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Corporate Governance

Basic Stance

Since its founding, Idemitsu has consistently maintained the utmost respect for people and has worked diligently to be a socially respected and highly trusted company. With this aim in mind, the Company recognizes the importance of maintaining positive relationships with all stake holders, including customers, shareholders, business partners, local communities and employees, by fulfilling its social responsibility as a good corporate citizen, improving management transparency and promoting sound and sustainable growth.

Corporate Governance Structure Check List

Type of governance structure: Company with an Audit & Supervisory Board
Number of executives set in the Company’s Articles of Incorporation 20, at most
Length of term set in the Company’s Articles of Incorporation 1 year
Head of Board of Directors Representative Director & CEO
Number of directors 10
Outside directors appointed or not Appointed
Number of outside directors 2
Number of independent officers among the outside directors 2
Audit & Supervisory Board established Yes
Number of Audit & Supervisory Board members set in the Company’s Articles of Incorporation 6, at most
Number of Audit & Supervisory Board members 5
Outside Audit & Supervisory Board members appointed or not Appointed
Number of outside Audit & Supervisory Board members 3
Number of independent officers among the outside Audit & Supervisory Board members 3

Outline of the Corporate Governance Structure

Idemitsu has adopted the structure of a company with an audit & supervisory board, established a robust corporate governance system and continues to engage in activities aimed at improving its capabilities in this area. The Board of Directors consists primarily of directors who are conversant with the Company's businesses from the viewpoint of improvements in management efficiency. To ensure that objective perspectives are taken into account by management, the Company has appointed two outside directors (independent officers) to the Board since the 99th Ordinary General Meeting of Shareholders on June 26, 2014.

The Board of Directors is presently composed of 10 members, including the Representative Director & Chief Executive Officer. The functions of the Board include decision making with regard to management matters as well as managing and supervising business execution. Each member's term lasts one year, and elections are held every year at the General Meeting of Shareholders. The Board of Directors meets once a month in principle to decide important matters and oversee the execution of operations. In fiscal 2014, the Board of Directors met 15 times.

Idemitsu has appointed executive officers to make the execution of operations more efficient. Executive officers are appointed by the Board of Directors and have authority over and responsibility for business execution of the multiple operating divisions which they control or supervise.

Idemitsu appointed independent Audit & Supervisory Board members as a way to oversee management. Of the five Audit & Supervisory Board members, three are outside members and there is a system in place to allow them to carry out their function of external oversight of management. Meetings of the Audit & Supervisory Board are held once a month in principle. At these meetings, the board strives to share issues and information among the Audit & Supervisory Board members and requests information from the directors and operating divisions as necessary in order to improve the level of oversight. In fiscal 2014, the Audit & Supervisory Board met 16 times.

Officer Remuneration

Remuneration for directors was set at no more than ¥1.2 billion annually at the 91st Ordinary General Meeting of Shareholders on June 27, 2006. The representative director delegated by the Board of Directors set this amount in consideration of the report submitted by the Director Remuneration Advisory Committee, which comprises four members, including two outside Audit & Supervisory Board members. Remuneration for fiscal 2014 amounted to ¥765 million for 20 individuals, including outside directors and Audit & Supervisory Board members. Outside of basic remuneration, the Company provides no stock options, bonuses, employee salaries, retirement allowances or other forms of remuneration.

Management Committee and Other Committees and Headquarters

Idemitsu established the Management Committee to discuss and consider management strategies and issues for the Group as a whole and for each operating division. Furthermore, the Risk Management Committee and the Compliance Committee were established as subordinate organs to the Management Committee.

Idemitsu has also established the Committee for the Evaluation of Internal Controls over Financial Reporting, which considers and deliberates on items concerning annual preparations, operating policies and evaluation plans, as well as decisions on the scope of evaluations.

The Company has established the Safety & Environmental Protection Headquarters, which plans basic policies and important matters related to environmental management and ensures safety and security in the business operations of Idemitsu and the Idemitsu Group. The Company has also established the Quality Assurance Headquarters that plans basic policies and important matters related to quality assurance for Idemitsu and the Idemitsu Group.

The Management Committee meets twice a month in principle and operates with the Representative Director & Chief Executive Officer as its committee chairman and with the Corporate Planning Department as its secretariat.

The chair of each committee and the head of each headquarters, with the exception of the Management Committee, is in principle a director other than the Representative Director & Chief Executive Officer and plays a cross-divisional role as part of Company-wide internal controls in order to implement effective operations of committees.

Advisory Committees

In order to maintain the transparency and soundness of the management, the Company has established the following two committees consisting of external experts as advisory organs to the Board of Directors. Both committees listen closely to frank opinions from the perspective of third parties and reflect these opinions in recommendations to the management.

Management Advisory Committee

The Management Advisory Committee is an advisory organ that discusses issues related to management policies from various viewpoints, including management, technological innovation and environmental management. The committee, which meets once every half-year period in principle, engages five external advisers who express their opinions and provide advice.

Safety & Security Advisory Committee

The committee, which was launched in December 2003, receives valuable independent guidance and advice on strengthening safety and security matters concerning the prevention of large-scale disasters at refineries, petrochemical plants and complexes, especially with regard to matters of a technical nature. Due mainly to recent changes in the business environment, it is becoming increasingly important to ensure safety and security for business expansion, including the establishment of new businesses and overseas development. The committee has therefore established a working group inside the Safety & Environmental Protection Headquarters. This working group is charged with identifying the themes best suited for furthering current business development, promoting said themes, and obtaining relevant management recommendations from external experts.

In fiscal 2014, the working group solicited recommendations on maintaining and strengthening on-site safety and security capabilities.

Corporate Governance Structure

Management Supervision Mechanisms

The mechanism to monitor management encompasses supervision by the Board of Directors, auditing by Audit & Supervisory Board members and accounting audits by accounting auditors. In support of these, the Company has established an Internal Audit Office made up of specialist staff, which remains independent of the divisions and is under the direct control of the Representative Director & Chief Executive Officer. This office conducts internal audits based on the Internal Audit Regulations and the evaluation of internal controls based on the Regulations for Internal Control over Financial Reporting.

Internal Auditing

The Internal Audit Office periodically audits and confirms the legality of the business operations, the status of risk management and the business execution of each division based mainly on their self-directed internal auditing in accordance with the Self-control Regulations.

The results of the internal audits are reported to the Representative Director & Chief Executive Officer, the director in charge of the relevant division or business area and Audit & Supervisory Board members. If necessary, the Representative Director & Chief Executive Officer or the director in charge gives instructions to the division in question.

Any division that receives advice or recommendations in the course of an internal audit prepares a remediation plan for submission to the general manager of the Internal Audit Office and undertakes improvements.

The Internal Audit Office then conducts follow-up audits as needed.

Evaluation of Internal Controls over Financial Reporting

The Internal Audit Office evaluates and confirms the preparation and implementation of internal controls in each division based on the Regulations for Internal Controls over Financial Reporting in order to ensure the reliability of financial reporting for the Group as a whole. Each division prepares a remediation plan to address any shortcomings discovered during the evaluation and undertakes improvements. Each division submits improvement plans and the results of executed plans to the general manager of the Internal Audit Office. The Internal Audit Office reevaluates plans based on results to gauge progress. The results are analyzed and discussed by the Committee for the Evaluation of Internal Controls over Financial Reporting, confirmed by the Representative Director & Chief Executive Officer, and finally submitted to the Audit & Supervisory Board members.

Auditing by Audit & Supervisory Board Members

All of the Company's five Audit & Supervisory Board members attend board meetings and conduct audits of the business reports, non-consolidated financial statements and consolidated financial statements presented at the General Meeting of Shareholders and of the day-to-day execution of the duties of the directors. Standing Audit & Supervisory Board members attend important internal meetings, including meetings of the Management Committee, and execute their auditing duties by interviewing general managers, overseas business office managers and the presidents of subsidiaries. Non-standing Audit & Supervisory Board members carry out audits by visiting major departments and branches. Meetings are held between Audit & Supervisory Board members and representative directors on a quarterly basis in principle. These meetings serve as a forum for raising and deliberating on pertinent issues.

CSR Promotion Structure

CSR initiatives concerning such matters as compliance and environmental, society and governance (ESG) issues are promoted autonomously by each business site in accordance with the policies of various committees and headquarters. The controlling departments, which serve as secretariats for committees and headquarters, provide support for CSR promotion undertaken by business sites and perform auditing and provide guidance for improvement when necessary.
The Public Relations & CSR Affairs Office oversees CSR activities and responses in accordance with changes in the environment underpinned by knowledge of CSR trends within Japan and abroad that could affect operations in the near future. At the same time, it also provides information to stakeholders on the current state of management through the Idemitsu Report in collaboration with the controlling departments.

Item Committees, etc. Controlling Department
Overall advancement of CSR Management Committee Public Relations & CSR Affairs Office
Legal compliance Compliance Committee General Affairs Department
Risk management Risk Management Committee
Security and occupational safety Safety & Environmental Protection Headquarters Safety, Environment & Quality Assurance Department
Environmental conservation
Quality assurance and product safety Quality Assurance Headquarters
Employment and labor practices Human Resources Department
Protection of and respect for regional cultures General Affairs Department/three refineries, one petrochemical plant, the Tokuyama Complex
Disclosure/public communication Disclosure Committee Public Relations & CSR Affairs Office/Treasury Department
Information management (including protection of personal information) General Affairs Department/Information Systems Department/Intellectual Property Department

Responses to Important Matters (Materiality) in Non-Financial Fields

To ensure secure supplies and safe operations, the Idemitsu Group identifies major stakeholders at each stage of the value chain and carries out activities to lower potential risks.

Ensuring Sustainable Energy Security through the Reconstruction of the Fuel Oil Business and the Cross-Sales Strategy of the Resource Businesses

To maintain sustainable supplies of energy and raw materials amid declining domestic demand for petroleum products, the Idemitsu Group is rebuilding its domestic fuel business by strengthening its resilience, and expanding its overseas fuel oil business, focusing mainly on the Asian Pacific Rim. With the domestic and overseas businesses complementing each other, we will be able to secure stable supplies of crude oil, petroleum products and petrochemicals while contributing to the global competitiveness of domestic industries.

We will continue to expand supply sources and develop non-oil primary energy resources, including coal, uranium and geothermal power. We will also commercialize LNG and unconventional forms of natural gas. Through all of these efforts, we will continue to sustainably supply energy to Japan and the rest of Asia. As for secondary energy sources, in addition to supplying electricity generated from fossil fuels as an independent power producer, we will expand our supply of renewable energy from biomass power, solar power, wind power and other sources. Diversifying the raw materials used in our energy portfolio will bolster our energy security.

Environmental Protection and Safety Assurance Are Important when Handling Hazardous Materials throughout the Value Chain

The Idemitsu Group handles hazardous materials throughout its entire value chain from the extraction and procurement of crude oil through sales. The biggest material risk for the Group is the major impact on business revenue of accidents, including fires, explosions, oil spills and the cross contamination of different grades of oil. Safety assurance, environmental protection and quality control are therefore of the utmost importance.

In the event of an accident at a refinery, petrochemical plant, oil stockpiling yard or oil depot, there is the risk that production will need to be stopped. Not only would this directly impact revenue due to the loss of business opportunities and the cost of restarting equipment, it could also cause long-term damage by diminishing the trust placed in us by the local community and degrading the general public's perception of the Company.

This is especially true since we moved to a framework of three refineries in fiscal 2014. While our capacity utilization has increased, the potential magnitude of impact on our operations of an accident has never been greater. We must therefore be extra diligent in implementing safety measures. When JX Nippon Oil & Energy Corporation suspended crude oil processing at their refinery in Muroran, our Hokkaido Refinery became the sole refinery within the prefecture, significantly increasing the social responsibility we had to bear. Based on this lesson, we will promote extraordinary structural reforms to increase the competitiveness of the refinery while ensuring safe operations and stable supply.

At the same time, if contamination occurs during unloading at a service station or customer site, there is a risk it could lead to an accident affecting the vehicles that received the fuel. Remedying such contamination in order to avoid an accident takes considerable time and money. The Company must recover the fuel, switch out products and clean sales facilities, including underground tanks. Such an occurrence has far-reaching effects on our brand network. For example, customers might be inclined to not refuel their vehicles not only at the service station where the incident occurred but other of our service stations. We are working to prevent accidents that may arise due to faults in equipment, including tanker trucks and service station fuel receiving facilities. We are also working to prevent accidents that may arise from operational missteps by holding training seminars on truck operation management and conducting safety campaigns through the Koun-kai.*1

*1
Koun-kai: A council of transportation companies to which Idemitsu consigns the transportation of petroleum products. Comprises 19 transport companies operating tanker trucks with the Apollo logo.

Pursuing Business Continuity Plans

In fiscal 2004, the Idemitsu Group formulated Guidelines for Addressing Crises as the topmost of its regulations concerning crisis readiness and undertook a sweeping review of its crisis-level definitions, the system for liaison and instruction, and methods for establishing emergency task forces. At the same time, we implemented a systematic review of various types of regulations concerning crises.

In fiscal 2006, we formulated a Business Continuity Plan (BCP) for the eventuality of an earthquake with an epicenter in the Tokyo metropolitan area and in fiscal 2009 formulated a BCP for the eventuality of an outbreak of a new, more virulent strain of influenza. In fiscal 2013, we formulated a new BCP for a Nankai megathrust earthquake.

At refineries and petrochemical plants, as well as other business sites, we continue to make our equipment more earthquake-resistant and implement periodic crisis drills covering each location's entire site based on various types of crisis response regulations. Additionally, we hold annual comprehensive disaster drills based on various BCPs at the corporate head office and review BCPs based on the results of the drills as part of our efforts to strengthen our practical response capabilities.

Strict Compliance at Each Stage of the Value Chain

Idemitsu considers compliance a social responsibility. We take a broad interpretation, encompassing adherence to not just laws and regulations but also social mores, internal rules, and contracts. We regard this adherence as a matter of utmost importance and rigorously implement compliance within the Company.

Fiscal 2014 Results

  • There were no major compliance violations.*2
  • There were no occurrences of major accidents*2 at refineries, petrochemical plants or complexes.
  • We had no major product or quality incidents.*2
*2
An accident or a violation deemed to be at the highest danger level as stipulated by Idemitsu's internal regulations

Major Stakeholders, Risks and Precautions in the Value Chain

Stage Major Stakeholder Risks Precautions
Oil extraction Drilling operators and staff Injury or death in a fire or explosion
  • Using a Safety, Health and Environment Management System (SHEMS). We also require contractors to use a SHEMS.
Local residents and community Marine pollution or damage to fishing industry due to an oil spill
Crude oil procurement Oil-producing countries Halt in trade due to geopolitical factors
  • Training executive candidates, technical trainees and other staff from oil-producing countries
  • Dispatching experts and participating in other forms of technical cooperation with oil-producing countries
  • Establishing local offices and promoting cross-cultural exchange and dialogue
  • Funding joint ventures with oil-producing countries
Halt in trade due to strained relations
Overseas transport Tanker crew Injury or death in a fire or explosion
  • Requesting International Safety Management (ISM) Codes* for safe operations. Keeping up to code to prevent marine pollution.
  • Maintaining ballast water processing facilities in the tankers.
  • Conducting On Board Maintenance (OBM) of ballast tanks.
  • Conducting disaster prevention training and periodic safety and environmental education
  • Creating ship safety maintenance plans and implementing appropriate anti-piracy measures
Takeover of tanker or harm to crew by pirates
Local residents and community Marine pollution or damage to fishing industry due to an oil spill
Destruction of the ecosystem by ballast water discharge
Refining, production and storage Local residents and community Injury or death, damage to local infrastructure or obstruction of traffic due to a fire or explosion
  • Designing failsafe and foolproof equipment
  • Conducting thorough plant maintenance and operational management
  • Maintaining local disaster prevention systems and conducting periodic disaster prevention training
  • Safety and environment-related instructions and safety and environmental audits from the Safety and Environmental Protection Headquarters
  • Promoting periodic local community gatherings and dialogue
  • Reinforcing cooperation with local communities through events, volunteering and other activities
Marine pollution or damage to fishing industry due to an oil spill
Employees, associate operators Injury or death in a fire or explosion
Logistics in Japan Local residents and community Injury or death, damage to local infrastructure or obstruction of traffic due to a fire or explosion from a traffic accident
  • Foolproofing service station fuel receiving equipment and tanker truck equipment
  • Sharing case examples and response examples through the Koun-kai
  • Holding training seminars on truck operation management and conducting safety campaigns through the Koun-kai
  • Raising awareness of risks through the Asahi Tanker Environment and Safety Council
  • Using both gestures and verbalizations to focus attention
  • Conducting periodic disaster prevention training and unloading training
Damage to infrastructure or obstruction of traffic due to a petroleum product leak from a traffic accident
Retail outlets, service stations, customers Contamination or overflowing of a reception tank during unloading of a tanker truck
Tanker crew Injury or death in a fire or explosion
Sales Service station customers Trouble arising in a vehicle, stove or other equipment from refueling with inappropriate grade of oil
  • Adjusting the equipment or shutting down fuel flow meter
  • Simplifying the fuel flow meter display
  • Sharing case examples and response examples
  • Distributing illustrated booklets entitled Learn about Service Station Safety Standards to encourage thorough compliance. Distributing tools and manuals to ensure the comprehensive prevention of leakages in three categories (fuel oils, industrial waste materials and personal information)
  • Established the Customer Relations Center
Petroleum product leak or fire at time of refueling
Diminished trust or damage to individuals resulting from customer information leak
Local residents and community Contamination of groundwater or rivers, damage to agriculture or damage to fishing industry due to petroleum product leak from an underground tank at a service station
  • Conducting soil surveys.
*
International Safety Management (ISM) Code: An international standard incorporated into the International Convention for the Safety of Life at Sea (SOLAS), designed to augment the safety management of ships.
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