Corporate Governance/Compliance

Response to Japan’s Corporate Governance Code

With the goal of achieving sustainable growth and increasing our mid- to long-term corporate value, since the Tokyo Stock Exchange established the Corporate Governance Code in 2015, TS TECH has endeavored to strengthen its own governance system while keeping it aligned with the intent and spirit of the Code.

When the Code was revised in December 2018, we reviewed and revised the content disclosed in our corporate governance reports. We have currently adopted an “explain” approach with regard to Supplementary Principle 4.10.1 (Use of Optional Approach) and are in compliance with all other codes.

In regard to Supplementary Principle 4.10.1, although less than half of TS TECH’s directors are outside directors, we endeavor to ensure the transparency and objectivity of the decision-making process when appointing directors and making decisions on compensation and other matters. These matters are discussed by the Executive Committee with monitoring by full-time auditors, and decisions are made at Board of Directors’ meetings after outside directors have been briefed and their opinions heard.

At present, this system is functioning effectively, and we thus have no urgent plans to establish voluntary committees, but TS TECH will continue to actively work to strengthen its governance system in line with the Code’s intent.

Group Governance System

The TS TECH Group has established a sound corporate governance system. It includes sharing the TS TECH Philosophy, a policy on corporate governance, and a three-year medium-term management plan throughout the Group. Affiliated companies also have their own effective, efficient corporate governance systems that are based on the laws of their respective countries and their respective businesses.

Important management issues at affiliated companies must be reported to and approved by TS TECH in advance based on the standards stipulated by TS TECH. Affiliated companies must also report business plans, sales results, and financial status as well.

Furthermore, affiliated companies participate in routine compliance and risk verification measures known as the TSCG self-verification system. This ensures that the entire TS TECH Group acts as one in promoting compliance and reducing risk. TS TECH’s internal audit department conducts audits of affiliated companies and works with internal audit departments set up at the head offices in each region to enhance the internal audit structure of the entire TS TECH Group.

Governance System Diagram

❶ Board of Directors The Board of Directors comprises 14 directors, including two outside directors. It convenes at least once per month in principle. The Board of Directors makes decisions regarding management policies, important management issues, and matters mandated by laws and regulations. It also supervises the execution of the company’s operations.
The outside directors are elected based on their wealth of professional experience because they will be consulted regarding management policies and important company decisions.
❷ Executive Committee It comprises the company’s three representative directors. It conducts preliminary deliberations on such matters as resolutions to be put to the Board of Directors, and, within the scope of the authority assigned to it by the Board of Directors, discusses important matters relating to the execution of the duties of the directors.
❸ Executive General Managers Committee The Executive General Managers Committee is made up of nine executive general managers. This Committee discusses policies, plans, and governance related to operations in each division to maintain efficient operations.
❹ Regional Management Committees These committees consist of directors and presidents of subsidiaries and affiliated companies in our three business regions of the Americas, China, and Asia and Europe.
They deliberate on important matters affecting management in their respective regions, as well as measures to promote the independence of these regions and companies and to strengthen the system for the execution of operations.
❺ Board of Auditors It comprises four members, including two outside corporate auditors. Each corporate auditor audits the directors’ execution of duties in accordance with the audit policy determined by the Board of Auditors through attendance at important meetings such as meetings of the Board of Directors, various examinations, and the regular exchange of opinions with the directors.
Outside corporate auditors are elected to utilize their professional experience outside of TS TECH and to make audit functions even more objective and independent.

Appointments of Outside Directors

Name Reason for Appointment
Shizuo Kitamura Mr. Kitamura’s extensive experience at financial institutions and a wide range of knowledge and high level of insight as a corporate manager at other companies qualify him to provide advice on our corporate activities and help ensure the soundness of the company. Since we have determined that Mr. Kitamura has not at any time shared any business or fiduciary interests with the Group and that his appointment poses no risk of conflict of interest with shareholders, he was selected to serve as an Outside Director.
Teruyasu Mutaguchi Mr. Mutaguchi’s abundant experience as a corporate manager of a manufacturing company qualifies him to provide valuable insight and advice related to our management practices and help ensure the soundness of the company. Since we have determined that an appointment of Mr. Mutaguchi poses no risk of conflict of interest with shareholders, he was selected to serve as an Outside Director.

Appointments of Outside Auditors

Name Reason for Appointment
Tatsuya Motoda Mr. Motoda’s specialized knowledge and abundant experience as a tax accountant will enable him to monitor the company’s management from an independent and objective perspective and help ensure the soundness of the company and strengthen its auditing system. Since we have determined that an appointment of Mr. Motoda poses no risk of conflict of interest with shareholders, he was selected to serve as an Outside Auditor.
Akira Kawashita Mr. Kawashita’s broad knowledge and insight achieved through many years of experience with financial institutions and work as a corporate manager at other companies will enable him to help ensure the soundness of the company and strengthen its auditing system. Since we have determined that Mr. Kawashita has not at any time shared any business or fiduciary interests with the Group and that his appointment poses no risk of conflict of interest with shareholders, he was selected to serve as an Outside Auditor.

Operations of an Internal Control System

With the inclusion of regulations on internal controls in the Companies Act in 2006, TS TECH passed a resolution on the basic policies of its internal control system at a Board of Directors’ meeting held in May 2006. Since then, the Board of Directors has reviewed the implementation of this system each fiscal year and passed resolutions on changes to these policies as necessary at Board of Directors’ meetings.

Additionally, in accordance with the Financial Instruments and Exchange Act, the TS TECH Group has established an internal control system to ensure the reliability of its financial reporting. The effectiveness of this system is maintained by regularly evaluating improvements and operations and taking corrective actions when necessary.

Compliance Framework

Based on the TS TECH Philosophy, the Group established the TS Standards for Conduct—TS TECH’s norms and ideals as an organization—and the TS Guidelines for Conduct— expectations for day-to-day conduct for individual executives, officers, and employees. Education is provided regularly to ensure that all Group employees have a thorough understanding of these policies. In fiscal 2019, the TS Standards for Conduct and the TS Guidelines for Conduct were reorganized from an ESG management perspective as TS TECH’s Code of Conduct, and efforts were made to familiarize the Group with this code.

A director is appointed as a Compliance Officer in order to promote compliance initiatives, and steps are continually taken to prevent legal violations before they occur through regular TSCG self-verifications and deliberations of important ethics and compliance issues by the Ethics and Compliance Committee.

We have established a whistleblower hotline called the TS Corporate Ethics Compliance Consultation Office, which enables employees to bring issues before compliance officers, who respond with rapid, effective investigations and corrective guidance in the event of a problem. The Office handles approximately 15 complaints per year, and its continuous availability has been effective in resolving internal issues and maintaining compliance.

Tax Policies

The TS TECH Group’s tax policy aims to fulfill the appropriate tax obligations and social responsibilities, minimize tax risks while maintaining transparency, and contribute to the development of the communities in which the Group operates. In order to achieve these objectives, the Group has established the TS TECH Group Tax Policy based on the TS Philosophy.

TS TECH Group Tax Policy

  • 1. Tax Governance
  • The Group positions the reinforcement of tax governance as one of the most important management issues. This policy was approved by TS TECH’s Board of Directors, and the Board of Directors bears final responsibility for tax governance.
  • 2. Compliance
  • The Group works to promote and instill awareness of compliance among its employees. This enables the Group to comply with and always ensure the correct understanding of tax laws and regulations, etc., in each country and region in which it operates, and to meet the appropriate tax declaration and tax payment obligations.
  • 3. Tax Planning and Tax Havens
  • The Group will determine investment and business activities according to its business objectives and economic rationality. The Group will avoid tax planning that is not in line with business purposes or operations, as well as tax activities that use tax havens.
  • 4. Transfer Pricing
  • The Group will abide by international tax frameworks such as the OECD Transfer Pricing Guidelines and the Base Erosion and Profit Shifting (BEPS) Action Plan, and will strive to ensure tax transparency. International transactions between Group companies will comply with the OECD Transfer Pricing Guidelines, and transaction prices will be determined based on the arm’s length principle.
  • 5. Minimal Tax Risk
  • The Group will conduct the appropriate accounting and tax measures in accordance with the tax systems and tax administrations of each specific country and region. In the event of complicated, unclear tax matters, the Group will consult in advance with external experts and tax authorities to minimize tax risks.
  • 6. Relationship with Tax Authorities
  • The Group will provide timely, accurate information to tax authorities in each country and region in order to reduce tax risks, and will respond in good faith to maintain trust and good relations.

Risk Management

Important management issues are carefully deliberated upon by TS TECH’s Executive Committee as well as various advisory committees. Through these discussions, TS TECH makes every effort to avoid and mitigate business risks.

In addition, a Risk Management Officer is appointed from among the representative directors and placed in charge of risk management. The Global Risk Management Committee, comprising directors and other officers, has been set up to deliberate regularly on the results of TSCG self-verifications and discuss responses to serious risks affecting management, ensuring that efforts are continually made to mitigate potential risks.

Findings obtained through TSCG self-verifications are shared with internal auditors so that they can be applied in risk approach auditing.

Emergency response training

Risk Map

Global Risk Management Committee

This Committee was formed in September 2014 as an advisory committee for the Executive Committee as a means to appropriately identify and control the various risks affecting global business activities and to solidify the sustainability and stability of business.

In the following year, regional risk management committees were formed in each region to manage the risks specific to these regions and promptly pursue risk mitigation measures.

In fiscal 2019, TS TECH identified seven major risks and pursued risk mitigation measures. These included the risk of natural disasters, which have a major impact on business continuity. TS TECH bolstered its initiatives as a Group and conducted emergency response training that anticipated the most frequently occurring natural disasters in each geographic region of our business.

Risks covered
in training
Japan: Large-scale earthquakes
Americas: Hurricanes
China: Flood damage from typhoons
Asia and Europe: Flood damage from heavy rains
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