GOVERNANCE Risk Management

Basic Concepts

Our third medium-term plan, Field Expansion 2024, commits us to tweaking existing businesses and expanding into new business fields. We must therefore detect risks that could disrupt these efforts and then actively develop measures to address these risks. To that end, we are enhancing our risk sensitivity and developing a risk management program involving both management and frontline staff.

Risk Management Structure

We have the Risk Management Committee, a body that advises the President and CEO on risk management. The committee ascertains and assesses a broad set of risks that could potentially impact Kokuyo Group and then spearheads efforts to control (avoid, mitigate, transfer, accommodate) these risks. and reports its findings to the CEO. If the committee determines that a risk has a high level of threat or urgency, it informs the Board of Directors and Audit and Supervisory Committee.
Our risk management structure is designed to enable an integrated approach in which the management of risks affecting Kokuyo Group as a whole is integrated with business strategy, with the right balance between risk and return. It is also designed so that risk management frameworks and processes are coordinated with governance and internal controls. To that end, in non-emergency times, the committee holds regular quarterly meetings to provide unified management of risks that have occurred in the Kokuyo Group and to monitor corrective/preventive action and risk response planning as part of an ongoing PDCA cycle.
Information security risks and occupational risks are regularly monitored by the Risk Management Committee’s subcommittees.
For information security risks, we evaluate vulnerabilities in our software, operating systems, and network devices, including those in overseas sites. For occupational risks, we use an employee satisfaction survey, among other data, to identify occupational risks in group companies. In these ways, we are managing each risk as part of an organization-wide effort to ensure effective and efficient risk management.

Business risks affecting Kokuyo

The following table shows the risks we have identified and the measures we are taking to address these risks. The risks are divided into external risks and risks related to business operations. In the knowledge that the scope of our business will change as we expand the reach of our business fields and nurture new business ideas, we will stay vigilant so that we can detect new risks relevant to our business operations and take the appropriate action.

Risks affecting Kokuyo and Measures to address these risks

Business Risks		Identified risks	Measures
External Risks	Economic Risks	Economic fluctuations in Japan could affect corporate earnings and in expenditure on fixed assets. Economic uncertainties prevail in China and other important overseas markets	Shift business model from tangibles to intangibles Go further in overseas expansion and improve coordination with local subsidiaries
	Market Risks	Market decentralization and digitalization diminish Kokuyo Group’s competitive advantage The quality of our services might diminish amid staff shortages in logistics and construction	Use portfolio management to ensure optimal allocation of corporate assets Minimize workload in logistics and construction without sacrificing business continuity and growth prospects
	Risks Associated with Changes in Fair Value	Fluctuations in financial markets reduce the fair value of our investment securities	Regularly assess holdings to determine whether it is worth continuing to hold them; consider selling and offloading holdings
	Risks Associated with Natural Disasters and Infectious Disease Outbreaks	A major natural disaster could cause a suspension in business activities or a reduction in business activities in Japan or overseas	Engage in business continuity planning and regularly review the plan to ensure it is effective
Risks Related to Business Operations	Compliance Risks	A violation of regulatory requirements (related to quality, environment, labor, etc.) might be detected or confirmed	Establish the Kokuyo Group Code of Conduct, continually spread awareness of the code Ensure regulatory response by regularly monitoring regulatory developments and compliance with the latest regulations
	Quality Risks	A product recall could harm our performance and reputation	Implement and operate a quality management system aligned with ISO 9001
	Procurement Risks	Performance is vulnerable to fluctuations in raw material prices and exchange rates Deficiencies in ESG could harm our performance and reputation	Use forward exchange agreements, optimize local procurement ratios, and diversify suppliers Use Sustainable Procurement Guidelines to promote mutual business growth with supply-chain partners
	Talent and Labor Risks	Delays in attracting and training talent could stunt business growth An occupational accident or employee health issue could harm our performance or reputation	Follow the Talent Management Policy and use Kokuyo Academia (a talent development organization) to expedite investments in talent development With the guidance of the Labor Subcommittee, provide employees enough disposable time to safeguard their wellness and plan their career
	Information Security Risks	Performance could be harmed by a cyberattack that causes system failure or the leakage of sensitive business information or customers’ personal data	Use vulnerability analysis to enhance security, have the Information Security Subcommittee regularly monitor information security Improve system failure detection and cyber-defenses, back up data regularly Set rules on the handling of customer and personal data, inform employees about information security risks
	Investment Risks	Macroeconomic changes could harm the performance of companies in our investment portfolio	Consult outside experts during the investment vetting process, keep improving the monitoring process

Promoting compliance

Kokuyo Group Code of Conduct

Operations across the Kokuyo Group are governed by a range of laws and regulations, including those related to quality, business transactions (including fair trade), environmental impact, labor, health & safety, accounting and tax, bribery, and information management. To ensure that we always comply with these laws and regulations and uphold high ethical standards in all our business activities, we have established the Kokuyo Group Code of Conduct, which all employees are expected to follow. This code applies to everyday business activities across the global group. Among other things, the code emphatically prohibits employees from bribing public-sector or government officials.

Whistleblowing hotline

We have a group-wide hotline (the Kokuyo Group Hotline). Employees can use the hotline to raise concerns about compliance or business ethics when they feel uncomfortable raising such concerns through the usual channels, or if they doubt that the usual channels would resolve the issue satisfactorily. For workplaces in Japan, we have provided a hotline to a third-party whistleblowing service to help protect the anonymity of whistleblowers. For workplaces overseas, we provide a hotline that any member of the Kokuyo Group can use. We believe that if the hotline receives a certain amount of inquiries/reports in a given year, that is a sign that it is working effectively. In FY2023, the hotline received 20 inquiries/reports.
In June 2024, we made the Kokuyo Group Hotline available to our trading partners to contribute to healthy trading relationships and mutual prosperity.

Kokuyo Group Hotline (for trading partners)

Business Continuity Planning

We have developed a business continuity plan, which we continually review and revise as part of a business continuity planning lifecycle. The plan includes measures for maintaining a stable supply of goods when an emergency such as a natural disaster disrupts operations in our plants or offices. Mindful of the threat of catastrophic events such as earthquakes, extreme storms, flooding, fires, major power outages, and infectious disease, we have reaffirmed the importance of getting the initial responses right and minimizing the damage from such calamities. We use emergency manuals, emergency drills, and similar means to ensure that every employee will act safely in an emergency to safeguard human life.
In view of the rising concern for sustainability (ESG, SDGs), our emergency power sources include solar power systems and reserve batteries.

Initiatives Regarding Management of Intellectual Property Rights

As one of the strategies to differentiate ourselves from competitors, the KOKUYO Group promotes the following initiatives to encourage the acquisition of intellectual property rights, and at the same time, to respect intellectual property rights of others.

Management and Operational Structure of Intellectual Property Rights
Our legal department has a unit devoted to managing intellectual property (IP) for our subsidiaries in Japan and overseas. The unit works to standardize and unify the use of, and strategies concerning, intellectual property across KOKUYO Group.
The unit’s duties include managing procedures for obtaining protections for our IP (inventions, designs, and trademarks), conducting preliminary surveys to ensure that we avoid violating the IP rights of others, and monitoring rival products to check for potential violations of our own IP rights. Should a dispute occur, the unit will coordinate with the management to enable a swift and satisfactory resolution.
Protection and Legal Compliance of Intellectual Property Rights
The KOKUYO Group Code of Conduct stipulates that we respect the intellectual property rights of others while the intellectual property unit establishes and operates the system for research, analysis, and close investigation to prevent and avoid the violation of rights held by others. In addition, awareness-raising activities for respecting the intellectual property rights of others and improving awareness of legal compliance are conducted for development departments through training as the necessity arises and as part of daily work.
Promotion of Creation and Utilization of Intellectual Property Rights
The intellectual property unit and development departments work closely from the early stage of development to increase the superiority of the products in the market and focus on creating and discovering inventions that contribute to differentiation from competitors’ products. We also aim to adhere to Sec. 35 of the Patents Act and establish an incentive system for employee invention as an internal rule, with the aim of increasing customer satisfaction and encouraging inventions that strengthen the Group’s development.

Initiatives Regarding Information Security

The KOKUYO Group undertakes the establishment of an information security management system, adherence with relevant laws and regulations, and safety management of confidential information (customer information, personal information, etc.) in our possession obtained as part of our business.

Laws and ordinances regarding information security and other standards are adhered to.
Personal information is managed according to the Personal Information Protection Policy defined by the KOKUYO Group.
Appropriate safety measures are taken in order to prevent unauthorized access to information assets, as well as loss, falsification and leakage, etc. of information assets.
Regulations and rules regarding the management and use of information assets are formulated and revised, and education is continually conducted to employees about these regulations and rules.
Inspections and improvements are continually conducted on the management system and initiatives related to information security.