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Ted Sugiyama

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“Importance of Top Management Commitment in Compliance Activities”[1]

Ted Sugiyama
Executive Officer, Senior Vice President Legal and Compliance, Kao Corporation

1.The highest priority for compliance promotion activities is a strong commitment by top management.

  • I attended the Ethisphere[2] Global Ethics Summit in New York in 2016 and 2017. Every speaker at the Summit declared that a commitment by top management is the most important and effective method for promoting and realizing a culture of compliance. Of course, I agree with them.
  • Here are some examples of such top management commitment at Kao Corporation (“Kao”):
    ① We have set Integrity as one of the core values in The Kao Way, our corporate philosophy;
    ② In the Kao Business Conduct Guidelines (BCG), our code of conduct, we have stated, “Even within the acceptable scope of laws and regulations, we shall take the most exemplary initiatives”;
    ③ We have committed to “thoroughly instill Integrity” as the first item in our strategy to achieve Profitable Growth in our Mid-term Plan K20, which is our mid-term plan until 2020; and
    ④ A collective sense of unity through the dissemination of Integrity related messaging by the CEO through his internal blog.
  • As you can see from the above, strong and consistent messaging about the importance of compliance and business ethics makes decision making by all employees a lot easier. Employees will be convinced of the company’s sincerity only when it can be seen that decision making matches the top-level commitment and messaging.
  • Recently we faced a serious issue that needed to be addressed by top management. Fortunately, the worst case scenario did not materialize. However, a top executive made the following memorable comment, “I tried to analyze the situation by balancing the likely negative business impacts against compliance and business ethics. However, I soon realized that business and compliance are not comparable. In fact, compliance and business ethics has to be the foundation on which we operate our business and, by thinking in this way, we were able to take drastic measures.”

2.In order to have top management maintain a strong commitment to compliance, it is important for the officer responsible for compliance promotion to repeatedly hold discussions with top management with a sound sense of crisis.

  • As the head of Legal and Compliance at Kao, I directly make recommendations and report to the CEO on a daily basis on compliance concerns. Similarly, the CEO proactively reports on any negative information at Board of Directors meetings and receives strict but useful feedback from independent directors. When an Executive Officer momentarily cannot come to an appropriate decision, the CEO directs such Executive Officer to make a decision from the perspective of our core value of Integrity. Finally, regular meetings are conducted where Audit & Supervisory Board Members report on the results of their audits to Representative Directors.
  • It is important to make all employees and stakeholders aware that Kao is a company that always acts with Integrity and to maintain such awareness with them. To satisfy expectations from them, the company must stand firm and consistently act with Integrity.

3. How to communicate with the entire organization is very important. The company has a variety of ways to communicate with each employee relating to compliance activities, including announcement, report, education/training and other awareness activities. What is most important for the compliance promotion team is to convey the insights of top management regarding compliance accurately and widely throughout the entire organization. We must maintain our communication network so that we can reach employees throughout the organization.

  • In this regard, the CEO regularly hosts roundtables meetings to communicate with middle managements of each Kao Group company for 2 to 3 hours at each time.
  • From my position as a shareholder and as an outside director at a US subsidiary and a member of the supervisory board at a German subsidiary, I regularly share my expectation of Integrity with executives at overseas group companies. At least once a year, when I visit these companies I try to meet one-on-one with top executives for about one hour each. At such meetings, I ask a series of identical questions, “What compliance risks do you feel exist in your business area of responsibility?”, “What measures are you taking to prevent such risk from materializing?”, and “If the risk materializes, do you have plans on how to minimize the impact?” Usually, they respond that they do have any compliance risks in their business area. However, after I start asking specific questions about whether so-and-so compliance risk is possible in their business area, the discussions become very interactive. Repeatedly sharing awareness of potential compliance risks with local executives gives me the opportunity to know the latest situation in each subsidiary, and for local executives to be reminded of Kao’s core value of Integrity.
  • We tailor compliance promotion measures according to the needs and the characteristics of each organization. For example, we conduct compliance training for managers in each division at regularly scheduled monthly manager meetings and a BCG annual refresher test through smartphones for employees who directly go to the stores from home, etc. Each employee is expected to compare the case studies to his/her own working condition and environment and ask, “How does this situation relate to sales staff, for marketing staff, production staff, etc.” Different comments will come from each situation, but what is important is that each employee considers what is right by himself/herself.
  • We have shared case studies through our BCG Casebook (with illustrations)[3]. This Casebook, consisting of 26 case studies, was made in response to the requests from the attendees of compliance training for more concrete case studies to be shared within the group. On the other hand, the drawback of having a Casebook is that you have people who just memorize the cases and model answers and find it difficult to apply the concepts to other cases. Therefore, to introduce a casebook has both its advantages and its disadvantages.
  • Kao’s Compliance Awareness Month is held every October to coincide with the Japan Business Federation’s Corporate Ethics Month. As a part of Compliance Awareness Month activities, we display posters with a message from the Chairperson of the Compliance Committee, etc. In 2017, we created stickers of the compliance logo, which logo was designed by an internal designer and selected through voting. The stickers were distributed to each employee of the Kao Group to apply to their Compliance Help Card/Integrity Card (the card that introduces the compliance hotline) after having completed the BCG refresher test. The intent was to remind employees of the existence of the hotline. For group companies outside of Japan, in addition to the message from the Chairperson of the Compliance Committee, messages of each company/region president were also disseminated, which helped increase awareness of compliance activities in each organization.

4. Using the transmission of accurate and appropriate information as a foundation, it is the compliance promoters’ responsibility to creatively promote bottom-up promotional activities, as well as, plan and implement a compliance structure that suits the company’s structure.

  • When I am giving compliance training, I often ask “Why is compliance important for you?” Some common answers are that it is important in order “not to lose public trust in the company,” and “because compliance is important,” etc. These answers are not the ones that I wanted to hear. I would like each employee to think about Integrity as his/her own responsibility. Once Integrity is thought of as one’s own responsibility, it leads to thinking specifically about how Integrity relates to actual business activity, which is very important. Often after conducting compliance training for managers, I receive feedback that, “I was able to understand the importance of compliance very well.” On the other hand, I also sometime receive comments such as, “I wonder how to practice Integrity in my daily work.” Recently I have started to recommend promoting independent efforts to identify compliance risks and take measures to avoid such risks from materializing.
  • For beauty advisers who directly go the shop from home, the relevant cases are shared for 20 minutes at a monthly meeting.

5. As for our yearly compliance activities, it is important to proceed with them by considering the results of internal and external evaluations, which give us insight on whether there is any loss in our ability to transmit information and whether there is any decrease in effectiveness due to the aging of the program.

  • We conduct an annual BCG refresher test consisting of eight questions covering 37,000 employees. We conduct the test using an e-learning platform as well as traditional pen-and-paper to fit the situation.
  • Compliance awareness questionnaires (five simple questions)
  • Verification of how far our activities to communicate with employees inside and outside Japan (incl. roundtables by executives) have reached employees.
  • Focused external verification of compliance activities (to understand how we are viewed based on external standards; this becomes a good reference for future improvement measures)

6. Tips for implementing effective corporate ethics into daily business operations

  • I would like to introduce “Inside Counsel Revolution - Partners and Guardians Tension”[4] by Professor Ben W. Heineman Jr., former General Counsel of General Electric.
    ”Is it legal? - Is it right?”
    “the fusion of high performance with high integrity”

This book shows very well what a person who is responsible for compliance within an organization must do in relation to top management and the company itself. The Chief Compliance Officer (CCO) must have an unwavering commitment to compliance and with a sound sense of crisis propagate the compliance spirit to the far reaches of the organization as well as to business partners.

These are points that I consider important for compliance promotion. I appreciate it very much if some of them are helpful tips for the readers.

  1. ^This article was written based on speeches and discussions at the Ethisphere Tokyo Executive Roundtable held on October, 19, 2017, which was sponsored by the US-based business ethics think tank Ethisphere Institute. The attendees were approximately 20 heads of legal/compliance functions of both Japanese companies and Japanese subsidiaries of US companies who listened to speeches on compliance related topics and participated in interactive Q&A sessions.
  2. ^ US based think-tank related to business ethics https://ethisphere.com/new window
  3. ^ http://www.kao.com/global/en/about/policies/compliance/business-conduct-casebook/new window
  4. ^ https://corpgov.law.harvard.edu/2016/03/29/the-inside-counsel-revolution/new window
Ted Sugiyama
Executive Officer, Senior Vice President Legal and Compliance, Kao Corporationnew window
Born in 1958
Graduated from the Faculty of Law, Chuo University in 1980
Joined with Kao Corporation Legal Department in 1980
Master of law degree “Corporate Law and Finance ”Widener University School of law, Delaware USA in 1996,
Executive Officer, Senior Vice President Legal and Compliance, Kao Corporation since 2012 (current)
A member of Central Council for Education's special Committee on Law school since 2009 (current)
Representative and Chairman of the Board, Association of Corporate Legal Departmentsnew window since 2011 (current)
Compliance promotion team for re-employment of retired bureaucrats, Ministry of Education, Culture, Sports, Science and Technology-Japan since 2017(Current)