Corporate Governance

In order to speed up its response to management conditions and achieve enhanced transparency in its management, Kubota has been committed to enhancing its corporate governance structure. Moreover, by building an internal control system and implementing steady improvements continuously during its business activities, Kubota not only enforces the observance of laws and regulations, but also reduces risk.

Internal Control

Internal Control System

The internal control system of the Kubota Group is a mechanism for clearly providing the rules that should be followed during the performance of business, and for checking whether or not business has been managed according to those rules. This system consists of the segments of business management, which entails the performance of business operations based on rules, and risk management, which entails the management of major risks in management.

In business management, basic matters necessary for operating businesses are determined in business rules, and each business division checks its daily business operations in accordance with the business rules. Business rules comprise of common business rules (basic rules) and functional business rules.

In risk management, operations that each department in charge of risk management should implement are determined in the risk management rules. Based on these rules, necessary actions to be promoted for risk management are identified and the departments are audited, thereby verifying the effectiveness of the risk management.

In the internal control system, major risks in Kubota’s management are classified into the following three categories:

  1. Internal control over reliability of financial reporting
  2. Internal control over the basic functions of the company, such as fair trade, environmental conservation, and health and safety
  3. Internal control over compliance, such as compliance with rules and regulations related to equipment, and import and export control

To avoid these risks, each department in charge implements necessary actions to be promoted and conducts audits of the relevant operational division, and reports the results and the measures for the next fiscal year to the President and the Board of Directors. Thus the PDCA cycle for risk management is implemented properly.

Internal Control System Overview

Figure:Internal Control System Overview

Internal Control System Operation Activities (Risk Management Activities)

Kubota positions risk management activities as part of its business activities. Based on the awareness that risk management is the foundation of business activities, Kubota identifies risks common to the entire Kubota Group, such as those relating to the reliability of financial reporting, and exerts efforts to manage risks appropriately through continuous steady improvement to “immediately correct any inadequacies.” At the same time, while accelerating the global development of its businesses, Kubota strongly recognizes that risk management activities are the foundation for the continuity of its businesses, and strives to improve such activities both in Japan and overseas.

In FY2016, as part of Kubota’s initiative continuing from FY2015 to enforce risk management, each business division determined the risks that seemed most critical under the current circumstances.

Number of Audits and Contents of Risk Management

Risk management items Risk to be avoided Number of audited items for FY2016*1
Internal control over reliability of
financial reporting
Financial reporting
  • Risk of reliability of financial reporting
2,171
Internal control over the basic functions of the company Fair trade
  • Bid-rigging and price cartels
  • Unfair trading concerning trading with distributors, etc.
  • Non-compliance with the Subcontract Act
148
Environmental conservation
  • Non-compliance with laws and regulations
  • Environmental accidents
  • Past environmental debt
13,052
Health and Safety
  • Occurrence of serious accidents
  • Occupational illnesses
  • Administrative disposition and litigations
2,788
Quality assurance
  • Occurrence of quality problems detrimental to the Kubota brand, etc.
1,784
Labor management
  • Breach of obligation on attention to safety of employees
  • Improper management of working conditions
  • Improper management of employees under irregular employment, and contract and temporary workers
  • Occurrence of overseas labor problems
4,744
Information security
  • Computer virus infection
  • Information leakage
  • Information system failure
1,687
Intellectual property
  • Infringement of other companies’ intellectual property
732
Internal control over compliance Compliance with rules and regulations related to equipment
  • Non-compliance with laws and regulations of the Building Standards Act, the Fire Service Act, and the Industrial Safety and Health Act, etc. in connection with assets and facilities owned by Kubota
580
Earthquake and other disaster response management
  • Important managerial losses including danger to human lives due to earthquakes and other disasters, damage to equipment, and destruction of the information system
133
Compliance with the Construction Business Law
  • Non-compliance with the Construction Business Law
866
Human rights advancement*2
  • Occurrence of human rights violation issues
-
Safe driving management
  • Accidents arising from non-compliance with traffic laws and regulations and violating acts
148
Prevention of illegal payments
  • Trading with antisocial forces
  • Non-compliance with the Political Funds Control Act
  • Making inappropriate payments to overseas public servants
594
Confidential information management
  • The outflow of classified information including plans for the development and sale of new products
1,269
Protection of personal information
  • Leakage and loss of personal information related to customers, employees, etc.
  • Improper use of personal information
119
Import and export control
  • Non-compliance with laws and regulations related to importing and exporting, including the Customs Act, the Foreign Exchange and Foreign Trade Control Law, the Basel Convention, and laws related to chemical substances
117
Compliance with laws and regulations related to logistics
  • Non-compliance with the three major road laws, including the Road Traffic Act; and with the laws and regulations related to distribution, including the Labor Standards Act, etc.
610

*1 Number of audited items is a sum of the number of items audited in each of the divisions subject to audit.

*2 Activities for human rights advancement focused mainly on training, the release of information, and the follow-up of survey results.

Kubota Hotline (whistleblowing system)

As a framework to support risk management, Kubota operates a whistleblowing system. This system aims to prevent, or quickly detect and correct, any illegal or unethical acts, as well as to develop an open corporate culture.

[Types of contact points and matters handled]
  • CSR Planning Department: Compliance issues other than human rights (anonymous reporting acceptable)
  • Human Rights Advancement Department: Issues of human rights (anonymous reporting acceptable)
  • Outside lawyers: Compliance in general including human rights issues

* A Human Rights Advancement Consultation Office has been established at each company and business site so that people can more easily seek consultation.

[Available to]

Full-time, part-time and temporary employees of Kubota and its group companies in Japan

* Each overseas location handles reporting individually and notifies the Kubota head office of any significant issues.

[Protection of informants]

The Whistle Blowing System Operation Rules clearly states:

  • “the informer shall not be disadvantaged as a result of reporting an issue.”
  • “excluding cases necessarily requiring investigations and official reporting, the content of the reported issue, personal information obtained during investigations, and all other information shall not be used or disclosed.”
[Activities to raise awareness of the system]

Various creative ways have been employed to alleviate unease about the system, which is often the result of a lack of understanding.
The company newsletter and website provide information on:

  • The number of reports received for each content category, and past cases (outline)
  • The flow of processes for using the Hotline
  • The objective of the system, protection of informants, handling of anonymity, etc.
[Number of cases reported]

Jan.–Dec., 2015 37 cases
Jan.–Dec., 2016 30 cases

* Including enquiries and matters that were found not to be problematic as a result of investigation

[Other]

Moreover, the Kubota Group Employee CSR Awareness Survey, which is answered in anonymity, has a space to accept free comments, as an opportunity for employees to frankly give reports and opinions to the Company. Thus, Kubota strives to develop an open corporate culture.

Flowchart of Kubota Hotline

Figure:Flowchart of Kubota Hotline

Securing reliability of financial reporting

Our Corporate Auditing Department and the auditing divisions of our subsidiaries conduct regular internal audits in order to confirm the reliability of financial reporting for the entire Kubota Group, including its overseas subsidiaries.

The Corporate Auditing Department has also created a system for evaluating the effectiveness of internal controls on a Group consolidated basis. This assessment is based on the results of the abovementioned auditing results, and conforms to the internal control reporting system related to financial reporting stipulated by the Finance Instruments and Exchange Act (J-SOX) and other ordinances.

Compliance with the Anti-Monopoly Act/Competition Law

Despite the various Group-wide activities conducted to ensure compliance with the Anti-Monopoly Act, Kubota Corporation and Kubota Agri Service Corporation were subject to an on-the-spot inspection by the Fair Trade Commission in November 2013, and consequently received a cease-and-desist order and a fine. In response to this, the President delivered the following message: “Ensuring compliance is a requisite for the continuity of the Company, and any violation of compliance, whatever the motive, is an act of betrayal of the company and society. ‘No sales or profits achieved by undermining corporate dignity exist in the Kubota Group.’ Always keep this principle in mind when you act.” With this message, the President reaffirmed the importance of the thorough implementation of compliance in business activities.

Education and enlightenment activities

Kubota continuously offers training programs on the Anti-Monopoly Act/Competition Law for not only its business divisions but also Group companies both in Japan and overseas, thereby instilling and raising awareness of compliance with laws and regulations. Legal training programs, which cover a broad range of legal matters including competition laws, are also provided for employees who are to be dispatched to overseas Group companies as managers.

Auditing and risk management surveys

In addition to continuously conducting audits under the Anti-Monopoly Act targeting the business divisions of Kubota Corporation, the Company is also carrying out risk management surveys for its Group companies both in Japan and overseas. These initiatives are effective for finding out the real situations of business activities and preventing violations. In China, where legal regulations have been increasingly tightened, Kubota, jointly with lawyers and other legal specialists, conducts surveys on risks related to business activities, with a view to enhancing its risk management system.

Maintaining the consultation system

Kubota shares information with the relevant business departments and Group companies on matters related to business activities that require examination under the Anti-Monopoly Act, and facilitates advance consultation with external experts, including lawyers.

Compliance with the Act against Delay in Payment to Subcontractors

Kubota conducts written surveys targeting each of its business divisions and Group companies in Japan on a periodic basis. At the same time, Kubota also offers training programs to promote understanding of the Act against Delay in Payment to Subcontractors at each business site and holds consultancy sessions, with the aim of improving the level of voluntary risk management activities.

Information management

Kubota is aware that the appropriate protection and management of personal information of its customers and other stakeholders is an important social responsibility. In order to secure its competitiveness, Kubota is also devoted to preventing the leakage of confidential information such as technological information.

Depending on the type of information, Kubota appoints its main divisions to conduct ongoing activities such as revising rules, auditing and awareness-raising at their respective locations. These activities are also conducted at overseas bases. When necessary, these divisions cooperate with each other in risk management.

In FY2017, Kubota provided an education program and check tests on information security for all employees who use IT devices in their daily operations at Kubota, so as to enable them to deal with the recent rise of IT-related threats. We will have each group company to implement these measures in sequence.

Information management system

Figure:Information management system

*Initiatives to ensure information security

To enhance security for personal information and other information assets of the customers, Kubota promotes on a company-wide basis the implementation of the initiatives below:

(1)
Establishing the Group-wide information security policy, continuously developing various regulations and guidelines, and monitoring the status of compliance therewith
(2)
Assigning personnel in charge of promoting information security (IT Manager) at each workplace, and implementing Group-wide measures based on the policies formulated by the department in charge
(3)
Introducing to all PCs an automatic monitoring program to constantly monitor the status of various security protection measures, such as anti-virus systems. Overseas, taking into consideration each local situation and improving information security in cooperation with the IT managers of each local site.
(4)
Providing IT managers and sub-managers with education and enlightenment programs on a periodic basis. For Group employees, also providing e-learning courses on personal information protection and information security, with the aim of raising understanding of the information security matters that each employee should observe.

Information security structure

Figure:Information security structure

Prevention of illegal payments

Photo:Anti-bribery training session in mainland ChinaAnti-bribery training session in mainland China

Among illegal payments, Kubota has placed particular focus on preventing bribery, and has formulated the Kubota Group Anti-Bribery Policy, which delivers to all officers and employees a clear message from its top management that bribery will not be tolerated under any circumstances.

In response to this message, Kubota has employed the risk-based approach, in which risk assessment is conducted in advance to determine the departments, markets and business forms that are exposed to high risk, and prioritized risk management activities are conducted to tackle them. With this approach, Kubota aims to develop and operate effective programs. In FY2016, Kubota conducted written surveys at 92 of its departments/companies in Japan and 64 of its overseas bases as part of its risk assessment.

Also, Kubota has established the Prevention of Illegal Payments Committee to investigate whether preventative frameworks are in place and sufficiently functioning in accordance with the Rules for Preventing Illegal Payments, as well as whether or not there have been any illegal payments.

As an effort to educate directors and employees on the prevention of bribery, the Company repeatedly and continuously holds training sessions using the Kubota Group Handbook for Anti-Bribery. At these training sessions, the latest information is provided on laws and regulations related to preventing bribery as well as appropriate responses to bribery risks.

The Kubota Group Handbook for Anti-Bribery contains the globally common contents, and has been prepared in Japanese, English, Chinese, Indonesian, Tagalog, Korean and Vietnamese.

Kubota is also preparing a handbook for each country, containing more detailed information on the points to be noted and actions to be taken in the respective country or region. At present, the handbook for the People’s Republic of China has been formulated, with which training sessions by Chinese lawyers have been provided for 1,100 members of 10 Kubota Group companies located in China. The handbooks for South Korea and Indonesia are now being prepared in cooperation with local law firms.

The policies for these risk management activities and the results of the activities are periodically reported to the President and the Board of Directors through the Company-wide Risk Management Committee, composed mainly of Directors, and based on their feedbacks, the contents of the activities are occasionally revised, thereby improving the level of the activities.

The Kubota Group Anti-Bribery Policy (excerpt)

As specified in the Kubota Group Charter for Action, we commit ourselves to “conducting corporate activities based on compliance with legal regulations and ethical principles”. As such, the Kubota Group never allows any business based on unfair practices such as bribery. The Group also strictly prohibits all of its companies, officers and employees from being involved in bribery.

President, Kubota Corporation

Kubota Group Charter for Action & Code of Conduct

All the employees working for the Kubota Group, including those overseas, are required at the time of joining the Group to submit a written pledge that they will comply with the Kubota Group Charter for Action & Code of Conduct, and the corporate philosophy, the Kubota Global Identity.

Various other awareness-raising tools are prepared for business bases in Japan with the aim of fostering a compliance-based mindset.

Kubota Group Charter for Action & Code of Conduct (items)

  1. Winning Customer Satisfaction
  2. Conducting Corporate Activities Based on Compliance with Legal Regulations and Ethical Principles
  3. Respecting Human Rights
  4. Building up a Safe and Vibrant Work Environment
  5. Conserving the Global and Local Environment
  6. Achieving Symbiosis with International and Local Societies
  7. Fulfilling Responsibilities for Improving Management Transparency and Accountability

Tools for awareness-raising

Code of Conduct Guidebook

A guidebook describing the Kubota Group Charter for Action and Code of Conduct in a straightforward way using illustrations and explanations. It is provided as a booklet to new employees and is also featured on the company Intranet.

Compliance Support Courier

A document that uses illustrations and Q&As to encourage employees to think about common compliance issues. Distributed monthly by e-mail.

Let’s Keep Learning about CSR

A cartoon that introduces common compliance and CSR issues. Featured in the company newsletter every other month.

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