Corporate Governance, Internal Controls, and Compliance and Risk Management

Promoting Sound and Proper Corporate Management

Omron is committed to maintaining and exercising a proper corporate governance system while increasing management transparency. To ﬁ rmly establish a high standard of corporate ethics, we will continue to enhance our compliance system and strengthen the risk management framework that supports ongoing improvement in corporate value. Corporate Governance

Basic Policies business execution activities as a representative of the At Omron, senior management was quick to realize the Company’s stakeholders. Furthermore, Omron has estab- importance of corporate governance and has progressively lished the Personnel Advisory Committee, the CEO Selection developed foundations for supporting good corporate gover- Advisory Committee, the Compensation Advisory Committee, nance. As such, Omron has worked to drive the spread of and the Corporate Governance Committee, all chaired by such foundations in Japan and other countries by having outside directors. In this manner, the Company is working to offi cials assuming principal posts in relevant external organi- increase the transparency and objectivity of management’s zations and through other means. decision-making process. Omron’s basic policy is to fortify corporate governance By incorporating the best aspects of the Companies based on the belief that the most crucial factor in earning with Committees system, we have created a type of hybrid stakeholders’ support is building an optimal management corporate governance regime that we feel is the most structure and conducting fair business operations while appropriate for the Company. enhancing the mechanism (a super visory system) for such verifi cation and realizing sustainable growth. Auditing Functions In line with this basic policy, Omron has adopted an execu- The Audit & Supervisory Board, composed of four audit & tive offi cer system and clearly separates management over- supervisory board members, audits governance practices sight and business execution. Under an internal company and monitors the everyday management activities of the

system, Omron is realizing faster decision making and ef- Board of Directors and other management staff as well as Foundation Corporate Value fi cient business operations by delegating substantial authority the nature and operational conditions of the corporate gover- to the president of each internal company. Moreover, autono- nance regime. The Internal Audit Division, which reports mous individual business units that can specialize in creating directly to the president and CEO, periodically conducts value for customers take the initiative in conducting business. internal audits of accounting, administration, business risks, At the same time, through commitment-based management, and compliance in each headquarters division and in each we clarify roles and responsibilities and practice corporate business company as part of its internal auditing function. value management based on shareholder value. Moreover, the Internal Audit Division offers specifi c advice for improving business functions. Management and Oversight Frameworks Omron is a “Company with Audit & Supervisory Board.” Appointment of Outside Executives The corporate governance regime has a supervisory and To allow the Board of Directors to monitor business execution observational function pertaining to the actions of the Board as a representative of the Company’s stakeholders, two of of Directors and also involves auditing carried out by the the seven directors are outside directors and two of the four Audit & Supervisory Board. audit & supervisory board members are outside members. Omron has set the number of members of its Board of Emphasizing the independence of outside executives, Directors at seven to encourage effi cient and meaningful Omron has formulated its own original Outside Executive discussion. Since June 2013, the Company has begun in- Eligibility Criteria in addition to the requirements under Japan’s creasing the number of directors serving concurrently in Corporate Law. positions related to business execution. This revision will Also, the Corporate Governance Committee takes steps to effectively expedite decision making by directors and improve confi rm the Outside Executive Eligibility Criteria do not pose the effi ciency of business execution. In addition, the any problem with respect to determination criteria concerning Company has appointed outside and independent directors, independence formulated by the appropriate securities ex- thereby ensuring that directors concurrently fulfi lling busi- change. After obtaining a resolution of the Board of Directors, ness execution roles do not represent a majority in the notifi cations are submitted with the appropriate securities Board of Directors. In this manner, we are simultaneously exchange for all outside executives as independent offi cers. improving corporate governance functionality. To increase objectivity in management, the positions of chairman and president and CEO are separated. At the same time, every effort is made to bolster management oversight functions. The chairman of the Board of Directors monitors

Integrated Report 2013 77 Corporate Governance Initiatives

1999 2003 2011

1987– 2003– 2011– President President Yoshio Tateishi President Hisao Sakuta President Yoshihito Yamada Chairman of the Board of Directors/CEO President serves as Board of Directors’ Chairman and CEO Chairman serves as Board of Directors’ Chairman / President serves as CEO Separation of management 1999~ Number of directors reduced to seven oversight and 30 directors business execution 1999~ Introduction of executive officer system

Advisory Board 1999 Advisory Board

One 2001 2003~ Two members (seven directors) Outside directors member

Audit & Supervisory Board One 1998 1999~ Two members 2003~Three members (four auditors) 2011~Two members (four auditors) members (Part-time) member

1996 – Management Personnel 2000 – Personnel Advisory Committee Advisory Committee

Advisory committees 2003 – Compensation Advisory Committee

2006 – CEO Selection Advisory Committee

2008 – Corporate Governance Committee

Corporate Corporate Omron Principles Revised in 1998 Revised in 2006 philosophy motto formulated in 1990 formulated in 1959

Corporate Governance Structure

Shareholders’ Meeting

Audit & Supervisory Board Board of Directors Chairman: Chairman of the BOD Personnel Advisory Committee Audit & Supervisory Board Office Board of Directors Office CEO Selection Advisory Committee Accounting Auditor Compensation Advisory Committee Corporate Governance Committee

Executive Organization President & CEO

Executive Council CSR-Related Committees* Head office divisions Business companies (Internal companies) Internal Audit Division

* This includes: Corporate Ethics & Risk Management Committee, Information Disclosure Executive Committee, Group Environment Activity Committee, etc.

Board of Directors (BOD) Personnel Advisory Committee Compensation Advisory Committee Executive Council The BOD oversees business activities This committee, chaired by an outside This committee, chaired by an outside This council determines and reviews and decides important business matters, director, sets election standards for director, determines the compensation important business operation matters such as management objectives and directors and executive ofﬁ cers, selects structure for directors and executive that are within the scope of authority strategies. candidates, and evaluates current ofﬁ cers, sets evaluation standards, of the president. executives. and evaluates current executives.

Audit & Supervisory Board CEO Selection Advisory Committee Corporate Governance Committee This board oversees the corporate This committee, chaired by an outside This committee, chaired by an outside governance system and its implementa- director, is dedicated to the nomination director, discusses measures to con- tion and audits the day-to-day operations of presidents and deliberates on the tinuously enhance corporate governance of directors and other executives. selection of the new president for the and increase fairness and transparency upcoming term and on preparing in management. contingency succession plans.

Director and Audit & Supervisory Board of the Board of Directors, and the amount of compensation Member Remuneration for each audit & supervisory board member is determined by To increase objectivity and transparency, the Compensation discussions among the audit & supervisory board members Advisory Committee, chaired by an outside director, is con- (resolution of the Board of Corporate Auditors). sulted on the compensation of directors. This committee The following amounts are within the scope of the discusses the compensation of each individual and makes aggregate compensation amounts for all directors and all recommendations. audit & supervisory board members, as each has been set After receiving these recommendations, the amount of by a resolution of the General Meeting of Shareholders. compensation for each director is determined by a resolution

78 Omron Corporation Fiscal 2012 Director and Audit & Supervisory Board Member Remuneration (Millions of yen)

Classiﬁ cation Number of People Basic Compensation Bonus Total Remuneration Directors 7 360 144 504 (Outside Directors) (2) (21) (–) (21) Audit & Supervisory Board 4 82 – 82 Members (Part-time) (2) (17) (–) (17) Total (Total for Outside 11 442 144 586 Directors and Audit & (4) (38) (–) (38) Supervisory Board members)

* Director compensation consists of basic compensation (monthly salary), bonus, and stock-based compensation*1. * Outside director compensation consists of basic compensation (monthly salary). * Audit & supervisory board member compensation consists of basic compensation (monthly salary).

*1 Stock-based compensation is administered following guidelines specifying set remuneration amounts to be paid on a monthly basis and utilized to acquire Company stock (through a director stock ownership plan), which is then held during the individual’s tenure.

Appointments of Directors and Audit & Supervisory Board Members

Personnel Advisory CEO Selection Compensation Corporate Governance Position Name Committee Advisory Committee Advisory Committee Committee Chairman of the BOD Fumio Tateishi Representative Director and President and CEO Yoshihito Yamada Representative Director and Executive Vice President Yoshinobu Morishita Senior Managing Director Akio Sakumiya Senior Managing Director Yoshinori Suzuki Outside Director Kazuhiko Toyama* Outside Director Eizo Kobayashi*

Audit & Supervisory Board Member (Full-time) Masayuki Tsuda Foundation Corporate Value Audit & Supervisory Board Member (Full-time) Tokio Kawashima Audit & Supervisory Board Member (Part-time) Eisuke Nagatomo* Audit & Supervisory Board Member (Part-time) Yoshifumi Matsumoto*

Indicates Chairperson * Independent Offi cer Internal Controls Maintaining and Operating an Internal Two Types of Internal Audits to Control System to Ensure Healthy and Ensure Healthy and Effective Effective Organizational Operations Organizational Operations Omron has established the Basic Policy on the Maintenance Omron conducts two types of internal audits to ensure the of an Internal Control System to ensure the healthy and healthy and effective operation of its organization. effective operation of its organization. This policy provides The Internal Control Audit is conducted to ensure the the basis for the maintenance and operation of an internal internal controls are functioning effectively in each of the four control system throughout the Omron Group to ensure the objective areas of fi nancial report accuracy, legal compliance, controls are functioning effectively in each of the four objec- operating effi ciency, and asset safeguarding. The Manage- tive areas of fi nancial report accuracy, legal compliance, ment Audit examines the solutions and improvement mea- operating effi ciency, and asset safeguarding. sures implemented for specifi c management issues. In the Omron maintains a monitoring system undertaken by event the results of these audits include items recommend- the Internal Audit Division after each division and subsidiary ed for improvement, the Company supports measures to conducts its own review of the maintenance and operation carry out the improvements. of business processes in accordance with the Internal Con- In addition, the Omron Group has established the Audit & trol Reporting System (J-SOX) requirements of Japan’s Supervisory Board Offi ce and placed full-time auditors in each Financial Instruments and Exchange Act, promulgated in of its four regions of global business—Americas, Europe, June 2006. The reviews enable each division and subsidiary Greater China, and Asia Pacifi c—to implement internal audits to deepen their understanding of the internal controls associ- based on local practices and legal systems at its business ated with fi nancial reporting and thereby serve as a system sites worldwide. for promoting self-governing controls.

Integrated Report 2013 79 Compliance and Risk Management Strengthening Global Response Systems Risk Management Aiming to promote legal and regulatory compliance across Omron conducts global risk analyses each year, based on the Group, Omron set up the Group Corporate Ethical Con- which the Company identifi es major risks and then responds duct Promotion Committee. In addition, we have installed to these risks in a prioritized manner. The following is an stringent legal affairs and compliance functions into regional explanation of such risks and the measures being imple- head offi ces overseas to ensure that we can practice effec- mented in response to these risks. tive compliance and risk management in each region, whether overseas or in Japan. • Business continuity risks In recent years, economic and business globalization has The Company has established a business continuity plan been accelerating, bringing about changes in legislation and (BCP) to minimize the impacts of emergency situations on other elements of the external environment. At the same operations. This plan contains provisions deemed necessary time, Omron is progressively advancing its operations on a to facilitate the safety as well as the continuity and early global scale, which includes expansion into emerging coun- restoration of business operations in the event of a large- tries, and this expansion has resulted in exposure to risks scale earthquake, such as a quake in the Nankai Trough or that could not be previously predicted. In order to respond directly under the Tokyo metropolitan area, or other natural to such changes in external and internal conditions, we disasters; fi res; a worldwide outbreak of a new form of have positioned compliance as a matter to be considered infl uenza virus; and other emergency situations. To this end, alongside risks, and we are conducting integrated global the plan defi nes the conditions under which it will be insti- risk management initiatives accordingly. Commenced in tuted, describes methods of deciding alternative bases and fi scal 2011, these initiatives are geared toward addressing transferring functions, and sets out what procedures are risks faced by the Group, such as natural disaster risks, in core to the Company’s operations. Related operating manu- an integrated manner. als have also been established. In fi scal 2012, Omron revised the Group Corporate Ethical We are continually improving our BCP by confi rming Conduct Promotion Committee, transforming it into the its effectiveness and conducting BCP-related evaluations Corporate Ethics & Risk Management Committee to enable and drills. better responses to compliance matters and other risks on a global scale. The membership of this committee consists of • Risk of violation of laws in countries of operation compliance and risk management representatives from the Omron develops its operations on a global basis, and it is corporate headquarters and each business company as well therefore necessary to take precautions against violating as from regional head offi ces. In addition, we have appointed laws related to the prevention of bribery of public offi cials, risk managers at all Group companies in Japan and abroad personal information protection, antitrust measures, and and are taking other steps to create systems that allow for security trade control. For this reason, the Company con- quick responses to risk-related matters on a global basis. ducts employee education and training programs to ensure Further, we have established the Basic Principles of Integreat- that employees are able to act in compliance with such laws. ed Global Risk Management. These rules are applicable throughout the Omron Group, both in Japan and overseas, • Information leakage risk (information security) and serve as a framework for implementing an integrated Omron has the basic policy of fulfi lling its responsibility global risk management plan-do-check-act (PDCA) cycle. toward customers, society, investors, and other stakehold- In accordance with the Basic Principles of Integreated ers through appropriate security management. In accor- Global Risk Management, we identify major risks faced by dance with this policy, we conduct integrated management the Omron Group by collecting and analyzing risk-related of confi dential and personal information. Periodically, we also information. The Executive Council then guides the entire conduct employee training, checks of information manage- company in implementing countermeasures to prevent the ment conditions at worksites, investigations of information realization of such risks. In response to crises, we have management by subcontractors, and information security established the Global Crisis Management Rules, which monitoring. Further, information security measures are defi ne a “crisis” as any event that has or may have a signifi - constantly revised in accordance with the fi ndings of these cant negative impact on the continuation of management activities and changes in the external environment. and business activities by the Omron Group or any event Overseas, we implement technological information leak- that does or may harm the social credibility of the Company. age prevention measures and monitor information manage- These rules cover a wide range of areas while also outlining ment at our various overseas production and R&D bases, basic policies, reporting procedures, and the establishment implementing improvement measures as necessary. In of an Emergency Response Headquarters. addition, subsidiaries have formulated internal information In fi scal 2013, regional head offi ces will play a central role management regulations in accordance with globally in practicing integrated global risk management in order to accepted rules and standards. raise overall responsiveness to change, which will be es- Recently, we have strengthened technological information sential to ensuring Omron becomes a stronger company. security in light of the possibility of a cyber-attack against our

80 Omron Corporation information systems. Going forward, we will continue to Whistle-Blower Hotline improve the level of information security management in Establishing operational regulations with clearly Japan and around the world. stated provisions for the protection of whistle-blowers In 2003, a whistle-blower hotline was established for Omron • Risks associated with transferring employees Group executives, full-time employees, and temporary staff across borders as well as their families. Staff of the Legal Affairs Depart- As Omron accelerates the global expansion of its operations, ment handles hotline information within the Company, while it is seeing a rise in the number of opportunities for person- an external attorney offi ce serves to accept information. In nel to be exchanged between companies and for employees operating the whistle-blower hotline, we have established to work in cooperation with people of various different na- internal regulations ensuring strict maintenance of security tionalities. This in turn has increased the possibility that labor and the protection of whistle-blowers from any detrimental issues may appear due to differences in culture, customs, or treatment. Moreover, Omron informs employees of the treatment. availability of the hotline through corporate ethics cards, To prevent such issues from occurring, we are enhancing through the intranet, and during new employee training. risk communication efforts and bolstering our ability to Overseas, a similar whistle-blower hotline has been estab- manage people with different cultural backgrounds. lished for operations in Americas, which was the fi rst area to establish such a hotline outside of Japan. • Purchasing and procurement risks In fi scal 2012, operations in Europe were equipped with a Omron conducts procurement by selecting reliable suppliers whistle-blower hotline, joining the ranks of Japan and the and asking that they cooperate with certain requests. These Americas, and such hotlines were installed for operations in requests include those related to compliance and prohibition the Asia Pacifi c region at the end of the fi scal year. During of child labor, forced labor, and bribery. fi scal 2012, a total of 20 hotline reports and consultations From the perspective of socially responsible procurement, were made in Japan, six were made in the Americas, and Omron endorses the efforts to address confl ict minerals one was made through the new hotline in Europe. issues that were instigated in the United States. Accordingly, In fi scal 2013, we will install a whistle-blower hotline in the we conduct investigations of major suppliers to determine remaining Great China area. Further, in Japan and overseas, whether or not they use confl ict minerals and are otherwise we will continue to promote employee awareness as to the Foundation Corporate Value addressing this issue in our mineral procurement efforts. We hotlines’ existence and analyze case studies to help enhance are committed to conducting appropriate purchasing and the skills of advisors. In these ways, Omron will improve its procurement activities, and, should the use of any confl ict response to whistle-blowing. minerals in Omron Group products be discovered, we will take corrective action as quickly as possible.

• Environmental management risks The Group works to comply with a wide variety of environmental laws and regulations, including those related to climate change, air and water pollution, hazardous sub- stances, waste, product recycling, and the contamination of soil and groundwater. In ﬁ scal 2013, we will implement measures to further improve our responsiveness to environmental laws and regulations, with a particular emphasis placed on our operating sites and factories. These measures will include training related to such laws and regulations, compliance-related audits at production sites in China and the Asia Paciﬁ c region, and education programs on auditing methods for ensuring legal compliance.

Integrated Report 2013 81