Thank you for joining us in this dialogue regarding OMRON's CSR, despite your busy schedules. The main topics of today's discussion are "OMRON Group's CSR vision for a decade from now" and "the materiality of CSR issues." Let us begin with "OMRON Group's CSR vision" by taking the example of "innovation driven by social needs," one of the main issues that OMRON has consistently tackled.

Let's first delve into our perception of society 10 years into the future related to "innovation driven by social needs." First of all, the mindset of consumers in advanced nations will change. As awareness of the need for sustainability grows, we can project that people will choose products that will promote sustainability. Also, in emerging countries such as China and India as well as in developing countries, some people, particularly in higher socioeconomic groups, already have a high degree of consciousness and sense of responsibility regarding sustainability. These people also have a sense of pride in taking action toward that goal.

In other words, as the need for material wealth has been fulfilled, people will place more importance on psychological fulfillment and consideration for the earth and our society. We now stand at the threshold of such a new age. I suppose that this shift will increase on a global level. In light of this situation, we have to think about which products and services are most important at present. Companies are required more and more to address not only environmental issues but also various other societal challenges. As such, it will become more important than ever for companies to solve these challenges through their business. That's because society will change in that direction.

Consumers will begin taking a harder look at corporate activities, won't they? How should OMRON view such changes in society?

From the beginning, OMRON has consistently emphasized the spirit of "working for the benefit of society." And the idea of "innovation driven by social needs" comprises a core element of OMRON's corporate DNA, so we can say that the age that OMRON has envisioned for so long is finally before us. But OMRON's business is mainly B-to-B, so to the extent that OMRON can directly address general consumers, as an extension of its B-to-B transactions, it is in fields such as safety and security as well as environmental conservation. These areas are currently capturing the attention of consumers. Accordingly, "innovation driven by social needs" in areas related to consumers will grow in importance according to the requirements of the current times.

The arrival of such an age will obviously provide OMRON with great opportunities. But at the same time, OMRON will face healthy competition as other companies turn their attention to the same issues that OMRON is addressing. In such a competition, companies that have a social perspective in their corporate DNA will have an advantage over those who don't, when it comes to demonstrating their core strengths.

How do you feel about OMRON Group's CSR vision for a decade from now?

The most important thing that OMRON should do is involve consumers and other stakeholders more deeply in the process of "innovation driven by social needs." This engagement with stakeholders should be implemented in a systematic way, and I don't see that it has developed to that point yet. At present, the process has not yet advanced to the extent of exploring needs by involving many stakeholders and extending the "information antenna" to reach every corner of society. In the upcoming ten years, OMRON should strive to complete that system. Once this is accomplished, OMRON should be able to produce a steady stream of innovative products that meet social needs.

One of the seven core issues identified in the working draft of ISO 26000, now in the process of being institutionalized as a set of standards, is "social development or community involvement." I think that OMRON's process of "innovation driven by social needs" will become more closely associated with this issue in the future. The regions where OMRON conducts business now include few developing nations. Therefore, OMRON today is slightly more distant to the area of "social development" compared to other issues. But in the 10 years to come, OMRON should become more involved with this issue so that "innovation driven by social needs" will be fully integrated with social development.

It would be interesting to take one of OMRON's business companies such as AEC or ECB or IAB, and consider some of its major business customers. That is, think about some of the social issues and stakeholders that a customer would face in its industry, and what the customer will have to deal with in terms of social needs 10 years from now. What kind of innovation could OMRON produce to help that customer satisfy some of its challenges related to social needs? What could we imagine?

OMRON has specified "innovation driven by social needs" as one of its Management Principles. The idea is anticipating needs that are not yet well-recognized, or potential needs, and trying to address them by capitalizing on our technology and developing new business models.

To achieve "innovation driven by social needs," as Mr. Rochlin has just mentioned, we should more clearly identify stakeholders to formulate necessary strategies. That is the right way, I think.

As for OMRON's drive to promote "innovation driven by social needs," I think they are aiming at the right thing and OMRON is ahead of the times. But there's a problem, which is also connected to what Mr. Rochlin said, and that is the necessity of thinking about social issues that customers have. The problem is in their way of thinking, common among technology-oriented people, that "this product should sell because it is a great product," for instance. Based on this kind of speculation, they often dash ahead before exerting enough effort in marketing.

But we can also say that this is the OMRON style－to have a clear vision and strong confidence that what they developed should change the world. That this product should absolutely sell well, or this technology will be wonderful, and so on. Their aim is right, and their direction is correct, but still they are not as good at effectively turning it into a business. That's why the advice was given that they should focus on the stakeholders near them and adjust their direction as necessary. That was probably because they were weak in terms of engagement with stakeholders in many cases.

But there were also many successful cases. If we analyze various factors involved in their success, the common factor that we discovered was that persons in charge continued to take on challenges and persistently worked on their projects, although luck also served as an important factor. There were many cases in which they continued to work on a project even on a small scale, no matter how many times they faced failures or setbacks, and after 10 years, they finally attained success. Overall, I think that "carefully listen to the voices of your closest stakeholders and reflect them into your business" is a very valuable suggestion.

I also agree that it is very important to imagine specific cases for each business company. If you strive to promote "innovation driven by social needs" from the perspective of practicing CSR, the most important thing may be to have dialogues with your employees who are closest to you, and other departments or colleagues that are in charge of other tasks. When it comes to marketing, the most important factor is the extent of your communication with the market. I know that most companies who fail in CSR often lack in-house dialogues. For example, only a certain department gets excited and dashes at maximum speed, leaving others behind, or only a certain department is willing to do its best, and so on. This approach will no longer work. It will become more and more important to get together and have discussions, as suggested earlier.

If you try to anticipate the social needs of ten years from now and address them, existing businesses in your company may become your strongest "opponent." In the future, employees will become increasingly diversified, with many people joining your company who have different value perceptions and work styles. Therefore, it will become more difficult to provide opportunities to create something in collaboration with others. But even so, we should study the ways by which it can be done.

What if we looked at one set of OMRON's customers? What if we looked at the automotive business which has Nissan, Honda, Toyota and General Motors, among others, as its customers? And suppose we imagined from the perspective of those customers what major social needs are affecting their business. How should they respond, and how might OMRON help them?

Well, coincidentally, I was asked a similar question by a Professor of the Harvard Business School the other day. She mentioned the case of a new control system for photovoltaic installations that OMRON developed and delivered in Spain. This system significantly contributes to environmental preservation, and details of the project were also featured in our Sustainability Report 2007. She asked what kind of process OMRON took to achieve this project in Spain. Specifically, how we discovered social needs and by what process we were able to respond to them.

In the field of automobiles, "creating a collision-free car" is one important task that OMRON should fulfill. People at OMRON are working very hard toward achieving this goal aren't they? If there is anything missing in that process, it may be dialogue. To create a collision-free car, what process should you follow? What kind of people should you work together with and what should you do together? You may be lacking discussions on such things, which would help you consider what should be done in order to achieve that goal.

One of the biggest issues facing automakers now is safety, and probably environmental conservation. I guess there are many more. But among these issues, in what area can OMRON contribute? I think that OMRON has identified its focus area as "safety," by checking against the list of technologies that it possesses and narrowing down its target areas. Then how should OMRON treat this need of safety? How should OMRON develop a process necessary to turn it into a business? Discussions that can answer these questions will be essential.

There are various needs related to automobiles other than safety and environmental conservation. The original function of the automobile was to answer society's need for transporting people or goods from one location to another. Seeking to realize this original function of transport in an accident-free manner has brought the need for safety to the surface. At the same time, the need for enhanced comfort grew, such as ease of driving or reduced engine noise. Moreover the more advanced need of using a car as an information center has also emerged, or the so-called "telematics." This relates not just to receiving information in the car, but also to offering a variety of services by sending out various types of information detected by the car itself.

As needs become more and more advanced, not only car manufacturers but many other stakeholders come into the picture. The obvious ones are car repair companies, makers of car parts and accessories, insurance companies, loan firms, etc. But you will also have associations with countless numbers of stakeholders in different industries and different fields, such as information device makers and software developers. In the course of promoting "innovation driven by social needs," what should you do and with whom? You will have to face increasingly complicated questions. Who should you identify as your stakeholders? What is the biggest concern for those stakeholders? The question of how OMRON should strive to solve that concern by drawing on its advanced technology will become more and more important.

One thing came to mind about stakeholders related to automobiles. I think that victims of car accidents may also be an important stakeholder concerning the area of safety. How did they become involved in certain accidents? What were the causes? There are many things that we may never know unless we ask these people. Unless you go back to basics, you might never come up with solutions. If you are going to pay attention to causes, OMRON may have to expand the range of stakeholders with whom they have dialogues.

Regarding the question of safety, suppose OMRON develops the technology and sells it to an automaker and this technology only goes into very expensive cars. And other stakeholders say, "But what about me? I can't afford such an expensive car but I need this technology." Or what if we look at the market in China where the auto industry is booming? How can we build a system that will be cheap enough so that enough people can have access to it?

To do this, does the government have an obligation to create some kind of subsidy so that people can have access to technology that will save their lives? If we start asking these questions, then part of the business development model may mean that you need to start to engage other stakeholders that you wouldn't normally talk to for other types of business development.

There is an initiative with the World Health Organization, General Motors and several other organizations, called the "Global Road Safety and Health Initiative." Would it be advantageous for OMRON from a CSR perspective and a business perspective to join this initiative so that you can have influence over the decisions that are made, and understand how you can adapt and develop your technologies going forward? It's an important question to consider.

Mr. Rochlin has just brought up the question of whether we should base our decisions just on profitability, or we should emphasize social benefits as well when we develop a business applying our technology related to safety. Then, should we focus on the luxury car market by prioritizing profits? Or should we extend the target to cover the bottom of the pyramid by emphasizing the CSR perspective even though we have to compromise short-term profits? This, I believe, is the essential question of how companies should make judgments when providing society with products and services from the perspective of CSR. At OMRON, our core value of "working for the benefit of society" remains central to all of our management decisions. In other words, it is a matter of course that we underscore CSR when making judgments.

Regarding the question of whether you make things that go only on luxury cars or those that anybody can access... If you go with the "first work" that President Sakuta of OMRON stresses, I suppose introducing innovative products on the market first, then promoting that technology to allow use by other companies may be one way of "working for the benefit of society."

This question also depends on whether we focus on B-to-B transactions or we look at B-to-B-to-C. For example, in the case of an anti-lock braking system, it is general consumers who buy a car and actually use it, but the direct customers of OMRON are car manufacturers. Each car manufacturer has their own sales strategy, and they normally have the intention of employing the new technology on a limited number of top-ranked models, so as to ensure profitability. What if OMRON develops a business model to make a sensor to avoid collision at the price of, say, 100 yen and have car makers sell them at 150 yen. The car makers may sell them at 10,000 yen anyway. Even if OMRON's considerations are extended to B-to-B-to-C, there will be no way to control the market price.

From the perspective of CSR, OMRON's stance should be to strongly encourage its direct customers, such as car manufacturers, to enhance the benefits afforded to end consumers, that is to say, their own customers. Unfortunately, OMRON still does not have sufficient influence in this aspect at present.

I think that both innovation in products and services, as well as innovation in the process of popularizing them throughout society, are necessary. Even though it is impossible to produce profits by just relying on our in-house efforts, as long as that particular product is socially beneficial, the government might grant a subsidy. There must be some way, if that product is needed by society. I think that what is most important for CSR is balance. There must be some way to bring business benefits in harmony with social benefits, so we should continue to seek them.

When it comes to the question of a choice between profits or social responsibility... As long as we are in business, it would be impossible to consistently prioritize social responsibility if our profits were zero or negative. Yet OMRON is a company that makes judgments by looking ahead, maybe five or ten years into the future, rather than solely focusing on immediate profits. If we consider a laser-radar sensor for a collision-free car, it is currently available only as an option because it's extremely costly. It may be possible to promote this product to makers targeting the bottom of the pyramid market by cutting its functions by 40%. But that is not the OMRON way. The people at OMRON know that they can better contribute to society if they can popularize the product with 100% functionality someday, even if it takes time.

Now, let me ask something to Mr. Rochlin. In the area of human rights, I know that there are several companies that conduct business targeting underprivileged groups in developing nations, in other words, by targeting "BOP," or the bottom-of-the-pyramid market. Do these companies promote business as a means of CSR? Or do they do it because they consider it profitable? Of course, I don't think it's as simple as making an either-or choice. But which factor is higher in priority? Also do you know any good examples of companies that are effective in setting criteria for judgment? I want to ask this as it may give us ideas for our decision-making process.

When a company's market is BOP, which aspect should be emphasized－CSR or profits? That's a very interesting question. There are news articles on how major banks have realized that making microloans to poor people is profitable, and so there is now a real business that's starting to develop. But many of these banks charge 100% interest on these loans.

It's legal, but not from an ethical view, especially because these people, almost all of them, repay the loans. So there is not a higher risk that justifies these higher rates. In these situations, we see that the banks are setting interest rates to prioritize profits.

Many other industries are facing large controversy including the retail industry, where Nike, Gap and others are letting considerations of good practice and pressure from stakeholders drive their judgment. And this means that they are incurring greater costs. However, they are struggling because their solutions to safeguard human rights in their production supply chains, their CSR procurement practices, aren't working very well.

The best examples that I've seen are companies that try and do both－that realize that treating these people very well, and respecting human rights will help their business models. So, I am very interested in what General Electric is doing. General Electric is involved in the delivery of water, water purification and water transfer. The company realizes that if it takes a responsible approach to markets in Africa, Latin America, and other places in Asia that are poor, then it can create more profitable business models. General Electric can then create opportunities to expand its customer base to include government support and support from other donor institutions like the World Bank. These institutions may become customers while helping people and helping the business.

Thank you. The examples you gave us are very clear and helpful to us. Now, let me move to the next topic, "the materiality of CSR issues." Regarding this matter, we have had repeated discussions within OMRON. But there were some difficulties involved, such as on what criteria we should base our materiality evaluation, what rules we should follow, and so on. So we tried to adopt the evaluation criteria that Mr. Rochlin had suggested as an idea that we should refer to. Let me first ask Mr. Rochlin to briefly explain these criteria.

Research conducted by many social scientists shows some consensus that issues typically follow a lifecycle. Issues mature through four stages, moving from being latent to emergent, to consolidated and, finally, institutionalized. Generally, as an issue progresses through its lifecycle, it becomes more material for a particular business. So, when one looks at a particular issue for OMRON, for example, one needs to know where it is in its lifecycle. And then one can apply a five-question test to that issue as follows:

1. Does the issue have the potential to affect OMRON's short-term financial performance?
2. Will the issue affect OMRON's ability to either deliver on its strategy or on its stated policies?
3. Are OMRON's peers in its industries, its competitors, and its major customers beginning to adopt practices related to the issue?
4. Is the issue becoming a major concern for OMRON's stakeholders?
5. Is the issue beginning to become institutionalized in regulations or standards?

And if one answers yes to more than one of these questions, the probability that it is a material issue increases.

How do you determine the lifecycle of each issue? There are various ways to do it, I suppose. Is it just a matter of judgment?

Yes, you are correct that it's a matter of judgment in the first instance. What we try to do at each stage is to specify criteria which helps determine the stage at which an issue falls. Secondly, we talk about how companies can collect information to help them determine the issue stage with more rigor, and this includes discussing it and learning from stakeholders.

When determining the materiality of each issue, is direct discussion with your stakeholders absolutely necessary? Is it possible to use the media and public statements as a substitute for dialogue with stakeholders?

If you are not prepared to invest the time and money and also deal with the politics of engaging external stakeholders, you can engage in this process internally with your managers and teams. But eventually we encourage companies to begin to engage all their stakeholders in a robust dialogue.

Now, I want to ask you to comment on the materiality map that OMRON has created. When preparing the map, we emphasized issues discussed in the ISO 26000 Working Draft (Note 2) based on our assumption that almost all global social issues are covered there. Do you think that the way we approached it was appropriate?

Your work with OMRON is very good and very appropriate because OMRON is in a much more difficult industry to identify material issues than, say, an oil company engaged in mining underground resources. For them, material issues are much clearer. So the analysis is, I think, very helpful. The next step is to be a little bit more precise and further granulate these issues.

How often should we update this materiality map? I imagine the materiality of an issue will change depending on how society evolves, or depending on the stakeholder or each aspect of business, so I suppose revision of the materiality map will also become necessary.

I would say that it's useful to get on a one-year cycle but to have opportunities each quarter to do very quick reviews just to make sure that there is no emerging issue and no major changes. And I would imagine that the issues that you identify as material probably will stay largely the same for at least two years or maybe three. So, I think members of the company will be happy to hear that they don't have to go through a very, very intensive process every year. But it's useful to make sure that there is some kind of review.

In OMRON's case, the CSR Management Department took the initiative in preparing a globally standardized materiality map that would be applicable for the entire OMRON Group. I think it's not only that the map itself is of great value, but also the process they experienced is valuable too. In the future, it will be necessary to execute this process directly, so that people of each business company/division will be able to take the initiative in analyzing the materiality of the issue every time they face it, in whatever business or region they are dealing with.

Now, the next question is how we should apply this materiality map for our CSR-oriented management. Could you share any exemplary case of some other company, Mr. Rochlin?

British Telecom (BT) is one of the best in applying this process. When it first went through this process a few years ago, it identified climate change as one of its most significant material issues. There were three specific aspects related to climate change which BT identified. The first was emissions from its fleet of vans and automobiles that its service technicians use. Secondly, when the company examined its supply chain it was shocked at how big the environmental footprint was. Third, BT realized that it had neglected to see how its products could change business practices for other industries and reduce energy use. So as a result of having identified the climate change issue as material, it influenced a number of BT's business strategies and business models to actually generate new revenue opportunities and new products. It influenced the way BT designed its internal compliance policies and systems, and how the company created process innovations. It also changed how BT produced its annual CSR report, and what issues it prioritized to discuss in that report.

So in the case of BT, who within the company actually has done analysis to identify that climate change was a particularly material issue?

BT undertook a very detailed process. First, BT created a panel of stakeholders that advised a senior executive committee that was responsible for CSR in the company. At the same time, the CSR team went to the head of each major business unit and drafted a list of potential issues. The team then went through a very detailed process with each business unit to identify the issues which had the greatest relationship with and impact on their business operations. Finally, the company looked into media reports, news and other information sources to better understand how the issues were being discussed externally. From this BT identified what it calls its "vital few" material issues, of which there are six.

Thank you for your very valuable information. The example of BT that you gave us inspired us to try harder ourselves. Today, we did learn a lot. I know that you, Mr. Rochlin, are a very busy person, but I hope you'll stay with us.

I am never too busy for OMRON.