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.

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 of 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 in fiscal year 2017, 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 smooth implementation of measures designed to facilitate the smooth global expansion of businesses outlined in 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 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 of subsidiaries Occurrence of accidents; deterioration of product quality; production
stoppages due to the frequency of accidents; increase in the cost of
maintaining safety; decline in customer trust/loss of commercial rights due
to delays in delivery
• 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

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
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.
②Ensure 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.
③Ensure 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) Co., Ltd. and DIC Asia Pacific Pte Ltd) and Sun Chemical Corporation, 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.
VOICE

Governance leverages common Group values and mechanisms to create an operating foundation that allows people on the front lines to focus on their responsibilities.

For an organization like the DIC Group, which has two-thirds of its employees overseas, the physical and psychological distance between corporate headquarters in Tokyo and bases overseas makes it difficult for everyone to feel like they are part of single global team. However, I believe that creating such a sense of solidarity is crucial.
By capitalizing on shared values and vision to promote sustainable business expansion and maximize profitability, Group companies can both make their presence felt and contribute to continued growth for the DIC Group as an attractive and admired corporate organization. This is the true objective of governance. Making certain that all employees—whether at corporate headquarters or a Group company—feel they are all on the same team and setting common Groupwide rules to promote cooperation will enable us to maximize and benefit from synergies.
We will continue working to create an operating foundation that allows leaders on the front lines at each of the Group’s bases to focus on their responsibilities, without being inundated by everyday management–related minutia. I am confident that creating a work environment that inspires pride in each and every employee will help further enhance the DIC Group’s appeal and drive growth.

Executive Officer (In charge of Finance and Accounting Division) Hiroyuki Ninomiya

Executive Officer (In charge of Finance and Accounting Division) Hiroyuki Ninomiya

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 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 pollutions.

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.

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. In 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

Drill in progress

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 in subsequent disaster prevention planning.

DIC Corporate Headquarters Emergency Pocket Books

DIC Headquarters Emergency Response Pocket Book
DIC Headquarters Emergency Response Pocket Book

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 Boos, 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.

A Stakeholder’s Perspective

The assistance of companies with strong local roots plays a key role in creating safe, secure communities.

DIC is involved in a wide range of social contribution activities. We are delighted to have their cooperation in efforts aimed at ensuring the safety and security of our community. As a member of the local neighborhood association, they assist with the annual Nihonbashi 3-Chome Nishimachi Neighborhood Association Comprehensive Disaster Drill—which is held under the guidance of the Nihonbashi Fire Station—by providing the venue and administrative support for the drill. They also support local disaster preparation efforts in other ways, including by allowing the installation of a local emergency supplies depot inside the DIC Building. Thanks to the cooperation of local companies such as DIC, our association’s disaster preparation efforts continue to earn high marks. In 2016, we received a Tokyo Fire Department Superintendent–General’s Award for excellence. We also received the Minister’s Award, which is the top honor in the Ministry of Internal Affairs and Communications’ awards recognizing community disaster prevention efforts. I am very proud of our achievement, but of course I recognize that there is always more to do. I look forward to DIC’s continued growth and evolution as a company with strong local roots and to the future of this mutually beneficial relationship.

Chairperson, Nihonbashi 3-Chome Nishimachi Neighborhood Association Kiichiro Nonaga

Chairperson, Nihonbashi 3-Chome Nishimachi Neighborhood Association Kiichiro Nonaga

  • Comprehensive Disaster DrillComprehensive Disaster Drill

  • Comprehensive Disaster Drill

  • Comprehensive Disaster Drill

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