Corporate Governance

Corporate Governance Companies listed on the New York Stock Exchange (the “NYSE”) must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual. However, listed companies that are foreign private issuers, such as Honda, are permitted to follow home-country practice in lieu of certain provisions of Section 303A. The following table shows the significant differences between the corporate governance practices followed by U.S. listed companies under Section 303A of the NYSE Listed Company Manual and those followed by Honda. Corporate Governance Practices Followed by NYSEListed U.S. Companies Corporate Governance Practices Followed by Honda An NYSE-listed U.S. company must have a majority of directors meeting the independence requirements under Section 303A of the NYSE Listed Company Manual. For Japanese companies that employ a corporate governance system based on a board of corporate auditors (the “board of corporate auditors system”), including Honda, Japan's Company Law has no independence requirement with respect to directors. The task of overseeing management and, together with the accounting audit firm, accounting is assigned to the corporate auditors, who are separate from the company's management and meet certain independence requirements under Japan's Company Law. In the case of Japanese companies that employ the board of corporate auditors system, including Honda, at least half of the corporate auditors must be “outside” corporate auditors who must meet additional independence requirements under Japan's Company Law. An outside corporate auditor is defined as a corporate auditor who has not served as a director, accounting councilor, executive officer, manager, or any other employee of the company or any of its subsidiaries. Currently, Honda has three outside corporate auditors which constitute 60% of Honda's five corporate auditors. An NYSE-listed U.S. company must have an audit committee composed entirely of independent directors, and the audit committee must have at least three members. Like a majority of Japanese listed companies, Honda employs the board of corporate auditors system as described above. Under this system, the board of corporate auditors is a legally separate and independent body from the board of directors. The main function of the board of corporate auditors is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company: to monitor the performance of the directors, and review and express an opinion on the method of auditing by the company's accounting audit firm and on such accounting audit firm's audit reports, for the protection of the company's shareholders. Japanese companies that employ the board of corporate auditors system, including Honda, are required to have at least three corporate auditors. Currently, Honda has five corporate auditors. Each corporate auditor has a fouryear term. In contrast, the term of each director of Honda is one year. With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees, Honda relies on an exemption under that rule which is available to foreign private issuers with boards of corporate auditors meeting certain criteria. An NYSE-listed U.S. company must have a nominating / corporate governance committee composed entirely of independent directors. Honda's directors are elected at a meeting of shareholders. Its Board of Directors does not have the power to fill vacancies thereon. Honda's corporate auditors are also elected at a meeting of shareholders. A proposal by Honda's Board of Directors to elect a corporate auditor must be approved by a resolution of its Board of Corporate Auditors. The Board of Corporate Auditors is empowered to request that Honda's directors submit a proposal for election of a corporate auditor to a meeting of shareholders. The corporate auditors have the right to state their opinion concerning election of a corporate auditor at the meeting of shareholders. An NYSE-listed U.S. company must have a compensation committee composed entirely of independent directors. Maximum total amounts of compensation for Honda's directors and corporate auditors are proposed to, and voted on, by a meeting of shareholders. Once the proposals for such maximum total amounts of compensation are approved at the meeting of shareholders, each of the Board of Directors and Board of Corporate Auditors determines the compensation amount for each member within the respective maximum total amounts. An NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan. Currently, Honda does not adopt stock option compensation plans. If Honda were to adopt such a plan, Honda must obtain shareholder approval for stock options only if the stock options are issued with specifically favorable conditions or price concerning the issuance and exercise of the stock options. Basic stance on corporate governance Honda considers the enhancement of its corporate governance structures to be a key management issue, and engages in a program of associated initiatives in keeping with its fundamental beliefs in order to increase the level of trust of shareholders, investors, customers, and the general public so that it can be a company that the society wants it to exist, and achieve its goal of continually increasing its corporate value over time. Going forward, we will continue to strive to realize robust and highly transparent management, through, for example, the timely and accurate release and disclosure of quarterly financial results and management policies, in order to increase the level of trust and understanding of shareholders and investors, customers, and the general public. Corporate Governance Structure Honda has established various mechanisms to ensure compliance is practiced within the organization. These mechanisms include a Compliance Committee, a Business Ethics Improvement Proposal Line, and the appointment of a Compliance Officer to advance compliance-related activities. Honda Conduct Guideline The Honda Conduct Guideline is a set of action guidelines that are shared throughout the Honda Group worldwide. In following these guidelines, we pursue locally oriented business activities worldwide through the autonomous actions of all Honda associates. The Compliance Committee This committee, led by a Compliance Officer appointed as the Compliance Committee Chairperson, consists of Directors and Operating Officers appointed by the Executive Council. The Committee supervises whether the Business Ethics Improvement Proposal Line is properly operated, for example, how improvement suggestions received by the Business Ethics Improvement Proposal Line are being handled. The Committee also examines issues in regard to compliance policy and compliance enhancement. Business Ethics Improvement Proposal Line The Business Ethics Improvement Proposal Line is designed to facilitate the improvement of Business Ethics. When there is a case of behavior in the workplace violating any laws, regulations, or internal rules where associates would find it difficult to discuss the issue with their superiors, or where it would be difficult to resolve the issue there and then in the workplace, the line accepts proposals /provides consultation from a fair and neutral standpoint. Consulting employees are protected to ensure that they are not treated in a detrimental manner, and employees can make active proposals using their real names or proposals anonymously. Bribery Prevention Actions Honda has established the Honda Policy on the Prevention of Bribery, which sets a basic policy of efforts by the Honda group to prevent bribery, and the Honda Guideline for the Prevention of Bribery, which sets forth requirements and restrictions. The bribery prevention system is further strengthened through internal training and other measures. Streamlining the risk management structure Honda promotes the management of risk that requires corporate-wide attention in line with the Corporate Crisis Management Policy and Honda Risk Management Rules. In order to further reinforce our risk management structure, we established the Risk Management Committee to handle all types of risk, ranging from natural disasters to the risk inherent in business. In addition, we solidified our structure to enable more effective identification of risk and necessary countermeasures that became apparent after the Great East Japan Earthquake. Thus, we thoroughly revised the Honda Crisis Response Rules and renamed it the Honda Risk Management Rules. Furthermore, we formulated a Business Continuity Policy (BCP) with the objective of ensuring continuity of operations throughout the Honda Group in times of crisis. In addition, activities for identifying key risks within each region and operations segment using risk templates were introduced in October 2013. Global-oriented key risk identification activities were commenced with a goal to firmly establish them by the end of FY2017. Honda Risk Management Rules Information management To ensure ample protection of the personal information of our customers and employees, and the proper handling of sensitive company information, we established the Confidential Information Management Committee for our offices and major subsidiaries in Japan. A director is assigned as the committee representative responsible for sensitive information management throughout the year. During FY2014, efforts were made to bolster information management further, for example by building upon the Honda Security Policy(HSP)-Honda's information management rules-to create a Global Confidentiality Policy(GCP) that will ensure a consistently high standard of information management worldwide.