Risk Management

To minimize the impact of constantly diversifying risks, DENSO is working to strengthen its risk management structure as a part of internal controls. Specifically, we have divided matters that have the potential to damage our businesses into “risks,” which refer to circumstances where such matters have yet to manifest, and “crises,” which refer to states of emergency where such matters have manifested. Based on these classifications, we are focusing our efforts on implementing preventive measures, which stop risks before they occur, and swift and accurate initial-response and recovery measures, which minimize damage in the event a crisis occurs.

DENSO has established the Risk Management Meeting, chaired by the chief risk officer (CRO), who is responsible for Groupwide risk management. The Risk Management Meeting is a Groupwide organization that confirms improvements to the Company’s risk management structure and framework and discusses and determines the direction of important risk management activities based on the conditions and trends both inside and outside the Company. Through this organization, we are taking steps to strengthen measures to prevent damage to our businesses during normal times and measures to minimize damage during times of emergency.

In addition, we have created the Crisis Communication Manual in order to respond promptly and accurately in the event of a crisis. This manual clarifies such matters as methods to determine the state of affairs during a crisis, standards and rules for making reports, and the basics of responding both internally and externally. Depending on the severity and level of urgency of the situation, we assemble special countermeasure organizations to enact an agile response geared toward minimizing damage.

DENSO makes efforts to constantly ascertain the risks it faces and manage these risks from the perspectives of damage mitigation and business continuity.

The Company has identified major risk items related to life, credit, property, and business activities based on frequency of occurrence, level of impact, and the surrounding business environment. The Company designates responsible departments for each risk item and clarifies various factors pertaining to these items, including level of impact, reason for occurrence, preventive measures, initial response, and recovery efforts. The Company also strives to enhance its preventive measures, initial response, and recovery efforts. In particular, DENSO is identifying risks toward which it invests resources to promote countermeasures as “key risk items.” The Company has also established plans and targets toward further enhancing its crisis management, and the progress made toward these plans and targets is reported to the Risk Management Meeting. At the same time, DENSO has been incorporating risk management into Companywide targets, and the status of risk management activities is now also confirmed by the Board of Directors.

Additionally, for fiscal 2023 the Company has determined 41 major risk items and 10 key risk items. DENSO revises these major risk and key risk items appropriately, giving consideration to the issues currently facing society as well as the frequency of risks occurring at DENSO and the level of impact they have on the Company.

Main Risks for DENSO

Corporations have been facing an increasing number of serious risks recently. For example, in addition to the progression of global warming, there are concerns over the frequent occurrence and greater severity of natural disasters caused by climate change. Furthermore, we are currently seeing a surge in risks such as the spread of COVID-19 and rising geopolitical risks.

Under these circumstances, while placing the utmost importance on protecting people’s lives, it is imperative that we are able to swiftly recover our business operations in the event an emergency occurs and take steps to minimize any damage it may cause to our businesses. To that end, we have commenced the formulation of business continuity plans (BCPs)* from the perspective of business continuity management. We are also taking action in such ways as creating emergency situation manuals and promoting countermeasures for minimizing the impact from disasters.

As there are a great deal of risk factors within the supply chain that could cause component supply issues, particularly natural disasters, geopolitical risks, and incidents and other emergencies, it is extremely important that we clarify our methods for responding to these types of issues within our supply chain. In order to minimize the risk of delays or stoppages in the supply of components from suppliers, which could lead to a delay in or suspension of our production activities and the delivery of products to customers, we are striving to maintain close ties with our suppliers to implement preemptive risk management. An example of such a preemptive measure is dispersing high-risk inventories across the various locations where items are produced, or where they are in demand, rather than holding inventories in one centralized location. In addition to our internally made products, we have established a system for outside orders that enables us to switch between our multiple suppliers in case of an emergency. Furthermore, we are working to speed up initial response by unifying and visualizing internal and external inventory information through the digital transformation of high-risk inventories, and we are thoroughly implementing measures to strengthen our ability to collaborate with suppliers in a unified manner.

In the event there is an outbreak or spread of an infectious disease, we are formulating action plans to ensure that our response headquarters can implement swift and accurate decision-making. These plans work to make such decision-making possible by outlining basic policies and response measures based on anticipated damages as well as by clarifying the role of each division. In case the spread of an infectious disease becomes severe, we will implement the necessary measures to combat the spread while placing the utmost priority on ensuring the safety of our employees and their families. At the same time, we will pursue all avenues to implement the best response possible in order to maintain business continuity.

In our response to the COVID-19 pandemic, we promptly established the COVID-19 Response Headquarters, led by the CRO, when the virus first started to spread. Prioritizing the safety of our employees and their families, this response headquarters has been examining countermeasures and providing direction on how to prevent the further spread of the virus and minimize its impact on our businesses. Meanwhile, we have been holding conferences on countermeasures with each overseas regional headquarters in order to collect information on the situation and needs in each country and region of operation in real time. In addition, we are thoroughly reinforcing basic measures to prevent infections while promoting measures such as off-peak commuting and working from home. Going forward, we will continue to collaborate on a global basis in response to this pandemic to ensure we can overcome the crisis it has caused.

The Company faces various risks related to natural disasters, traffic accidents, information security, and other matters. To minimize the damages when a crisis occurs, it is important that employees maintain a daily awareness of risks to prevent incidents and take appropriate action in the event of a crisis. As well as evacuation drills ^*, which are carried out in anticipation of large-scale disasters such as massive earthquakes, and include temporary and contract employees, a variety of awareness activities aimed at promoting employee understanding and enhanced awareness of risks are conducted at DENSO CORPORATION and domestic Group companies.

* Resumed in fiscal 2023 after being temporarily suspended to prevent the spread of COVID-19.

* Conducted at domestic Group companies

DENSO is facing various unprecedented risks, such as the prolonged conflict between Russia and Ukraine, and lockdowns enacted in response to the spread of COVID-19. To address these risks, and any future risks that may arise, we will continue to thoroughly implement countermeasures from the perspectives of systems, people, and governance, and strengthen our risk-response capabilities to minimize any potential impact on management. For example, a quality issue that occurred in 2019 undermined the trust of customers and DENSO’s very management foundation. In addition, operating environment-related risks, such as the COVID-19 pandemic, component shortages, and cyberterrorism, could have a massive impact on operations. Accordingly, we must re-acknowledge that risk management is an important management priority and implement drastic risk management reforms going forward in order to enhance our responsiveness toward risks.