Omron 2014 Annual Report Download - page 38

Omron has established the Basic Policy on the Mainte-
nance of Internal Controls to ensure the healthy and effec-
tive operation of its organization. This policy provides the
basis for the maintenance and operation of internal con-
trols throughout the Omron Group to ensure the controls
are functioning effectively in each of the four objective
areas of financial report accuracy, legal compliance, operat-
ing efficiency, and asset safeguarding.
Omron maintains a monitoring system undertaken by
the Internal Audit Division after each division and sub-
sidiary conducts its own review of the maintenance and
operation of business processes in accordance with the
Internal Control Reporting System (J-SOX) requirements
of Japan’s Financial Instruments and Exchange Act, pro-
mulgated in June 2006. The reviews enable each division
and subsidiary to deepen its own understanding of the inter-
nal controls associated with financial reporting and thereby
serve as a system for promoting self-governing controls.
Omron conducts two types of internal audits to ensure
the healthy and effective operation of its organization.
One is the Internal Control Audit to ensure whether
the internal controls are functioning effectively in each of
the four objective areas of financial report accuracy, legal
compliance, operating efficiency, and asset safeguarding.
The other is the Management Audit, which examines
the solutions and improvement measures implemented
for specific management issues. In the event the results
of these audits include items recommended for
improvement, the Company supports measures to
carry out the improvements.
In addition, the Omron Group has established the
Internal Divisions Audit and placed full-time auditors in
each of its four regions of global businessAmericas,
Europe, Greater China*, and Asia Pacificto implement
internal audits at its business sites worldwide based on
local practices and legal systems and in accordance with
globally standardized audit policies.
Maintaining Internal Controls to Ensure Healthy and Effective Operations
Two Types of Internal Audits to Ensure Healthy and Effective Organizational Operations
Internal Controls
* Greater China: China, Hong Kong, and Taiwan
The Omron Group faces various risks related to com-
pliance, regulations, and other issues in its business
operations. In order to address these risks, we employ
an approach called Integrated Global Risk Management,
which manages information and countermeasures in an
integrated and global manner.
The basic provisions for Integrated Global Risk Manage-
ment are defined in the Basic Policy on the Maintenance
of Internal Controls by the Board of Directors. Further,
the Basic Rules of Integrated Global Risk Management
describe the framework for risk management initiatives,
and this framework is applied to all Omron Group compa-
nies around the world.
To enhance these activities, the Corporate Ethics &
Risk Management Committee has been established.
Through the committee, various risk countermeasures are
discussed and implemented by members from the cor-
porate headquarters and business companies as well as
from overseas regional head offices. In addition, we have
appointed risk managers to take charge of compliance and
risk management at all Omron Group companies around
the world, and we are utilizing our global network to quick-
ly share risk information and discuss countermeasures on
a daily basis.
A specific initiative of Integrated Global Risk Manage-
ment is the identification of Group Critical Risks. Every
year, we identify and analyze the risks that the Omron
Group faces from a global perspective. We assess these
risks and categorize the most significant risks into S
rank and those less significant risks into A rank. We then
establish plans for risk countermeasures to be imple-
mented throughout the entire Company via the Executive
Council. After verification and correction, the results are
reported to the Board of Directors and finally disclosed.
In other words, this process forms the risk management
PDCA cycle. For fiscal 2014, S-rank risks include busi-
ness continuity risk and violation of laws, such as bribery.
A-rank risks include internal fraud, CSR non-compliance
(Electronic Industry Citizenship Coalition (EICC), conflict
minerals, and occupational health and safety), and global
IT governance risk.
In fiscal 2014, we will further strengthen the Integrated
Global Risk Management PDCA cycle and more intensive-
ly integrate it into our business activities to enhance risk
management initiatives. In particular, we will redouble our
efforts overseas, using the central role of regional head
offices to carry out risk management in accordance with
regional conditions.
Strengthening Compliance and Risk Management on a Global Scale
Compliance and Risk Management
Expectations of an Outside Director
I assumed the position of outside director of Omron
in June 2013, and one year has since passed.
Omron is a manufacturer, whereas I am from
a general trading company. I believe that the
Company’s expectation is for me to give suggestions
and advice that will help cultivate the responsiveness
and the management-execution capabilities needed
to advance steadily toward the achievement of
Omron’s goals. And I am expected to do this while
quickly and accurately ascertaining changes in the
operating environment from a global standpoint.
I therefore hope to support Omron’s management
in achieving the goals of the VG2020 long-term
management strategy, and I will accomplish this
by fulfilling my duties as an outside director.
Revision of Executive Compensation
Systems
When I became an outside director, I also assumed
the role of chairman of the Compensation Advisory
Committee. In this capacity, I have advanced
vigorous discussions aimed at better governing
executive compensation at Omron.
Omron’s management strategies had defined
medium-to-long term targets, but the Company
lacked compensation systems for directors that
were linked to the accomplishment of these targets.
I therefore felt that Omron needed better governance
for executive compensation if it was to pursue
sustainable growth. For this reason, I initiated efforts
aimed at a revision of compensation systems.
As new systems, we introduced medium-term,
performance-linked bonuses that will be adjusted
based on progress toward achieving medium-term
management targets. We also issued stock options with
performance-linked exercise conditions to encourage
directors to hold a stake in the Company and pursue
medium-to-long-term improvements in shareholder
value. I feel that these systems have effectively
reinforced the governance of director compensation.
The strengthening of governance must not
remain confined to executive compensation and
other internal systems. Governance systems must
be made effective before they can contribute
to improved corporate value, which is their
ultimate goal. For this reason, I help to verify
the effectiveness of the initiatives of the Board
of Directors and the Company’s various advisory
committees through active participation while
simultaneously providing suggestions for further
reinforcing corporate governance at Omron.
Message from an Outside Director
July 2014
Outside Director
Eizo Kobayashi
Chairman, ITOCHU Corporation
Cultivation of
Responsiveness
and Management 
Execution Capabilities
from a Global
Perspective
About Omron Where We’re Headed Corporate Value Initiatives Corporate Value Foundation Financial Section
72 Omron Corporation Integrated Report 2014 73