Risk Management and Internal Control


Approach to Risk Management

The Brother Group aims for sustainable growth and strives to be a company that is trusted by all its stakeholders. We have now formulated a new Group Vision "At Your Side 2030." Through recognizing that risks may hinder the creation of customer value and conducting appropriate risk management, we aim to enhance the ability to realize the Group Vision.
As the group develops multiple businesses globally, we recognize that there is a high level of complexity and uncertainty in the global environment due to global economic effects and geopolitical factors. In addition, we constantly recognize and respond to risks relating to compliance, product safety, export control, information management, environmental laws, safety and health, disaster prevention, and the supply chain. Together with strengthening business continuity in times of crisis and re-examining structures for lasting value creation, we will aim to recognize and respond to risks with an even more medium- to long-term strategic perspective than before.

Risk Management Promotion System

The Brother Group has established the Risk Management Committee chaired by the Representative Director & President. We have also formulated a comprehensive risk management system based on the Brother Group's Risk Management Regulations with the aim of reducing risks that are likely to have a serious impact on the group's management. Each organization and subsidiary within the group understands the risks and their probability of occurrence and makes efforts to manage risks by implementing measures for avoiding or reducing the impact of risks. Systems are in place for regularly reporting the status of such implementation to the Board of Directors.

The Risk Management Committee meets regularly once every six months. However, we have created an emergency risk management system for responding swiftly to occurrence of a serious risk event in which the chairman will urgently convene an extraordinary meeting of the Risk Management Committee. When COVID-19 arose, the Committee responded in the early stage of occurrence overseas by urging caution in the whole Brother Group and promptly establishing a countermeasures headquarters.
In addition, we have established dedicated committees with respect to individual risks, including compliance, security trade, product liability, information management, safety, health, disaster prevention, environmental laws and regulations, and supply chain, as subcommittees under the Risk Management Committee. With the Representative Director & President (or a designated executive officer) in charge, they make up a risk management system that understands and diminishes risks as well as responds when risks are apparent. In particular, for product safety, we have established Basic Product Liability Policies and voluntary product safety action plans to provide safer products to customers.

Clarification of Evaluation and Responses

We have created systems for evaluating and responding to business risks focused on persons in charge of risk management in each department as well as group subsidiary. In addition, the Risk Management Committee manages evaluation and the status of response to material risks concerning the group as a whole. Specifically, the Committee conducts reviews of risk matters in each fiscal year and gives instructions for preparing risk evaluation sheets to each group organization and facility. By aggregating the results of the risk evaluation sheets, evaluating the risks according to the level of impact and likelihood of occurrence, and calculating the weight of each risk, the Committee identifies the group's critical risks. It then gives instructions to each person in charge of risks for responding to and monitoring each of the risks.

Compliance Committee

The Compliance Committee makes the workforce aware of the importance of complying with laws and business ethics and prevents violations and their recurrence through education programs and activities.

Committee of Security Trade Control

The Committee of Security Trade Control ensures the proper management of export transactions and technological offerings based on laws and regulations. This Committee is also working to maintain and improve the management level by staging meetings to discuss important matters every time laws are amended, implementing internal audits, and offering guidance and education to group companies.

Product Liability Committee

The Product Liability Committee is held periodically to ensure product safety in R&D, design and production, sale and use, repair and service, and disposal through coordinated efforts.

Information Management Committee

To cope with risks associated with information leaks, the Information Management Committee determines a suitable policy for managing information on customers and other aspects of the business retained by the company, and deploys it throughout the group.

Safety, Health, and Disaster Prevention Committee

The Safety, Health, and Disaster Prevention Committee discusses annual plans, devises and implements measures, and conducts awareness activities for the purpose of ensuring employee safety and health, preventing disasters, and minimizing the damage from such disasters.

Environmental Law Committee

The Environmental Law Committee is chaired by the environmental officer and includes executive officers and above who are in charge of development, technology, production, and general affairs fields. The committee discusses and determines measures for environmental issues such as compliance with environmental laws and regulations on products, pollution at business sites, etc.

Supply Chain Risk Committee

In addition to ongoing supply chain risk events, the committee identifies potential future supply chain risk impacts, formulates policies to address them, and implements risk mitigation within the group.

Material Risks and Their Countermeasures

Item Main Risks Countermeasures
Geopolitical risks
  • US and China trade friction
  • Situation in Russia and Ukraine
  • Constantly gather information on trends in a wide range of international situations, including economic sanctions and tighter regulations implemented in different countries, and make decisions according to the circumstances
Contraction of printing market
  • Contraction of the printing market due to reduced printing on paper
  • Expand business that continuously connects with customers while strengthening profitability through accelerated transformation of the business model, including expansion of contract-based services to meet the changing needs of the market
  • Expand the Commercial & Industrial Labeling Business and Domino Business
Competition among companies
  • Increasing competition in the market due to the rise of new manufacturers in China and other countries in Asia
  • Implement initiatives for providing products and services that realize customer value in each market
  • Build a speedy and cost competitive business management base
  • Promote circular economy business from a sustainability perspective
Changed global economic situation
  • Adverse impact on performance due to business fluctuations in each region caused by changes in the situation of the global economy
  • Enhance development, production, sales and marketing, and after-sales service and maintenance
Supply chain
Supply chain interruption
  • A decline in procurement efficiency in the procurement of parts and materials or shutdown of manufacturing facilities due to geopolitical risks, etc.
  • Supply chain interruption due to disasters
  • Reduced operations of international logistics networks
  • Respond by production in multiple facilities, especially of consumables
  • Have backup production facilities and hold parts inventories
  • Create multiple choices in parts suppliers
  • Secure inventory storage space and multiplex ports in use
  • Implement fire prevention and disaster prevention/reduction measures in each manufacturing facility
  • Review inventory standards at sales locations to prevent shortages
CSR procurement
  • Human rights issues within the supply chain
  • Responsible procurement of minerals
  • Revise the CSR Procurement Standards and request 1st tier suppliers to establish a process to confirm their own and their upstream suppliers' efforts to respect human rights and the status of such upstream suppliers' efforts
  • Strengthen systems for assessing and correcting risks in the supply chain by joining the RBA and requiring suppliers to comply with the RBA Code of Conduct
  • Establish the Policy on the Responsible Procurement of Minerals, conduct risk assessments based on the results of annual mineral procurement surveys, and request suppliers to avoid using smelters that are deemed to be a source of potential concern
Risks related to parts and materials
  • Difficulty procuring parts and materials
  • Parts and materials price hikes
  • Long-term parts arrangements and securing inventory, creating multiple choices of suppliers, and considering alternatives through product redesigns
  • Reflect raw material price hike risks in management plans
  • Accurately monitor changes in market conditions and reduce procurement costs
Quality, product liability
  • Market quality problems
  • Quality control
  • PL problems
  • Manufacture products under strict quality control standards
  • Take countermeasures for controlling expansion of damage when incidents occur
Laws and regulations
Compliance in general
  • Accounting fraud, misappropriation
  • Unfair trade practices (competition law violations)
  • Quality irregularity
  • Bribery (anti-corruption)
  • Establish employee conduct standards through the Codes of Practice in the Brother Group Global Charter (Global Charter) and carry out dissemination activities
  • Establish Compliance Committee and consultation centers
Tax systems
  • Increase in tax burden due to additional tax and international double taxation
  • Respond through cooperation with external experts
  • Communicate with tax authorities
  • Use advance pricing agreements (APA)
Social demands related to the environment
  • Transition risks associated with climate change (policy and regulatory risks, market changes)
  • Establish medium-term targets for FY2030 in relation to reduction of greenhouse gas emissions and implement emissions reduction initiatives
  • Develop products that meet the processing needs of parts for Electric Vehicles (EVs)
  • Set medium-term targets for FY2030 regarding the improvement of circulation of resources, and promote the effective use of resources, resource circulation, and the expansion of secondary resource use
  • Analyze the financial impact of climate change based on TCFD recommendations and disclose appropriate information
Environmental regulation, environmental pollution
  • Environmental regulation, environmental pollution
  • Comply with laws and regulations on prohibited chemical substances and controlled chemical substances in accordance with the establishment of the Brother Group Green Procurement Standards
  • Gather information on environmental laws and regulations in each country and region of the world and take measures in cooperation with product design-related departments to reflect them in products
Security trade control
  • Adverse impact on sales of machine tools due to strengthening of legal regulations related to security trade control
  • Maintain systems for proper compliance with laws and regulations
  • Strengthen the security trade control system for the whole Brother Group
  • Restructure the security trade control system for greater effectiveness
Information systems
Information security
  • External attacks on information systems, product information security
  • Develop information security operating rules in accordance with the Information Management Regulation, enhance management systems, and conduct internal education and training
  • Develop a basic policy on product information security and implement activities for improving product security in the whole Brother Group
Information networks
  • Shutdown of critical systems and leakage of confidential information and personal information
  • Create critical systems that can minimize downtime and be restored quickly in the event of an incident
  • Implement security countermeasures based on multi-layered defense against unexpected intrusion or attacks from outside
  • Conduct organizational training on prepared responses to occurrences of internal incidents
Human resources
Occupational injuries, casualties
  • Occupational injuries
  • Casualties among employees due to disasters
  • Horizontal development of information on causes of accidents that have occurred and measures for preventing recurrence
  • Conduct safety and disaster prevention activities in each facility and check their status of implementation through factory inspections
Securing human resources
  • Intensified competition for human resources, inability to secure necessary human resources, loss of key personnel
  • Promote evolution of personnel systems and make continual improvements to the workplace environment
  • Develop succession plans for key personnel
  • Implement activities for maintaining and improving the brand image through enhancing employee awareness and corporate public relations in accordance with the Global Charter
M&A (impairment risk)
  • Expected investment effects not obtained
  • Delays in business integration (post-merger integration)
  • Impairment of the Domino Business's goodwill and fixed assets
  • Introduce new products and strengthen the customer base in the Domino Business as a priority strategy in the current Medium-Term Business Strategy "CS B2024"
  • Check the asset value of goodwill and record an appropriate estimated value at least once a year
Currency exchange risks
  • Sales reductions and cost increases due to currency rate fluctuations
  • Increase the rate of linking of receipts and payments in foreign currency denominated transactions
  • Implement forward exchange contract transactions
Intellectual property
  • License-related disputes
  • Infringement by third parties, production and sale of counterfeit products
  • Employee invention disputes
  • Use patent licenses held in business activities
  • Take defense and settlement countermeasures in infringement lawsuits by third parties
  • Exercise intellectual property rights against infringement by third parties
  • Implement appropriate incentives for inventors based on invention incentive rules

Internal Control

To Maintain and Improve the Transparency and Reliability of Financial Reporting

Society requires businesses to be transparent and reliable in their financial reporting. The Brother Group accommodates this request by maintaining and improving internal control, one of the significant infrastructures that support corporate management, and strives to continuously gain high trust from all stakeholders. Aiming to maintain and improve internal control continuously, the Brother Group companies every year examine whether their internal control systems are functioning effectively, and also carry out audits by their internal audit departments from an independent viewpoint.

Internal Control Framework

Internal Control Framework

Internal Audits

The Internal Auditing Department, under instructions from the Representative Director & President, verifies the status of risk management in each of the company's departments and subsidiaries and reports to the Board of Directors, the Representative Director & President and the Board of Corporate Auditors.

We conduct internal audits in the Brother Group companies in Japan and overseas to ensure the PDCA cycle of internal control, to further enhance the transparency and efficiency of business activities, and to reinforce our ability to control risks.
In addition, we aim to further strengthen the internal auditing function of the Brother Group through information sharing among the audit departments of Brother Industries, Ltd. and the regional representative companies for the Americas, Europe and Asia and collaboration with statutory and accounting auditors.
To maintain and improve the internal control function of the whole Brother Group, we promote:

  1. Establishing internal control systems more suitable to the group;
  2. Making the PDCA cycle of internal control at each facility self-sustaining; and
  3. Increasing efficiency of and advance audit through collaboration and information sharing between the auditing departments in the group and IT utilization.

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