NGK Stories

05 Aiming for Further Improvements to Address the Expectations of Society

In 2015, NGK announced that it had entered into a plea agreement with the U.S. Department of Justice (DOJ) regarding antitrust law violation in connection with some of its deals involving ceramic substrates for automotive catalytic converters. NGK's compliance system has steadily been improved. However, if we consider compliance according to the original meaning of the word, “responding to requests,” our efforts have been middle-of-the-road.

A Subpoena from the DOJ

NGK AUTOMOTIVE CERAMICS USA, INC., NGK’s subsidiary in the U.S., received a subpoena from the DOJ on October 18, 2011. It was a submission order related to the price-fixing of ceramic substrates for automotive catalytic converters. NGK immediately declared its complete cooperation with the investigation and formed an internal investigation team comprised of members from its Legal Dept, Auditing Dept, Corporate Planning Office, and CSR Office, and the company proceeded with a proffer (oral sharing of information) to the DOJ.

An Internal Investigation That Continued for Three Years

After we received the subpoena, we sought the advice of a law firm; and with that law firm as our partner, we conducted an internal investigation, initiated a proffer, and actively cooperated with the DOJ’s investigation. Furthermore, in order to ensure the fairness of our internal investigation itself, we created the Independent Committee that included an outside director who was a lawyer, an outside audit and supervisory board member who had served as commissioner general of the National Police Agency, and an outside lawyer who was licensed to practice U.S. law and had no previous relationship with NGK. The Independent Committee directed the internal investigation and negotiated with U.S. authorities, and under its direction, the internal investigation team conducted a thorough examination of related documents and emails. These activities continued for more than three years.

In addition to our negative natured involvement such as a scandalous investigation, internal secrecy to ensure fairness and tough instructions received from U.S. authorities on numerous occasions made this period a very difficult one.

Highly Evaluated Competition Law Compliance Program

The problem could not be resolved with just our proffer to the DOJ. Remedial actions were required. Concrete measures were set up after considering measures to strengthen our compliance system.

We introduced the Competition Law Compliance Program in December 2014. It included three main provisions: (1) the board of directors bears all responsibility for legal compliance, (2) the Independent Committee comprised of outside directors, etc. will verify program implementation and efficacy, and (3) the chief competition laws compliance officer shall bear all responsibility for the program’s planning and efficacy.

This program initially met with a somewhat cool reception on the U.S. side. However, its contents were gradually recognized after we explained them thoroughly. Ultimately, we received comments as a model company in regard with competition law compliance.

On September 3, 2015, U.S. time, NGK announced: “The Company has entered into a Plea Agreement with DOJ, agreeing to pay a fine of US$65.3 million based on charges that it violated U.S. laws including the antitrust law in connection with some transactions for ceramic substrates for catalytic converters.”

Since the agreement, we have strengthened our internal rules for competition law compliance and improved our compliance system in ways that include establishing the Business Ethics Committee and Global Compliance Office (now Group Compliance Department).

NGK’s agreement with the DOJ regarding ceramic substrates for automotive catalytic converters, announced on September 4, 2015

Summary of facts

On September 3, 2015 (U.S. time), NGK Insulators, LTD. (NGK) entered into a Plea Agreement with the DOJ, agreeing to pay a fine of US$65.3 million (approx. JPY7.8 billion) based on charges that it violated U.S. laws including antitrust law in connection with some transactions for ceramic substrates for catalytic converters.

Reasons for the decision

Since NGK's U.S. subsidiary received a subpoena from DOJ in October 2011, NGK has cooperated fully with the investigation concerning ceramic substrates for catalytic converters, including establishing the Independent Committee in 2012. NGK decided to enter into the plea agreement with DOJ after comprehensively examining the applicable laws and regulations and relevant facts concerning the matter.

Impact on business results

As NGK have recorded loss provisions of JPY9.3 billion related to competition laws in the financial results for the fiscal year ended March 31, 2015, NGK will record the difference of JPY1.5 billion between the loss provisions and the fine as non-operating income in the quarterly financial results ended September 30, 2015. There will be no revision to the consolidated earnings forecast for the fiscal year ending March 31, 2016.

Relinquishment of executive compensation

We take seriously the magnitude of the effect this matter has on the NGK Group and society, and as management, we have resolved to deeply reflect on this incident and prevent any recurrence. We have decided to voluntarily forfeit 50% of monthly compensation for three months for representative directors, 30% of monthly compensation for three months for other directors, and a similar amount of monthly compensation for executive officers.

Preventative measures

The NGK Group considers legal compliance to be an important management issue, and in the process of dealing with this matter, we have strengthened company rules concerning competition law compliance, and we have also reinforced our compliance systems. This includes the establishment of the Independent Committee on competition law compliance, which is comprised external directors, external auditors and outside lawyers as members, and the establishment of the Global Compliance Office. We will continue to make further efforts going forward to prevent recurrence and restore trust by further strengthening compliance systems and carrying out thorough education on related laws, including competition laws, for all officers and employees.

We would like to express our sincerest regret for the considerable concern we have caused for all stakeholders, including our customers, suppliers and relevant stockholders.

The Original Meaning of Compliance: “Complying with Requests”

We have been developing systems to prevent management and all employees from violating laws and ordinances, but those steps are not enough. What else is needed? According to a member who has been involved in our compliance system strengthening efforts, “It depends on whether or not there is interpersonal communication enabled by the corporate culture; in other words, it depends on the openness of the company.”

Having series of dialogues with the DOJ was a bitter experience. However, the resulting compliance system enhancement was achieved through the efforts of outside directors and outside audit and supervisory board members, including the members of the Independent Committee, the sense of mission and efforts of the legal and compliance staff that has internal investigation members as its core, and the actively forward-looking approach to company reorganization taken not only by executive management, but by mid-level managers as well.

If you look up the meaning of compliance you find definitions like “obedience to requests and commands” or “legal compliance.” However, its original meaning is “responding to requests.” If it was only a matter of obedience or observance, then simply following the letter of the law would be enough, but if we take the original meaning of compliance into account, more is required. In other words, compliance is “responding each day to the expectations and requests of society by the acts of developing and creating products and delivering them to society.” Compliance awareness is increasing throughout the company. Yet when the original meaning is considered, our efforts have been middle-of-the-road. We are required to understand the constantly changing demands of society to make them common knowledge throughout the entire group, and to find ways of bolstering our compliance systems, instead of considering ourselves finished once those systems are in place — “ploughing the field and forgetting the seed.”

Compliance enhancement measures related to competition laws in the NGK Group

Year conducted	Regulation Development	Creation of Internal Systems	Training
FY1997	Formulated guidebook and briefing document for the Anti-Monopoly Act	Required each business group to submit a Compliance Status Report on the Anti-Monopoly Act	Organized lectures on the Anti-Monopoly Act by outside instructors (attorneys) (subsequently held annually)
FY2011	Formulated Competition Laws Compliance Rules
FY2012	Created and distributed the Competition Laws Compliance Handbook Created and distributed an Appendix to the Competition Laws Compliance Handbook	Established the Independent Committee	In-house training led by legal department staff Organized lectures by local attorneys held at overseas subsidiaries
FY2013			Conducted briefings on the Competition Laws Compliance Handbook Invited a U.S. attorney as a speaker at a lecture on Competition Laws
FY2014	Revised Competition Laws Compliance Rules Launched operation of a database for advanced notifications and participation reports pertaining to meetings Launched e-mail monitoring Revised the Competition Laws Compliance Rules at North American sales subsidiaries	Introduced company-wide centralized supervision and reporting structures led by the Board of Directors (independent of the President) Appointed a chief competition laws compliance officer Enhanced the helpline	Organized workshops for newly appointed directors on Competition Laws and the Companies Act taught by Japanese and U.S. attorneys (subsequently held annually) Organized workshops on Competition Laws at overseas Group companies (corresponding to local laws and regulations)
FY2015	Competition Laws Compliance Rules for all NGK Group companies in and outside Japan were revised to ensure that the NGK Group's compliance system met global standards The Competition Laws Compliance Handbook was revised	The Competition Laws Compliance Program was approved by the Board of Directors Established the Global Compliance Office Established the Business Ethics Committee	Organized workshops on Competition Laws for new employees (subsequently held annually) Distributed a Competition Laws training DVD to domestic group companies Expanded training on compliance with competition laws provided inside and outside Japan
FY2016	The U.S. version and Chinese version of the Competition Laws Compliance Handbook were created and distributed to Group companies in the U.S. and China, respectively	Quarterly reports on the progress status of the Competition Laws Compliance Program for Business Ethics Committee, which is composed mainly of external executives, were begun. The Program was promoted on the basis of suggestions received from the Committee Retained PwC to assess the status of competition law compliance	Expanded seminars led by lawyers in other Asian countries Seminars on the Companies Act and competition laws were held for newly appointed executive officers Promoted preparation of online-based training aimed at realizing broader training programs
FY2017	Created a database operation manual that records the status of competition laws compliance	Top management at our headquarters, business groups, and group companies announced competition laws compliance at the beginning of the year	Web seminars were held for 861 members within Japan
FY2018		Constructed a database for the acquisition and management of pledges

The Competition Laws Compliance Handbook is distributed to all group companies to ensure thorough group-wide compliance with competition laws.
Executives, managers, and other employees in sales and technical departments whose duties are closely related to competition laws have each been given a copy of this handbook.