Risk Management
Risk Management System and Operational Framework
The risk management of Shiseido Group is primarily focused on building trust with multiple stakeholders and achieving our management strategy. We thus consider risks as “uncertainties” that could impact the achievement of our strategies, seeing them as both potential threats and opportunities to our businesses. Based on this approach, we have established a risk management structure and place measures for managing these risks proactively and expeditiously.
We adopt a holistic approach to identifying and assessing significant material risks to the company, as exemplified by the chart below. Specifically, the HQ Risk Management Department has interviewed the Group CEO, executive officers, regional CEOs, and external directors to assess their views on Group risks. Regional risk assessments, exchanging information with relevant functional departments, and input from external advisors have been taken into consideration in identifying material risks that could impact the achievement of the medium-term strategy SHIFT 2025 and Beyond.
The identified material risks have been evaluated with three measurements of “the impact on business,” “likelihood of risk manifestation,” and “vulnerability” as shown below. The Group’s risks assessment and countermeasures are also periodically reviewed by the Global Risk Management & Compliance Committee, headed by the Group CEO and composed of regional CEOs and executive officers, as well as the Global Strategy Committee. Furthermore, we have identified risk owners for each risk to clarify responsibility for countermeasures. A transparent monitoring and communicative framework has been placed within the Global Risk Management & Compliance Committee and the Board of Directors to regularly discuss and assess the progress in addressing these risks.
Risk Assessment Evaluation Axes
Identify
Identify and categorize risks based on interviews with executive officers, regional CEOs, and external directors, as well as insights by external experts
Assess
Analyze and compute risk levels based on the following evaluation axes: impact on business, likelihood of risk manifestation, and vulnerability
Control
Plan and implement risk management (avoidance, mitigation, transfer, acceptance)
Monitor
Review and monitor formulation and progress of measures
Identified Material Risks
Risks identified through our risk assessment in 2022 have been organized into three risk categories: “Consumer & Social-Related Risks,” “Operation & Fundamental Risks,” and “Other Risks.”
It is notable that the connections between each risk are becoming stronger, and accordingly, so are the related countermeasures. In addition, we have assessed five risks whose risk levels have risen sharply compared to 2021: “Changes in Consumer Values,” “Geopolitical Tensions,” “Corporate Culture and Acquisition/ Securing Outstanding Human Capital,” “Quality Assurance,” and “Information Security & Privacy,” and we are strengthening the countermeasures. We have also added "Regulatory” as a new material risk, which is becoming increasingly important as we nurture brands with unique value and develop new businesses in categories like beauty devices and inner beauty.
The following is an outline of the results of our material risk analysis and the countermeasures.
Risks with a Sharp Increase in Risk Level Between 2021 and 2022
Key Strategic Initiatives
- Focus on the Premium Skin Beauty category.
- Strengthen business portfolio combining the Company’s R&D with open innovation and strategic M&A.
- Develop the inner beauty category.
- Develop cross-border marketing.
Uncertainties
- Loss of competitiveness due to delayed or inadequate response to changing consumer values relating to beauty, changing tastes related to cosmetics or inner beauty, price acceptability, and diversifying purchasing behavior including touchpoints. (Threat)
- Successful marketing strategies addressing changing consumer values may lead to higher-than-expected sales and profits. (Opportunity)
Countermeasures
- Strengthen the delivery of compelling, personalized experiences not only online but also offline (storefront) focused on consumers.
- Strengthen our brand portfolio to respond to diversifying consumer values.
- Accelerate diversity of human resources, especially at HQ.
- Accelerate value creation and business development through open innovation with other companies.
- Set up a department specializing in market information to obtain consumer information in a timely manner.
Key Strategic Initiatives
- Focus investments on the areas of growth drivers.
- Rebuild the business foundation to boost profitability.
Uncertainties
- Possibility of boycott on our products due to increased anti-Japan sentiments in the countries and regions where we operate. (Threat)
- Deterioration of business environment due to political instability in the countries and regions where we operate. (Threat)
- Our profitability may deteriorate if the increased cost of raw materials caused by global price inflation leads to an increase in the price of goods/services, as consumers may be less motivated to purchase our products. (Threat)
- Unstable political conditions and strained diplomatic relationships of the countries and regions where we operate could deteriorate our business environment and lead to negative impacts on production, supply, and sales of our products. (Threat)
Countermeasures
- Further develop our Premium Skin Beauty category.
- Optimize balance of sales across Regions.
- Strengthen and leverage the scale of our global supply network to allow flexibility at a time of crisis, without interrupting supply.
- Identify and examine items to be addressed Group-wide assuming a crisis situation.
Key Strategic Initiatives
- Under the “PEOPLE FIRST” core management principle, acquire/develop people that realize innovation and create new value.
- Established eight working principles for all Shiseido employees to follow, as OUR PRINCIPLES (TRUST 8).
Uncertainties
- Inability to attract and retain the best talent may lead to talent shortages in realizing our business objectives. (Threat)
- Possibility of securing a competitive advantage in the global market by hiring and retaining the best talent. (Opportunity)
- Possible increase in productivity of the entire Group through work style reforms tailored to each task. (Opportunity)
Countermeasures
- Continue to reinforce a strong culture of transparent leadership and governance globally and reinforce the culture through employee communications and town halls.
- Promote a workplace with flexibility and diversity, and improve, such as a workstyle combining office and remote work to achieve maximum results (Shiseido hybrid work style) and permitting part-time jobs. Improve employee well-being.
- Introduce the global HR database and unify employee performance management to put the right people in the right positions.
- Introduce the job-grade-based HR System and a remuneration system commensurate with individual contributions to ensure transparency in personnel evaluation and improve employee motivation.
- Accelerate shift to a digital-driven business model and reinforce IT/digital capability through Shiseido Interactive Beauty (SIB).
- Strengthen retention of people by offering total rewards, including global leadership programs, women's leadership development programs, global mobility and competitive compensation systems.
Key Strategic Initiatives
- Offering safe products is a core Shiseido value and the foundation of our business strategies and competitive advantage; thorough measures are taken to ensure high quality throughout product design, production, and sales.
Uncertainties
- Company-wide challenges to the thorough implementation of the Group’s high standard of quality assurance at various stages of product lifecycles and providing safe products to consumers. (Threat)
- Globally provide Japan-standard quality, leading to improved brand image and increase in consumers, especially outside Japan. (Opportunity)
Countermeasures
- Developed Basic Policy for Quality Assurance and Global Quality Policy and Guidance and established Shiseido’s own quality and safety assurance standards. Confirm adherence to such guidelines and standards at all stages, including new product design and development, management of raw materials, production, and delivery. Established a dedicated quality assurance department.
- Launched a project with an objective to strengthen governance/risk assessment/operating protocols.
- Implementation of Global Quality System, a system allowing global sharing of voice of consumers collected at consumer centers.
- Set up a consumer service desk and a dedicated internal system for reporting and responding to potential quality risks, in addition to conducting regular simulation training.
Key Strategic Initiatives
- Strengthen digital marketing globally by utilizing data and enhancing e-commerce to match consumer needs and fierce competitive environment.
- Acquire and utilize more personal data, including sensitive information, with consumer consent to provide new curated experience/services to customers and co-creation.
- Shift to Shiseido Hybrid Work Style, a way of working where productivity is high regardless of place or time.
- Further collaboration and co-creation with external partners such as startups to generate innovation.
Uncertainties
- Stagnation of production and sales and liability for damages to consumers and customers and loss of trust in the Company due to system failures caused by cyberattacks and leakage of consumer data. (Threat)
- With the increase in access points to important data accompanying working styles regardless of location and time, and further collaboration/ co-creation with external partners, information leakage risks may be heightened if management or operation is inadequate. (Threat)
- Violation of laws and regulations, fine payments, and loss of trust in the Company due to delayed or inappropriate response to data privacy-related laws and regulations in each country/region. (Threat)
- Loss of trust in the Company and business opportunity due to failure to understand the sensitivity of society regarding data privacy and appropriately understand the concerns/ expectations of consumers regarding data privacy. (Threat)
- By taking appropriate countermeasures to the above threats, possibility of contributing to the achievement of business goals; for example, consumers feel safe to entrust their personal data to the Company. (Opportunity)
Countermeasures
- Dedicated information security department leading global collaboration, governance, and control.
- Appoint a person responsible for data privacy to reestablish and strengthen global collaboration system.
- Promote information disclosure and notification regarding protection of data privacy. Promote communication with relevant authorities.
- Continuously revise the company’s information security/data privacy regulations, considering both internal and external environmental changes.
- Identify/securely manage personal data held by the Company. Continuously promote information security awareness among employees.
- Reinforce medium-to-long-term response to external cyberattacks increasing in sophistication and diversification (Protect/Detect/Respond/Recover: e.g., stronger security related to filters, computer devices, and cloud use).
- Strengthening the establishment and monitoring of the Security Operations Center (SOC) on a global scale, involving external experts, for improved management/operation of increasing amount of sensitive data and diversifying data access points.
Newly Added Risk
Key Strategic Initiatives
- HQ leads in collecting information and analyzing risks related to new environmental laws, regulations, and social trends, sharing information with related departments including overseas regions, thereby strengthening the system for the smooth launch of innovative products and services.
Uncertainties
- If we are unable to properly develop products in compliance with stricter regulations in various countries and regions, our technology and products may be subject to regulatory incompliance, and as a result, our R&D may stagnate, or production and sales may be banned, and it may lead to a significant impact on our business, causing us to lose the trust of society and consumers. (Threat)
Countermeasures
- Established a dedicated department within HQ to monitor trends of regulatory affairs in each country and formulate strategies.
- Conduct compliance assessments of environmental and other regulations based on the ISO14001 to ensure strict compliance with laws and regulations.
