1. Basic Approach to Corporate Governance
A company is a social institution. It is more than merely an economic entity pursuing profits through free competition. We understand that a company must be of service to the greater society. This is why we, Topcon corporation, believe that in addition to maintaining healthy management practices and transparency, corporate governance must also provide improved business efficiencies. As a company, we work to achieve all of our social responsibilities, while keeping in mind that our decisions affect all of our stakeholders.
In April 2011, we revised and combined our Management Philosophy, Management Policies, and Code of Business Conduct, creating the TOPCON WAY, the highest shared values of the Topcon group. As each group employee puts the TOPCON WAY into practice, we become a company worthy of the long-term empathy and trust of our stakeholders. At the same time, as we approach our 100th anniversary, we have recommitted to improving profitability by acting ahead of changes in the business environment, as well as to continue to improvement the quality of our management.
2. Corporate Governance Structure
Topcon's board of auditors consists of four members (two of which are outside corporate auditors) that examine decision making and business execution by directors. Meanwhile, the board of directors is comprised of nine members (two of which are outside director). The board meets regularly once a month and extraordinary meetings are convened if necessary. The outside director and outside corporate auditors remain independent of management and maintain a neutral stance.
Topcon has adopted the executive officer system of management. By entrusting day-to-day execution to executive officers, the company has separated the supervisory function of directors/bard of directors and the operations function of executive officers. This system allows for the appropriate and timely response to rapid changes in the business environment. Topcon is a company with designated corporate auditors in which director decisions and performance are subject to internal audit.
As a rule, the executive officers meeting (attended by directors, corporate auditors, and executive officers) is held weekly. Meeting agenda items will include analyses of the business environment, discussions of mid-term business plans and budgets, information sharing of budget-versus-actual and other data, discussions of important corporate decisions, thoroughness of the points of compliance activities, and discussions of a variety of other matters to ensure the fairness and transparency of management decisions.
Topcon's Corporate Governance Structure
3. System of Internal Controls
Basic policies related to the company's system of internal controls are as enumerated below:
(1)System to ensure that the performance of director and employee duties are in
compliance with the law and company articles of incorporation
- Establish the TOPCON WAY as a representation of values common throughout the Topcon group and the Topcon Global Code of Conduct to outline a specific code of conduct for the Topcon group. At Topcon, use the company anniversary and other occasions as opportunities for top management to reaffirm the importance of these values and the code of conduct with every director and employee within the Topcon group. Also work continuously to promote awareness through daily educational activities.
- Important matters that could impact Topcon or the Topcon group overall shall be determined by the board of directors. Elect outside directors to maintain and strengthen a supervisory function related to the execution of duties by directors.
- Utilize an Internal Reporting System to uncover issues quickly and work to enhance timely and appropriate responses.
- Establish a Corporate Audit Division that will serve as an internal audit department under direction directly of the president. Validate the appropriateness and efficacy of compliance and other internal management systems. Establish a system to ensure that reports are made in a timely manner to the president and board of directors if a major issue is discovered.
- Reinforce that legal compliance is most important during the execution of duties. In particular, create separate internal rules and management systems to strengthen compliance with respect to the Anti-Monopoly Act, export restrictions, insider trading restrictions, the protection of private/sensitive information, and environmental protection.
- Outline guidelines in the Topcon Global Code of Conduct related to preventing relationships with antisocial forces and reinforce the refusal to be involved in the business activities of antisocial forces on a company-wide level.
(2)System for preserving and managing information related to director execution of duties
- Minutes, documents, approval forms, and other important materials related to board of directors and executive officers meeting are preserved and maintained based on internal company rules. The internal company rules have "Regulations of the Board of Directors", "Executive Officers Regulations", "Group Governance Rules", "Basic Regulation on Information Security", "Document handling official regulations" and "Documents preservation standard(rules)".
(This includes executive officers meeting information, as the company has adopted the executive officer system)
(3)Rules and Systems for Managing Risk of Loss
- Establish Basic Rules for Risk and Compliance, appoint individuals responsible for risk management, and establish a system capable for responding to any Topcon and Topcon group risks in a timely and appropriate manner.
- Establish an Internal Reporting System that allows a person who discovers a risk to report risks directly without having to go through the normal chain of command. This will contribute to the early discovery of risk information and assist in the rapid and appropriate response to situations as well as increase risk management awareness among all directors and employees, including group companies. It should be noted that the "Internal Reporting System" is under the jurisdiction is the internal audit department "Corporate Audit Division".
- Topcon has established the Basic Regulation on Personal Information Protection concerning protection of private information, and the Basic Regulation on Information
Security regarding confidential information and associated regulations thereof and seeks to keep employees of Topcon and subsidiaries fully informed of these regulations.
(4)System to Ensure the Efficient Execution of Director Duties
- The board of directors meets once per month (and on other occasions as needed) to deliberate issues and receive reports about regular agenda items related to management policies, laws, articles of incorporation, or other important matters related to the management of the company, practicing and strengthening the supervisory function over the company.
- By entrusting day-to-day execution to executive officers, deliberation of important business execution issues within the scope of the decision-making authority of the president based on the internal rules and make a decision. To ensure sufficient and substantive discussion in the board of directors, the company will establish a system that can quick decision-making.
- "Regulations of the Board of Directors", "Executive Officers Regulations", "Group Governance Rules", such as "Business Organization Regulations", etc., and in accordance with the appropriate procedures that have been defined in the internal rules, are each of the business executive.
(5)System for Ensuring the Appropriate Activities of the corporate group, Comprised of the company, Parent companies, and Subsidiaries
- The application of the TOPCON WAY as values common throughout the Topcon group enables the company to transcend national and company borders and ensure that Topcon directors and employees in every country and region share the same values and judgment standards throughout the group. Disseminate the Topcon Global Code of Conduct as a detailed code of conduct to ensure adoption by group companies as well as the company and establish an awareness of legal compliance.
- Establish Group Governance Rules applicable to Topcon and group companies and clearly set decision-making standards and matters for reporting. Make these rules known and throughout the year hold several opportunities for business execution status reporting. Share information within the Topcon group and provide instruction to group companies aimed at improving compliance awareness.
- The Corporate Audit Division, which is the Topcon internal audit department, shall coordinate with corporate auditors and accounting auditors in their respective audits as well as participate in group company audits to ensure the appropriate conduct of Topcon group business.
(6)Matters related to Employees Asked to Assist Corporate Auditors
- In response to a request by corporate auditors, employees assigned to the Corporate Audit Division may be asked to assist corporate auditors in their responsibilities.
(7)Matters related to Employee Independence from Directors
- The duties of Corporate Audit Division shall not be subject to influence by directors or executive officers. The assignment of Corporate Audit Division employees shall be determined beforehand in discussions with the board of corporate auditors.
(8)System for directors/employees to report to corporate auditors, other reports to corporate auditors
- To ensure audits of the decision-making process, establish a system for corporate auditors to have access to information by attending board of director meetings, executive officers meetings, or other important internal meetings, or by reading meeting minutes or other records/materials.
- Establish a system that allows the corporate auditor to throughout the year receive reports from various executive divisions within the company regarding business status or visit group companies to conduct audits of business status.
- Corporate auditors may, when deemed necessary, require operational reports from company and/or subsidiary directors, executive officers, or employees.
- For auditors, management audit office was carried out the situation and the results of an audit report relating to internal audit, will strive to cooperation and efficiency.
(9)System to Ensure Practicality of Corporate Auditor Audits
- The board of directors shall exercise consideration to allow unhindered performance of audit activities, allowing corporate auditors to attend board of director meetings, executive officers meetings, or other important internal meetings (including such meetings at subsidiaries). Corporate auditors shall ensure opportunities for regular audits of company (including subsidiary) operations, and appoint staff to assist in audit duties.
- Corporate auditors and directors shall establish regular opportunities to exchange opinions, ensuring that the input of corporate auditors is appropriately reflected in management decisions.
- Accounting auditors and auditors will establish a forum for exchange of information and opinions.
4. Framework for Preventing Harm by Antisocial Forces
Together with clearly stating our refusal to participate in the active conduct of business with antisocial forces, we have prepared a framework based on this belief as follows, and taken steps to establish sound company management.
(1) Enhancement of Topcon's Control Environment
Topcon has set up a Public Relations Department within the Administration and Legal Division as a special post for responding to antisocial forces. This department supports our response to contacts from outside the company that might hinder lawful and proper corporate operations.
Moreover, to prevent relationships with antisocial forces with even greater certainty, in November 2007 the company revised the Topcon Global Code of Conduct and clearly stated its refusal to participate in business activities of antisocial forces.
(2) Thorough Evaluations of Risk
By clearly describing in the Topcon Global Code of Conduct its refusal to be part of business activities run by antisocial forces, Topcon has heightened awareness within the company of the risks pertaining to antisocial forces.
Topcon distributes its Topcon Global Code of Conduct booklet to all employees, and meticulously explains to every group company Topcon's refusal to be involved in the business activities of antisocial forces.
(3) Promotion of Control Activities
From the standpoint of fully prohibiting contact with antisocial forces, Topcon conducts activities to educate all workers of company policy, mainly through its Public Relations Department. The company has also detailed its disciplinary sanctions for individuals who violate the Topcon Global Code of Conduct, and works to achieve total compliance with this Code.
(4) Clarification of Communication Lines
In addition to Topcon enacting internal rules and clarifying its company structure and policies for responding to antisocial forces, the Public Relations Department gathers and disseminates pertinent information and works to ensure every employee is knowledgeable of the details. Moreover, Topcon has created an organization capable of responding to contacts from antisocial forces appropriately and on a timely basis, by designating liaisons with the police, advising attorneys, the National Center for the Elimination of Boryokudan and other entities and taking measures to smooth communications.
(5) Monitoring activities
To achieve well-ordered operation of the internal controls system it has created, Topcon established a CRO (Chief Risk-Compliance Management Officer) as an administrator to supervise operations, and set up a Corporate Audit Division as an independent organization responsible for monitoring.
(6) Creation of Close Relationships with External Entities
To achieve close relationships that includes the exchange of necessary information, Topcon has designated liaisons with external organizations such as the police, advising attorneys and the National Center for the Elimination of Boryokudan.
5. Directors and Corporate Auditors Compensation
Total compensation of directors and corporate auditors for the fiscal year ended March 2016 was as shown below:
- As of March 31, 2016, the company had 7 directors, 2 corporate auditors, and 4 outside officers.
- In addition to the compensation presented above, 72 million yen in compensation (including bonuses) was paid to directors who also served as company employees.
- Directors compensation is limited to a maximum 500 million yen annually (not including employee compensation for directors who also serve as employees), as established in a resolution by the Ordinary General Meeting of Shareholders for the 120th Fiscal Period held June 26, 2013.
- Corporate auditors compensation is limited to a maximum 100 million yen annually, as established in a resolution by the Ordinary General Meeting of Shareholders for the 120th Fiscal Period held June 26, 2013.
6. Outside Directors and Corporate Auditors
The company has two outside director and two outside corporate auditors.The appointment of the outside director is to directly obtain external opinions and strengthen the supervision of the board of directors. The audit function by the outside corporate auditors plays a key role in fortifying the independent supervision of management. Also, given the importance of the management supervisory functions of the outside director and outside corporate auditors, we aim to appoint outside directors and outside corporate auditors that have complete knowledge of corporate management overall and of Topcon's business, and that are entirely independent. Our one outside director and one of our outside corporate auditors serve as independent directors, as required by the Tokyo Stock Exchange.
7. Risk and Compliance
The company has established Basic Rules for Risk and Compliance, has appointed individuals responsible for risk management, and has established systems capable for responding to any Topcon group risks in a timely and appropriate manner. Significant risks are addressed in the Risk-Compliance Committee.
The company trains and educates its employees in the Global Code of Conduct, human rights, harassment, workplace safety, environmental issues, export management, information security and other matters related to risk and compliance, maximizing corporate value and minimizing risk.