In addition to the General Meeting of Shareholders, Board of Directors, Audit & Supervisory Board and accounting auditors required by law, Canon Inc. has further strengthened its corporate governance through careful deployment of executive officers and the adoption of an independent internal auditing structure.
As a horizontal organization that includes worldwide Group companies, management committees are established to address important management issues, and serve a mutual-check function complementing our system of products operations.
Corporate Governance Structure (As of April 1, 2013)
- *1Management Strategy Committee
Deliberates on capital investment and other key issues by receiving reports from executives on the current status of their operations and discussing problems, solutions, and future directions.
- *2New Business Development Committee
Meets to approve or reject new business proposals and monitor newly formed business while also deliberating business continuation, including existing business.
Board of Directors
Important management decisions are discussed and ratified at meetings of the Board of Directors and the Executive Committee with all directors in attendance as a general rule. As of April 1, 2013, Canon's Board consists of 21 members. We believe that familiarity with current on-site conditions is integral to more effective and efficient decision-making. Accordingly, the company does not presently appoint outside directors. This management structure has functioned effectively for Canon since its establishment, as evidenced by the company's steady development.
Executive Officer System
Timely, appropriate decision-making and efficient business activities are vital issues for Canon as it pursues its basic strategies of diversification and globalization.
To this end, Canon Inc. introduced an executive officer system in 2008 to maintain an adequately scaled Board of Directors while allocating the execution of duties to executive officers appointed for their significant knowledge of the business. The objective is to create a managerial structure that can respond appropriately to business expansion and globalization through strengthened executive functions. As a result, we have created a system in which directors can focus more attention on management and supervision than before. We currently have 15 executive officers (as of April 1, 2013).
Audit & Supervisory Board
As of April 1, 2013, there are five members on Canon Inc.'s Audit & Supervisory Board, three of whom are outside Audit & Supervisory Board members. We have reported to the stock exchanges of Tokyo, Osaka, Nagoya, Fukuoka, and Sapporo that each of the three outside Audit & Supervisory Board members is an independent auditor according to the rules of each exchange.
In addition to auditing the execution of duties by directors, the Audit & Supervisory Board members audit the execution of duties by the executive officers and the presidents of Group companies in Japan and overseas. To verify that decision-making is being conducted in an appropriate manner, the Audit & Supervisory Board members attend meetings of the Board of Directors, the Executive Committee and the Management Strategy Committee. They also verify the execution of duties through on-site auditing, inspect resolution and approval documents, and otherwise fulfill a broad range of duties relating to corporate governance.
In addition, the Audit & Supervisory Board complies with pertinent Japanese laws and supervises the appropriateness of audits by the Accounting Auditors and the compliance system. Moreover, as Canon Inc.'s shares are listed on the New York Stock Exchange, the Audit & Supervisory Board is also obligated to monitor the independence of the Accounting Auditors in accordance with the Sarbanes-Oxley Act.*
To support the activities of the Audit & Supervisory Board members, including the outside Audit & Supervisory Board members, Canon has established an Office of Audit & Supervisory Board Members and placed the required number of dedicated staff at their disposal.
- *Sarbanes-Oxley Act
Passed into U.S. law in July 2002 following a series of corporate accounting scandals, the law aims to restore investor trust in the stock markets by strengthening the effectiveness of corporate governance and reinforcing the independence of auditing boards and independent auditors, while adding new penalties for corporate management in the event of accounting misconduct.
- * Procedures for the Submission of Complaints or Concerns under the U.S. Sarbanes-Oxley Act of 2002
Cooperation with the Accounting Auditors and the Internal Auditing Division
The Audit & Supervisory Board works closely with the Accounting Auditors and the internal auditing division to ensure the effectiveness of auditing and supervision.
At the beginning of the year the Accounting Auditors submit summaries of the auditing plans and reports on the main auditing items to the Audit & Supervisory Board, which examines them and comments on their validity. The Audit & Supervisory Board also engages in discussions with the Accounting Auditors concerning the audit results, as well as such matters as risk evaluation and the operation of the internal control system from the standpoint of the Accounting Auditors. Furthermore, in addition to conducting onsite audits, attending audit reviews, and taking accounting audit and internal control audit reports from the Accounting Auditors, the Audit & Supervisory Board also receives detailed explanations of the audit quality control system so as to determine its validity. Also, pre-approval regulations are stipulated relating to contracts between Group companies and the Accounting Auditors, and after pre-contract discussions, an approval system is strictly enforced.
At the beginning of the year the internal auditing division submits the internal auditing plans and reports on the main internal auditing items to the Audit & Supervisory Board for preliminary confirmation. After the internal auditing has been conducted, the internal audit division reports to the Audit & Supervisory Board on such items as the internal control system, quality control, environmental conservation, and security. In addition, the chief of internal audits (Corporate Audit Center) holds monthly meetings with Audit & Supervisory Board members, reporting on auditing finds as necessary.
Canon Inc. contracts accounting auditors to conduct external audits of the company's financial statements in accordance with the Companies Act and the Financial Instruments and Exchange Law of Japan. An audit of internal controls is also conducted in accordance with the Financial Instruments and Exchange Law and the Sarbanes-Oxley Act.
In 2012 (the 112th term), the accounting auditor expressed unqualified opinions on Canon's financial statements and its internal control.
Upgrading and Expanding the Internal Auditing Structure
With more than 60 years of history, the Corporate Audit Center, which comes under the direct supervision of the president, has been an integral part of Canon Inc.'s internal auditing division since its establishment in 1951. In accordance with management's recognition of the importance of strengthening the internal audit structure and increasing the effectiveness of governance, Canon has since 2002 been working to strengthen and expand the internal auditing structure.
The Corporate Audit Center comprises knowledgeable members drawn from a broad range of fields, spanning from planning and development through production and marketing, and as of January 1, 2013, the Center consists of five departments with 70 employees in total. Aiming to expand the quality and scope of audits, the Corporate Audit Center is in the process of bringing the number of staff to 100. Education and training programs for new members are being enhanced, and plans call for the addition of 10 more staff members, bringing the total to 80, by the end of 2013.
While focusing primarily on Canon Inc. and Group manufacturing/R&D companies worldwide, the Corporate Audit Center has authority to audit all areas of business without exception, including Group companies both in Japan and overseas. The Center took particular care concerning Group companies outside Japan in 2012, conducting audits of five Group companies in total, including three manufacturing companies in China, and one service company and one sales company in Korea.
Internal Audit Implementation Status
In its bid to link internal auditing with increased corporate value, the Corporate Audit Center conducts an array of audits, including management audits, operations audits, accounting audits, IT system audits and compliance audits, and undertakes improvements based on its findings. To confirm the actual implementation of these improvements, a series of rolling follow-ups have been carried out, using a combination of document and field auditing methods. Additionally, auditing plans are drafted by the chief of the Corporate Audit Center and approved by the president before execution.
During 2012, the Center put 125 auditing themes into practice, and issued more than 1,800 improvement recommendations. In addition to the previous goal of "improving the effectiveness of internal control," a new goal of "contributing to improvements in operational efficiency" was also added, with new auditing themes including "management of outsourcing/management conditions audit" and "quality risk management/management conditions audit."
All audit results are reported directly to the chairman, president, executive vice president, Audit & Supervisory Board, and the chief of the department being audited with the aim of facilitating improvements.
Audits related to such fields as product quality, environmental conservation, and security are carried out by the Corporate Audit Center in cooperation with the relevant control division.
Strengthening Internal Control Auditing
In addition to the above-mentioned themed audits, the Corporate Audit Center annually conducts internal control audit for compliance with the Sarbanes-Oxley Act to ensure the reliability of financial reporting. During the execution of internal control audits, each division conducts a self-assessment, which is followed by a supplementary audit by the Corporate Audit Center to verify its conclusions, leading to the realization of "self-contained internal control."
In 2009, the Center also began conducting expanded audits beyond confirmation of the reliability of financial reports. These Expanded Range Internal Control Audits cover the overall condition and application of the internal control structure from the perspective of the effectiveness and efficiency of work and legal compliance.
Canon has continued with Expanded Range Internal Control Audits, conducting such audits at one Canon Inc. division headquarters and one product operation, as well as at four Group companies, in 2012. In addition, entity-level audits were conducted at three Group companies.
|Corporate Audit Center||Auditing of management functions, operations, accounting, IT systems, compliance, and internal controls to comply with the Sarbanes-Oxley Act|
|Global Logistics Management Center||On-site diagnosis of security trade control at Canon Group companies located in and outside Japan|
|Global Environment Center||Examination of operation status of environmental management systems|
|Facility Management Headquarters||Examination of safety management structures, such as premises security, hazardous materials and chemical substance management|
|Human Resources Management & Organization Headquarters||Auditing of the introduction and operational status of the occupational safety and health management system|
|Information & Communication Systems Headquarters||Internal checks to ensure security of information, including internal IT|
|Quality Management Headquarters||Examination of quality assurance activities based on the Quality Management System|
|Global Procurement Headquarters||Examination of compliance, effectiveness and efficiency in procurement|
Corporate Ethics and Compliance Committee
The Corporate Ethics and Compliance Committee, comprised of Canon Inc. board members and executives, convenes every quarter to discuss and approve corporate ethics and compliance policies and measures. Audit & Supervisory Board members attend these meetings as observers.
At one of the quarterly meetings each year, the Committee invites the presidents of Canon's regional marketing headquarters worldwide as well as Group manufacturing companies worldwide to attend an Expanded Corporate Ethics and Compliance Committee Meeting with the aim of improving compliance awareness throughout the Group. At this meeting, compliance policies and measures are discussed and approved, and there is exchange of information concerning such matters. There were 90 participants at the 2012 Expanded Corporate Ethics and Compliance Committee Meeting, which focused on strengthening Canon Group compliance and company values.
Internal Control Committee
The Internal Control Committee, chaired by the president and attended by all directors and Group company presidents, oversees the internal control structures and activities for the Group.
The committee ensures reliable financial reporting in accordance with Article 404 of the Sarbanes-Oxley Act and Article 24and 193 of the Financial Instruments and Exchange Law of Japan. It also pursues effectiveness and efficiency in business, including compliance to related laws, regulations and internal rules with the objective of promoting a sustainable Group internal control structure.
During 2012, the seventh year under the Sarbanes-Oxley Act and the fourth year for the Financial Instruments and Exchange Law, we attained a positive assessment on the validity of internal controls with relation to ensuring the reliability of financial reporting. The Internal Control Committee, in cooperation with Group companies, will continue to strengthen and improve internal controls across the Canon Group including those in response to the Sarbanes-Oxley Act and the Financial Instruments and Exchange Law.
The president of Canon Inc. chairs the Disclosure Committee, which is responsible for making decisions regarding the necessity, content and timing of disclosure. Its objective is to achieve the timely, accurate and comprehensive disclosure of the company's material information in accordance with related laws, regulations and the rules of stock exchanges.
Financial information (earnings summaries, etc.), occurrences (occurrences significant in terms of their relationship to the company's business operations or properties), and other details requiring timely disclosure are reported to the Committee by the person in charge of the disclosure working group at each division headquarters.
Compensation for directors at Canon Inc. comprises "basic compensation," which is based on fulfillment of duties, and an "executive bonus," which is tied to company performance each year. Additionally, directors may be presented with stock options as a medium- to long-term incentive. Remuneration for Audit & Supervisory Board members, however, consists only of basic compensation and is not tied to company performance.
The maximum limits of basic compensation for directors and Audit & Supervisory Board members are set by vote at the general meeting of shareholders. Remuneration for individual directors and Audit & Supervisory Board members is decided by meeting of the Board of Directors or by meeting of the Audit & Supervisory Board, respectively.
Bonuses are calculated according to company performance, with the total amount presented to the general meeting of shareholders for approval. Once the total amount is determined, bonuses for individual directors are decided by the board of directors based on rank and individual achievement.
Stock options are issued in order to increase motivation and morale. Proposals are tendered to the general meeting of shareholders and, if approved, stock options are issued.
|Directors||Audit & Supervisory
(exc. outside Audit &
Supervisory Board members)
|Outside Audit &
|No. of officers||23||3||3|
- *The retirement bonus system for directors was abolished as of the close of the 112th general meeting of shareholders, held on March 28, 2013.
- *No. of officers include those retiring midterm.