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Reasons for adoption of the "Company with
Committees" system
The adoption of the "Company with Committees"
system proceeded very smoothly due to the fact
that Sony already had nominating and compensa-
tion committees in place and had elected outside
directors. This new system was adopted in order
to strengthen our system of corporate governance,
which has the primary function of ensuring
transparency in corporate management, as well as
serving as a resource for the prompt identification
Progress report on corporate governance one year after
the adoption of the "Company with Committees" system
Sony's distinctive approach to corporate
governance
In order to further strengthen corporate
governance, regulations for the Sony Board of
Directors include requirements in addition to
those mandated by the Japanese Commercial
Code. For example, there are rules to ensure the
independence of the Board of Directors, a
supervisory body, from the execution of business
activities. There are also rules to ensure that
appropriate actions and decisions are taken by
the statutory committees.
Certain provisions in Sony's corporate gover-
nance regulations are unique to Sony and are
based on the specific views of the company. For
example, one regulation requires that the Board
of Directors, a supervisory body, consists of
between 10 and 20 members, and that at least
five of these Directors also must be Corporate
Executive Officers. In general, a system that
stipulates a minimum number of internal directors
is unusual given the importance attached to
separating the supervisory and executive roles
within a company. Nevertheless, Sony believes
that the participation of more than just a
minimum number of internal Directors on the
Board of Directors is critical, based upon the
belief that specific areas of the executive
functions, such as accounting, finance, legal
affairs and other internal control functions,
should be directly linked to the supervisory side of
corporate governance. In the event of the
discovery of a problem related to the business
execution within a company, a framework that
completely separates corporate oversight from
business execution could increase risk, due to a
lack of communication or the existence of an
of, and response to, corporate problems. Prior to
the adoption of this system, Sony had already
taken a variety of steps to strengthen corporate
governance, including the adoption of the
executive officer system in order to separate the
roles of corporate oversight and business
execution. Sony adopted the "Company with
Committees" system, when it was first provided
as an option under law, in order to enhance the
legality of the governance system Sony had
already voluntarily established.
inadequate interface between the two sides. For
this reason allowing part of the internal control
functions belonging to the business execution
side, led by the Group CEO, to be an extension of
the Board of Directors, allows for the creation of
a direct link between business execution and
corporate oversight. Within this corporate
governance framework, potential problems
discovered within the scope of business execution
can be reported directly to those responsible for
corporate governance, allowing the latter to
respond more rapidly to any potential problems.
We therefore seek to avoid risks associated with
the complete separation of corporate oversight
from business execution, including the risk that
information involving executive actions is not
being properly communicated to the Directors.
Through this corporate governance system, Sony
is able to strengthen the supervisory function of
the Board of Directors and delegate greater
authority for business execution to the Corporate
Executive Officers, enabling the continued sound
and dynamic management of the Sony Group.
Corporate Social Responsibility (CSR)
As a global organization, the Sony Group conducts its
business activities with due consideration of the interests of
its various stakeholders, including shareholders, customers,
employees, business partners and local communities. In
2003, Sony published the Sony Group Code of Conduct,
which establishes fundamental policies for all Sony Group
executives and employees with regard to the respect for
human rights, the safety of its products and services, the
environmental impact of its business activities and the
disclosure of information. The Sony Group will continue to
make strenuous efforts to strengthen its system of compliance
and ensure the sound conduct of all its business activities.
Teruo Masaki, Member of the Board
Changes resulting from the adoption of the
"Company with Committees" system
The adoption of this system has facilitated even
more lively deliberations among the Board of
Directors. Previously, most executive decisions
were made by the Board of Directors, the highest-
level decision making body. However, under the
new system, the Board has delegated greater
authority to Corporate Executive Officers, in the
process entrusting them with a broader range of
executive decisions. The introduction of this
system has led to the clear division of these two
corporate governance functions. Corporate
Executive Officers execute business operations by
making decisions within the scope of authority
delegated to them by the Board of Directors, and
the Board of Directors oversees their decisions. As
a result of this structure, executives responsible
for the execution of business operations are
required to explain, with even greater clarity, to
the Board of Directors the reasons behind their
business decisions.
The Sony CSR Report 2004.
57
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