Canon 2006 Annual Report Download - page 13

11
Basic Policy and Corporate Governance Structure
Canon recognizes that strengthening management supervision
functions and maintaining management transparency are vital to
improving its corporate governance structure and raising corpo-
rate value. Canon’s basic governance structure comprises the
General Meeting of Stockholders, the Board of Directors and the
Board of Corporate Auditors. Furthermore, the Executive
Committee and management committees are dedicated to key
issues. All of these bodies work together to ensure appropriate
management of the Group through an independent internal
auditing structure centered on the Corporate Audit Center, and
an information disclosure system for management activities.
Board of Directors
Important business matters are discussed and ratified during
meetings of the Board of Directors and Executive Committee,
which are attended, in principle, by all directors. As of
December 31, 2006, the Board consisted of 26 directors. In
order to realize a more streamlined and efficient management
decision-making process, Canon has not adopted an outside
director system. The main reason why directors are chosen from
among Canon personnel is that they have followed these same
codes of behavior and have been subject to close scrutiny within
the Group over many years.
Auditing System
Canon is working to bolster its auditing framework. In 2006,
Canon increased the membership of its Board of Corporate
Auditors to five, including three external auditors who have no
personal, capital or business affiliations with Canon. Auditor
duties include attending meetings of the Board of Directors,
Executive Committee and various management committees,
listening to business reports from directors, carefully examining
documents related to important decisions, and conducting strict
audits of the Group’s business and assets. Corporate auditors also
work closely with accounting auditors and the Corporate Audit
Center, which monitors compliance, risk management and
internal control systems, and provides assessments and recom-
mendations. Relevant administrative divisions collaborate with the
Center to oversee such areas as quality, environmental issues,
export control management and information security.
Internal Control Committee
The Internal Control Committee, established in 2004, ensures the
reliability of financial reporting. It also conducts reviews of the
Group’s internal controls in order to gauge the true efficiency of
business operations, supports compliance with all related laws
and internal regulations, and implements sound internal controls.
In response to the Sarbanes-Oxley Act, including Article 404 that
came into force during 2006, Canon continues to reinforce
internal control systems and implement all appropriate measures.
In order to strengthen internal controls, Canon is document-
ing and assessing material business processes at all related divi-
sions throughout the Group, and proceeding with reform
initiatives. Canon has formed working groups to conduct com-
prehensive evaluations of internal controls across areas including
accounting, management oversight, legal compliance, IT systems,
and promotion of corporate ethics.
Internal controls over financial reporting as of December 31,
2006, have been assessed as effective by the management and
the independent registered public accounting firm. (Please refer
to p.89 and p.91)
Other Corporate Governance Committees
Canon’s management committees are integral to its overall
governance system. Key among these are the Corporate Ethics
and Compliance Committee, which discusses and approves
compliance and corporate ethics policies; the Global Legal Affairs