Risk Management

Risk Management Policy and Framework for Promotion

The DIC Group first introduced risk management initiatives in 2001 by creating the Compliance Committee and setting up whistle-blowing hotlines. Following the inauguration of the Risk Management Subcommittee in May 2012, the Group undertook initiatives aimed at responding to serious natural disasters and promoting BCM. Beginning in fiscal year 2014, the Risk Management Subcommittee focused on establishing a risk management system. In a bid to ensure the effective and sustainable implementation of initiatives, in January 2015 the Group introduced a newly formulated risk management policy. In May 2018, the functions of the Risk Management Subcommittee were transferred to the Sustainability Subcommittee and the BCM and Crisis Management Working Group was established to strengthen the Group’s framework for promoting risk management and business continuity.

Risk Management Policy

• Risk management objectives

  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.

• Definition of risks and risk management

  The DIC Group’s definition of risk and risk management is as follows:

  • Risk: All uncertainties that threaten the DIC Group’s sustainability and business goals.
  • Risk management: Initiatives to enhance corporate value by managing all risks to the DIC Group from a Groupwide perspective.

• Risk management initiatives

  • 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.
  • The DIC Group constructs and validates risk management systems by repeating the PDCA cycle.
  • 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

Efforts to Encourage Awareness

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.

Meeting of the Sustainability Subcommittee

Risk Definition and Risk Owners

The DIC Group recognizes risks in three principal categories. The Group manages these risks by clarifying specific risk owners, whic h are t he divisions /depar tment s responsible for implementing responses.

Risk Management System

In the process of formulating the risk management policy, the Sustainability Subcommittee (previously 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 the Business Continuity Planning 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.

Examples of Response Measures for Selected Priority Risks (Fiscal Year 2018)

In fiscal year 2018, DIC added “Insufficient supply chain management” and “Issues with the management of employee health (including mental health)” to the list of priority risks for which its implementing response measures, bringing the number of risks on the list to five. The implementation of measures was completed for five of these priority risks in the period under review.

Examples of Response Measures for Selected Priority Risks

01Insufficient management of chemical substances /Insufficient response to changes in environmental laws and regulations

Possible negative impacts

Social sanctions and weakening of brand image attributable to media coverage of production stoppages, suspension of exports, recall of products, or legal/ regulatory violations; damage to employee health and resulting litigation

Principle response measures

• Review procedures for managing CIRIUS information
• Promote global project to improve chemical information management
• Collect up-to-date information on all raw materials
• Conduct chemical substance risk assessments

Status

Complete

02Insufficient/delay in the optimization of global businesses

Possible negative impacts

Significant declines in sales/profits in global markets due to erosion of price competitiveness; limits to business expansion due to inability to secure overseas production base; insufficient supplies owing to disaster affecting site

Principle response measures

• Support efforts to optimize production of polymers and inks/ensure safe operations
• Ask product divisions to consider their production configurations prior to formulation of new medium-term management plan and hold hearings
• Ensure overall grasp of the global production configuration of each product division

Status

Complete

03Governance of subsidiaries

Possible negative impacts

Scandals, the inability to address issues properly and decline in reputation attributable to the appointment of incompetent executives and/or insufficient oversight by the Board of Directors.

Principle response measures

• Enhance the visibility of Group governance systems
• Ensure appropriate behavior by subsidiaries’ executives
• Ensure appropriate behavior by subsidiaries’ board of directors
• Help subsidiaries ensure rational front-line operations

Status

Complete

04Insufficient supply chain management

Possible negative impacts

Production declines or business withdrawals due to accidents or issues with raw materials suppliers or environmental regulations that cause the suspension of our materials supplies or hamper production of key products and have a significant negative impact on our business continuity and profits.

Principle response measures

• Identify those raw materials for which risks are particularly high Prepare pertinent data, including supplier locations, and create a format that facilitates circulation thereof
• (a) Research/cultivate alternative materials/suppliers and conduct successive quality assessments
  (b) Gradually increase inventories of high-risk raw materials

Status

Complete

05Issues with the management of employee health (including mental health) (Relevant pages: 129–130)

Possible negative impacts

(1) Illness necessitating lengthy leave
(2) Decline in ability due to illness and resulting discrepancy between ability and treatment
(3) Decline in quality, output and efficiency resulting from lengthy leave
(4) Increase in burden on colleagues resulting from employee absence

Principle response measures

• Formulate and implement programs to prepare employees who have taken lengthy leaves to return to work
• Enhance annual health check data and promote the sharing of business information to ensure a solid grasp of individual risks
• Reconsider health risk items in annual health checks and step up related initiatives
• Appoint coordinating occupational physician to conduct overall management
• Take steps to identify/analyze the causes of mental health disorders and develop and implement responses.

Status

Complete

Initiatives to Strengthen Governance at Subsidiaries

The DIC Group comprises 174 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

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 implementation of corporate auditors, the operating structures underpinning subsidiaries’ management and the provision of support by the parent company.

• 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.
• 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.
• Ensure appropriate behavior by subsidiaries’ executives: Prerequisites for the appointment of executives, including leadership skills, managerial competence and awareness of compliance, are being established.
• 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.

The establishment of management standards for subsidiaries in Japan regarding these four themes was completed in fiscal year 2017. The progress of related initiatives is inspected. DIC began expanding the application of these standards to overseas subsidiaries in fiscal year 2018 and is currently working to reduce various risks related to the governance of subsidiaries while ensuring the firm establishment and full awareness of these standards.