Canon 2006 Annual Report Download - page 15

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The Company has elected, to have a board of corporate auditors,
whose duties include monitoring and reviewing the management
and reporting the results of these activities to the shareholders or
board of directors of the Company. While the NYSE Corporate
Governance Rules provide that U.S. listed companies must have
an audit committee, nominating committee and compensation
committee, each composed entirely of independent directors, the
Corporation Law does not require companies to have specified
committees, including those that are responsible for director
nomination, corporate governance and executive compensation.
The Company’s board of directors nominates the candidate
for directorship and submits a proposal at the general meeting of
shareholders for shareholder approval. Pursuant to the
Corporation Law, the shareholders then vote to elect directors at
the meeting. The Corporation Law requires that the total amount
or calculation method of compensation for directors and corpo-
rate auditors be determined by a resolution of the general meet-
ing of shareholders respectively, unless the amount or calculation
method is provided under the Articles of Incorporation. As the
Articles of Incorporation of the Company do not stipulate the
requirements as expressed under the Corporation Law, the
amount of compensation for the directors and corporate auditors
of the Company is determined by a resolution of the general
meeting of shareholders. The allotment of compensation for each
director from the total amount of compensation is determined by
the Company’s board of directors, and the allotment of compen-
sation to each corporate auditor is determined by consultation
among the Company’s corporate auditors.
3. Audit Committee
The Company plans to avail itself of paragraph (c)(3) of Rule 10A-3
of the Security Exchange Act, which provides that a foreign private
issuer which has established a board of corporate auditors shall be
exempt from the audit committee requirements, subject to certain
requirements which continue to be applicable under Rule 10A-3.
Pursuant to the requirements of the Corporation Law, the
shareholders elect the corporate auditors by resolution of a
general meeting of shareholders. The Company currently has five
corporate auditors, although the minimum number of corporate
auditors required pursuant to the Corporation Law is three.
Unlike the NYSE Corporate Governance Rules, Japanese laws
and regulations, including the Corporation Law, do not require
corporate auditors to be experts in accounting or to have any
other area of expertise. Under the Corporation Law, a board of
corporate auditors may determine the auditing policies and
methods for investigating the business and assets of a Company,
and may resolve other matters concerning the execution of the
corporate auditor’s duties. The board of corporate auditors pre-
pares auditors’ reports and may veto a proposal for the nomina-
tion of corporate auditors and accounting auditors put forward by
the board of directors.
Under the Corporation Law, more than half of a company’s
corporate auditors must be “outside” corporate auditors. These
are individuals who are prohibited to have ever been a director,
executive officer, manager, or employee of the Company or its
subsidiaries. There are five members on the Company’s board of
auditors, three of whom are outside corporate auditors. The
Company’s current corporate auditor system meets these require-
ments. The qualifications for an “outside” corporate auditor under
the Corporation Law are different from the audit committee
independence requirement under the NYSE Corporate
Governance Rules.
4. Shareholder Approval of Equity Compensation Plans
The NYSE Corporate Governance Rules require that shareholders
be given the opportunity to vote on all equity compensation plans
and any material revisions of such plans, with certain limited
exceptions. Under the Corporation Law, a Company is required to
obtain shareholder approval regarding the detail of an equity-
compensation plan. Stock acquisition rights to be issued to direc-
tors and corporate auditors are recognized as part of
remuneration of directors and corporate auditors, and the
issuance of stock acquisition rights must be approved by share-
holders as part of their approval regarding remuneration of direc-
tors and corporate auditors. The Company currently has not
adopted any stock option compensation plans.