Canon 2007 Annual Report Download - page 21

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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 com-
mittee, each composed entirely of independent directors, the
Corporation Law does not require companies to have specified
committees, including those that are responsible for director nomi-
nation, corporate governance and executive compensation.
The Company’s board of directors nominates the candidates 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 corporate auditors be
determined by a resolution of the general meeting 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 compen-
sation is determined by the Company’s board of directors, and the
allotment of compensation 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. The Company’s current corporate auditor system
meets these requirements. Among the five members on the
Company’s board of auditors, three are outside corporate
auditors. 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 details of an equity-compensation
plan. Stock acquisition rights to be issued to directors 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 shareholders as part of their approval regarding
remuneration of directors and corporate auditors.