Organization And Governance In Canon Inc

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The Canon Company was founded two weeks before another mainstay of the typical Japanese firm: Toyota. The company has been around for more than 70 years and is headquartered in Tokyo, Japan (Canon Inc.). The company certainly began with a Japanese management style, but does the current management styles reflect a more Japanese style or are they a "fusion of Eastern and Western corporate principles" (Kunii).

Superficially, the canon corporation appears quite Japanese. The Canon Corporation calls their corporate philosophy 'Kyosei', which they define as "All people, regardless of race, religion or culture, harmoniously living and working together into the future". The philosophy continues to describe how the company believes they must "foster good relations… with their customers and the [community]" (Canon Inc.). The first part of the philosophy implies an emphasis on respect for people, which is a characteristic of Japanese Corporate creeds. The latter portion of the philosophy demonstrates the importance of customer to the company. As for goals, the company "targets sound growth" and "improved management quality" (Canon Inc.), but "canon has high margins-higher than any other Japanese manufacturer" (Chandler). Japanese companies tend to prefer growth and organizational stability over profitability, so the goals stated by Canon reflect those of a typical Japanese firm. Whether the high profitability comes from a thorough implementation of the other goals or from an unspoken focus on profitability, the goals and corporate philosophy of Canon roughly align with those of a typical Japanese firm.

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Although the corporation seems Japanese based on Corporate Philosophy and goals, in terms of ownership structure, the company differs from other Japanese firms. The ten largest shareholders at Canon own 31.8% of the common stock, and all of the largest shareholders are firms rather than individuals (Canon Inc.). The largest shareholder is The Dai-Ichi Life Insurance Company, Limited, which owns 6% of the total shares. These amounts are much less than those at the Kodak Corporation, a firm in the same industry as Canon; whose top ten shareholders hold 57.6% (Kodak). The largest shareholders also hold a bigger proportion of the company at Toyota where they hold 38.7% of the outstanding shares (Toyota). In terms of ownership structure, the Canon corporation also tends to be more Japanese than not. The ownership is mostly dispersed and banks tend to be principle owners. The company's ownership structure is much more like a Japanese firm, Toyota, than a western firm, Kodak. As for the board of directors, when CEO Mitarai described the board he said, "all the board members are corporate officers, and there will be no outsiders" (Kunii). This reflects the low power of shareholders typical in a Japanese firm. Also notable, the Canon Corporation released a statement that they would reacquire up to 15 million of their outstanding shares (Canon Inc.). This is likely to further decrease the power of stockholders, making the company more typically Japanese.

As for some of the most salient features of a Japanese firm, lifetime employment and seniority based pay; the company tends to differ from typical Japanese firms. CEO Fujio Mitarai described the company's human resource management as "combining lifetime employment with a competitive salary system", but also said that the company does "what works in the society where [they're] based" (Kunii). This is to say that the company follows more Japanese style human resources in their operations in Japan and more western style human resources in their operations elsewhere. Since the company does not strictly adhere to the principles of Japanese management, and has instead adopted a hybrid model, we cannot call the human resources management and managerial control Japanese or western. However, the hybrid model would contribute to the conclusion that Canon is not a typical Japanese firm, rather than the converse.

2. Coordination in Organization

Horizontal

Founded in 1930, the Japanese multinational began its life as Canon Camera Company, a manufacturer of 35mm cameras. But, by the 1960s, the company had begun to spread its experience in imaging technologies into business machines such as printers and calculators. In 1967, the management slogan "cameras in the right hand, business machines in the left" was unveiled and in 1969 the company changed its name from Canon Camera Co., Inc. to Canon Inc. (Canon Inc.)

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At the same, it began to also spread geographically, opening offices in Europe and the Americas. A consistent focus on product development saw the company rapidly overtake market leader Xerox in the lucrative copying market. Since then, Canon has grown to become one of the world's largest electronics manufacturers, while the firm's camera products continue to enjoy a high profile (Wright).

Now, Canon has three large business segments- a consumer business unit, an office business unit, and an industry and others business unit. The consumer business unit covers the B2C part such as digital cameras, DSLR, lenses for camera and etc. The office business unit covers B2B part such as laser printers, office network multifunction devices, and solution software. The industry & others business unit covers professional industry parts such as LCD lithography systems, ophthalmic equipment and etc (Canon Inc.). [See Figure 1.0]

Compared with Fuji Electric in the same industry, Canon has a relatively low degree of cross-industry diversification. Fuji Electric has four expertise group- an Energy &Electric systems group, a electronics group (similar with Canon's consumer business unit), an ED&C·Drive systems group and a retail support equipment &systems group (Fuji electric).

Still, Canon struggles with horizontal integration for long-term development by using canon's core technology. Canon will put its plans for the expansion into biotech before its board. Canon believes the ink-jet technology in its printers could lead to cheaper ways of mass-producing DNA chips (BBC news).

In their Excellent Global Corporation Plan, Canon has a long-term vision for diversification. Having diversified by moving into such business areas as large-format inkjet printers, digital production systems, and business solutions, Canon is also working to establish display technologies. Moreover, Canon is targeting new business domains in the fields of medical imaging, intelligent robots for automated production, and safety and security.

Vertical

Recently, Canon has expanded the scope of in-house production. Specifically, Canon further promoted the in-house production of rubber functional components, circuit boards and plastic components, adding to the in-house production of molds as well as electro photographic and optical key components. Meanwhile, the Kawasaki Office has begun the in-house production of semiconductor devices, including image sensors for digital SLR cameras. Canon is constantly exploring avenues to reinforce in-house production as a means of accumulating know-how and reducing costs.

In addition, all Canon factories across the world use the cell production system, which eliminates conveyor belt assembly lines in favor of small teams, or "cells," of workers that handle multiple procedures to complete a product. The system allows workers to change the number of procedures they perform according to skill level while also facilitating adjustments in production output.

Furthermore, Canon is reviewing its global production network to establish an optimal global production structure. The anticipated contraction of the workforce in Japan necessitates the establishment of a high quality, finely tuned production structure that facilitates the effective use of automated production systems to raise productivity (Canon Inc.).

For effective distribution, each of Canon's regional marketing headquarters - Canon U.S.A., Canon Europe, Canon China, Canon Australia, and Canon Marketing Japan- oversee their own regional sales while cooperating closely with Japan's product development teams, listening closely to customer comments which are then reflected in Canon products. In 2009, Canon Europe consolidated its headquarters in London, uniting strategic functions previously assigned to separate consumer and business product divisions. This integration enables more efficient implementation of sales strategies throughout Europe, Middle East, and Africa region (Canon Inc.). [See figure 2.0]

In terms of horizontal industry organization, Canon is quite typically a Japanese-style company. Canon three business units, however, still focus on the consumer business unit (41%) and the office business unit (51%). [See figure 3.0]. These two units are the same industry: IT industry and they are based on almost the same core technology. So, Canon focuses within one industry, but has no diversification across industries.

Originally, Japan's vertical industry organization was often multi-layer networks. In other words, a typical Japanese company has more suppliers for manufacturing final products than western companies. Yet, Canon promoted in-house production for cost-saving and skill accumulation. This means that Canon can shrink the range of suppliers and raise the level of standardization. Furthermore, while most of Japan's top manufacturers deal with high domestic costs by making as many of their products as possible overseas, Canon likes to buck the manufacturing trends. Canon has a target of keeping about 60% of its production in Japan, despite generating more of its revenue, about 75%, overseas. In short, Canon's vertical coordination (manufacturing network) is relatively simple-layer networks. Canon's structure is a rather western (globalized) style rather than a typical Japanese style.

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However, Canon's vertical integration of distribution networks is quite typically Japanese style. Canon controls the distribution chain with 'Chained' outlets (ç³»åˆ-åº-), even overseas. Through forward integration, Canon tries to get high-quality and standardized distribution channels.

3. Corporate Governance

Governance structure - [Figure 4.0]

1. Fundamental Policy

In order to establish a sound corporate governance structure and continuously raise corporate value, the Company believes that it is essential to improve management transparency and strengthen management supervising functions. At the same time, a sense of ethics and mission held by each executive and employee of a company is very important in order to achieve continuous corporate growth and development (Canon Inc.)

2. Overview of Corporate Governance Structure in terms of the Organization of Management regarding Managerial Decision-Making, Execution of Duty, Oversight and other matters [Figure 5.0]

a. Reasons for Operating Under the Current Structure

Important business matters are actively discussed and ratified during meetings of the Board of Directors and Executive Committee, which are, in principle, attended by all Directors. The Company's board consists of 17 Directors. Based on the Company's view that more practical and efficient decisions can be made by people with well-developed knowledge of the Company's affairs, the Company does not employ outside directors. In the Company's case, this management structure has functioned effectively since its establishment in view of the fact that the Company has seen steady improvement on various fronts.

In addition to this, on April 1, 2008, the Company introduced the Executive Officer System as it became necessary to strengthen management, execution, and monitoring functions even further to respond appropriately to factors such as further future business expansion and a shift toward globalization. The Company has 13 executive officers that support directors in the execution of assigned duties. With this, the Company has a structure in place where directors can focus more on management and supervision.

In addition to having five Corporate Auditors, three of whom are Independent and Outside Corporate Auditors, in order to ensure effective corporate governance, the Company employs diverse internal control systems, including enhancing the structure and authority of its internal auditing; having Corporate Auditors and the Corporate Audit Center work closely with the Accounting Auditors; and establishing in 2004 the Corporate Ethics and Compliance Committee and Internal Control Committee. These measures support the effective implementation of the Company's corporate governance, while also making possible the maintaining and strengthening of this structure. These measures support the effective implementation of the Company's corporate governance, while also making possible the maintaining and strengthening of this structure.

b. Cooperation between Corporate Auditors and Accounting Auditors

At the beginning of the year, the Corporate Auditors and the Board of Corporate Auditors receive from the Accounting Auditors an outline of their audit plan and a report on important auditing items on which the Corporate Auditors and the Board of Corporate Auditors express their opinion with respect to validity. Also, the Corporate Auditors and the Board of Corporate auditors maintain close cooperation with the Accounting Auditors and exchange opinions on such subjects as the results of audits and the Accounting Auditors' grasp of the Company's internal control systems and their evaluation of risk. Furthermore, in addition to observing the Accounting Auditors' fieldwork and audit reviews as necessary, the Corporate Auditors and the Board of Corporate Auditors always receive from the Accounting Auditors an audit report that deals with the accounting audit of quarterly and year-end accounts. Also, the Corporate Auditors and the Board of Corporate Auditors, maintaining constant cooperation with the Accounting Auditors, may, from time to time, request to the Accounting Auditors a report on the progress of their various audits.

c. Cooperation between Corporate Auditors and Internal Auditing

At the beginning of the year, the Corporate Auditors and the Board of Corporate Auditors confirm with the Corporate Audit Center, which serves as the Company's internal auditing division, the outline of their internal audit plan and internal auditing subjects. The Corporate Auditors and Board of Corporate Auditors receive from the Corporate Audit Center a report on the audit and the evaluation after the conclusion of the internal audit on such subjects as business operation audits and internal control systems. The Corporate Audit Center also reports individually on the internal audit results regarding product quality, environmental issues, information security and physical security, areas in which various relevant administrative divisions work very closely with the Corporate Audit Center.

The Corporate Governance of Canon looks like typical Japanese company, but they try to adopt the global company's process. And also Canon adopted the performance-based pay system. But let's look in the Decision making process, there is traditional Japanese company. The authority of decision making is centralized on one man as like CEO.

4. Evaluation

Previously, we examined whether Canon is typical Japanese company or not from several angles. In conclusion, Canon is more similar to a typical Japanese company than a western style company. This attribute is obvious from the company structure and governance structure.

Canon has the advantage and also disadvantage, that the board of directors has the most authority of the company. There is no restriction system to restrain the management, in part because has no elected outside directors.

In 1990s, Canon fell into a difficult situation, along with other Japanese company, because of the domestic depression. Because of this, CEO Mitarai Fujio disposed of 7 deficit-causing divisions. However, he didn't abandon the lifetime employment system. Instead, the performance-based pay system was adopted. The combination between the lifetime employment system and the performance-based pay system was the driving force to recover former achievements. In 2007, Canon made a new annual business record. (Canon's sales were 4.4 trillion yen, and net income was 488 billion yen.) (Canon Inc.) However, Canon had to end lifetime employment system in 2009, due to the convergence of a worldwide depression and an overvalued yen. Against the creed of Canon-Kyosei, Familism, lifetime employment-, Canon joined in the sweeping reduction of the personnel. The speech of CEO Mitarai, "Canon is a Japanese company and employees are the Japanese nation", and "We would curtail the salaries of employees instead of the discharge when the situation will go bad." is putting him in the shade (Donga Ilbo).

5. Recommendation

One shift away from typical Japanese management style that could benefit Canon is a more diversified board of directors. The CEO Mitarai Fujio acknowledged that, "if a company does [need outside directors], then it should appoint them" (Kunii). He claims that Canon does not need outside directors. Although the company has been doing well, the combination of lifetime employment and internal directors means that there are few outside viewpoints contributing to higher-level Canon management. In fact, the company's recent success "came at the hands of a Western CEO" (Chandler); demonstrating that more diverse corporate directors could lead to further beneficial developments for Canon.

CEO Mitarai Fujio's achievement during 'the lost decade' was gorgeous. But, nowadays focused authority on leader is not effective to adopt Canon to current changeable business environment. When he established new company policy, there were some arguments between the company and the employees. At that time, CEO Mitarai just disregarded employees' opinion and processed new policy. Fortunately, new policy and system was effective, but if not, CEO Mitarai would be blamed a lot. Charismatic Leadership cannot be effective nowadays. Canon should further decentralize CEO's authority to the management.

Appendix

Figure 1.0 Main Activities of the canon group (As of December 31, 2009)

Office Business Unit

Office Network Digital Multifunction Devices (MFDs), Color Network Digital MFDs, Personal-use Network Digital MFDs, Office Copying Machines, Full-color Copying Machines, Personal-use Copying Machines, Laser Printers, Large Format Inkjet Printers

Consumer Business Unit

Digital SLR Cameras, Compact Digital Cameras, Interchangeable Lenses, Digital Video Cameras, Inkjet Multifunction Printers, Single Function Inkjet Printers, Image Scanners, Broadcast-use Television Lenses

Industry and Others Business Unit

Semiconductor Production Equipment, Mirror Projection Mask Aligners for LCD Panels, Medical Image Recording Equipment, Magnetic Heads, Micro motors Computers, Handy Terminals, Document Scanners, Calculators

(Canon Inc.)

Figure 2.0 The stage of production and distribution.

sdlad.jpg

(Canon Inc.)

Figure 3.0 The percentage figures for the three business unit.

Note: The percentage figures for the three business units presented in the pie charts above do not add up to 100% because "Eliminations," used in consolidated accounting, were not included in calculation considerations.

(Canon Inc.)

Figure 4.0 General Meeting of shareholders

(Canon Inc.)

governance_structure.jpg

Figure 5.0

Items Concerning Institutional Structure, Organizational Operation, etc.

Organizational Form

Company with a Board of Corporate Auditors

Directors

Chairman of the Board of Directors

Chairman of the Company

(excluding the case when the chairman of the company concurrently holds position of president)

Number of Directors

17

Elected Outside Directors

none

(Canon Inc.)

Appendix 1.0

Items Concerning Functions such as Execution of Duties, Audit and Supervision, Designation, and Remuneration Determination

In addition to the director and corporate auditor systems, the Company has a corporate governance structure that incorporates its own internal auditing system. With a Board consisting of 17 Directors, none of which are Outside Directors, the Company pursues practical and efficient management decision-making. Important matters are ratified by the Board of Directors and Executive Committee, which, in principle, are based on full participation of the Company's Directors. The Company has also established committees to address important management themes with the aim of complementing the business operation structure and facilitating swift and effective decision-making while, at the same time, realizing a mutual supervisory function for such matters as compliance and ethics. In Addition, to further enhance the Company's system for the execution of duties and manage the business more flexibly and effectively, the Company introduced the Executive Officer System from April 1, 2008.

The Corporate Auditors of which there are five, including three Outside Corporate

Auditors, in accordance with audit policies and allocation of responsibilities, conducts strict audits through attending Board of Directors meetings, Executive Committee meetings and other meetings of various committees, listening to operating reports from Directors and others, inspecting documents of important resolutions, and investigating the Company's business situation and assets, to fulfill its monitoring function of the Board of Directors in the performance of its duties. Furthermore, close cooperation among the Corporate Auditors, the Accounting Auditors and the Corporate Audit Center serves to enhance each monitoring function.

On March 31, 2010, the Company gave prior notification to secure independent

Director(s)/auditor(s) eligibility for three Outside Corporate Auditors, as follows:

As for Tadashi Ohe, since there are no particular personal or economic relationships such as advisory contracts etc., between the Company and Tadashi Ohe, the judgment criteria regarding independent director(s)/auditor(s) attributes do not apply. Tadashi Ohe is engaged as lawyer that has in an impartial and objective manner provided his legal expert opinion in accordance with his conscience at director meetings etc.

As for Kazunori Watanabe, although he was employed by the Company's Accounting Auditor, since the consideration for non-audit services is not a substantial amount, the judgment criteria regarding independent director(s)/auditor(s) attributes do not apply.

Kazunori Watanabe is a certified public accountant engaged in the business of

Corporate accounting and committee activity of the Japanese Institute of Certified Public Accountants for many years that is expected to carry out sufficient management monitor functions from an objective and impartial standpoint.

As for Kuniyoshi Kitamura, although he was employed by a life insurance company holding the Company shares and said company is also one of many parties that the Company does business with, since a conflict of interest with general shareholders is unlikely to occur due to the percentage of shareholding and amount of trading between the two companies, the judgment criteria regarding independent director(s)/auditor(s) attributes do not apply. As a businessperson with know-how being in charge of the investigative arm of a life insurance company, and a person with experience working in broad fields such as sales and corporate planning, Kuniyoshi Kitamura is expected to use his good and balanced sense of judgment.

Furthermore, based on internal audit rules, the Corporate Audit Center (internal

Auditing) conducts audits covering such areas as internal control systems, and provides assessments and proposals. The various relevant administrative divisions also work with the Corporate Audit Center to audit such areas as product quality, environmental issues, information security and physical security.

Regarding external audits, with the aim of monitoring the independency of the accounting firm, the Company introduced a prior approval system by the Board of Corporate Auditors for contents of auditing and other service contracts and relevant fees.

Based on policies and procedures of the prior approval for both auditing and

non-auditing services," each contract is closely reviewed for prior approval The Company has an auditing service contract with Ernst & Young ShinNihon LLC to audit its financial statements. To check the validity of the audit, the Company's Corporate Auditors receive detailed explanations, including documents, from the Accounting Auditors about the quality management system regarding audits.