Risk Management

Goals and Achievements of Major Initiatives

Objective of initiatives Goals for fiscal year 2017 Achievements in fiscal year 2017 Evaluation Goals for fiscal year 2018
Ensure business continuity for the DIC Group. • Deploy a risk management system that conforms with the risk management policy and reinforce global awareness of the system.
• Promote ongoing Risk Management Subcommittee–led efforts to systematically implement response measures for critical risks, including governance at subsidiaries.
• Promote the ongoing improvement of product division BCPs and encourage communication between product divisions and plants.
• Advance efforts to reinforce the corporate headquarters’ crisis management configuration and promote safety measures overseas.
• A risk management system was deployed and steps were taken to reinforce awareness at Group companies in the Asia–Pacific region and the PRC.
• Efforts were made to encourage the sharing of information and to reinforce cooperation between corporate headquarters in Japan and the Sun Chemical Group, which oversees operations in the Americas and Europe.
• Progress was made in the promotion of Risk Management Subcommittee–led efforts to systematically implement response measures for priority risks, including governance at subsidiaries.
• DIC promoted the ongoing improvement of product division BCPs and encouraged communication between product divisions and sites through visiting BCP lectures, among others.
• The corporate headquarters’ crisis management configuration and
★★★ • Deploy a risk management system that conforms with the risk management policy and reinforce global awareness of the system.
• Promote ongoing Risk Management Subcommitteeled efforts to systematically implement response measures for critical risks, including governance at subsidiaries,
• Encourage the ongoing improvement of product division BCPs and fortify communication between product divisions and sites.
• Advance efforts to reinforce the corporate headquarters’ crisis management configuration and promote safety measures overseas.
  • Evaluations are based on self-evaluations of current progress. Key: ★★★ = Excellent; ★★ = Satisfactory; ★ = Still needs work

Basic Approach to Risk Management

The DIC Group undertakes risk management initiatives with the aim of appropriately and flexibly addressing changes in its operating environment and the diversification of risks, and of swiftly mitigating damage. The Group recognizes risks in three principal categories: externally caused risks that are beyond its control, corporate risks that can be prevented and business risks that should be handled by the relevant divisions/departments. The Risk Management Subcommittee, which is a subordinate committee of the Sustainability Committee, oversees management of these risk responses.

Risk Management Policy

The DIC Group first introduced risk management initiatives in 2001 by creating the Compliance Committee and setting up reporting channels. Following the inauguration of the Risk Management Subcommittee in May 2012, the Group undertook initiatives aimed at responding to serious natural disasters and promoting business continuity management (BCM). Since fiscal year 2014, the Risk Management Subcommittee has focused on establishing a risk management policy and a risk management system, efforts that are designed to further enhance corporate value Groupwide. In a bid to ensure the effective and sustainable implementation of initiatives, in January 2015 the Group introduced a newly formulated risk management policy.

  1. Risk management objectives
  2. The DIC Group undertakes risk management initiatives with the aim of appropriately and flexibly addressing changes in the operating environment and the diversification of risks, and of swiftly mitigating damage.

  3. Definition of risks and risk management
  4. The DIC Group’s definition of risk and risk management is as follows:
    1. Risk: All uncertainties that threaten the DIC Group’s sustainability and business goals.
    2. Risk management: Initiatives to enhance corporate value by managing all risks to the DIC Group from a Groupwide perspective.

  5. Risk management initiatives
  6. 1. The DIC Group comprehensively evaluates all risks based on their potential impact on operations and likelihood of occurring, among others, and prioritizes systematic and effective responses.
    2. The DIC Group constructs and validates risk management systems by repeating the plan–do–check–act (PDCA) cycle.
    3. The Risk Management Subcommittee shares responsibilities with the risk management teams of individual businesses to properly deploy risk measures within the DIC Group. The conference regularly reports on its activities to the Sustainability Committee.

DIC Corporation

Meeting of the Risk Management Subcommittee
Meeting of the Risk Management Subcommittee

Since fiscal year 2016, DIC has encouraged awareness of its risk management policy across the global DIC Group by publishing information on the policy, as well as on risk management initiatives, on its in-house electronic notice board and through the Group’s newsletter, DIC Plaza. In Japan, the Company also seeks to promote and raise awareness through the provision of training to plant general managers and senior executives of domestic Group companies.

Risk Definition and Risk Owners

The DIC Group recognizes risks in three principal categories. The Group manages these risks by clarifying specific risk owners, which are the divisions/depar tments responsible for implementing responses.

Risk Management System

In the process of formulating the risk management policy, the Risk Management Subcommittee established the DIC Group risk management system. This system begins with the distribution to directors of survey questionnaires regarding risks with the potential to interrupt the Group’s businesses. Based on survey results, the subcommittee determines priority risks. Risk management plans are produced and risk response measures implemented, improved and reviewed by executives, thereby completing the PDCA cycle, with the aim of facilitating ongoing risk reduction.
DIC positioned fiscal years 2014–2016 as the inaugural phase of risk management predicated on the new system, with subsequent steps to be repeated annually, leveraging knowledge and experience gained. Based on survey results, the subcommittee determines priority risks. The administrative groups that comprise the subcommittee spearhead the assignment of an owner to each risk and work with related departments to implement response measures. A total of 16 priority risks, including “earthquakes, tsunami, volcanic eruptions” and “currency and interest rate fluctuations,” were identified as risks to be addressed during this phase.
Looking ahead, DIC will continue to promote awareness and dissemination of the risk management policy and the risk management system. To enhance BCM, corporate headquarters will spearhead the preparation of Business Continuity Planning (BCP) Guidelines for lateral deployment across the DIC Group, which will be optimized to account for the situation on the ground in various countries and territories.

Progress of Response Measures as of the End of Fiscal Year 2017

The Risk Management Subcommittee has completed the implementation of risk management plan measures to address 15 of the 16 priority risks, that is, all but “governance at subsidiaries,” which is particularly broad in scale and will thus be carried over. (For details on this risk, please see page 53.) The effectiveness of measures was assessed and an executive review conducted, based on which the designation for all 15 was shifted from “priority” to “routine.” The subcommittee will continue to apply the PDCA cycle, taking decisive steps to further enhance DIC’s ability to manage these risks.
In fiscal year 2017, DIC incorporated materiality into the risk identification process. As a result, the Company identified seven new priority risks to be addressed during the period, all of which have the potential to negatively impact business opportunities and DIC’s growth. Measures were judged to have been completed for three of these risks, which were redesignated “routine.” The Company is currently taking decisive steps to address the remaining four.
A particular focus in fiscal year 2017 was reinforcing measures to promote awareness as a component of efforts to ensure DIC’s ability to fulfill its supply responsibilities in the event of a major natural disaster. To clarify the roles of its corporate headquarters and individual sites and appropriate procedures, as well as to encourage the sharing of information, visiting BCP lectures were held at major sites in Japan. By encouraging the exchange of views between participating product division general managers and general managers/group leaders from production sites, the Company sought to advance understanding of BCPs, as well as to elucidate issues and reinforce responses to ensure business continuity in the aftermath of a disaster.

Examples of Response Measures for Selected Priority Risks (Fiscal Year 2017)

Risk category Possible negative impacts Principle response measures
1.Creation of next-generation businesses Dramatic changes in the external environment of existing businesses and insufficient ability to create new businesses; downsizing/financial difficulties attributable to insufficient management of business portfolio • Analyze current state of business portfolio; assess growth potential and core competencies
• Next-generation businesses: Assess relevance to core competencies, hypothetical markets vs. existing markets and growth expectations, among others
• Create framework; establish system for implementation/program, obtain external assessment and secure human resources
2.Management of chemical substances Production stoppages; suspension of exports; recall of products; payment of damages; decline in reputation due to legal/regulatory violations; weakening of brand image; damage to employee health and resulting litigation • Improve information system: Automate identification of substances subject to regulation; add to regulations considered in identification
• Increase accuracy of information on chemical substances: Integrate management of information on toxicity and properties, secure information processing experts and promote the use of pertinent systems
• Increase accuracy of information on raw materials
• Grasp risks associated with handling: Conduct chemical substance risk assessments
3.Ability to foster and strengthen global human resources Delay in global expansion of businesses; breakdown of efforts to build relationships with customers; decrease in quality, volume and efficiency of work; weakening of cooperation among Group companies; decline in retention rate for young employees • Promote the implementation of measures designed to facilitate the smooth global expansion of businesses outlined in the current medium-term management plan
• Ensure that individuals traveling overseas on business/posted overseas fulfill their assigned missions
• Promote systematic efforts to foster individuals targeted for overseas assignment
• Pool global human resources
4.Optimized global production configuration Significant decline in sales/profits in global markets due to erosion of price competitiveness • Formulate grand design for the optimization of production at domestic facilities
• Design optimal overall production configuration encompassing domestic and overseas facilities
• Reflect measures in the new medium-term management plan
5.Efforts to strengthen global technology development capabilities Loss of opportunities/critical delays in and withdrawal from overseas businesses; decrease in global competitiveness, capacity for business expansion and brand strength • Establish policy for the fostering and deployment of global technical personnel
• Expand the exchange of technologies with the Sun Chemical Group; begin building the technical foundation necessary for the promotion of medium- to long-term business collaboration themes and promoting initiatives
• Commence global management of intangible technical assets
• Promote education on and awareness of the information security policy
• Create technology framework that leverages IT capabilities
6.BCM Loss of commercial opportunities/withdrawal from businesses/decrease in profits of businesses due to ineffective post-disaster execution of BCPs; payment of damages due to failure to fulfill supply obligations; decline in reputation; casualties and negligence in regard to safety • Promote awareness of the DIC Group’s approach to BCM and its BCM manual
• Continue to update product division BCPs annually and provide direction for BCP formulation
• Continue to conduct BCP drills; promote collaboration between product divisions and sites and confirm the effectiveness of individual product division BCPs
7.Governance at subsidiaries Arbitrary management and internal entanglements, inability to address issues properly, and expansion of concerns/losses out of public view attributable to the appointment of incompetent executives, and to insufficient monitoring by the boards of directors, at subsidiaries; frequent problems, difficulties in achieving results targets, and the discovery of scandals and legal violations resulting from insufficient management and operational capabilities • Enhance the visibility of Group governance systems
• Ensure appropriate behavior by subsidiaries’ executives
• Ensure appropriate behavior by subsidiaries’ boards of directors
• Help subsidiaries ensure rational front-line operations

Efforts to Reinforce Safety Measures Overseas

Efforts to Reinforce Safety Measures OverseasSafety training handbook for employees traveling overseas on business/Safety handbook for Company representatives residing overseas

Owing to the expansion of its global operations, the DIC Group is establishing new overseas bases and increasing the number of employees being assigned to overseas posts or traveling overseas on business. With the rising frequency of terrorism, uprisings, kidnappings and other such incidents in various locations, the Group is reinforcing safety measures designed to help employees evade danger. These include taking steps to advance awareness among related individuals and reinforce the corporate headquarters’ ability to respond effectively in an emergency situation by establishing an emergency contact network, providing risk information to overseas bases, distributing safety handbooks, providing safety training to employees prior to taking up new overseas posts or embarking on overseas business trips, and conducting drills based on hypothetical scenarios set forth in crisis management manuals.

  • Safety training for employees prior to taking up overseas postsSafety training for employees prior to taking up overseas posts

  • Safety training for individuals prior to embarking on overseas business tripsSafety training for individuals prior to embarking on overseas business trips

Initiatives to Strengthen Governance at Subsidiaries

The DIC Group comprises 171 companies in 64 countries and territories. Two-thirds of the Group’s employees are located at, and 60% of its consolidated net sales are generated by, bases outside of Japan. DIC recognizes that ensuring subsidiaries share the same values and vision—despite differences in culture, systems and customs—and maximizing management resources, while at the same time complying with local laws, regulations and rules, is critical to sustainable growth for the Group.
It goes almost without saying that in the event of a transgression, an incident of noncompliance or an unforeseen contingency at an overseas DIC Group base, there is a risk that the DIC brand image could be negatively affected, causing damage to the Group as a whole. DIC has thus positioned the management of this risk as a crucial challenge requiring immediate and ongoing initiatives and will continue to promote efforts to strengthen its framework for supporting risk-avoidance worldwide.

Framework for Supporting the Management of Subsidiaries

Themes Guiding Efforts to Strengthen Governance at Subsidiaries

As an organization with global operations, DIC has worked continuously to create internal controls systems and establish governance configurations for its subsidiaries around the world. With the aim of ensuring that subsidiaries’ risk management systems function and of reinforcing and increasing the efficiency of their management, in fiscal year 2016 DIC outlined four key themes to guide these efforts. This move was made in line with the Company’s belief in the importance of establishing robust frameworks for the appointment of directors, the organization of corporate auditors, the operating structures underpinning subsidiaries’ management and the provision of support by the parent company.

  1. Enhance the visibility of Group governance systems: The DIC Group’s matrix-like governance organization positions products on one axis and regions on the other. Steps are being taken to clarify and set down standards for the segregation of duties and the delegation of authority to assist overseas subsidiaries in determining which of the two aspects should be given priority in making business decisions.
  2. Ensure appropriate behavior by subsidiaries’ boards of directors: Prerequisites for the appointment of directors to subsidiaries’ boards of directors, which are responsible for supervising executives’ performance of their duties, are being established, as are guidelines for board administration.
  3. Ensure appropriate behavior by subsidiaries’ executives: Prerequisites for the appointment of executives, including leadership skills, managerial competence and awareness of compliance, are being established.
  4. Implement measures that help subsidiaries ensure rational front-line operations: Such measures include setting KPIs for subsidiaries that align with DIC targets, establishing criteria for the provision of support and management assistance by the parent company’s functional departments and determining acceptable operating levels.

Responding to New Laws and Regulations

Transfer price taxation is one of the principal challenges facing the DIC Group’s subsidiaries. With transfer pricing, companies risk double taxation on transactions within the Group, that is, on being taxed on profits in the country of domicile and the country to which it transfers, i.e., sells, its products. As a consequence of the Base Erosion and Profit Shifting (BEPS) Project*, effective from fiscal year 2018 DIC will be obliged to provide uniform information to local tax authorities in all of the countries in which it has operations. In response, the Company will work with the Group’s overseas regional headquarters (DIC (China) and DIC Asia Pacific) and Sun Chemical to confirm and organize transaction information.

  • *BEPS is the artificial reduction of taxable income through the shifting of profits to low-tax jurisdictions or other locations where there is little or no economic activity. The BEPS Project is an initiative undertaken in response to demands by G20 member countries seeking to prevent the erosion of their tax bases to plug gaps in tax rules that make BEPS possible.

BCM

Drawing on lessons from the Great East Japan Earthquake, the DIC Group now accounts for all risks with the potential to interrupt business continuity through BCM. These risks include natural disasters such as large earthquakes and floods; influenza and other pandemics; explosions, fires, leaks and other facility accidents; and major corporate scandals. The Group comprehensively estimates the probability of each risk and its impact on management, prioritizing response measures for more significant risks.
In Japan, which is currently experiencing an active period in terms of volcanic and seismic activity, the Group deploys ongoing natural disaster response measures. These include maintaining headquarters’ functions and task force framework, support measures for disasterstricken areas, and producing and renewing BCPs for each key product. The Group facilitates and maintains a system to maintain business continuity through training drills. These encompass drills for safety confirmation, emergency radio warnings, comprehensive disasters, disaster map exercises and BCP.
Having launched a review of BCPs based on social responsibility and customer imperatives in fiscal year 2015, we subsequently proceeded with the formulation of BCPs for all product divisions and related sites. As of fiscal year 2017, we had completed this process for all product divisions. We aim to complete the formulation of BCPs for 80% of core sites by fiscal year 2019.

BCM in Fiscal Year 2017

Initiatives in fiscal year 2017 focused on encouraging awareness among and providing training for all product division and Group production site BCP officers in Japan. To ensure that BCP officers share the same understanding of business risks and reinforce recognition of the need to address business continuity as an inherent aspect of everyday operations by encouraging the formulation of highly effective methods for countering various hypothetical crises—thereby enabling DIC to leverage limited resources to secure supply chains and restore sites to operability in the aftermath of a major disaster—the Group conducted visiting BCP lectures at 20 domestic sites. Participating product division general managers and general managers/group leaders from production sites exchanged views on issues and solutions.

Complementary Production Capabilities

The DIC Group recognizes the need to ensure it can fulfill its supply responsibilities even in the event of damage to facilities from a major natural disaster and thus incorporates this perspective into its BCPs. One way it seeks to do so is through complementary production capabilities. For example, the Group’s LC production facilities in Japan and the PRC collaborate on the implementation of BCPs, using a common emergency response manual and holding regular response simulation sessions. Group pigment production facilities have developed a framework that involves continuous cooperation to plan emergency response measures.

TOPICS Visiting BCP Lectures Conducted at 20 Domestic Group Sites

Common across the DIC Group

Practical responses

Visiting BCP lecture (Osaka Branch Office)
Visiting BCP lecture (Osaka Branch Office)

Supplying Products in a Socially Responsible Manner

With the aim of facilitating collaboration between sites and corporate headquarters to ensure effective responses in the immediate aftermath of a hypothetical natural disaster, pandemic or serious accident, in fiscal year 2016 product divisions renewed their BCPs. As part of efforts to promote familiarity with new product division BCPs, in fiscal year 2017 DIC conducted visiting BCP lectures at 20 key DIC Group sites in Japan.
The DIC Group produces a wide range of materials and components that can have a significant impact on society if supplies are delayed. For this reason, in the event a production facility suffers damage due to a disaster or other event, it is critical that other sites are able to temporarily take over production or provide backup and that supply chain functions are secured to facilitate procurement of raw materials. Accordingly, the Group recognizes the need to ensure a common crisis awareness among product divisions, as well as among business units and other divisions and departments, clarify roles and individuals in charge, create an effective emergency contact network, and conduct ongoing drills aimed at improving responsiveness.

Formulating More Effective BCPs

Visiting BCP lectures were held from February through December 2017. An aggregate total of 300 individuals, including product division staff, Group company executives and group leaders, participated. Lectures included talks given by consultants and theme-specific working groups, which discussed key BCP issues at length, extracting those needing to be addressed over the medium to long term, with the goal of formulating more effective BCPs. DIC will capitalize on insights gained in the conducting of these lectures to promote horizontal deployment at overseas DIC Group companies to create a more robust framework for preventing and mitigating disasters and accidents.

COMMENT

Our goal is to help facilitate the formulation of effective and genuinely practical BCPs.

Our organization has provided assistance to DIC in its efforts to promote awareness of and revise its BCPs since October 2016. What makes DIC’s BCP and risk management efforts different from the more standard undertakings of many other companies is their focus on ascertaining the essence of issues. In 2017, we assisted with visiting BCP lectures at domestic Group sites, the objective of which was to promote awareness by focusing on the people actually responsible for formulation while confirming the basics of BCP and examining the state of related initiatives to clarify where issues exist. During 2018, we will help arrange joint drills for sites—primarily plants—and product divisions and continue advancing initiatives designed to fortify the framework for collaboration between sites and product divisions. Our efforts are designed to avoid turning this process into mere formality, but rather to facilitate the formulation of effective and genuinely practical BCPs. Expect good things from DIC’s BCP and risk management initiatives in the years ahead.

President, Legal & Risk Management Institute Ken Mori

President, Legal & Risk Management Institute
Ken Mori

Emergency Response Exercises and Drills

The DIC Group has developed and maintains a system designed to ensure its ability to minimize damage in the event of a disaster, as well as to ensure the smooth restoration of operations. This system includes a wide range of exercises and drills, including safety confirmation drills, emergency radio warning drills, comprehensive disaster drills, map-based simulation exercises and BCP drills.

  • Comprehensive disaster drill at the
corporate headquartersComprehensive disaster drill at the corporate headquarters

  • Task force map–based simulation exerciseTask force map–based simulation exercise

  • BCP drill and trainingBCP drill and training

First-Ever Emergency Drill Simulating Ballistic Missile Launch

Drill in progress
Drill in progress

Government-prepared awareness poster in the corporate headquarters cafeteria
Government-prepared awareness poster in the corporate headquarters cafeteria

Amid rising political tensions on the Korean Peninsula, in September 2017 DIC conducted its first-ever emergency drill simulating the launch of a ballistic missile in the direction of Japan. The drill played out a scenario in which information has been received via Japan’s J-Alert emergency warning system that a missile has been launched, sounds a siren and broadcasts instructions for people to take appropriate actions to avert danger. On each floor, members of the Company’s in-house firefighting squad issued instructions for employees to move away from windows and take cover under or behind solid objects. In the event of an unforeseen emergency, it is critical to remain calm and resist the urge to panic. The Risk Management Subcommittee assesses the effectiveness of various drills immediately afterward and incorporates its findings into subsequent disaster prevention planning.

DIC Corporate Headquarters Emergency Pocket Books

Emergency Pocket Books
Emergency Pocket Books

Approximately 1,300 employees of the parent company and various domestic Group companies work at the corporate headquarters in Tokyo. DIC has prepared Emergency Pocket Books, pocket-sized booklets that provide instructions on appropriate actions—both autonomous and in cooperation with others—in the event of a disaster for distribution to these employees and their families. The booklets also detail corporate headquarters’ overall emergency response framework and the responsibilities of individual floors and departments in an emergency situation, as well as provide space for employees and their families to provide contact information. The compact size of the booklets ensures portability.

TOPICS Training for Taking In Stranded Commuters in the Event of a Major Disaster

Explanation to drill participants by Nihonbashi FireStation personnel
Explanation to drill participants by Nihonbashi FireStation personnel

Emergency training in the use of AEDs and hemostasis
Emergency training in the use of AEDs and hemostasis

One of the most earthquake-prone countries in the world, Japan has been struck multiple times by devastating seismic activity. As a consequence, ensuring earthquake readiness, that is, the ability to prevent and mitigate the impact of earthquakes, is recognized as a critical challenge for society as a whole.
Tokyo’s Nihonbashi district, home of DIC’s corporate headquarters, is an area noted for its tightly clustered large commercial complexes and office buildings. Every year, a comprehensive neighborhood disaster drill is conducted on an empty lot near the DIC Building. Approximately 300 people took part in the 2017 drill, held on September 22, 2017, the scenario for which was an earthquake of close to 6.0 on the Japanese scale with an epicenter directly below a major urban area, which is something that is predicted to happen in Tokyo at some time in the future. Guided by personnel from the Nihonbashi Fire Station, participants received training in first aid (AED use and hemostasis); practiced using fire hydrants to extinguish fires; and toured facilities designated as temporary shelters for those stranded and an exhibition of relief tents set up by the Japanese Red Cross Society.
The DIC Building, designed with state-of-the-art earthquake-resistant technologies, has been designated as a temporary shelter for stranded commuters in Chuo Ward, where Nihonbashi is located. Accordingly, an exercise was conducted the scenario for which involved the opening of the first-floor main entrance area and taking in shoppers stranded in Nihonbashi when public transportation is suspended in the wake of a disaster. Approximately 60 DIC employees took part in the exercise, which also included instruction in procedures for, among others, receiving and guiding shelter users, distributing rations, blankets, multipurpose plastic thermal sheets and other emergency supplies, and providing first aid and information.
DIC will continue to play an active role in community-based efforts to reinforce local disaster preparations. In doing so, the Company aims to help ensure Tokyo’s readiness to handle a major disaster.

  • Training in the use of fire hydrants to extinguish fires
    Training in the use of fire hydrants to extinguish fires

  • Exhibition of temporary shelters for stranded commuters set up in the DIC Building
    Exhibition of temporary shelters for stranded commuters set up in the DIC Building

  • Japanese Red Cross Society exhibition of relief tents
    Japanese Red Cross Society exhibition of relief tents

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