Conference. Participation in the conference, which is chaired by the president, encompasses division general managers and senior executives in charge of divisions, branches and affiliated companies. The conference is responsible for making decisions regarding the coordination of risk management for the Group as a whole, as well as for annual technological risk management policies and priority issues. These decisions are mirrored in concrete initiatives promoted by the aforementioned risk management teams and by Group companies.

The Taiyo Nippon Sanso Group thus works tirelessly to ensure effective management of technological risks by clarifying the views of top executives and by promoting management based on consistent awareness across the Group.