Opportunity is a double-edged sword. With opportunities for corporate development, come risks. Such risks can only be offset through control mechanism in order for opportunities to become means of fulfilling sustainable management.
We provide regular training to help staff be risk conscious, and risk control is implemented in conjunction with the internal audit system. In 2013, the Company established the regulatory compliance system to assist all units review compliance practices and reduce risks of violations. In 2015, the risk alert system was established to track and review corporate risk factors on a regular basis and provide preventive measures and advanced response. In addition, we implement regular risk audit projects to control operational risks at production sites to enhance staff safety and product quality.
FENC conducts various monthly meetings with the highest governing entity, covering risk issues such as management and sales; industry management; energy conservation, which ensures proper focus and management from the highest governing entity.
Climate-related risks have rapidly become major risks for corporate management. In 2018, we took stock of the risks, opportunities, responses as well as impacts on finance and management using the framework from Recommendations of the Task Force on Climate-related Financial Disclosures. Please refer to Special Report 4. Climate-related Financial Risk Assessment for details.
Improving staff’s legal knowledge will reduce the risk of violating the law when conducting business affairs. In 2017, FENC established FENC Academy and started offering online courses and exams to staff at the production sites in Taiwan and China. Criminal Code and Corporate Corruption, Copyrights Law, and Trade Secrets are 3 mandatory courses for all new recruits as well as staff at Corporate Management, Audit Department, Procurement Department and R&D Center. Antitrust Law as well as Criminal Code and Corporate Corruption are mandatory for staff at Polyester and Textile Businesses. Credit Risk Management is a selective course for all staff. As of the end of 2019, 2,114 employees completed the regulatory compliance courses and exams. We will continue to expand the curriculum to enhance staff’s legal knowledge and reduce corporate risk on compliance.
The Audit Department establishes and implements the internal control system and management rules. Each department and subsidiary establish an internal control system and conduct regular self-evaluation. The audit unit then prepares the internal control report to help members of the Board to review, recheck and reinforce the implementation so that mistakes and loopholes can be minimized to improve operational performance and increase Company benefits. In 2019, the audit departments conducted 58 audit cases and rectifications have been made.
The Audit Department is composed of 4 sections – procurement audit, operation audit, finance audit, as well as MIS audit. Trainings are conducted yearly in accordance with the regulatory requirements, including educational courses and seminars. Staff also attends the annual meeting of the Institute of Internal Auditors to reinforce their professional knowledge and risk management awareness.
Digital era has arrived. To understand how digital audit is done, the Company took part in training courses such as New Concepts in Digital Audit; Digital Technologies and Applications; Audit Response to Digital Fraud. In the future, the Company will take gradual steps on the path of digital transition
FENC places high emphasis on information security and management. The Company introduced ISO 27001 Information Security Management in 2014 and continues to enhance the professional skills of information security staff while improving information processing technology. In response to Cybersecurity Act, which took effect in China in June 2017, the information department in China formed an information security management team to consolidate information security management policies from all production sites in China. Solutions targeting cyber security and promoting information security were also proposed to increase awareness among staff.
Establishment of the risk alert system starts with risk events identified by each administrative unit. The risk events are ranked and the most critical are selected to develop leading indicators and corresponding measures that are specific and trackable. The appointed primary and secondary owners oversee the inspection of each corresponding measure, which is set at certain intervals, and the Corporate Management conducts monthly risk management meetings, an interdepartmental effort for performance review, ongoing dynamic adjustment and optimization.
The risk alert system provides a common framework where major risk events from each department can be managed. The system conducts regular and systematic review, and establishes various corresponding measures in case of irregularities from the indicator to ensure the effectiveness of the protective mechanism. Starting from 2019, there is a systematic approach toward monitoring risk indicators. A risk management platform is established to automatically send out alerts when irregularities occur to reduce labor and oversight. The Company introduced credit rating and instant credit calculator to address credit risks and crediting management. Artificial intelligence makes swift identification of the key risk information and reduces inflated credit, which enhances the quality of credit decisions.
FENC established the Control System on Preventing Economic Sanction from Financing of Terrorism in April 2018. The Company also established programs on anti-money laundering and countering the financing of terrorism through initial risk assessment. Currently, 22 nations and 1 region have been sanctioned, and 26 customers are under controlled transaction. To avoid penalty from international organizations, the Company reinforces system validity through the following 3 measures：
The President of Corporate Management serves as the general supervisor of the regulatory compliance system, which integrates the compliance processes from all departments and establishes an audit system to effectively manage and address operating risks. Production sites in Taiwan and China are under the jurisdiction of the Legal Department in Taiwan and Shanghai, respectively.
The system encompasses tracking regulatory updates, providing legal consultation, response to violations, regulatory training and on-site compliance audit. In 2019, the Legal Department in Shanghai constructed the regulatory compliance platform, providing analysis on the latest legal precedents, reporting regulatory updates and offering training on regulatory compliance.
The Company provides multiple channels for reporting violations, including emails for the regulatory compliance system, Audit Committee and Audit Department. Standard operating procedures are in place to address violations. Priority is given to the audit of regulatory provisions concerning members of the Board and managers, damages to corporate image or interests, and major civil and administrative liabilities. Annual audit will focus on frequently occurred shortcomings. The Legal Department will provide guidance for each department to complete self-evaluation on compliance, conduct on-site audits with the Human Resources Department and Audit Department, compile reports to the Board of Directors and help each department make necessary improvements and follow up.
FENC’s production sites are across the globe, including Taiwan, China, Vietnam, Japan, Malaysia and the U.S. Risks occurred at these plants pose direct impact to corporate operation, which is why we commissioned external experts to conduct risk assessments for the plants overseas. Improvements are made based on the assessments to strengthen the operation and prevent risks.
In July 2019, the Company conducted Risk Ranking project for the third time, completing risk assessments for 21 plants targeting 8 risks. The Company also took the opportunity to review the improvements made based on outcomes of the second Risk Ranking project in 2016. A total of 129 risk factors were identified. The final report has been distributed to all plants with monthly tracking until all improvements are made.