Internal Control System
Epson's Management Philosophy outlines the vital business principles to which the global Epson Group is committed, while Epson's Principles of Corporate Behavior describes the conduct required to live up to these principles. Epson has established the basic concept of internal control in the Basic Internal Control System Policy, and is taking action to steadily improve internal control across the entire Group.
The Epson Group is managed based on the concept: global consolidated responsibility of product-based divisions; and global responsibility of the Head Office supervisory functions. The head of the business operations divisions take the responsibility for the business execution systems of subsidiaries. And the head of Head Office supervisory sections take the responsibility for Group-level corporate functions. With this system, Epson strives to streamline operations throughout the Epson Group, including subsidiaries.
Compliance and Risk Management
Epson's goal is to continuously create value that exceeds customer expectations while building trust with all stakeholders based on the company's Management Philosophy. To maintain and strengthen this trust, Epson seeks to increase management transparency and fairness and effectively manage compliance and risks through faster decision-making. There were no compliance-related issues that were subject to timely disclosure in the FY2020.
As an advisory body to the Board of Directors, the Compliance Committee is made up of five outside directors and one director who is a full-time member of the Audit & Supervisory Committee. It is chaired by the full-time member of the Audit & Supervisory Committee, and supervises business affairs by discussing important compliance activities and making reports and suggestions to the Board of Directors. The Chief Compliance Officer (CCO) supervises and monitors the execution of all compliance operations, including that of the president, and periodically reports the state of compliance affairs to the Compliance Committee. The Regional Chief Compliance Officers (R-CCOs) assist the CCO as instructed by the CCO in order to promote effective compliance activities that take into account local laws, business practices and other societal demands. They promote and enforce compliance in their respective subsidiaries within the scope of their responsibilities. The CCO and R-CCOs periodically hold R-CCO meetings to discuss important matters relating to compliance activities at subsidiaries. In addition, a compliance control department monitors compliance in general, making corrections and adjustments as needed to enhance the completeness and effectiveness of compliance activities.
The compliance organization is defined in the Epson Group Compliance Basic Regulation.
Whistleblowing Systems and Reporting Channels
Epson provides Epson Helplines as reporting channels for directors and employees of Group companies in Japan. The helplines have been set up both internally and at a third-party provider outside the Group. To get specific instructions on using these helplines, employees can read the Epson Helplines User Manual on our intranet. Trainings and other opportunities also cover helpline use. We have in addition provided a supplier whistleblowing system for third-party business partners and others to quickly call our attention to potential compliance problems that might go undetected internally. We use our public websites to notify potential users about this system and discuss it at supplier briefings. In these reporting channels, the identity of whistleblowers is rigorously protected and reprisals of any type are strictly forbidden.
Our Epson Global Code of Conduct and Epson Group Whistleblowing Systems Regulation, moreover, require that every Group company in Japan and overseas establish a point of contact for taking reports from directors and employees, strictly manage information contained in reports, and forbid reprisals against whistleblowers. The content of these policies is clearly stated on our intranet. We also use tools like online learning during Compliance Month and job-class-specific training to actively raise employee awareness and inform them of these policies.
In FY2020, our reporting channels in Japan took 78 reports, an increase of 13 over the previous fiscal year. Whistleblowers reported possible cases of internal rule violations, misconduct, and lawbreaking. Epson responded appropriately to each of these reports. Aside from Epson Helpline, we also set up advisory services for specific concerns. This helps us to maintain and operate an environment that makes it easier to seek advice.
Counseling and Support Services in Japan
- Harassment counseling
- Management advisory service
- Counseling related to overwork and long working hours
- Career counseling
- Counseling for persons with disabilities
- Employee counseling
- Corruption (bribery) regulations advisory service
- Competition laws advisory service
- Insider trading advisory service
All overseas Group companies provide channels for taking reports from employees, including a channel for each region and a channel for each company. Employees can access these channels in their local language (English, Chinese, Indonesian, etc.). In addition, many Group companies overseas have supplier whistleblowing systems and make sure that their business partners (mainly suppliers) are aware of them.
We have also introduced the Epson Executive Compliance Hotline, a global reporting channel that directly takes reports on possible compliance problems among executives in Group companies outside Japan. Employees at overseas Group companies are informed about this hotline, which helps us to enhance the completeness and effectiveness of the Epson Group whistleblowing system.
Epson periodically investigates the operating effectiveness of Group company reporting channels. The effectiveness of such channels throughout the Group, including those in Japan, is periodically reported to the Board of Directors, Compliance Committee, and other corporate management meeting bodies. Investigation results are also sent to Group companies as feedback and used to build on the effectiveness of the whistleblowing system.
Risk Management Organization
The president of Seiko Epson acts as the Chief Risk Management Officer in the Epson Group, including subsidiaries. Group-wide risks are globally managed by Head Office supervisory departments with the cooperation of the operations divisions and subsidiaries. Risks unique to an individual business are managed by the Chief Operating Officer of that business, including at subsidiaries consolidated under them. The Seiko Epson risk management department monitors overall risk management in the Epson Group, makes corrections and adjustments thereto, and ensures the effectiveness of risk management programs.
The risk management organization is defined in the Epson Group Risk Management Basic Regulation.
Epson identifies serious risks that could have significant consequences on the company as below.
- Risks that could have serious adverse effects on Epson Group management are considered "serious Group-wide risks."
- Risks that could have serious adverse effects on business operations are considered "serious business risks."
- Risks that could have serious adverse effects on subsidiaries' management are considered "serious Group company risks."
Epson drafts and executes plans to control these serious risks, and monitors the progress. The company also strives to ensure control plan effectiveness by quarterly evaluating serious Group-wide risks and half-yearly evaluating serious business risks and serious Group company risks, and by revising the plans as needed. The president of Seiko Epson reports important risk management affairs to the Board of Directors quarterly.
Epson has a standing Crisis Management Committee. The committee is chaired by the president. The general administrative manager in charge of risk management serves as vice-chair. The rest of the committee is made up of the general administrative managers of supervisory departments at the Head Office. An organization and a predetermined crisis management program are in place to enable us to rapidly mount an initial response in a crisis.
Epson responded to COVID-19 by invoking the Crisis Management Committee in accordance with the provisions of the crisis management program and, under the direction of top management, ascertained the situation at our global sites, issued specific instructions, and took actions according to the severity of local outbreaks. Measures were deployed to prevent infection and ensure the safety of Group personnel and their families, prevent the spread of infections, and the continuity of business.
The Crisis Management Committee regularly reports the situation to executive management, including outside directors, as well as to the Corporate Strategy Council and the Board of Directors.
The internal audit department conducts audits that facilitate self-directed internal control at all Group divisions as well as subsidiaries and related organizations in Japan and overseas. Audits are used to check compliance and the effectiveness and efficiency of these units' risk management, internal controls, and governance processes. If problems are found, the internal audit department helps minimize business risks by conducting a follow-up audit to check the status of improvements. To ensure effective Group governance, the internal audit department also centrally oversees internal audits throughout the Group in collaboration with auditing departments at regional headquarters in Europe, the Americas, China, and Southeast Asia.
Each year, the units to be audited are chosen by judging the relative importance of and assessing the risk at each division and each subsidiary and related organization in Japan and overseas. Then an auditing cycle is set that is designed for effectiveness and efficiency. Audits are then performed systematically. In the 2020 fiscal year, the internal audit department performed audits on 14 Epson units and provided them with advice on making specific improvements for 46 non-conformities found by audit. In the 2021 fiscal year, units were grouped into 71 organizations. The internal audit department conducted risk assessments on the groups, selected the units to be audited, and is performing the audits.
Internal Controls over Financial Reporting
Every year, we audit internal controls to ensure the reliability of financial reporting (J-SOX). The Epson Group uses an autonomous distributed implementation system in which operations divisions and subsidiaries subject to external audits conduct a self-assessment on the design and operation of their internal controls, while the J-SOX Compliance Department ensures the validity of the assessment results. Operations divisions, subsidiaries, and affiliates not subject to external audits are required to independently assess their internal controls and make such improvements as are necessary.