Risk Management
Risk management system
Important meeting structures
The Nippon Paint Group regularly convenes important meetings such as Board of Directors meetings and regional Executive Committee meetings. The Representative Executive Officers & Co-Presidents participate in important Executive Committee meetings to keep up to date with the status of the Group’s business operations.
The Representative Executive Officers & Co-Presidents identify risks when business risk factors emerge, and respond to these risks by monitoring the risks appropriately and continuously while sharing risk information with the Board of Directors *1.
*1: 4 of the directors have risk management experience and skills.
For more information, please see Required experience/skills for the Board of Directors.
Global risk management
To enhance risk management across the Nippon Paint Group globally, we established the Basic Policy on Global Risk Management (effective January 1, 2022) which designates the Representative Executive Officers & Co-Presidents as the executives with the highest level of responsibility for risk management.
We also established a risk management system based on autonomous risk management through self-inspections by the Partner Company Groups*2.
Through a self-inspection of its own risk management system, each Partner Company Group autonomously clarifies points for improvement and the lead time required to achieve improvements, identifies important risks by using a risk-based approach, and reports the identified risks to the Representative Executive Officers & Co-Presidents.
The Representative Executive Officers & Co-Presidents determine the status of implementation of the group-wide risk management system by region and by business and participate in important Executive Committee meetings to perform effective risk monitoring, give directions for risk responses and develop management strategies that integrate responses to material risks.
In addition, the Representative Executive Officers & Co-Presidents convene Global Risk Management Committee meetings to deliberate on the management of the Group’s material risks and the ongoing review and development of internal control systems for risk management, including governance and compliance. Results of these meetings are reported to the Board of Directors.
We have established a crisis management system to promptly respond to risks according to their levels of impact, by clarifying the classification of crises*3, reporting standards and persons responsible for reporting and responding to each classification of crises when they occur.
*2: Significant subsidiaries or group of subsidiaries designated by Nippon Paint Holdings.
*3: Classified into (1) Local crisis and (2) Group-level crisis. The heads of the Partner Company Groups are entrusted to handle Local crisis situations, while the Representative Executive Officers & Co-Presidents give commands and orders to respond to Group-level crisis situations.
Risk management activities
The Nippon Paint Group defines risks as incidents that underlie business activities and threaten corporate activities, and monitors risks from the standpoints of both the probability of occurrence and the extent and magnitude of damage.
Specifically, each Partner Company Group evaluates its risk management system based on the list of selected self-inspection items that are necessary for identifying business risks, and uses the evaluation results to effectively and efficiently achieve their business goals.
For self-inspection items that need improvements, improvement plans and lead time will be reported to the Representative Executive Officers & Co-Presidents, and progress will be monitored at important meetings and in the risk management report in the next year. The effectiveness of self-inspections will be checked by comparing the results with the business audit results and at the Global Risk Management Committee and other meetings.
The Partner Company Groups select their material risks based on the results of self-inspections and the external environment. The selected material risks will be reported to the Representative Executive Officers & Co-Presidents and used for monitoring management and establishing management strategies of the Partner Company Groups.
Based on the results of self-inspections in 2021, the Nippon Paint Group has identified the following risks involving the Group.
Compliance Systems and Activities
Establishment of a Global Code of Conduct and monitoring the compliance of this code as part of our risk management activities
The Nippon Paint Group has established the Global Code of Conduct for all group officers and employees to observe with respect to compliance, ethics, and sustainability. We require all group officers and employees to respect and act in compliance with this Code in promoting the Group’s businesses. As part of global risk management activities, we monitor the status of compliance of the Global Code of Conduct through self-inspections and other means. Based on the results of self-inspections in 2021, we identified compliance risks, such as information leakage and employee misconduct. In response, we provided training to meet the increasingly rigorous compliance requirements of society.
Compliance education
In Japan, we implement the Compliance Comprehension Test as part of compliance training. All officers (excluding independent directors of Nippon Paint Holdings) and employees (regular employees, contract employees, and temporary employees) took the test via a special website (or written paper test for those with no access to the website) in early November in 2021 and around the same time in 2022. The test checks the understanding of laws and regulations and internal rules concerning harassment, working hour management, including overtime, marketing activities, prevention of corruption, and the Subcotract Act. The test results are fed back to those who took the test for future reference. To prevent information leakage, e-learning and training on handling targeted attack emails were provided in 2022.
Whistleblowing Hotline
The Nippon Paint Group started using in January 2022 a Global Basic Policy of Whistleblowing Hotline. In accordance with the Nippon Paint Group Global Code of Conduct and this Policy, we require confidentiality and prohibit unfair treatment of whistleblowers. Each PCG has autonomously established a Whistleblowing Hotline based on this policy, made people aware of this system, and this system has properly been operated. Based on this Policy, each head of PCG submits a Whistleblowing Hotline operations status report once every year to the NPHD internal controls and internal audit sections. The Audit Committee and Board of Directors also receive these reports. In addition to these activities, the Co-Presidents, in a prompt or timely manner, receive information about whistleblowing reports concerning serious violations of laws and regulations, scandals, violations of laws and regulations by the management team of each PCG, other misconduct, or specific information about the possibility of this type of event. This reporting system enables the Co-Presidents to quickly give orders for responding to these events as required.
During FY2022, internal investigations were made for 62 cases at group companies in response to whistleblowing reports. Depending on the nature of the report, the departments in charge at the PCG where the whistleblowing report was received, investigate, analyze and take necessary actions. These actions for preventing violation or other improper conduct include organizational measures, and employee training.
Whistleblowing reports received in FY2022
(Number of reports)
| Working environment (industrial accidents, harassment, discrimination, etc.) | 40 |
|---|---|
| Loss of assets/Leakage of information (conflict of interest, embezzlement, illegal use of data, etc.) | 8 |
| Accounting fraud | 2 |
| Violations of laws and regulations (anti-trust law violations, insider trading, bribery, business laws violations, etc.) | 7 |
| Other | 5 |
| Total | 62 |
Anti-corruption initiatives
We at the Nippon Paint Group work to prevent bribery and corruption based on the Nippon Paint Global Code of Conduct, which stipulates that we "compete fairly," "not tolerate bribery or corruption," and "avoid conflicts of interest and act in a sensible manner when giving and receiving gifts and entertainment." We believe that preventing bribery and corruption is one of the pillars of our group’s Purpose of "Prosper Together," which guides us to always act fairly.
Transparency of taxes
The Nippon Paint Group is engaged in global business activities and business development based on our “Global Code of Conduct”, and complies with applicable laws and regulations in all countries where we do business. We believe it is our social responsibilities to maintain our compliance system and to pay taxes appropriately, and to play an important role in the society.
Further, the Nippon Paint Group ensures it builds a relationship of trust with our stakeholders, maximizes corporate value and shareholder value based on transparency of an appropriate tax management, and aims to achieve a sustainable growth as the Group.
The Nippon Paint Group tax policy is shown below:
The Nippon Paint Group Tax Policy
- Compliance with Laws and Regulations
The Nippon Paint Group complies with the spirit of the tax laws and regulations in each country where we engage in business activities and we file and pay taxes in each country.We do not engage in any tax avoidance measures, such as secrecy jurisdictions, or so-called ‘tax havens', in tax planning. We appropriately evaluate and minimize tax risks by seeking tax advice from external tax professionals as necessary.- Tax Transparency
The Nippon Paint Group understands that international initiatives such as the BEPS Project are critical for promoting tax avoidance prevention and maintaining tax transparency. We ensure tax transparency of appropriate tax management stipulated in the BEPS Project.- Transfer Price Taxation Initiatives
The Nippon Paint Group makes appropriate tax payment in each country and region by applying the arm’s length principle to determine prices for transactions conducted with foreign related parties in accordance with the OECD Transfer Pricing Guidelines.
Further, the Nippon Paint Group evaluates appropriateness in allocating profits among foreign related parties, based on function, assets and risk analysis of each group company, and also prepares transfer pricing documentation accordingly.- Relationship with Tax Authorities
The Nippon Paint Group strives to build a relationship of trust with tax authorities by maintaining open transparent communication in each country. We respond to tax information request from tax authorities in a timely manner and endeavor to immediately resolve matters of opinion between the Nippon Paint Group and tax authorities in a sincere manner.
Environmental and social activities
The Nippon Paint Group believes that the process of achieving Maximization of Shareholder Value (MSV) is predicated on the fulfillment of its environmental and social responsibilities. Based on this conviction, we conduct many environmental and social activities.
Environmental activities
The Nippon Paint Group has established the Global Team with members from our key partner companies around the world that works directly under the Directors, Representative Executive Officers & Co-Presidents. The Global Team conducts activities to identify environmental issues and measures.
We are implementing many environmental measures including climate change responses based on the Group-wide policies that have been established.
Please see here for the details.
Examples of activities concerning the strategy for climate change risks and opportunities available here.
Social activities
The Nippon Paint Group aims to achieve sustainable growth based on market growth, brand empowerment, and good relationships with communities by investing in communities through its value chains. In addition, we conduct business activities to support and promote sustainable development of every region in which the Nippon Paint Group operates.
Since our founding we have retained a firm commitment to bringing colors, comfort and peace of mind to people around the world.
Please see here for the details.