Corporate Governance report on companies of Japan 1.Honda 2.Toyota 3.Mitsubishi Corporation Submitted by- SECTION B Group 3: Chandrashekhar Jindal Kanumuri Rajshekhar Raunak Vasandani Advait Bhobe Sangram Korekar
HONDABased on its fundamental corporate philosophy, Honda is working to enhance corporateBased on its fundamental corporate philosophy, Honda is working to enhance corporategovernance as one of its most important management issues. Our aim is to have ourcustomers and society, as well as our shareholders and investors, place even greater trustin us and to ensure that Honda is a company that society wants to exist.Corporate Governance Practices Followed by Honda 1. For Japanese companies that employ a corporate governance system based on a board of corporate auditors (the “board of corporate auditors system”), including Honda, Japans Company Law has no independence requirement with respect to directors. The task of overseeing management and, together with the accounting audit firm, accounting is assigned to the corporate auditors, who are separate from the companys management and meet certain independence requirements under Japans Company Law. In the case of Japanese companies that employ the board of corporate auditors system, including Honda, at least half of the corporate auditors must be “outside” corporate auditors who must meet additional independence requirements under Japans Company Law. An outside corporate auditor is defined as a corporate auditor who has not served as a director, accounting councilor, executive officer, manager, or any other employee of the company or any of its subsidiaries. Currently, Honda has three outside corporate auditors which constitute 60% of Hondas five corporate auditors. 2. Like a majority of Japanese listed companies, Honda employs the board of corporate auditors system as described above. Under this system, the board of corporate auditors is a legally separate and independent body from the board of directors. The main function of the board of corporate auditors is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company: to monitor the performance of the directors, and review and express an opinion on the method of auditing by the companys accounting audit firm and on such accounting audit firms audit reports, for the protection of the companys shareholders. 3. Japanese companies that employ the board of corporate auditors system, including Honda, are required to have at least three corporate auditors. Currently, Honda has five corporate auditors. Each corporate auditor has a four year term. In contrast, the term of each director of Honda is one year. 4. With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees, Honda relies on an exemption
under that rule which is available to foreign private issuers with boards of corporate auditors meeting certain criteria. 5. Hondas directors are elected at a meeting of shareholders. Its Board of Directors does not have the power to fill vacancies thereon. Hondas corporate auditors are also elected at a meeting of shareholders. A proposal by Hondas Board of Directors to elect a corporate auditor must be approved by a resolution of its Board of Corporate Auditors. The Board of Corporate Auditors is empowered to request that Hondas directors submit a proposal for election of a corporate auditor to a meeting of shareholders. The corporate auditors have the right to state their opinion concerning election of a corporate auditor at the meeting of shareholders. 6. Maximum total amounts of compensation for Hondas directors and corporate auditors are proposed to, and voted on, by a meeting of shareholders. Once the proposals for such maximum total amounts of compensation are approved at the meeting of shareholders, each of the Board of Directors and Board of Corporate Auditors determines the compensation amount for each member within the respective maximum total amounts. 7. Currently, Honda does not adopt stock option compensation plans. If Honda were to adopt such a plan, Honda must obtain shareholder approval for stock options only if the stock options are issued with specifically favorable conditions or price concerning the issuance and exercise of the stock options.Group governance system• Behavioral guidelinesThe Honda Conduct Guidelines, formulated to guide the behavior of all employees, is posted onthe Honda Worldwide website. In addition, each division produces more detailed behavioralguidelines according to its specific attributes.• Self-assessment checklistEach division approaches compliance and risk management in a systematic way. For example,each division has a checklist that clarifies specific laws and risks to consider related to itsparticular business, and conducts regular self-assessments. The results of such assessments arereported to the director in charge of each division, and the overall status of compliance and riskmanagement is evaluated regularly by the Management Council.
HONDA has different sections which take care of CorporateGovernance:Compliance systemHonda has appointed a Compliance Officer, who is a director in charge of compliance-relatedinitiatives. Other key elements of our compliance system include the Business Ethics Committeeand the Business Ethics Improvement Proposal Line.• Business Ethics CommitteeHonda’s Business Ethics Committee is chaired by the Compliance Officer and consists ofdirectors and corporate officers. The Committee deliberates matters related to corporate ethicsand compliance. It met four times in fiscal 2006.
• Business Ethics Improvement Proposal OfficeHonda places high priority on open communications. It has also set up the Business EthicsImprovement Proposal Office to receive suggestions related to corporate ethics issues. Bydevising appropriate responses to suggestions received, Honda is constantly working toenhance corporate ethics. The system is designed to ensure the protection of those whoprovide information, who can either use their real name or remain anonymous. The BusinessEthics Committee supervises the operation of the Business Ethics Improvement Proposal Lineand submits status reports to the Board of Corporate Auditors.Risk management systemEach division works to address and mitigate its particular set of risks. In addition, the HondaCrisis Response Rules are designed to address company-wide crises, such as major naturaldisasters. Honda has appointed a Risk Management Officer, who is a director in charge of riskmanagement-related initiatives. It has also established the Company-Wide ResponseHeadquarters to address crisis situations.Storage and management of information on execution of business by directorsDocuments and other information related to the execution of business by directors are storedand managed appropriately, according to the document management policies of Honda MotorCo., Ltd. and its affiliates.Business auditsThe Audit Office is an independent supervisory department under the direct control of thePresident. This office audits the performance of each department and works to improve theinternal auditing of affiliates.Disclosure CommitteeThe Disclosure Committee, which consists of members of the Board of Directors, deliberatesmatters related to the accuracy and appropriateness of corporate information to be disclosedin business results announcements and financial reports.CORPORATE GOVERNANCE PROGRESS FOR YEARS
TOYOTA CORPORATIONToyota Motor Corporation abbreviated TMC, is a Japanese multinational automakerheadquartered in Toyota, Aichi, Japan. In 2010, Toyota employed 300,734 people worldwide,and was the third largest automobile manufacturer in 2011 by production behind GeneralMotors and Volkswagen AG Toyota is the eleventh largest company in the world by revenue. InJuly 2012 the company reported that it had manufactured its 200 millionth vehicle.The company was founded by Kiichiro Toyoda in 1937 as a spinoff from his fathers companyToyota Industries to create automobiles. Three years earlier, in 1934, while still a department ofToyota Industries, it created its first product, the Type A engine, and, in 1936, its first passengercar, the Toyota AA. Toyota Motor Corporation group companies are Toyota (including the Scionbrand), Lexus, Daihatsu and Hino Motors along with several "non-automotive" companies. TMCis part of the Toyota Group, one of the largest conglomerates in the world.Toyotas headquarters in Toyota city, Japan.The Perspective of Corporate Governance in Toyota. Toyota Industries strives to enhance the long-term stability of its corporate valueand maintain societys trust by earnestly fulfilling its CSR commitments in accordance with itsBasic Philosophy. To that end, Toyota Industries strives to enhance its corporate governance based
on the belief that maintaining and improving management efficiency and the fairness andtransparency of its corporate activities is of utmost importance. Specifically, Toyota has introduced a unique management system focused onprompt decision making for developing our global strategy and speeding up operations.Furthermore, Toyota has a range of long-standing in-house committees and councilsresponsible for monitoring and discussing management and corporate activities from theviewpoints of various stakeholders to ensure heightened transparency and the fulfilment ofsocial obligations. Toyota has a unique corporate culture that places emphasis on problem solvingand preventative measures. Toyotas approach is to build in quality through manufacturingprocesses, enhancing the quality of everyday operations and consequently strengtheningcorporate governance. Toyotas management team and employees conduct operations andmake decisions founded on that common system of checks and balances and on high ethicalstandards.Toyota Industries has adopted a board of corporate auditors system. Two full-time corporate auditors and three outside corporate auditors attend meetings of the Board of Directors to monitor the execution of duties by directors. At the same time, meetings of the Board of Corporate Auditors are held once a month to discuss and make decisions on important matters related to auditing. The full-time
corporate auditors carry out auditing by attending primary meetings and receiving reports directly from directors. We have assigned dedicated personnel, while corporate auditors monitor the legality and efficiency of management through collaboration with independent auditors and the Audit Department. As a publicly listed company, Toyota Industries strives to ensure the fairness and transparency of management. Following the Securities Listing Regulations stipulated respectively by the Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya Stock Exchange, we designated as independent auditors two outside auditors who have no conflicts of interest with our shareholders to further enhance our corporate governance.Aiming to Steadily Increase Corporate Value over the Long TermToyotas top management priority is to steadily increase corporate value over the long term. Inorder to achieve that, Toyota builds favourable relationships with all of its stakeholders,including shareholders, customers, business partners, local communities and employees. Weare convinced that providing products that fully cater to customer needs is essential to achievestable, long-term growth. Given this situation, Toyota is seeking to strengthen its corporategovernance through various policies in order to further enhance its competitiveness as a globalcorporation.Toyotas Management System - Systems for Ensuring Appropriate ManagementIn the current managerial system, introduced in 2003, the Chief Officers, who are directors,serve as the highest authorities of their specific operational functions across the entirecompany, while non-board Managing Officers implement the actual operations. The distinctivefeature of this system is that based on Toyotas philosophy of emphasizing developments onthe site, the Chief Officers serve as the link between management and on-site operations,instead of focusing exclusively on management.This system enables the management to make decisions directly with on-site operations, byreflecting on-site personnel opinions on management strategy and swiftly implementingmanagement decisions into actual operations.To monitor the management, Toyota has adopted an auditor system that is based on theJapanese Corporation Act.In order to increase transparency of corporate activities, four of Toyotas seven corporateauditors are external auditors.As a system to ensure appropriate management, Toyota has convened meetings of its"International Advisory Board (IAB)" annually since 1996. The IAB consists of approximately 10distinguished advisors from overseas with backgrounds in a wide range of fields, includingpolitics, economics, the environment, and business. In 2011, we established Regional AdvisoryCommittees in major regions, such as North America, Europe and Asia, and receive advice ondiverse business issues from a global perspective.
Under the basic policies established in May 2006, Toyota implements an internal control systemwhile conducting necessary enhancements. Responding specifically to a series of quality issuesthat caused anxiety for Toyota customers, it established the "Toyota Special Committee forGlobal Quality" in March 2010 and the “Risk Management Committee in June 2010.Basic Approach to Internal ControlsAn internal control system has been developed under the following basic policies organized inMay 2006. Fundamental ApproachDraw out the good will, enthusiasm, and autonomous decision-making abilities of the peoplewho perform work, based on the idea of "respect for people" Establish structures within the work processes carried out by people and organizations that incorporate internal controls and establish checks and balances as well as management and oversight by directors Establish inter-departmental organizations to supplement internal controlsBasic Policy 1. Legal compliance by Directors 2. Retention and management of information relating to the execution of responsibilities by Directors 3. Regulations and other systems related to the management of risk of losses 4. Efficiency of execution of responsibilities by Directors 5. Legal compliance by employees 6. Appropriateness of the business operations of the group 7. Employees assisting the Corporate Auditors 8. Independence of employees described in the preceding item (7) 9. Report to Corporate Auditors 10. Ensure the efficient execution of audits by the AuditorsTMC’s Basic Policy on Corporate Governance and Capital Structure, Business Attributes andOther Basic Information
Basic PolicyTMC has positioned the stable long-term growth of corporate value as a top-prioritymanagement issue. We believe that in carrying this out, it is essential that we achieve long-term and stable growth by building positive relationships with all stakeholders, includingshareholders and customers as well as business partners, local communities and employees,and by supplying products that will satisfy our customers. This position is reflected in the“Guiding Principles at Toyota”, which is a statement of TMC’s fundamental business policies.Also, TMC adopted and presented the CSR Policy “Contribution towards SustainableDevelopment”, an interpretation of the “Guiding Principles at Toyota” that organizes therelationships with its stakeholders. We are working to enhance corporate governance through avariety of measures designed to further increase our competitiveness as a global company.
Mitsubishi CorporationCorporate Governance practiced by Mitsubishi MCs corporate philosophy is enshrined in the Three Corporate Principles-corporate responsibility to society, integrity and fairness, and Global Understanding through Business. Through corporate activities rooted in the principles of fairness and integrity, Mitsubishi Corporation strives to continuously raise corporate value. The Company believes that by helping to enrich society, both materially and spiritually, it will also meet the expectations of shareholders, customers and all other stakeholders. A key management theme in achieving these goals is to strengthen corporate management on an ongoing basis, as the foundation for ensuring sound, transparent and efficient management. MC is thus working to build a corporate governance system, based on the Corporate Auditor System that is even more effective. To this end, the Company has employed various measures, including the further separation of management and execution by introducing the executive officer system, as well as the enhancement of supervision by appointing a total of eight outside directors and outside corporate auditors (five outside directors and three outside corporate auditors) who meet the requirement to act as independent director or auditor. MC is committed to strengthening its corporate management system through the ongoing development of effective corporate governance that is both sound and transparent. We also work to continually upgrade and reinforce our compliance system in order to ensure that we conduct business in a manner which is legal and fair With respect to outside directors, MC has established selection criteria for outside directors and outside corporate auditors to clarify the roles and selection policy for
these directors and corporate auditors. Currently, five out of 12 directors are outside directors selected in accordance with these standards and involved in management from an external perspective. MC also has a Governance & Compensation Committee and an International Advisory Committee as advisory bodies to the Board of Directors. These committees are made up mostly of outside directors and corporate auditors as well as other experts from outside the Company. The Governance & Compensation Committee conducts continuous reviews of corporate governance-related issues at the Company and also discusses the remuneration system for directors and corporate auditors, including the policy for setting remuneration and appropriateness of remuneration levels for these corporate officers, and monitors operation of this system. The International Advisory Committee holds discussions on management issues and advises the Company management from a global perspective. The five corporate auditors, including three outside corporate auditors, utilize staff members of the Corporate Auditors Office, which is under their direct control, in conducting their audits. At the same time, the corporate auditors attend meetings of the Board of Directors and other important meetings and hold discussions with internal departments, including important offices in Japan and overseas, as well as visit main subsidiaries that are important from the perspective of Group management to conduct audits. Regarding internal audits, the Internal Audit Dept. conducts audits of the Company, overseas regional subsidiaries and affiliated companies from a Company-wide perspective. These internal audits are conducted after selecting audit targets and are based on annual audit plans. The results of audits are reported to the president, corporate auditors and other concerned parties as well as regularly to the Board of Directors and the Executive Committee. In addition, each business group has established its own internal audit organization and, based on objectives that have been set-to suit, as necessary, the specific group characteristics, these organizations audit the operations that fall under their respective group’s organization.Selection Criteria for Outside Directors and Outside Corporate AuditorsSelection Criteria for Outside Directors 1. Outside directors are elected from among those individuals who have an eye for practicality founded on a wealth of experience as corporate managers, as well as an objective and specialist viewpoint based on extensive insight regarding global conditions and social and economic trends. Through their diverse perspectives, outside directors
help ensure levels of decision-making and management oversight appropriate to the Board of Directors. 2. To enable outside directors to fulfill their appointed task, attention is given to maintaining their independent stance; individuals incapable of preserving this stance will not be selected to serve as outside directors. 3. MC operations span a broad range of business domains; hence there may be cases of conflict of interest stemming from business relationships with firms home to the corporate managers appointed as outsider directors. MC copes with this potential issue through the procedural exclusion of the director in question from matters related to the conflict of interest, and by preserving a variety of viewpoints through the selection of numerous outside directors.Selection Criteria for Outside Corporate Auditors 1. Outside corporate auditors are selected from among individuals possessing a wealth of knowledge and experience across various fields that is helpful in performing audits. Neutral and objective auditing, in turn, will ensure sound management. 2. To enable outside corporate auditors to fulfill their appointed task, attention is given to maintaining their independent stance; individuals incapable of preserving this stance will not be selected to serve as outside corporate auditors.Compliance Compliance, which is defined as acting in compliance with laws and regulations and inconformity with social norms, is regarded as a matter of the highest priority in conductingbusiness activities. MC has formulated a Code of Conduct for all officers and employees, whichspecifies basic matters in relation to compliance. Efforts are made to ensure that all officers andemployees are familiar with the Code of Conduct and that the Companys corporate philosophyis understood and practiced. To promote compliance, MC has established a cross- organizational framework headedby the Chief Compliance Officer. MC is also taking preventive and corrective measures such asoffering training regarding various laws and regulations and has established a dedicatedcompliance organization. Regarding the status of compliance, in addition to a framework for receiving reportsfrom all organizations throughout the Company, MC has established an internal whistleblowersystem. Through these structures and systems, MC identifies problems and shares information.Regular reports are also made to the Board of Directors on the status of compliance.
Risk Management Regarding risks associated with business activities, MC has designated categories of risk-such as credit, market, business investment, country, compliance, legal, informationmanagement, environmental, and natural disaster-related risks-and has establisheddepartments responsible for each category. MC also has in place policies, systems andprocedures for managing risk. Furthermore, MC responds to new risks by immediatelydesignating a responsible department to manage such risks. With respect to individual projects, the person responsible for the applicabledepartment makes decisions within the scope of their prescribed authority after analyzing andassessing the risk-return profile of each project in accordance with Company-wide policies andprocedures. Projects are executed and managed on an individual basis in accordance with thisapproach. In addition to managing risk on an individual project basis, MC assesses risk for theCompany as a whole with respect to risks that are capable of being monitored quantitativelyand manages these risks properly, making reassessments as necessary. Management and Storage of Information Regarding information related to business activities, personnel responsible for managingbusiness activities classify information individually in accordance with its degree of importance.These individuals also instruct users on the handling of this information. The aim is to ensureinformation security while promoting efficient administrative processing and the sharing ofinformation.
Responsible personnel store for a predetermined period documents that must be storedby law and information that the Company specifies as important in terms of internalmanagement. For all other information, responsible personnel determine the necessity andperiod for storage of information and store such information accordingly. Ensuring Proper Business in Group Management MC specifies a responsible department for the oversight of each subsidiary and affiliateand quantitatively monitors business performance, management efficiency and otheroperational aspects of each company every year. Efforts are also made to monitor qualitativeissues such as compliance and risk management. MC strives to ensure proper business conduct by subsidiaries and affiliates by sendingdirectors to sit on their boards, executing joint venture agreements, exercising its voting rightsand in other ways. In this way, and through various initiatives designed to sustain growth ateach company, MC aims to raise corporate value on a consolidated basis. Auditing and Monitoring Each organization takes responsibility for reviewing and improving its business activitieson a regular basis. In addition, to more objectively review and evaluate the business activities ofeach organization, MC conducts regular audits through an internal audit organization. Corporate Auditors Corporate auditors attend and express opinions at meetings of the Board of Directorsand other important management meetings. In addition, corporate auditors gather informationand conduct surveys, keeping channels of communication open with directors, employees andothers who cooperate with these efforts. If there is a risk of a certain level of financial loss or a major problem, the personresponsible for the department concerned is required to immediately report to corporateauditors in accordance with predetermined standards and procedures. To raise the effectiveness of audits conducted by corporate auditors, personnel areappointed to assist corporate auditors in carrying out their duties. Mindful of the need forindependence, the opinions of corporate auditors are respected and other factors taken intoconsideration when evaluating and selecting people to assist them. Financial Reporting To ensure the proper and timely disclosure of financial statements, MC appointspersonnel responsible for financial reporting and prepares financial statements in conformitywith legal requirements and accounting standards. These financial statements are releasedafter being discussed and confirmed by the Disclosure Committee and then obtaining theapproval of the Board of Directors.
Regarding the internal controls over financial reporting, MC conducts internal controlactivities and monitors internal controls in accordance with the internal control reportingsystem based on the Financial Instruments and Exchange Act of Japan. The Company developsactivities on a Group-wide basis to ensure the effectiveness of internal controls.