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Here at Mitsubishi Chemical Holdings Corporation (MCHC), the Board of Directors set out a basic policy for internal control systems in May 2006, covering areas such as risk management, compliance, the execution of duties by officers, information management and auditing systems. The Board of Directors also carries out inspections at the end of every fiscal year to ensure that internal controls are being implemented effectively and reviews specific details as necessary, in an effort to continually enforce and strengthen our internal control systems.
Having assessed internal controls in relation to financial reporting in fiscal 2010, we have confirmed that our internal control systems are functioning effectively in accordance with internal control and reporting requirements under the Financial Instruments and Exchange Act.
As part of APTSIS 15, our new five-year mid-term management plan starting in fiscal 2011, we will be expanding and reinforcing our overseas area strategy in an effort to increase our ratio of overseas sales to at least 45%. In particular, we are aiming to establish and strengthen management systems in China and the US, primarily by supervising and providing guidance in relation to PR capabilities, risk management, compliance systems and internal auditing. It is with this in mind that we established Mitsubishi Chemical Holdings America Inc. (MCHA) in November 2010 and Mitsubishi Chemical Holdings (Beijing) Co. Ltd. (MCHB) in January 2011, as wholly-owned subsidiaries in the US and China. We intend to step up internal control initiatives at MCHC Group companies even further in the future, focusing on operations at the local level via overseas subsidiaries such as these.
We are also planning to carry out internal control assessments more effectively and efficiently in the future, based on the current implementation of internal control systems and assessment results. Further, we are committed to promoting efficient, streamlined operations, through initiatives such as improving internal control systems and standardizing operations.
We have always been committed to improving risk management systems here at MCHC Group, to both fulfil our social responsibilities and maintain and enhance our corporate value. We established our risk management system, headed by the President of MCHC in his capacity as Chief Risk Management Officer, in April 2006 and formulated the MCHC Group Risk Management Basic Policy. We have been effectively implementing this ever since, in an effort to avoid major risks associated with our business activities and minimize any damage, whether human, economic or social, in the event that any such risks do materialize.
Important matters relating to risk management within the MCHC Group, including risk management policies and groupwide measures in response to major risks, are discussed by the Management Committee and determined by the President, in his capacity as Chief Risk Management Officer, based on the outcome of discussions.
At our four operating companies, we establish risk management systems in line with the specific nature of each company’s business activities. Our four operating companies also provide guidance and support to enable their subsidiaries to establish and implement risk management systems effectively.
We are considered that sharing information relating risks within the MCHC Group is important in order to further reinforce risk management systems. We therefore organize regular meetings between MCHC and each of our operating companies, to enable us to share information regarding common risks and matters such as risk management strategies.
Following on from the previous year, we continued to improve and monitor the implementation of risk management systems, and to identify and assess major risks affecting the MCHC Group, during fiscal 2010. We also highlighted emerging risks requiring groupwide action and promoted measures to resolve or minimize risk factors, including UN Security Council sanctions against Iran, procurement risks in China, and information security. On other fronts, we have identified and categorized risks requiring priority action, including environmental risks and internal controls at overseas MCHC Group companies, and are implementing appropriate measures in response.
In an effort to reinforce internal controls at overseas MCHC Group companies for instance, we have set out a risk management policy for the MCHC Group companies in China in partnership with Mitsubishi Chemical Holdings (Beijing) Co. Ltd. (MCHB), our new local subsidiary established in January 2011, and are starting to implement specific initiatives.
In response to the Great East Japan Earthquake in March 2011 meanwhile, we quickly ascertained damage caused to our four operating companies and have provided support to help restore damaged facilities. Based on the lessons learnt from the recent earthquake, in areas such as confirming employees’ safety and emergency contact procedures, we are conducting a full review of our business continuity plans, so as to ensure that we could maintain head office capabilities and continue to supply products to infrastructure operators in the foreseeable event of devastating earthquake directly under Tokyo or the eastern Tokai region.
In fiscal 2011, we will continue to provide the MCHC Group companies with support to enable them to establish and effectively operate risk management systems, focusing particularly on our four operating companies. We also intend to implement specific measures to minimize risks requiring priority action, in areas such as compliance, overseas operations and business continuity planning, to ensure that we are able to procure raw materials and supply products.
Risk Management System (as of June 30, 2011)
We established the Group Synergy Office at MCHC to develop and strengthen the foundations in a Group-wide and cross-sectional manner for production technology, the environment and safety. We also organize Four-Company Cooperation Council meetings as and when necessary, bringing together managerial members of staff from Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation, Mitsubishi Plastics Inc. and Mitsubishi Rayon Co. Ltd. to create a shared awareness with regard to environmental and safety activities and to share information and opinions regarding policies and priorities at each company.
Here at the MCHC Group, we view compliance from a broader perspective, incorporating areas such as corporate ethics and social boundaries, rather than focusing strictly on legal compliance. As we regard compliance as one of our top management priorities, we have set out a number of regulations to underpin our operations, including our MCHC Group Corporate Ethics, the MCHC Group Compliance Code of Conduct, and the MCHC Group Compliance Promotion Policy.
To steadily incorporate compliance into MCHC Group, we have established an Internal Control Office to oversee compliance at MCHC, and compliance promotion or corporate ethics committees at our four operating companies, under the supervision of a Chief Compliance Officer (CCO) appointed by the MCHC Board of Directors. MCHC requires operating companies to formulate a code of conduct, compile procedural manuals, conduct educational activities such as training and seminar, audit and monitor operations, and establish and operate a compliance hotline service. We also provide support for activities at our operating companies, including assigning instructors to oversee training and producing training tools.
At overseas MCHC Group companies meanwhile, we are in the process of formulating codes of conduct and regulations in line with legislation and social norms in each country, based on our MCHC Group Corporate Ethics as a common basic rule, in an effort to ensure and reinforce compliance.
Promotion Structure
MCHC Group compliance lecture
In November 2010, we invited an outside attorney to give a lecture entitled “Responding to Society’s Trust: Practical Considerations for Compliance and CSR” for officers from MCHC and Chief Executive Officers and Chief Compliance Officers from MCHC Group companies. We also organized training sessions for new officers at MCHC Group companies.
We have had a number of incidents that have undermined trust in MCHC, including administrative action against Mitsubishi Tanabe Pharma Corporation due to a violation of the Pharmaceutical Affairs Act, and the improper handling of environmental data by Mitsubishi Chemical Corporation. Accordingly, in fiscal 2010, we thoroughly investigated the causes of these incidents and rolled out effective measures to prevent anything similar from recurring. We remain committed to providing support for compliance-related measures at the MCHC Group companies in the future.
Further, we consider that sharing information relating compliance within the MCHC Group is vital to further reinforce compliance. We organize regular meetings between MCHC and each of our operating companies, to enable us to share information regarding groupwide priorities and other relevant matters.
We conduct annual Control Self Assessments (CSA) MCHC Group companies via the Audit Office at MCHC, in order to ascertain levels of compliance at each company based on a series of compliance-related questions.
In fiscal 2008, we launched a Hotline Service for the staff of MCHC Group companies to seek advice or report matters relating to compliance, either to the General Manager of the Internal Control Office or an outside attorney. Since then, we have been working to promote the service and ensure that it operates effectively.
We are committed to protecting the confidentiality, privacy and human rights of all employees seeking advice or filing reports, and guarantee that they will not be disadvantaged in any way. An investigative team led by the General Manager of the Internal Control Office processes all information provided. If there is deemed to be an issue, we take swift action to remedy the situation, under the supervision of the CCO.
We set out the MCHC Group Information Security Policy in order to protect our information system assets from both internal and external threats, and to maintain and enhance our corporate value.
Essentially, the policy requires MCHC Group companies to recognize the fundamental importance of information security assets and to ensure information security. We are committed to maintaining and managing information security systems more effectively throughout the MCHC Group. That is why we have set up the MCHC Group Information System Security Administration Committee, headed by the executive officer in charge of information systems at the Group Synergy Office, and have appointed managers to oversee information system security at all of the MCHC Group companies.
We require all MCHC Group employees, including those based overseas, to comply with our Information Security Policy and related regulations, and disseminate them via regular educational and awareness programs.
