February 20, 2018
To: AllCompany
Mitsubishi Materials Corporation
Representative Akira Takeuchi, President(Securities Code: 5711 on the First Section of theTokyo Stock Exchange)
Inquiries to:
Nobuyuki Suzuki, General
Manager, Corporate
Communications Dept.,
General Affairs Dept.
(TEL: 03-5252-5206)
Special Investigation Committee Interim Report (2)Relating to Non-Conforming Products at MMC Subsidiaries

Mitsubishi Materials Corporation (“MMC”) sincerely apologizes for the difficulties that we havecaused to all concerned parties, including our customers and shareholders, in connection with Mitsubishi
Cable Industries, Ltd.’s (“MCI”), Mitsubishi Shindoh Co., Ltd.’s (“MSC”), Mitsubishi Aluminum Co., Ltd.’s(“MAC”), Tachibana Metal Mfg Co., Ltd.’s (“TKC”), and Diamet Corporation’s (“DM”) delivery of
products that deviated from customer or internal specifications due to misconduct, including the rewriting ofdata. MCI, MSC, MAC, TKC, and DM are consolidated subsidiaries of MMC.
We would like to report that MMC’s Board of Directors received an interim report today(Attachment 1) from the Special Investigation Committee relating to the MCI’s final report. The Special
Investigation Committee plans to submit its final report after March 2018.
In addition, we would like to report that MCI published “Preventive Measures for the
Non-Conforming Product Shipment Issue at Minoshima Works” (Attachment 2) and “Change of a Director”(Attachment 3) today. We will continue to provide MCI with the leadership and supervision so that MCI willpromptly implement the preventive measures.
END
Direct any questions to:
Corporate Communications Department, General Affairs Department, Mitsubishi Materials Corporation  TEL: 03-5252-5206
Corporate Administration & Personnel Section, Administrative Division, Mitsubishi Cable Industries, Ltd.
  TEL: 03-3216-1551


Attachment 1
February 20, 2018
Special Investigation Committee
Chairperson Mariko Tokuno
Interim Report (2)1. Background
Mitsubishi Materials Corporation (“MMC”) discovered that with regard to certain products
produced and sold by MMC’s subsidiaries in the past, including Mitsubishi Shindoh Co., Ltd.
(“MSC”) and Mitsubishi Cable Industries, Ltd. (“MCI”), there were those that were shipped while
they deviated from customer or internal specifications (“Non-Conforming Products”) due to therewriting of inspection records data and other misconduct (“Misconduct”) (“this Matter”). Givensuch circumstances, based on a resolution by its Board of Directors on December 1, 2017, MMC
commissioned a special investigation committee (“Committee”), the majority of which consists ofoutside directors and an outside expert, to conduct the investigation of this Matter and other related
tasks.
The Committee received an investigation report dated December 27, 2017 from the MSC
Investigation Committee, an interim investigation report dated December 27, 2017 from the MCI
Investigation Committee and a report titled “Restructuring Measures of the Governance Framework
for Quality Control in the MMC Group” from MMC on December 27, 2017, and therefore
submitted an interim report dated December 28, 2017 (the “Interim Report”) to MMC’s Board of
Directors.
Since the Committee received an investigation report dated February 19, 2018 from the MCI
Investigation Committee (Attachment), the Committee hereby submits an interim report (2) dated
February 20, 2018 with its opinions (the “Interim Report (2)”) to MMC’s Board of Directors.
2. Status of Activities
1) Status of Committee Activities After Submitting the Interim Report
January 16 (Tuesday)
January 29 (Monday)
February 6 (Tuesday)

12:59 PM to 2:51 PM
1:30 PM to 5:35 PM
9:57 AM to 11:55 AM

6th Committee meeting
7th Committee meeting
8th Committee meeting(Note) Aside from the activities listed above, the following on-site visits were conducted.
Mitsubishi Aluminum Co., Ltd., Fuji Plant (January 9: Tokuno (Chairperson), Watanabe,
Takenaka and Ono (Committee members))
3. Status of Investigation of the Issues at MCI
In order to efficiently and reasonably proceed with the investigation relating to the issues of
MCI, the Committee conducted the investigation by positioning the MCI Investigation

Committee, which was established by MCI on November 13, 2017, under the Committee’s
supervision as of December 1. The MCI Investigation Committee has entrusted outside counsel
with its investigation.
1) Outline of the MCI Investigation Committee
M Date of establishment
November 13, 2017
N Committee members
Chairperson
MemberKoji Sakamoto
Hirokazu Kuzushita

Director & Managing Executive Officer of MCI
Corporate Auditor of MCI

MemberTakashi Shibuya

Attorney (Nishimura & Asahi)

O Outside counsel
Nishimura & Asahi2) Details of the Investigation (entrusted to outside counsel)
M Investigate the quality control system for seal products and other products at Minoshima
Works
N Investigate the status of measures taken by MCI after the quality audit conducted by
MMC on MCI in December 2016
O Analyze the root causes and background information from the facts that were discovered
as a result of the investigation of the facts described in M and N above
P Recommend preventive measures based on the analysis described in O above
3) Investigation Report
The Committee received an investigation report dated February 19 from the MCI
Investigation Committee (“MCI’s Investigation Report”) that mainly contains the facts
relating to the Misconduct found on or prior to February 16 (Attachment).
4. Current Opinions of the Committee on MCI’s Investigation Report
The following six points have been indicated in MCI’s Investigation Report as root causes ofthe Misconduct at MCI, and the Committee is of the same opinion.
(1) Insufficiency of resource allocation for the seal business (Minoshima Works)(2) Insufficiency of the mechanism, such as DR, for the production and quality
assurance departments to influence the process of product development and orderintake(3) Insufficiency of resource allocation for the quality assurance departments(4) Strain on the quality assurance departments from other departments due to the chainof pressure2(5) Conceited mindset of being able to control the quality(6) Low risk sensitivity in quality issues
Based on these indications, it must be said that internal governance such as theorganizational structure, management resource allocation and quality assurance did not
sufficiently function at MCI’s seal business. It is considered that, as a result, the shipment of
Non-Conforming Products has continued over years to date, without the structural problems
that came to exist within MCI due to various factors such as historical backgrounds being
recognized or improved. In implementing preventive measures, in addition to the technicalmeasures such as automation of inspections, it would be necessary to promptly implement
various other measures, including the reform of organizational structure through the initiatives
to, among others, review the process of product development and order intake, strengthen thequality assurance departments, and provide employees with education for the purpose of
improved compliance awareness and awareness reform related to quality issues.
In addition, the Misconduct was first recognized internally at MCI at the beginning of 2017,
triggered by MMC’s audit, and was reported to a part of the management members, including
the former President. However, regarding the fact that the former President tried to reach a“soft landing” and continued shipping the Non-Conforming Products without reporting to theparent company, it seems undeniable that there was insufficiency in his risk sensitivity inquality issues, which is essential for a management member in the manufacturing industry.
The Committee believes that the responsibility for this judgement failure is substantially grave
and that it is necessary to appropriately discipline him.
From now on, MCI should take seriously the results of the investigation that are in MCI’s
Investigation Report, and immediately implement preventive measures to prevent similar
issues from recurring. In addition, MMC, as the parent company, should also have MCI
immediately implement the appropriate preventive measures.
5. Future Plans (Additional Investigations)
The ISO 9001 certification of Mitsubishi Aluminum Co., Ltd. (“MAC”), a subsidiary of MMC,
was temporarily suspended by the Japanese Standards Association on December 25, 2017 forreasons, including that they could not confirm the effectiveness of the remedial measures. Further,
MAC’s JIS certifications were revoked by the Japan Quality Assurance Organization on January
12, 2018 for the reason that testing of certain products was not conducted in accordance with theprocedures set in the JIS standards.
Given such circumstances, MMC conducted special audit by the Internal Audit Department andothers, and it was discovered that MAC had delivered Non-Conforming Products and in addition
Tachibana Metal Mfg Co., Ltd. (“TKC”), MAC’s subsidiary, had delivered Non-Conforming
Products.
It was also discovered at Diamet Corporation (“DMC”), MMC’s another subsidiary, through anexternal hotline for employees that DMC had delivered Non-Conforming Products.
These circumstances led the Committee to determine that investigation was necessary with3

regard to the MAC matter (including the issues related to the incidents occurred at its subsidiary
TKC) and the DMC matter mentioned above in light of the purposes of the Committee, anddecided to additionally entrust Nishimura & Asahi with the tasks of investigating the facts,
determining the root causes and formulating preventive measures.

END

4

Attachment
February 19, 2018To:

Mitsubishi Materials Corporation
Special Investigation Committee
Mitsubishi Cable Industries, Ltd.
Koji Sakamoto
Investigation Committee Chairperson(Report) Submission of Investigation Report
We had requested that Nishimura & Asahi investigate and review the actual state of theframework for quality control of seal products and other products at Mitsubishi Cable Industries,
Ltd. (MCI)’s Minoshima Works, among other things. We received an investigation report from
Nishimura & Asahi dated today.
We are therefore submitting the attached report as a report by the Investigation Committee of
MCI to MCI’s Board of Directors and MMC’s Special Investigation Committee.

END

To:

Investigation Committee of Mitsubishi Cable Industries, Ltd.
February 19, 2018
Investigation Report(Concerning the actual state of the framework for quality control
of seal products and other products at Minoshima Works)

Nishimura & Asahi
Attorney

Takashi Shibuya

Attorney

Ryutaro Nakayama

Attorney

Hidetoshi Matsumura

Attorney

Jun Katsube

Attorney

Tomoyuki Numata

Attorney

Yusuke Suzuki

AttorneyToshiki Kitazumi

Attorney

Eisuke Kunimoto

Attorney

Asaki Nishida

Attorney

Tomoyuki KawanishiThis is a report on the investigation (“Investigation”) Nishimura & Asahi is currently
conducting that was commissioned by the Investigation Committee (“MCI Investigation
Committee”) established by Mitsubishi Cable Industries, Ltd. (“MCI”).
This report summarizes the results of the investigation, analysis, etc. that were conducted asmuch as possible and believed to be appropriate within the given time and conditions, and there is apossibility that the conclusions or other aspects will change if new facts or other details are
discovered. Please also be aware that this report does not guarantee any judgement of the courts or
decisions of other relevant regulators, etc.

1Section 1 Circumstances leading to the Investigation and the Purpose of the Investigation ···· 4
Section 2 Progress on the Investigation ····································································· 5
1Overview of the Investigation and the investigation framework ··················· 52Detailed Review of relevant materials ··················································· 5

3The status of conducting digital forensic investigation ······························· 6

4The status of conducting interviews ······················································ 6

5The Reference Date for the Investigation ··············································· 6

Section 3 Overview of Minoshima Works ·································································· 61

Details on the business and products handled by Minoshima Works ············· 6

2The organizational structure and division of operations at Minoshima Works · 73Operational flow from receipt of order to shipment of seal products ············· 8
(1)
A
B
(2)
A
B
(3)
A
B

4

Receipt of order and design ······················································· 8Receipt of order and design for new product ·································· 8Receipt of order and design for similar product ······························ 9
Production process ·································································· 9
Determination of the production schedule ····································· 9
Production ············································································ 9Inspection process and shipment ················································ 10
Types of inspection and the flow until shipment ····························· 10
Explanation about details of inspection········································ 10

Proper operational flow when Non-Conforming Products are produced ······· 12(1)(2)

Measures taken when Non-Conforming Products are produced ········· 12
Procedures for re-review ·························································· 13

Section 4 Misconduct relating to Quality Control at Minoshima Works Discovered as a result of theInvestigation ························································································ 14
1

Falsification relating to inspections, etc. ················································ 14
(1)
A
B
C
(2)
A
B
C
D

(3)
(4)
A
B
2

Rewriting test data using the Lists ·············································· 14
Description of Misconduct ························································ 14
History of the Lists and when the Misconduct started ····················· 16
Awareness of management ······················································· 17
Other misconduct relating to rewriting test data ···························· 18
Setting permitted values in the designs ········································ 18
Setting permitted values based on engineering orders issued by the Engineering
Development Department ···················································· 19
Shipment of Non-Conforming Products that went through Internal Re-Review······················································································ 20
Shipment of Non-Conforming Products as a result of discussions among
relevant departments without going through the formal internal procedures······················································································ 22
Rewriting of average value data submitted to customers ·················· 23
Certain inspection items were not tested ······································ 24
Description of Misconduct / time of commencement························ 24
Awareness of management ······················································· 25

Inspections conducted using methods inconsistent with proper methods ······· 25(1)(2)

Insufficient number of samples for dimension inspections ················ 25
Inspections conducted by inspectors who have not received internal
certifications ········································································· 26

Section 5 The Status of Response since December 2016················································ 26
2

1

The quality audit of MCI by MMC on December 7 and 8, 2016 ·················· 26

2Reporting the Re-Review Issue to management on January 25, 2017············ 26

3

Establishment of a task force on February 1 ·········································· 27

4General Manager of Minoshima Works’ instructions on February 8 ············ 27

5Report on the existence of the Lists from the Inspection Site Head on February 9 andthe subsequent response after February 9 ············································· 27

6Reporting the existence of the Lists to the Former President and others········ 28

7Reporting to the Former President in early March and the subsequent response28

8

Establishment of the Quality Improvement Project and the subsequent Quality
Improvement Project activities ··························································· 29

9Reporting to the Former President on the activities of the Quality Improvement
Project, the interim report by the Quality Improvement Project on October 16 andbackground on how shipments were stopped·········································· 30

10Reasons why no decisions were made to stop shipments and notify customers after
February 2017 ················································································ 31

Section 6 The Root Causes and Background ····························································· 32
1Background ··················································································· 32
(1)
(2)
(3)

2

History of the seal business ······················································· 32
Closed nature of personnel at Minoshima Works ··························· 33
Positioning of quality assurance departments at Minoshima Works ···· 33
Analysis of the root causes ································································· 34

(1)
(2)

(3)
(4)
(5)
(6)

Insufficiency of resource allocation for the seal business (Minoshima Works)·························································································· 34
Insufficiency of the mechanism, such as DR, for the production and quality
assurance departments to influence the process of product development andorder intake ·········································································· 35
Insufficiency of resource allocation for the quality assurance departments·························································································· 35
Strain on the quality assurance departments from other departments due to thechain of pressure ···································································· 38
Conceited mindset of being able to control the quality ····················· 38
Low risk sensitivity in quality issues ··········································· 39

Section 7 Recurrence Prevention Plans ·································································· 40
1Automation of the inspection system ···················································· 40

2Review of quality improvement cycle and strengthening of the “elaboration” system inproduct development steps ································································ 41

3

Sufficient resource allocation for the quality assurance departments ············ 42

4Strengthen the independence of the quality assurance departments ············· 42

5Fostering the mindset of quality control, not just for the quality assurance
departments, but also the development and production departments, and improvementof compliance awareness ··································································· 43

6Awareness makeover in the quality issues ·············································· 433Section 1

Circumstances leading to the Investigation and the Purpose of theInvestigation

A quality audit performed in December 2016 by Mitsubishi Materials Corporation(“MMC”), parent company of MCI, led to the discovery in February 2017 of the fact that certain
products that had been manufactured and sold in the past that deviated from Specifications (defined
below) (hereinafter, deviations from Specifications are referred to as “Specification NonConformances,” and products with Specification Non-Conformances are referred to as “NonConforming Products”) had been shipped due to misconduct (“Misconduct”) within the
Inspection Section (“Inspection Section”) 1 of the Quality Assurance Department (“Quality
Assurance Department”) at MCI’s Minoshima Works (“Minoshima Works”). This Misconduct
included rewriting of measurements for dimensions and material properties of seal products to fallwithin the range of customer specifications (“Customer Specifications”) or internal specifications(hereinafter “Internal Specifications” and together with Customer Specifications, collectively“Specifications”). The Misconduct was reported to MCI’s management by the Quality Assurance
Department in March 2017. In May 2017, MCI launched the quality improvement project (“Quality
Improvement Project”) as an internal project team and began, among other things, confirming theunderlying facts, identifying Non-Conforming Products and considering ways to ensure safety.
In light of the seriousness of this situation, MCI launched the MCI Investigation Committee
on November 13, 2017 with the goal of investigating the facts concerning the Misconduct and otherissues and identifying the root causes and background. On November 23, MCI made a publicannouncement concerning the Misconduct.
The MCI Investigation Committee determined that it would be necessary to perform athorough investigation from an objective and neutral perspective, so it requested that Nishimura &Asahi conduct an investigation and review with the following objectives:
ᬅ Investigate the actual state of the framework for quality control of seal products and otherproducts at Minoshima Works;
ᬆ Investigate the status of MCI’s response after MMC performed the quality audit of MCI in
December 2016;
ᬇ Analyze the root causes and background circumstances based on the results of the factfinding review of ᬅ and ᬆ above; andᬈ Propose measures to prevent recurrences based on the analysis of ᬇ above.

1

At the time of the Misconduct, within MCI’s organizational structure, the Quality Assurance Department belonged to Minoshima
Works. However, on February 1, 2018, the Quality Assurance Division was newly established as an organization that directly
reports to the President. At the same time, the Seal Products Quality Assurance Department was established under the Quality
Assurance Division, to which the functions of the former Quality Assurance Department of Minoshima Works were transferred.

4

Section 2
1

Progress on the Investigation

Overview of the Investigation and the investigation framework
Based on the circumstances in Section 1 above, Nishimura & Asahi performed theinvestigations described in ᬅ through ᬇ below.
ᬅ A detailed review of relevant materials;
ᬆ A digital forensic investigation of email data, etc. possessed by relevant parties; andᬇ Interviews of relevant parties.
The Investigation was led by attorney Takashi Shibuya and nine others attorneys of
Nishimura Asahi, who have no interests in MCI. Additionally, an expert forensic vendor was
engaged to assist with the Investigation under the direction and supervision of Nishimura & Asahi.
Nishimura & Asahi commissioned such forensic vendor, to the extent necessary andpossible, to collect shared files saved on MCI’s file servers as well as email data on MCI’s email
servers and individual PCs and mobile phones issued to the relevant parties by MCI. The forensic
vendor was also commissioned to narrow down the data and conduct a first-level data review underNishimura & Asahi’s direction.
Additionally, in the process of investigating the misconduct relating to seal products, it was
discovered that there was a possibility that misconduct similar to what was observed in seal
products also existed with respect to fine rectangular magnet wire 2 (“MEXCEL”) also
manufactured at Minoshima Works. As a result, in addition to performing the review of relevantmaterials in 2 below and conducting the interviews with relevant parties in 4 below with respect to
MEXCEL, the review of relevant materials in 2 below and interviews with relevant parties in 4
below were also performed with respect to electromagnetic wave absorbers that are likewise
manufactured at Minoshima Works.
2

Detailed Review of relevant materials

Nishimura & Asahi collected the materials that currently exist at MCI relating to the actual
state of the framework for quality control of seal products and other products at Minoshima Works(policies and procedures relating to quality control, inspection records, and materials from qualityrelated committees, etc.) and performed a detailed review and verification of their content.

2

Products that are magnet wires coated with an ultra-thin insulating film, used primarily in induction coils for electronic equipment.
At MCI, the product name is “MEXCEL.”5

3The status of conducting digital forensic investigation

As stated in 1 above, Nishimura & Asahi preserved, to the extent necessary and possible, thedata from the shared files saved on MCI’s file servers and preserved email data from individual PCs
and mobile phones issued to the relevant parties by MCI and from MCI’s email servers and otheremail data from a total of 41 MCI directors and employees who are or have previously been
involved in the seal product business at Minoshima Works.
Due to the time constraints on the Investigation, it was necessary to apply reasonable limits
to the data that was preserved, so Nishimura & Asahi decided to extract data using keyword
searches setting the target period as December 1, 2016 to November 30, 2017. With respect to thedata for which extraction was completed by the Reference Date stated in 5 below, the forensic
vendor mentioned in Section 1 above conducted the first-level data review, and Nishimura & Asahi
conducted the second-level data review, and this report is based on these materials.

4

The status of conducting interviews
In order to make clear the actual state of the framework for quality control of seal products

and other products at Minoshima Works and the status of response after December 2016 and otherissues, Nishimura & Asahi conducted interviews with a total of 55 current and former directors andemployees of MCI up until the Reference Date stated in 5 below. We note that some interviewees
were interviewed multiple times.

5

The Reference Date for the Investigation
The Investigation began on November 13, 2017. The reference date for this report isFebruary 16, 2018 (“Reference Date”), and the description below summarizes the facts, results ofverification, etc. that have become known as of this Reference Date.

Section 3
1

Overview of Minoshima Works

Details on the business and products handled by Minoshima Works
Minoshima Works started operations in 1943 as a factory manufacturing wires for aircrafts.

Since beginning to manufacture O-rings for aircrafts for the then Defense Agency of Japan(*Translator’s note: currently reorganized as the Ministry of Defense) in 1958, it has been
manufacturing seal products for a variety of fields, including aerospace, automotive parts,
hydraulics, pneumatics, and semiconductors, as a production site for seal products. Currently, in
addition to seal products, it also manufacturers products such as MEXCEL and electromagnetic
wave absorbers.
6

Seals refer collectively to parts and materials that prevent fluids or gases from leaking
outside of machines or equipment, or contamination of their interior by rainwater, dust and otherforeign matters, and they play an important role in maintaining the performance of machinery.
Rubber, metal and resin are used as the raw materials for seals, and there are also seal products
manufactured with a combination of these materials. O-rings are the seals currently being used in
the greatest number, and they have various raw materials and sizes depending on their applications.

2

The organizational structure and division of operations at Minoshima Works

Within MCI’s organizational structure, Minoshima Works is under the High Performance
Products (Seal Products) Division, and it manufactures seal products, electromagnetic wave
absorbers, etc. 3 The Administration Department, Engineering Development Department(“Engineering Development Department”), Production Department (“Production Department”)
and Quality Assurance Department were under Minoshima Works4, and the main operations carriedout by the Engineering Development Department, Production Department and Quality Assurance
Department, which take part in the development, manufacturing and inspection of seal products, aresummarized below.
The main operations of the Engineering Development Department are productionengineering, equipment management and environment management of the products under the
responsibility of Minoshima Works, and it is divided into Section I,5 Section II,6 and Section III.7
The main operations of the Production Department are matters relating to productionengineering and manufacturing of products under the responsibility of Minoshima Works, and it isdivided into Production Section I, 8 Production Section II, 9 Production Section III 10 and the

3

MEXCEL is manufactured at Minoshima Works, but within MCI’s organizational structure, its development and production are
under the responsibility of the MEXCEL Business Department (“MEXCEL Business Department”) of the High Performance
Products (Seal Products) Division, and it is not a business that is under Minoshima Works. However, the inspection operations for
MEXCEL have been outsourced to the Inspection Section.

4

For the reorganization involving the Quality Assurance Department effective as of February 1, 2018, see footnote 1 above.

5

Section I of the Engineering Development Department is in charge of development relating to material compounds for rubber
products and technology for substances subject to security export controls, etc.

6Section II of the Engineering Development Department is in charge of matters relating to development, design and functional
evaluation testing for rubber products and development of electromagnetic wave absorbers.

7

Section III of the Engineering Development Department is in charge of matters relating to development and design of resin andmetal products and development and design of composite products for automobiles.

8

Production Section I of the Production Department is in charge of matters relating to manufacturing and the design andmanagement of molds for products having rubber as their main material at Minoshima Works.

9

Production Section II of the Production Department is in charge of matters relating to manufacturing a portion of the products
having rubber as their main material at Minoshima Works.

10

Production Section III of the Production Department is in charge of matters relating to manufacturing products for which the mainmaterials are resin and metal at Minoshima Works.

7

Production Engineering Section (“Production Engineering Section”).11
The main operations of the Quality Assurance Department were matters relating to quality
assurance and the technical review of substances, etc. subject to security export controls of the
products under the responsibility of the High Performance Products (Seal Products) Division as
well as inspecting the products under the responsibility of Minoshima Works. Under the Quality
Assurance Department was the Inspection Section, which was the organizational unit in charge ofinspecting the products under the responsibility of Minoshima Works, and the Quality Assurance
Section (“Quality Assurance Section”), which was the organizational unit in charge of quality
assurance of the products under the responsibility of Minoshima Works. The Inspection Section was
divided into Inspection Site I (Inspection Site I”)12 and Inspection Site II (“Inspection Site II”).13

3

Operational flow from receipt of order to shipment of seal products(1)

Receipt of order and design

A

Receipt of order and design for new product
When MCI’s Sales Section (“Sales Section”) receives an inquiry from a customer, they senda request to the Production Department to prepare a written quotation. If it is a new product that theProduction Department has never produced before and they cannot determine whether they can
produce it even upon comparing it to similar products that they have produced in the past, they senda request for review to the Engineering Development Department. If the Engineering Development
Department determines that the product can be produced, and the customer formally requests that a
written quotation document be prepared, the Sales Section negotiates with the customer based on
the quotation prepared by the Engineering Development Department, and a determination to accept
the order is made.
After a formal determination is made to accept an order, the customer sends an engineeringorder to MCI. The Engineering Development Department then holds discussions with the customer
regarding the tolerances and the properties of the materials stated in the engineering order, and thespecifications are revised. The specifications agreed upon with the customer are recorded, including
through addendums to the engineering order, meeting minutes, etc.
Upon completing the revisions to the specifications, the Engineering Development
Department designs a mold for the new product and creates a design for internal use, after which a
prototype for the new product is created, and the feasibility of mass production is assessed.
11

The Production Engineering Section is in charge of matters relating to production engineering, equipment management andenvironment management for the products under the responsibility of Minoshima Works.

12

Inspection Site I was primarily in charge of matters relating to inspection of raw materials, inspection of properties of finishedproducts and partially complete products and inspection of finished products having rubber as their main material and MEXCEL.

13

Inspection Site II was primarily in charge of matters relating to inspection of outsourced products and the inspection of finishedproduct having resin and metal as their main materials, semiconductor-related products having rubber as their main material andelectromagnetic wave absorbers.

8

From the perspective of product development, the Engineering Development Department
categorized products into three categories (A, B, and C). Category A included products that can be
determined not to require development due to similar products having been produced in the past,
which can be designed solely by the person responsible for design in the Engineering Development
Department and/or an Assistant Manager (corresponding to a Section Manager at MCI). Category B
included products requiring advance coordination with the customer or relevant departments, suchas pre-contract review of prototypes, etc. Category C included products involving development
matters such as a new material, new design, new production method or new equipment inconnection with a new inquiry, design change or process change, products designated as “criticalparts” in the customer specifications and previously produced products for which the monetaryamount of the order is large (monthly sales of five million yen or more) even if the product is
categorized as A or B. For products in Category C, Design Review (“DR”) is performed for key
areas starting from the prototype stage. Furthermore, in order to assess whether mass production ispossible, designs were examined by the relevant departments, such as the Quality Assurance
Department and the Production Engineering Section. Careful coordination was needed among thedepartments, such that mass production was initiated only after having finally passed throughoverall DR, etc.
B

Receipt of order and design for similar productUpon reviewing the inquiry obtained by the Sales Section, if the ordered product or a similar
product has been produced in the past, the Production Department creates a written quotation
without issuing a request to the Engineering Development Department. After a formal
determination is made to accept the order, mass production is initiated using the mold for thepreviously produced product or similar product without creating a prototype.

(2)

Production processA

Determination of the production schedule
Based on the order information entered by the Sales Section, the Production Administration

Section of the Administration Department at Minoshima Works (“Production Administration
Section”), upon considering the delivery deadlines for each product, determines which products to
produce by when, formulates a production schedule, and prepares a production planning chart. After
that, upon considering the raw material inventory status, etc., the necessary raw materials arepurchased and sent to the Production Department for the compounding process.
B

Production
The following explains the flow of the production process for rubber seal products.

First, in the compounding process, raw rubber and chemicals are weighed, and then in the
mixing process, the weighed raw rubber and chemicals are put into a mixing machine and mixed. In
9the pre-forming process, the rubber mass that went through the mixing process (“compound”) isthen processed into shapes that make them easier to put into molds such as rings, chips, etc. In thepress process, the pre-formed unvulcanized rubber14 is then put into molds, and the raw rubber andchemicals are made to react by applying heat and pressure, and they are formed into products thathave properties such as rubber elasticity, etc. After that, parts other than the product, i.e., burrs are
removed in the finishing process, resulting in the finished product. Also, depending on the product,
sometimes vulcanization is not completed solely through the press process, so a second
vulcanization process is performed after the finishing process for such products, which completes
the vulcanization.

(3)

Inspection process and shipment
The following explains the inspection process and the flow until shipment for rubber seal

products.
A

Types of inspection and the flow until shipment
For products produced at Minoshima Works, interim inspections are performed for products

for which the entire production process has not been completed (“Partially Completed Products”),
and finished product inspections are performed for finished products for which the entire production
process has been completed.
Inspection orders,15 which are prepared for each product, specify which inspections are tobe performed for each product, and which items are to be measured in the inspections.
As mentioned in 4 below, products determined to have failing inspection results (hereinafter
called “Failing Products,” products determined to have passing inspection results are called“Passing Products”) are either discarded, inspections are performed again after they are repaired,or an application for re-review is submitted.
Products that pass finished product inspections are placed into inventory, and then shippedby the Production Administration Section in accordance with the relevant delivery deadlines.
B

Explanation about details of inspection

The inspections relating to the Misconduct include (A) (i) batch inspections and (ii) quality
control testing that are part of the interim inspections for Partially Completed Products, as well as
14

Vulcanization is the operation of mixing sulfur into raw rubber and heating it up, to produce rubber with elasticity that corresponds
to its use.

15

The staff of the Inspection Section creates inspection orders based on designs, etc. created by the Engineering Development
Department.

10(B) (i) lot inspections, (ii) quality control testing and (iii) dimension inspections that are part of thefinished product inspections for finished products. Batch inspections, lot inspections and quality
control testing are all inspections relating to the property (“Property Inspections”) of PartiallyCompleted Products (compounds) and finished products. Set forth below are the details of suchinspections.
(a)Batch inspections
Batch inspections are performed on all compounds.

The objective of batch inspections is to check for any mistakes in the raw material
compound and to confirm whether the mixing process was performed appropriately by testing theproperties of the material (compound) after the raw materials are compounded and mixed. The
batch inspections are performed using test pieces extracted from compounds after the raw materials
are compounded and mixed (the compound created after a single mixing process is called a“Batch”). The inspection is conducted mainly for items such as specific gravity, hardness, tensile
strength, elongation, modulus, etc. of the compound.
(b)

Lot inspections
Lot inspections are performed only for products for which they are required by agreementwith the customer or public standards.
Like batch inspections, lot inspections are performed in order to confirm properties, but they
are generally performed on finished products.16 Lot inspections are performed on each lot by
extracting a sample from the finished products or test pieces (generally, one lot includes all of thefinished products produced over the course of one day using the same press machine and the samemold, but, depending on the product, there are cases where lots are determined differently in thedesign). The inspection items are those required by agreement with the customer or publicstandards, and the inspection items are mainly the specific gravity, hardness, tensile strength,
elongation, compression set, etc.
(c)

Quality control testing
Quality control testing is performed only for products for which it is required by agreementwith the customer or public standards.
Batch inspections and lot inspections are performed after each mixing process or eachproduction lot, but quality control testing is a test to measure properties at established regularintervals, such as once every few months to once every three years, in order to guarantee theproperties of products during a fixed period of time. Quality control testing is performed using
finished products or test pieces extracted from compounds. The inspection items are those required
16

There are exceptional cases where lot inspections are performed using test pieces extracted from compounds.

11

by agreement with the customer or public standards, and require confirmation of a broader range ofitems than batch inspections or lot inspections.
(d)Dimension inspections
Dimension inspections are performed to confirm that product shape, structure and dimension(size) meet the required standards.
Dimension inspections are not performed on each manufactured product. Rather, they are
performed by extracting a number of samples from each lot, the number of samples determined
pursuant to the agreement with the customer or public standards. In dimension inspections,
measurement instruments are used to measure the location and details that are specified in theinspection order, such as the outer diameter, thickness, height, etc.
4

Proper operational flow when Non-Conforming Products are produced(1)

Measures taken when Non-Conforming Products are produced
MCI has established product inspection rules as one of its internal rules based on thecompany-wide quality control regulations that specify the basic performance items when acompany-wide quality control is performed. Based on the provisions of the relevant internal rules,
Minoshima Works has established operational processing standards that specify procedures for
product inspections and operational processing standards that specify procedures for handling NonConforming Products.
According to these operational processing standards, if a Failing Product occurred relating
to properties during an interim inspection, then the inspector performs a re-inspection. If the productalso fails the re-inspection, then this is reported to the Manager of the Inspection Section, and thenthe Production Section is notified.
Furthermore, if a Failing Product occurred in the finished product inspection, then (1) if the
product failed the visual inspection or dimension inspection, then the Failing Product is either (i)disposed by the inspector or returned to the Production Section if it can be repaired, etc. (in cases
where all units are inspected), or (ii) the entire lot is treated as failing and returned to the Production
Section (in cases where only samples are inspected) by the inspector, or (2) if the product failed aninspection relating to properties, then the inspector performs a re-inspection. If the product also fails
the re-inspection, then this is reported to the Manager of the Inspection Section and then the
Production Section is notified, and such lot is required to be disposed.
Furthermore, as stated in (2) below, if a Failing Product occurred during an interim
inspection or finished product inspection, then the Manager of the Production Section or theManager of the Production Administration Section can submit an application for re-review
according to established procedures. However, if a product fails an interim inspection, an
application for re-review can only be submitted if the Production Section Manager or the12

Production Management Section Manager believes that the issue will not have a significant effecton the quality of the finished product.

(2)

Procedures for re-review

When a Failing Product occurred as a result of an inspection, procedures for re-review havebeen established to confirm corrective measures for such defects and make determinations
regarding such defects.
According to the operational processing standards at Minoshima Works that establish thespecific procedures for re-review, the Production Section Manager or the Production Management
Section Manager can commence the procedures for re-review in order to obtain a decision on thecorrective measures by submitting an application “if technical or quality consideration is required
regarding the details of the non-conformance” for finished products, and “if there will not be asignificant effect on the quality of the final product but the product is not in conformance with thespecifications (specified in the design)” for Partially Completed Products.
In principle, Failing Products that are subject to a preliminary review are all Failing
Products that are determined to be Failing Products by the Inspection Section and have applications
for re-review submitted by the Production Section or the Production Management Section, etc.17
Then, the preliminary reviewers18 conduct a review according to the decision standards set
forth below and make a decision to (1) “use as-is,”19 (2) “use after performing repairs (re-process),”(3) “dispose,” (4) “submit a re-review application to the customer,” or (5) “discuss at the ReReview Committee (high-level committee).”20 In advance of any decisions made, the Engineering
Development Department performs a review of “whether or not there is design authority” and“whether or not there is deviation from customer quality standards.” If there is deviation from

17 However, measures such as re-processing, etc. of products are not subject to re-review, and among products for the Ministry of

Defense, neither (1) products determined to be not appropriate for use due to design changes nor (2) standard products(standardized products) are subject to re-review. Of these, the rule excluding (2) from being subject to re-review was added as a
new revision to the operational processing standards on July 3, 2017. No such rule existed prior to this.
18 According to the current operational processing standards, the preliminary reviewers are the General Manager of the Engineering

Development Department, the Assistant Manager of the Engineering Development Department (or a person s/he designates), theManager of the Quality Assurance Section and the General Manager of the Quality Assurance Department. Decisions relating to
the preliminary review require the approval of the General Manager of the Engineering Development Department and the General
Manager of the Quality Assurance Department. However, before the operational processing standards were revised on July 3,
2017, the preliminary reviewers were two people, the Assistant Manager of the Engineering Development Department (or a persons/he designates) and the Manager of the Quality Assurance Section. Decisions relating to the preliminary review only required
approval from the Assistant Manager of the Engineering Development Department and the Manager of the Quality Assurance
Section.
19

Treated as equivalent to a Passing Product.

20 The Re-Review Committee is composed of a member representing the Quality Assurance Department (the General Manager or

his/her representative), a member representing the Engineering Development Department (the General Manager or his/her
representative), and a supervising official, etc. (if the product involves a contract with the Ministry of Defense).

13

customer quality standards, a “use as-is” decision is not permitted.21a.

b.

If the customer’s required quality standards are satisfied but MCI’s quality standards are
not met, or if there are no customer requirements but MCI’s quality standards are not met:(a) Are there any issues in terms of production or functionality?
(b) Was the repair method established beforehand, and does the quality after repair
satisfy the customer’s required standards?
If the customer’s required quality standards are not satisfied, and measures other thandisposal is to be taken:(a) The preliminary reviewers submit a re-review application to the customer without
going through the Re-Review Committee.
(b) Submission to the Re-Review Committee (ultimately, customer approval is required).

If the preliminary reviewers determine that review by the Re-Review Committee isnecessary, then additional reviews are performed by the Re-Review Committee and the customer
re-reviews are also performed if MCI applied for re-review to the customers. The Re-Review
Committee makes one of the following decisions on how to handle the Failing Product: (1) “use asis;” (2) “use after performing repairs (re-process);” (3) “dispose;” or (4) “submit a re-review
application to the customer.”If the product was produced based on a customer design, or if the non-conformance does notsatisfy the requirements of the relevant contract, then an application for re-review must be
submitted to the customer.
As such, according to the operational processing standards of Minoshima Works, customer
approval must be obtained in order to ship Failing Products that do not satisfy customer
requirements, and products for which concessions have been made solely through internal re-review
procedures (“Internal Re-Review”) may not be shipped.

Section 4

Misconduct relating to Quality Control at Minoshima Works Discovered as aresult of the Investigation

1

Falsification relating to inspections, etc.

(1)

Rewriting test data using the Lists

A

Description of Misconduct
Lists called “Silver Lists”22 (“Lists”) exist at Minoshima Works. The Lists stated permitted

21

This rule was added when the operational guidelines were revised on July 3, 2017. No such rule existed prior to this.

14

values that allowed products with Specification Non-Conformances after batch inspections, lot
inspections, quality control testing or dimension inspections described in Section 3.3(3) above to betreated as Passing Products.
At Minoshima Works, even if Specification Non-Conformances were identified in batch
inspections, lot inspections or dimension inspections described in Section 3.3(3) above, if that
product was on the Lists and the actual measured value was within the range of values permitted on
the Lists, the inspector of the Inspection Section rewrote the inspection results to fall within therange of the Specifications, and Non-Conforming Products were treated as Passing Products. In
addition, even if Specification Non-Conformances were identified as a result of quality control
testing described in Section 3.3(3) above, if that product was on the Lists, the inspector of theInspection Section rewrote the test data to fall within the range of the Specifications and treated thetest data as passing all of the quality control test items relating to such product.
The Lists were kept in Excel files in a shared folder that could be viewed by the employeesof the Inspection Section.
As discussed in Sections 5.6 below, when the existence of the Lists was discovered in
February 2017, the General Manager of the Quality Assurance Department instructed that the
number of products and material compounds where test data were rewritten for dimension andProperty Inspections be summarized. With respect to dimension inspections, there were a total of
570 products on the Lists and produced during the past two years, and with respect to Property
Inspections, for material compounds on the Lists, there were 132 material compounds relating tobatch inspections, 17 material compounds relating to lot inspections and 95 material compounds
relating to quality control testing.

According to interviews, the rewriting of test data was being conducted extensively using
the Lists at Inspection Site I and Site II for seal products that use rubber as the main material andcomposite seal products of rubber, resin and metal in various industrial fields.
When a Specification Non-Conformance was identified during inspections, the onsite
inspector (often a part-time employee) reported to the Site Head, the Inspection Site Head oranother manager. The Site Head or the Inspection Site Head checked the Lists and then, if the actual
measured value fell within the range of the permitted values on the Lists, the Site Head or the
Inspection Site Head instructed the onsite inspector to record values in the test report that were justbarely within the upper or lower limits of the Specifications.
When values not conforming to the Specifications resulted from dimension inspections, theonsite inspector took handwritten notes of those values, but when instructions were given to theinspector to rewrite the test data, those handwritten notes were discarded, and a value that fell

22

The origins for the term “Silver Lists” is unknown.

15

within the range of the Specifications were recorded on the test report. For that reason, in suchcases, records of the actual measurements were not retained.
On the other hand, test reports for materials (compounds) and Property Inspections (batch
inspections) were retained with actual measurements before they were rewritten.
B

History of the Lists and when the Misconduct started

According to interviews, it is unclear when it started, but at Minoshima Works, even when aSpecification Non-Conformance was identified during inspections, conduct such as the Internal ReReview described in (2)C below or the discussions among relevant departments described in (2)Dbelow was taken, and Non-Conforming Products began to be treated as Passing Products. In
connection with this, the inspectors of the Inspection Section prepared handwritten memos withinformation (product, Specifications, permitted values, etc.) relating to the decision to treat the
products as Passing Products, and filed handwritten test reports that stated the actual measured
values for products that were deemed to be passing despite there being Specification NonConformances.23 If a Specification Non-Conformance was subsequently identified in the same
product, the inspector referred to such handwritten notes and test reports, and if the nonconformance was within the range of values determined to be passing in the past, the product was
treated as a Passing Product without going through the Internal Re-Review described in (2)C below
or the discussions among relevant departments described in (2)D below.
There is a column titled “review date” for each product on the Lists relating to dimension
inspections. The review date column contains the date when each product was newly registered on
the Lists or the date when the permitted range of values on the Lists was updated. When reviewing
the dates recorded in the column for “review date,” it was confirmed that there was an increase incases from around 1996 where products were newly registered on the Lists or where the permitted
range of values on the Lists was updated.24
According to interviews, from around 1999 to around 2005, with respect to information on
permitted values, etc. that was recorded on paper, for dimension inspections, this information was
saved electronically using the software Lotus Approach and saved in a shared folder that could beviewed by the employees of the Inspection Section.
Subsequently, in conjunction with not being able to use Lotus Approach at Minoshima
Works, around 2009, information relating to batch inspections, lot inspections and quality control
testing that had not been saved electronically at that time were also entered into Microsoft Excel
spreadsheets, and the Lists were created in Excel files, which is the current form of the Lists.
23

According to interviews, at that time, the files that contained the test reports were called “Silver Lists.”

24

The implications and reliability could not be confirmed, but there was one entry from “1961” in the review date column (the next
oldest entry was from “1974”).

16

C

Awareness of management
In an interview, the former Assistant General Manager of the High Performance Products(Seal Products) Division (“Former Assistant General Manager of the Seal Products Division”),
who had worked as the General Manager of Minoshima Works, said he was not aware that the Lists
existed around 2000 when he was the Assistant Manager of the Engineering Development
Department, Section II at Minoshima Works. However, there were material compounds with
Specification Non-Conformances identified during batch inspections relating to properties, and he
was aware that this issue had been “put on hold” (e.g., left unresolved). He said that, although he
was not aware of the scope of the effect, he was aware that Non-Conforming Products were being
shipped to customers due to the existence of such material compounds with problems.25
In order to review Minoshima Works’ quality control system, a Quality Control Committee
was convened at Minoshima Works, with the General Manager of Minoshima Works participating.
The minutes of the Quality Control Committee meeting from March 2006 state, “review to see
whether some sort of a reason can be provided so that approval can be obtained to amend thecustomer specifications for the 13A9-70 ku [original text] batch out (Silver List material),” and “ͤ
the Inspection Section will prepare a list of Silver List materials and the Engineering Development
Department, Section I will consider corrective measures.” Moreover, the minutes of the Quality
Control Committee meeting held in May 2006 state, “review whether the specifications can becorrected, etc. for the 13A9-70 batch out (Silver List).” The Former Assistant General Manager of
the Seal Products Division, who was the General Manager of Minoshima Works at the time, also
participated in the Quality Control Committee meetings held in March and May 2006.26
Furthermore, the former President (“Former President”), who was a Director and theGeneral Manager of the Seal Products Division in 2013, said in his interview that he was not clearly
aware of the Lists around 2013, but he had heard about the existence of material compounds withproblems from the Former Assistant General Manager of the Seal Products Division who was theGeneral Manager of Minoshima Works at the time. In addition, as a result of the existence ofmaterial compounds with problems, the Former President said he was aware that test data wasprobably being rewritten when it was necessary to submit test data to customers, and that he thoughta list probably existed that compiled the material compounds for which changes were not permitted
as a result of negotiations with customers.
On the other hand, the Former Assistant General Manager of the Seal Products Division saidin his interview that he heard from the Former President that, when the Former President
25

Further, with respect to the Non-Conforming Products that were “put on hold,” the Former Assistant General Manager of the Seal
Products Division said in the interview that he thought no improvements could be made, since neither the material compound or
the customer specifications could be changed, in light of the customers’ wishes, etc.

26

In the interview, the Former Assistant General Manager of the Seal Products Division said that he does not remember whether theinteractions that were recorded on the Quality Control Committee meeting minutes occurred.

17

interviewed employees at Minoshima Works around 2013 in order to review the quality complaints
described in (4)B below, the Former President heard from employees that there was a list compilingmaterial compounds with problems.
In addition, several employees stated in their interviews about the fact that a customer raised
a complaint related to quality described in (4)B below around 2013, and when the complaint was
being addressed, the existence of the Lists was reported to the Former Assistant General Manager of
the Seal Products Division by employees of the Inspection Section, and the Former AssistantGeneral Manager of the Seal Products Division instructed that the Lists continue to be used.

Collectively from the results of the abovementioned interviews, etc., it can be recognizedthat the Former Assistant General Manager of the Seal Products Division was at least aware that
there was a list compiling material compounds with problems at Minoshima Works from around2013 at the latest, and we believe there is a high possibility that he was aware that test data wasbeing rewritten for the material compounds on those lists. In addition, it can be thought that theFormer President was at least aware, around the same time, that a list compiling material
compounds with problems may have existed, and that it was possible test data was being rewritten
when it was necessary to submit test data to the customers, since there were material compoundswith problems.

(2)

Other misconduct relating to rewriting test data
As to the process for placing products on the Lists, as described further below, permitted

values were set from the design stage based on designs prepared by the Engineering Development
Department (A. below) or permitted values were set after mass-production started based onengineering orders issued by the Engineering Development Department (B. below). It is recognizedthat there were instances where the Inspection Section added products and permitted values on the
Lists based on the results above. Further, it is recognized that there were also instances where theInspection Section added products and permitted values on the Lists based on decisions by theEngineering Development Department and the Quality Assurance Department through an Internal
Re-Review (C. below) or based on discussion among the relevant departments that NonConforming Products could be shipped without going through the Internal Re-Review (D. below).
A

Setting permitted values in the designs

At Minoshima Works, with respect to certain products, for certain specifications the design
included statements such as “concessions to be made for permitted dimensional differences(provided as a range) Confidential.” Permitted values were set for certain specifications that were
not particularly agreed with customers in the designs. If inspection results were within that range, it
18seems those results were permitted internally. With respect to products for which “concessions(confidential)” was stated in the designs, the permitted values were clearly indicated in the designs,
and the products were passed and shipped if they met those permitted values.27
As noted in footnote 3 above, the MEXCEL Business Department, which is responsible forthe development and production of MEXCEL, outsourced the inspection of MEXCEL to theInspection Section at Minoshima Works. For these MEXCEL inspections as well, instructions were
given to set permitted values through common designs, etc.,28 to be used for all MEXCEL.29 Basedon what is stated in these common designs, etc., the Inspection Section deemed products to bepassing if the results of dimension inspections, visual inspections and other inspections were within
the range of the permitted values, which was wider than the Customer Specifications. When
disclosing test data to customers, the test data was rewritten and the values were reported as fallingwithin the range of Customer Specifications.
B

Setting permitted values based on engineering orders issued by the Engineering
Development Department

At Minoshima Works, there were cases where instructions were given to set permitted
values through engineering orders that the Engineering Development Department issued to notify
other departments of engineering related items. Specifically, an engineering order dated July 17,
2012 states that hardness measurement results from batch inspections relating to certain materials
are to be deemed as passing if the results fall within the range of permitted values, which was set
wider than Customer Specifications. In addition, instructions were given to report values thatcomply with Customer Specifications when disclosing test data to customers.
According to interviews, for the products covered by this engineering order, the customer
requested that MCI supply products that were strictly equivalent to third-party products that thecustomer was previously using (“Existing Products”). At the same time, instructions were given tocomply with the specifications for the Existing Products. However, the Existing Products had thetendency for inspection measurements to concentrate at the lower end of the requirements under the
specifications, so if the products were produced to be strictly equivalent to the Existing Products,
they often fell below specifications due to the deviations that inevitably occurred as a result of theproperties of the material. On the other hand, if products strictly equivalent to the Existing Products
were shipped, it was thought that there would be no problems for the customer when actually using
the products, even if they did not satisfy Customer Specifications.

27

Except for cases of common designs relating to MEXCEL that are mentioned later, with respect to the four designs that have been
currently identified as examples of designs with permitted values, the related products were all on the Lists.

28

In common designs, the Engineering Development Section of the MEXCEL Business Department gave instructions on theinspection procedures, specific methods, etc. for MEXCEL to the Inspection Section.

29

MEXCEL is not on the Lists.

19

In this context, as mentioned in C. below, with respect to these products, an application wasmade for re-review for Failing Products that were deemed not to be a problem for actual use eventhough they did not meet Customer Specifications, and the decision was made that “use as-is ispermissible.” Furthermore, with respect to these products, in light of the circumstances describedabove, since it was thought that there would be many cases of Failing Products even though there
would not be problems with actual use, the Engineering Development Department decided to set
permitted values in the engineering order, and the engineering order mentioned above was issued.30
As stated in (3) below, with respect to these products, the customer requested submission of
average values for the measurements relating to certain inspection items for each lot. For thisreason, in order to avoid including test data that fell outside the Customer Specifications whencalculating the average values, instructions were given in the abovementioned engineering order toreport the rewritten values which fall within Customer Specifications when disclosing test data to
the customer.
There were also cases where permitted values were set for MEXCEL pursuant toengineering orders issued by the Engineering Development Section of the MEXCEL Business
Department. As stated in A. above, permitted values were specified in the common designs, etc. for
MEXCEL from around 2012, but in February 2017, it was discovered that Non-Conforming
Products for seal products were shipped due to the Misconduct by the Inspection Section As aresult, the MEXCEL Business Department decided to stop passing products if the results were
within the range of the permitted values pursuant to common designs, and this decision wascommunicated to the Inspection Section. However, due to concerns on the impact to businessbecause of the many Failing Products being produced due to removing the permitted values and asignificant decrease in the yield rate, the Technology Development Section of the MEXCEL
Business Department issued an engineering order on February 24 and May 19, 2017 after
discussions with the Quality Assurance Department, and reinstated the permitted values andresumed rewriting test data. Previously, when disclosing MEXCEL test data to customers, theInspection Section was manually rewriting test data for values which fell outside Customer
Specifications so that the numbers were within the range of Customer Specification. However,around June 2017, there was test data that was not rewritten and test data that fell outside Customer
Specifications was submitted to customers. For that reason, since June 2017, for part of theinspection items, when entering test data for MEXCEL that passed inspections, the Inspection
Section decided to use Excel’s formula function to automatically rewrite results that fell outside
Customer Specifications to the highest or lowest permitted value in the Customer Specifications, inorder to avoid test data not being rewritten.
C30

Shipment of Non-Conforming Products that went through Internal Re-Review

The products relating to this engineering order are on the Lists.

20

Although the actual procedures for re-review are as described in Section 3.4(2) above, incertain cases, Non-Conforming Products were shipped after going through an Internal Re-Review
with the involvement of each of the Production Department, the Engineering Development
Department and the Quality Assurance Department without going through the re-review procedure
with customers as summarized below.
As described in Section 3.4(1) above, if a product, etc. fails any inspection, a failure
notification is sent to the Production Section from the Inspection Section. Upon receiving thisnotification, the Site Head, who is in charge of the production process for the relevant productwithin the Production Department, conducts a review, including the causes of such Failing
Product’s occurrence, and considers measures for such products, etc.
With respect to the causes of failing inspections, where, for example, even though it failed
the dimension inspection, the deviation from Customer Specifications was minimal, or even if there
were no deficiencies in the manufacturing process, it would be extremely difficult to satisfy the
Customer Specifications to begin with, from the perspective of the person in charge at theProduction Department, there were cases where it could be thought that although it did not conformto Customer Specifications, it did not have a significant effect on quality, or there was an issue with
the Customer Specifications from the outset.
In these cases, the Site Head of the Production Department submitted an application for an
Internal Re-Review, which was approved by the Section Manager of the Production Department.
With respect to Failing Products for which applications for Internal Re-Review were
submitted, there were cases where the person in charge of developing the design for such Failing
Product in the Engineering Development Department decided that it could be used as-is after going
through only an Internal Re-Review and without going through a customer’s re-review, despite
actual deviations from Customer Specification for certain inspection items. There were instanceswhere an Assistant Manager in the same department approved such decisions. In other words,
according to the proper procedures, if there is a deviation from Customer Specifications, it isnecessary to go through the customer’s re-review and obtain consent from the customer in order tomake a shipment. However, in reality, there were cases where the person in charge within theEngineering Development Department (typically the person who was in charge of design anddevelopment of the Failing Product), made a determination through an Internal Re-Review that the
product could be used “as is” based on the determination that there was no practical problems
considering the use by the customer of such product based on his/her own experience and technicalunderstanding, even if there were deviations from the Customer Specifications for specific21inspection items.31
As described above, when the Engineering Development Department determined that the
product can be used as-is even though customer consent was not obtained, there were times when
the Quality Assurance Group also did not raise an objection.32 As a result, Non-Conforming
Products were shipped without obtaining customers’ consent.
D

Shipment of Non-Conforming Products as a result of discussions among relevant
departments without going through the formal internal procedures

In addition to cases where Non-Conforming Products were shipped after going through an
Internal Re-Review without going through a customer’s re-review as stated in C. above, there werealso cases (summarized below) of Non-Conforming Products being shipped after discussions
among the Production Department, the Engineering Development Department and the Quality
Assurance Department without going through a formal Internal Re-Review.
There have been cases, for example, where the General Manager of the Production
Department conducted a review of the causes of a failure after receiving a failure notification fromthe Inspection Section, and although the product failed the dimension inspection, the product was
produced using the same production method with the same mold as products that had passed
previously, and the Production Department did not understand the reason why the product suddenly
failed.
In such circumstance, there were instances where the Site Head of the Production
Department asked the person in charge in the Inspection Section why a product did not pass, andmade a request such as, “please perform the inspection again and treat as passing,” without going
through an Internal Re-Review. Additionally, there were times when, upon consulting the person in
charge at the Engineering Development Department and obtaining an opinion that from a technicalperspective, there are no issues based on the design, the Site Head of the Production Department
would consult with the Inspection Section, communicate the above determination made by theEngineering Development Department, and request, “please treat as passing.”
When such consultations came from the Production Department, there were instances where
31 However, according to interviews with personnel within the Engineering Development Department, there were those who statedthat all Failing Products which were determined to be usable in its current form only through the Internal Re-Review had arelatively minor deviation from Customer Specifications. It was also stated that if there was a clear deviation from the Customer
Specifications, or there would be a practical effect considering the use of the product by the customer, a decision was never madethat it can be used as-is because there were no functional problems with the product.
32

According to interviews with personnel within the Quality Assurance Department, there were those who stated that, with respect tothe Engineering Development Department’s decisions relating to the Internal Re-Reviews, there were those in the Quality
Assurance Department who expressed their opinion that a product should be deemed a Failing Product when it was determinedthat a shipment can be made despite a large deviation from Customer Specifications, and there had also been cases where theQuality Assurance Department changed the final result, even though the Engineering Development Department initiallydetermined that the product could be used as-is without the customer’s consent, and an application for re-review was submitted tothe customer.

22

the personnel within the Engineering Development Department agreed to such consultations,conducted a re-inspection of the product that failed, the Engineering Development Department
reported the measurements from their inspection results if the values were within the Customer
Specifications, provided advice, such as points to consider and inspection methods in order toobtain accurate test data during an inspection. Furthermore, there were cases where certain
members of the Engineering Development Department provided a response that there were no
problems with the product’s safety or quality in instances where there were no practical issues withthe use of the product, the deviation from Customer Specifications fell within the range of similar
products or the deviation from Customer Specifications was small.33
Further, with respect to Failing Products, when the Site Head of the Inspection Section was
consulted by the Site Head of the Production Department, there were cases where he would consult“if it’s at this level, let’s pass it” and made decisions to treat as passing rather than disposing them.
Also, when the person in charge of development at the Engineering Development Department
provided an opinion that “there are no problems functionally,” such Failing Products were shipped
as Passing Products.

(3)

Rewriting of average value data submitted to customers

There are cases where MCI is requested by certain customers to calculate and provide theaverage value of measurements for specific inspection items for each lot of certain products.
According to interviews, for products for which average value data is submitted, a control
value for the average value data was set, which was separate from the specifications that were
decided with the relevant customer. Even if outside such control value, there were certain productsthat were difficult to prepare countermeasures for because it is difficult to control the dimension ofrubber products during the production stage.
According to a member of the Quality Assurance Section who was in charge of preparing
the average value data since 2011, since around 2011, there were many instances where the averagevalue would deviate from the control value if it was calculated based on the values from the test
data that was submitted by the Inspection Section. In addition to not being able to prepare
countermeasures, the person in charge would need to deal with customers if outside the control
value. In order to avoid such circumstances, the person in charge rewrote the relevant test data when
he entered the average value data so that it would fall within the control value when the averagevalue would fall outside the range of the control value if the values written in the test data were
calculated as is.
33

According to interviews with personnel in the Engineering Development Department, there were many members of theEngineering Development Department who stated that as a result of responding to the persons in charge at the Inspection Sectionor the Production Department, they were not clearly aware of how the Failing Products were going to be handled. Therefore, there
was almost no person who stated that they were aware that Non-Conforming Products were being shipped without customers’
consent based on their responses regarding the Failing Products.

23

The specific process for rewriting was, when there was a large variance or a series of values
at the upper or lower limits in the test data, the values was rewritten to values that would limit thevariance or values that were slightly closer to the medium value than the upper or lower limit, andthe average value data would be calculated.
There would be instances where the test data confirmed by the person in charge of enteringsuch average value data would include actual test measurements, and there would also be instanceswhere the test data had been rewritten by the person in charge of the inspection, as stated in (1)above. In particular, as described in (2)B above, in the engineering order dated July 17, 2012, there
were instructions to treat as passing even if the measurement for hardness from a batch inspection
for a specific material was found to be lower than the lower limit of the Customer Specifications,and to report values that were within Customer Specifications when disclosing test data to thecustomer. Therefore, the test data for the relevant material that was confirmed by the person in
charge of entering such average value data was already rewritten to comply with Customer
Specifications based on the engineering order.

(4)

Certain inspection items were not tested

A

Description of Misconduct / time of commencement

As stated in Section 3.3(3)B above, batch inspections, lot inspections and quality control
testing are conducted at Minoshima Works as Property Inspections for Partially Completed
Products (compounds) and finished products. Of these, with respect to lot inspections and quality
control testing, which are conducted for some products, even though some or all of the inspection
items were not actually tested, in test reports submitted to customers, it was reported as though suchinspection items were actually tested. The inspector in charge of lot inspections and quality control
testing hand-copied the actual test data onto a different piece of paper separate from the test reportsubmitted to customers. The results of past inspections were kept as internal record by entering
symbols such as “‫ ”ר‬for items that were not actually tested in order to make it possible todistinguish the fact that they were not tested.
According to interviews, the reasons why lot inspections and quality control testing were not
performed for certain products include: (1) the equipment or chemicals necessary for conducting thetesting were disposed, so the testing could not be performed; (2) testing for such items have been
omitted from a long time ago, and the person in charge onsite was not aware of the testing methods;(3) the person in charge of inspections omitted the testing because the testing takes time; and (4) not
testing such inspection items was passed-on from their predecessor.
At Minoshima Works, it seems that for certain products, some inspection items of lot
inspections and quality control testing have not been tested since at least from the 1990s.

24

B

Awareness of management

At Minoshima Works, around 2013, with respect to particular products for a certain
customer, it was discovered that despite the fact that all quality control testing items had not beentested for a long period of time, the test report for such products stated that all items had beentested. This led to a complaint from the customer. At that time, a review on whether similar
problems were occurring for other products as well was conducted, and the person in charge ofinspections gave a report to the Inspection Site Head on products where some or all inspection items
were not tested. The Inspection Site Head reported this to the Manager of the Inspection Section. At
that time, based on instructions from the Manager of the Inspection Section, the number of
personnel responsible for lot inspections and quality control testing was increased, but otherwise, noother measures were implemented to resolve this matter.
Additionally, according to interviews, it is recognized that the Former Assistant General
Manager of the Seal Products Division, who was the General Manager of Minoshima Works at thetime, and the Former President, who was the General Manager of the Seal Products Division at thetime, were aware that some or all of the items of quality control testing had not been tested for someproducts for such customer since they received a report on the complaint by such customer andinstructed improvements at that time. However, it cannot be recognized that they were aware that,with respect to other products, some or all of the items for lot inspections and quality control testing
were not being tested.

2

Inspections conducted using methods inconsistent with proper methods(1)

Insufficient number of samples for dimension inspections

As stated in Section 3.3(3)B above, inspection items that should be tested by the person in
charge of inspections in the Inspection Section, along with the number of samples that should be
used for sample inspections, are specified either in Customer Specifications agreed with thecustomer or in public standards.
However, according to interviews, there were cases in Inspection Site I and Inspection Site
II where inspectors conducted inspections with a smaller sample size than the sample size that was
specified in Customer Specifications agreed with the customer or in public standards at least sincearound 1991.
For example, for dimension inspections, despite the customer specifying that the number ofsamples be thirteen per one lot, dimension inspections were actually conducted on only fivesamples.

25

(2)Inspections conducted by inspectors who have not received internal certifications

According to interviews, pursuant to internal rules and agreements with customers,
inspections should only be conducted by certified inspectors that received internal certifications.
Despite this, there were cases in Inspection Site I and Inspection Site II where inspections wereconducted by inspectors that have not received internal certifications.
Even if an inspector had not yet received an internal certification, if the Site Leader
determined that he had sufficient abilities, the stamp of the Site Leader or other certified inspectors
was lent to such inspector, and he was made to conduct the inspection on his own and affixed a seal
as a certified inspector.

Section 5

The Status of Response since December 2016

Taking the interview results and relevant materials together, the following facts can berecognized regarding the status of MCI’s response since December 2016.

1

The quality audit of MCI by MMC on December 7 and 8, 2016
In the process of responding to the quality audit by MMC that was conducted on December

7 and 8, 2016 at Minoshima Works, it was discovered that for a certain product for a customer,
despite being a Non-Conforming Product that deviated from the Specifications for dimensions
stated in the drawing (identified from the dimension inspection), the product had been determined
to be usable as-is through the re-review procedures without obtaining approval from the customer,
and, in relation to this, test data had been rewritten to fall within Specifications (“Re-Review
Issue”). Initially, the response to MMC regarding this quality audit was handled by the General
Manager of Minoshima Works and the people who worked under him, with the Quality Assurance
Department taking a central role. MCI’s Internal Auditing Department was the contact point withrespect to MMC.

2

Reporting the Re-Review Issue to management on January 25, 2017
The results of the quality audit by MMC, including the Re-Review Issue, were officiallyreported by MCI’s Internal Audit Department to management at the Executive Committee meeting
held on January 30, 2017. However, prior to the Executive Committee meeting, the Executive
Committee meeting materials were reported to management, including the Former President, at thepresident meeting on January 25. According to the Former President, he became aware of the matter
when he saw the meeting materials.

26

3

Establishment of a task force on February 1

On February 1, 2017, the Former President established a task force regarding the Re-Review
Issue in order to review the causes of test data being rewritten at Minoshima Works. The Former
President was the head of the task force, but the person who actually took the lead was the Director,
Managing Executive Officer and General Manager of the High Performance Products (Seal
Products) Division (“General Manager of the Seal Products Division”).

General Manager of Minoshima Works’ instructions on February 8

4

Until February 8, the person in charge of inspections would take notes by hand of the actual
measurements from dimension inspections, and discard such handwritten notes when the revised
numbers were included in the official test report or the test data was entered into the system. On
February 8, as a response to the Re-Review Issue, the General Manager of Minoshima Works at thetime issued instructions that handwritten notes should be kept for products relating to such customer
in order to avoid a situation where the actual measurement values would not remain in the records
at all.
It was also decided to consider introducing a system that automatically extracts test data andenters the actual measurements into test reports.

5

Report on the existence of the Lists from the Inspection Site Head on February 9 andthe subsequent response after February 9
On February 9, the General Manager (at that time; hereinafter the same) of the Quality

Assurance Department received a report from the Inspection Site Head (at that time; hereinafter thesame) that “actually, rewriting of testing data has been done not only for the relevant customer’s
products, but also for other customers’ products, and a list34 exists for such purpose.” The General
Manager of the Quality Assurance Department had not seen an actual copy of the Lists at that point
but instructed the Inspection Site Head to summarize the number of products and material
compounds where test data had been rewritten with regard to dimension inspections and Property
Inspections in order to get a full picture. The General Manager of the Quality Assurance
Department heard from the Inspection Site Head that the Lists were kept across multiple folders in
the Inspection Section, and therefore also instructed the Inspection Site Head to combine the lists
saved in each folder.
The General Manager of the Quality Assurance Department reported the details of the reportfrom the Inspection Site Head to the General Manager of Minoshima Works at the time. In order tounderstand the frequency of test data rewriting using the Lists, the General Manager of Minoshima

34

Refers to the Lists.

27

Works at the time then instructed that it be reported each time a Specification Non-Conformance
was identified from dimension inspections for the products on the Lists, and for the Inspection
Section to create a list of the reported products. 31 products were reported as Specification NonConformances relating to dimensions by the time the Quality Improvement Project was establishedon May 10, 2017.
It was also decided that with respect to the products on the Lists, if Specification NonConformances were identified as a result of inspections, the General Manager of the Quality
Assurance Department was to determine how to handle such products in consultation with the
General Manager of Minoshima Works at that time. When Specification Non-Conformances wereidentified, the General Manager of the Quality Assurance Department had the Inspection Site Headexplain the details of the Specification Non-Conformances to him. However, as long as it waswithin the permitted values of the Lists, the operation of shipping after rewriting test data ended up
being continued as before.

6

Reporting the existence of the Lists to the Former President and others
On February 22, 2017, the General Manager of the Quality Assurance Department received

the Lists from the Inspection Site Head in an Excel file. The Lists that the General Manager of the
Quality Assurance Department received from the Inspection Site Head were lists that the Inspection
Site Head had combined for each type of inspection from the lists that the persons in charge ofinspections would actually review at each inspection site. Also, at this time, the General Manager ofthe Quality Assurance Department also received a report from the Inspection Site Head that, withrespect to dimension inspections, there were a total of 570 products on the Lists and produced
during the past two years, and with respect to Property Inspections, for material compounds on the
Lists, there were 132 material compounds relating to batch inspections, 17 material compounds
relating to lot inspections and 95 material compounds relating to quality control testing.
The General Manager of the Quality Assurance Department reported the Lists to the Quality
Control Committee at a meeting held on February 23.
Also, a little before or after such Quality Control Committee, the General Manager of the
Quality Assurance Department reported the existence of the Lists to the Former President and theGeneral Manager of the Seal Products Division.

7

Reporting to the Former President in early March and the subsequent response

In early March 2017, the General Manager of Minoshima Works at the time and the General
Manager of the Quality Assurance Department submitted the Lists to the General Manager of theSeal Products Division and provided an overview of the Lists. After that, the General Manager of
the Seal Products Division reported the details of the above report to the Former President. At that28

time, Minoshima Works was busy responding to the Re-Review Issue including confirming theeffect on other products for the relevant customer, confirming past records for re-reviews relating to
the products of the relevant customer and considering remedial measures for such Non-Conforming
Products, etc. Therefore, the General Manager of the Seal Products Division proposed to the Former
President that first, address the Re-Review Issue, and after this settles down, then conduct a review
regarding the Lists. The Former President approved this proposal, and the response to the ReReview Issue was addressed until around the end of April 2017.

8

Establishment of the Quality Improvement Project and the subsequent Quality
Improvement Project activities
On May 10 after the holidays in May 2017, the Quality Improvement Project wasestablished under the direction of the Former President. According to the Former President, heestablished the Quality Improvement Project with the goal of reaching a “soft landing” resolution
by reporting the circumstances and remedial measures to each customer in an orderly, consecutive
manner and asking for their understanding after identifying the cause for the Misconduct andconsidering remedial measures as well as analyzing the complete picture of the Misconduct, such as
when the rewriting of test data at Minoshima Works began, whether there was institutional
involvement, how the Lists were managed operationally, and the extent of the deviations fromSpecifications. The Former President decided to select the members of the Quality Improvement
Project based on those who had little relationship with Minoshima Works based on theirbackgrounds, etc. and appointed the General Manager of the Seal Products Division as the leader ofthe project. Also, since it will require technical knowledge to address the Misconduct, the General
Manager of the Seal Products Division added employees from the Engineering Development
Department as a member of the Quality Improvement Project.

At the first Quality Improvement Project meeting on May 16, the activities of the Quality
Improvement Project were decided. Examining ways to resolve the Specification NonConformances relating to dimensions of the 31 products on the Lists for which Specification NonConformances were identified on or after February 9, 2017 was set as the current goal. According to
the General Manager of the Seal Products Division who was the leader of the Quality Improvement
Project, he thought that by using these 31 products as examples and finding ways to resolve theseSpecification Non-Conformances, it would also be possible to plan for how to address Specification
Non-Conformances for other products on the Lists.
After the first meeting, at the Quality Improvement Project meetings that were held once
every two weeks, with respect to the 31 products, matters such as how the designs for such products
were decided, when Specification Non-Conformances for such products started and remedial
measures were discussed.
29

Subsequently, at the Quality Improvement Project meetings, the detail of the Lists relating
to Property Inspections were also reviewed. Work was also conducted to narrow down material
compounds with Specification Non-Conformances by deleting material compounds that are nolonger being used and compounds for which there were duplicate entries, etc.
As described above, the Quality Improvement Project, led by the General Manager of theSeal Products Division, considered remedial measures for Specifications Non-Conformances foreach product on the Lists.

9

Reporting to the Former President on the activities of the Quality Improvement
Project, the interim report by the Quality Improvement Project on October 16 andbackground on how shipments were stopped

On June 20, 2017, the General Manager of the Seal Products Division provided to theFormer President an overview of the 31 products for which Specification Non-Conformances for
dimensions were identified on or after February 9, 2017 and the difficulty of addressing the matter,etc. The General Manager of the Seal Products Division also explained to the Former President,
among other matters, that addressing this matter with each customer may be time-consuming
because of, among other reasons, the strict customer specifications and the need to obtain customer
consents if the molds need to be improved.
In mid-July 2017, the General Manager of the Seal Products Division told the Former
President his outlook that it would take a significant amount of time before this problem will be
resolved since there is an extremely large number of relevant products. The Former President gave
instructions to accelerate the review of the details.
Subsequently, on October 16, 2017, the General Manager of the Seal Products Division
provided an interim report on the work of the Quality Improvement Project to the Former President.
He reported that, with respect to dimension inspections, to resolve the Specification NonConformances for the 570 products on the Lists that were produced in the past 2 years, it will benecessary to create new mold prototypes or amend molds. He also reported his outlook that it willtake 3 years or more to resolve the Specification Non-Conformances for the 244 material
compounds on the Lists because some require a re-examination of the material compounds,
although some can be removed from the Lists by reviewing the references to public standards. In
response to this, the Former President instructed the General Manager of the Seal Products Division
to summarize the analysis by November 2, 2017.
On October 19, 2017, the Former President reported the content of the above interim reportto an advisor who was a former President of MCI (“Advisor”). The Former President shared histhoughts that he planned to resolve the problem with the aforementioned “soft landing” since there
were many affected customers and he believed that Minoshima Works at the time would not be able
to handle this if a report was made to all affected customers at once. On the next day (October 20,
30

2017), the Advisor told the Former President that it would be better to stop shipments of the
products on the Lists, and that he should make a report to MMC.
The Former President, thinking that if a report is made to MMC, a request for an early
resolution would be made after reporting to all affected customers at once, so on the same day, heinstructed the General Manager of Minoshima Works at the time to analyze the business impact if
the Misconduct is reported to customers, and also instructed him to stop shipments of the productson the Lists from October 23, 2017.
On October 25, 2017, the Former President reported the Misconduct to MMC, and started
reporting to customers on a consecutive manner after that.

10

Reasons why no decisions were made to stop shipments and notify customers after
February 2017

According to the Former President, as mentioned in 8 above, the Former President launched
the Quality Improvement Project in order to clarify the causes and details of the Misconduct andconsider remedial measures, report to each customer individually in an orderly, consecutive manner
the circumstances and remedial measures, and reach a “soft landing” resolution. Thereafter, on
October 16, 2017, when he received the interim report on the work of the Quality Improvement
Project, the Former President was told that there was a significant problem concerning material
compounds, that there was a large number of affected customers, and that resolving theSpecification Non-Conformances would take 3 years. As the details of such report showed asignificantly slower schedule than what the Former President had presumed, he became aware thatthe selection (sorting) of remedial measures35 should be accelerated, such as not accepting orders
for products that are technically difficult to handle, etc. On the other hand, the Former President
stated that he believed that Minoshima Works would be unable to handle customers’ audits andindividual demands, etc., and also unable to deliver products, and that it could ultimately expand to
MCI being liable for damages and lead to MCI’s business failure if reports on the Misconduct weremade to all affected customers at once, so he was aiming to reach a “soft landing” resolution even atthat stage. As a result, after February 2017 until the Advisor told the Former President thatshipments of the products of the Lists should stop and that a report should be made to MMC on
October 20, 2017, there was no decision by MCI to stop shipments or notify customers, and also nodecision to report to MMC.

35

According to the Former President, he expected the selection of remedial measures as stated above and collection of information
for decision making for such purpose to be conducted by the Quality Improvement Project, but partly because the members
consisted mainly of engineers, it ended up focusing solely on technical considerations rather than on the abovementioned work,
which included business judgment. On this point, he said that he thinks he should have followed up closely on the details of theactivities of the Quality Improvement Project by reading the minutes, etc.

31Section 6

The Root Causes and Background1

Background(1)

History of the seal businessAlthough the seal business is now positioned as MCI’s main business, MCI is a company
that originally started its operation in the cable business, and the production of O-rings for aircrafts
at Minoshima Works in 1958 by applying the rubber composition technology for covered cables
was the occasion for MCI to enter the seal business. In the past, MCI’s main businesses were thecable business and an electronic components business such as harnesses and so forth forautomobiles, while the seal business differed, for production, in both materials to be used andprocesses to be taken. As such, the seal business at MCI can fairly be deemed as a foreign businessso to speak, which had developed independently as there were no models to follow within MCI.
The seal business, which was born under such circumstances, had been positioned internallyas a small-scale business that accounted for only a little more than 10% of MCI’s totalcompanywide sales for a long period of time, and in terms of profitability, it had been in a situation
where positive figures could not be achieved until around 2000. Amongst the interviewees of theInvestigation, based on the historical positioning of the seal business at MCI as mentioned above,
there were some who stated that the seal business was in a position “like an excess baggage” within
MCI.
Perhaps in reflection of such position within the company, more than a few people, both inmanagement and in the field, have expressed the perception that not enough investment in theequipment was made in the seal business in the past.36

Also, with regard to human resources, there
are some who stated that recent graduate new employees were assigned to the businesses such as
the cable business and electronic components business on a priority basis.
However, the situation changed after the start of the financial crisis following thebankruptcy of Lehman Brothers in 2008. MCI went into the red and withdrew from the automobile
harness business, which became unprofitable, in 2010, and further coming to a point where thecable business was sold in 2016, as a result of which the remaining seal business started to become
the main business of MCI.
Along with such internal changes in its position, the seal business was situated at a toughposition where on the one hand, it was expected to generate constant profit as the main business of
MCI which was under a worsened financial situation, and on the other hand, due to its history, thedeep-rooted cost suppression mindset was maintained such that, for example, when procuring a newmeasurement instrument for testing, applications were made for the purchase of a cheap model

36

However, in 2005, there were cases where, for example, clean mold process manufacturing facilities related to the seal products
for semiconductor manufacturing devices were newly installed at Minoshima Works.

32

produced overseas.
(2)

Closed nature of personnel at Minoshima Works

As mentioned above in (1), given that the seal business was a foreign business within MCI,
people who served important positions, such as General Managers of Minoshima Works andvarious departments, were often people who basically only had work experience at Minoshima
Works or those people who had a long work experience at Minoshima Works. Also, key-position
employees (sogo kikanshoku) were less likely to come from other works to Minoshima Works, andMinoshima Works had few personnel interactions with other works within MCI. Regarding the line
worker employees that were hired locally at Minoshima Works, they basically never worked atother works. During interviews, there were more than a few people with experience at Minoshima
Works who pointed out the closed nature of personnel at Minoshima Works, such as stating thatpeople from other works sometimes called Minoshima Works a “village society.”37(3)

Positioning of quality assurance departments at Minoshima Works
As mentioned in (1) above, by applying the rubber composition technology for covered

cables, MCI started the production of O-rings for aircrafts in 1958, and later on, as they expanded
the market share of aircraft-related seal products, it is undeniable that the Engineering Development
Department took the primary role in the establishment of the related seal business due to the special
need for technical skills for the aircraft-related seal products. Even later on, in the process of
expanding the destination of the seal products to the automotive parts field, hydraulics andpneumatics field, semiconductor field and so forth, technical knowledge was imperative in order tomove forward with new projects. Also, designs created by the Engineering Development
Department were also the base for the production and inspection methods, and there was aninterviewee who stated that there were views at Minoshima Works that “designs are everything.”
Based on this background, many pointed out that the Engineering Development Department’s
position was relatively strong overall at Minoshima Works.
In contrast, there were more than a few people, not just the persons related to the Quality
Assurance Department but other departments as well, who stated that the Quality Assurance
Department was in a weak position relative to the Engineering Development Department and theProduction Department. Generally speaking, there is a tendency for the production departments to
be in a relatively stronger position than the quality assurance departments in the manufacturingindustry, however, there were multiple people, including those in managements, who pointed out

37

Although MCI has a whistleblower hotline (Legal & Compliance Department or Internal Auditing Department) and an external

hotline (external legal counsel) as reporting and counseling hotlines for compliance, at least since 2012, there was not even a single
internal reporting from Minoshima Works’ employees.

These facts could be thought of as arising from the closed nature of

personnel at Minoshima Works.

33

that this issue was especially noticeable at Minoshima Works. With the background of the positions
between these departments, from the past, at Minoshima Works, the Inspection Section’s role wasconsidered to be only to identify Non-Conforming Products through inspection and the Inspection
Section was not recognized as a group that should take the active role of contributing to quality
improvement, so that there were more than a few people, mainly in the Quality Assurance
Department, who pointed out that there was a tendency of “disrespect of inspection group,” on theview that the Inspection Section did not actively contribute to the quality and performance
improvements.

2

Analysis of the root causes(1)

Insufficiency of resource allocation for the seal business (Minoshima Works)

Given the history and background of the seal business as mentioned above in 1(1), it ispointed out that the necessary resource allocation (personnel and/or facility investments including
the human resource education) has not been made for the seal business (Minoshima Works).
As a result, as stated below, it is thought that the ideals of craftsmanship did not get fosteredsoundly and the operation of the quality improvement cycle, which should appropriately have been
done as a manufacturer, may have been inadequate. For example, under ordinary circumstances, forthe purpose of quality control and improvements, the quality information, such as products’
inspection results and so forth, should be reported from the quality assurance departments to thedevelopment departments and production departments, and measures to prevent the occurrence of
Non-Conforming Products by making improvements in the development and production processes
should be considered. However, at Minoshima Works, there were no sufficient human resources
and facility investments made and, as stated above, the Inspection Section was not recognized as agroup that should take an active role in quality improvement, so for a long time, there was noprocess of providing the quality information, such as inspection results, from the Inspection Section
to the Engineering Development Department and Production Department, and it is considered that
there was no sufficient collection and analysis of the quality information. Therefore, the quality
improvement cycle based on the quality information feedback did not function well, and it isthought that the Engineering Development Department and Production Department could not
sufficiently understand their own process capability.
Also, at Minoshima Works, based on the fact that insufficient resource allocation became
the norm, it is thought that, for a long time, there was a fall into a vicious cycle: delivery of NonConforming Products wherein the test data were rewritten as a patch up measure for such NonConforming Products, failure of development and manufacture issues to surface as a result of such
patch up measure (i.e., loss of opportunity to be made aware), lack of motivation for quality
improvement, and further occurrence of Non-Conforming Products.
34

(2)

Insufficiency of the mechanism, such as DR, for the production and quality assurance
departments to influence the process of product development and order intake

As mentioned above in Section 3.3(1)A, the Engineering Development Department
categorized products into three categories (A, B, and C) in the product development stage, and forthe products that are labeled as Category C, DR was performed at key points from the experimental
stage, and in addition, in order to verify whether mass production is possible or not, an overall DR,
including by related departments, had to be conducted. However, considering the fact that it
resulted in many Non-Conforming Products of which it was difficult to make improvements indimensions and properties and became a trigger for the rewriting of test data, it is difficult to accept
that the DR system in the product development steps was able to fully demonstrate its function thatwas contemplated at the time it was designed. In fact, during the interviews, although there were
opinions that pointed out the utility of DR on one hand, there were also more than a few opinions
that pointed out the operational challenges and problems.
For example, even for those products that were labeled as Category C and were massproduced after going through overall DR process, there were occasions where Non-Conforming
Products were produced after entering the mass production stage. On this point, the determination
as to whether the prototype made by the Engineering Development Department could withstand themass production, based on the business processing standards at Minoshima Works for DR, wassupposed to be made upon considering the process capability index, which is based on the“important properties” at the mass production trial time in overall DR. In other words, any
properties outside the scope of “important properties” were not considered, and there is a possibility
that the inspection of whether the prototype can withstand the mass production or not may havebeen insufficient. Also, as mentioned in (1) above, it is considered that based on the businessprocess, because the collection and analysis of quality information by the Quality Assurance
Department and the Production Department were not done adequately, their reserve of knowledge
was poor, and hence the Quality Assurance Department and Production Department could notprovide effective feedback in overall DR, and as a result, the review became just a formality.
As shown above, it is thought that the system for the production and quality assurance
departments to influence the process of product development and order intake could not function as
intended at the time of the system design, and the “elaboration” in the development steps ended up
being insufficient, so that even if the prototypes were within the specifications, there resulted in turnthe occurrence of many Non-Conforming Products once the production began due to the production
conditions being different from that of the prototype, leading to the rewriting of the test data.
(3)

Insufficiency of resource allocation for the quality assurance departments

As shown in 1(3) above, based on the background of the Quality Assurance Department’s
positioning and thoughts behind the “disrespect of inspection group” at Minoshima Works, theinsufficiency of the allocation of the human and material resources for the Quality Assurance
35Department at Minoshima Works has been pointed out.
As a result, first, it could be thought that the Quality Assurance Department’s lineup becamefragile. For example, in the past, the number of management-level employees in the Quality
Assurance Department was only a few, and with regards to the key-position employees, which aresupposed to take the central role, there were no more than around 20 key-position employees,
including the management-level employees.38
Also, as referenced in footnote 15 above, while the Inspection Section prepares inspection
orders based on designs drafted by the Engineering Development Department, there were multiple
people who pointed out that there was a scarcity in human resources in the Inspection Section, suchthat there was a lack of people who could correctly understand the standards referenced in designs
such as those who had experience in the Engineering Development Department. Also, it could bethought that there was a shortage of inspection staff at the inspection sites. For example, after thestart of the financial crisis following the bankruptcy of Lehman Brothers in 2008, there was acompanywide staff reduction in MCI, and as of April 2008, there were 68 part-time employees/parttime workers that belonged to the Inspection Section, but as of April 1, 2009, the number of parttime employees/part-time workers was significantly reduced to 49. After that, around 2012, sales
declined significantly in the seal business, and downsizing was carried out for the purpose of cost
reduction at Minoshima Works, at which time there were a total of 53 part-time employees/parttime workers in the Inspection Section as of April 1, 2012, which was significantly reduced to 40
people as of April 1, 2013. Among the interviewees who belonged to the Quality Assurance
Department, some stated that at the time when the number of inspectors was being reduced, as thepeople on the inspection site were finding the workload excessive, there was an instruction at
Minoshima Works which said “Even if you spend time to run inspections, it will not create any
values, so be sure to efficiently run the inspections without spending unnecessary man-hours.” Also,
some pointed out that even though the number of inspection staff was reduced when sales declined
as mentioned above, nothing sufficiently was done to invest in the facilities for the Inspection
Section, like improvement in inspection efficiency through automation of inspection equipment.
Moreover, in the past, it seems that staffing plans were made at Minoshima Works based on theincrease and decrease in sales and depletion of staffing through reasons such as retirements, and themethod of calculating the necessary staffing based on man-hours and scheduled production quantity
was never employed, such that it is considered that the actually required number of inspection staff
in the inspection process was not accurately understood.
As such, it seems that the fact that the human resource distribution in the Quality Assurance
Department was insufficient became the norm, and such situation seems to have led to thevulnerability of the Quality Assurance Department as an organization. As a result, its autonomy as aquality assurance department was never established. As an example, even the inspection methods to38

As of April 1, 2017, there were 24 key-position employees in the Quality Assurance Departments, however, in comparison, there
were 39 key-position employees in the Engineering Development Department and 149 in the Production Department.

36

be used by them were considered and decided by the Engineering Development Department, andwhen there were unclear points in individual inspections such as items to be inspected, rather thanreviewing designs themselves, they consulted and received instructions from the Engineering
Development Department, and it is recognized that they had a tendency to rely on other departments
for conducting its business. Also, it is recognized that its organizational vulnerability may havebeen a constraint to providing standard responses, by motivating the desire to avoid operationalburden needed for standard responses, such as having to provide necessary explanations to otherdepartments for disposal of Non-Conforming Products and having to request the customers for rereview process for concessions each time.39
The Inspection Section lacked the “stamina” to sufficiently endure the burden of thestandard process, which became one of the driving forces for accelerating the inappropriate
conducts (i.e., problem dodging behavior) such as rewriting test data using the Lists, rewriting of
the average value data, and not conducting a portion of inspection items, rather than resolving thefundamental problems.
The fact that they do not have sufficient stamina to endure the standard process for solving
problems can be seen to also have a common point at the fundamental level with the problem with
its response measures even after the discovery of this matter (i.e., delay in reporting to customers
and suspending shipment of Non-Conforming Products). That is to say, even just to respond to theone case of the Re-Review Issue between December 2016 and April 2017, the Quality Assurance
Department was in a situation to be solely dedicated to responding to the additional audits andrequests from MMC and relevant customers, investigating to determine the cause and formulating
preventative measures against recurrence. Although the process that was actually taken wasprobably necessary from the perspective of the magnitude of the Re-Review Issue and also from theperspective of recurrence prevention and quality improvement, nevertheless, its burden on
Minoshima Works and the Quality Assurance Department was quite large. When the Former
President witnessed the Misconduct, he reached the conclusion that “if we reported the Misconduct
to all of the relevant customers at once, Minoshima Works will not be able to handle the customers’audits and individual requests,” and the only way to resolve is by “soft-landing,” and thus he did not
discuss to move toward solutions by sharing the existence of the Misconduct with any of thedirectors aside from the directors in charge of the business (General Manager of the Seal Products
Division) from whom he received the report, and he intended to follow such way of problemsolving and, in a way, he stubbornly insisted on such way of problem-solving. It cannot be denied
that the background to such reaction was due to the perception of the reality of such lack of stamina.

39

Amongst the interviewees, some stated that when some problems arise during work, its cause was investigated and pursued, which
was even termed a “search for the culprit.”

37

(4)

Strain on the quality assurance departments from other departments due to the chainof pressure

Although the Engineering Development Department was in a position to feel the pressure todevelop products that respond to the customers’ needs regarding the specifications, it is recognizedthat they were also in a position to be able to request the Production Department to mass-produce
the products that they developed according to the specifications they agreed with the customers.
Although the Production Department received the pressure of having to manufacture according to
the specifications, even with the products of which it was difficult to meet the specifications, it isrecognized that they were in a position to be able to make demands to the Inspection Section suchas “why did this fail the inspection, even though it was manufactured with the same mold thatpassed the inspection before?”, “how much of an effect will there be to the product performancewith this level of deviation from the standard?”, and further “why can’t it pass this time, eventhough, previously, this degree of deviation was accepted?”
In contrast to this, the Inspection Section was in a position to be left to bear the chain ofpressure, and in addition to the power relationship at Minoshima Works referenced in 1(3) above,
there was a tendency to rely on other business departments as mentioned in (3) above, so they could
not shift the pressure from other departments, and as a result, it is thought that they took the
response measure of loosening the inspection standards by setting permitted values in the Lists.
(5)

Conceited mindset of being able to control the quality

As mentioned in Section 4.1(2)C and D, there were occasions when the Production
Department and Inspection Section delivered the Non-Conforming Products as accepted products
upon receiving the opinions from the Engineering Development Department that “there are noissues in its functionality.”On the premise of the Engineering Development Department providing such opinions, there
were multiple Engineering Development Department employees who stated that they “thought that
the Engineering Development Department could judge, based on their own experience and senses,
whether there existed functional and safety issues for use as seal products as a result of suchSpecification Non-Conformances.” Despite the fact that complying with the specifications
requested by customers is an obvious thing to do as production business personnel, in the
background of the Engineering Development Department making decisions like above, there was akind of arrogance related to the quality control, that is to say, “We understand the customers’
method of use of seal products sufficiently and, with regard to the effects of Specification NonConformances on the functionality and safety of the seal products, we do not need to get customers’
judgments, because we could judge ourselves.”
Also, as mentioned in Section 4.1(2)B above, there were instances where the Engineering
Development Department judged that “if products strictly equivalent to the Existing Products areshipped, there would be no problems for the customer when actually using the products, even if
38they do not satisfy Customer Specifications” However, it must also be said that this is also
displaying the attitude of interpreting the customers’ wish in the way that is just convenient forthem.
On this point, there were multiple people among the concerned individuals in the Quality
Assurance Department that stated the understanding of the Quality Assurance Department as “evenif the specification is not conforming, rubber-made seal products will stretch and shrink, so there is
no issue functionally,” “since there were no problems, such as complaints and so forth, from
customers in the past, there is no problem,” and “to be considerate to the customers, it is better tocontinuously ship the same products as in the past.” Also, some in the Production Department statedthe Production Department’s understanding, which was that “from the perspective of the Production
Department, even in a case where the Specifications are not fulfilled, we were approved by the
Quality Assurance Department and Engineering Development Department about the shipment of
the products, so we thought that there were no issues in terms of its functionality.” In light of that, it
is considered that the Engineering Development Department’s awareness in quality control as
mentioned above was shared with Minoshima Works’ other departments and became ingrained at
the entire Minoshima Works.
On the other hand, the education system about the quality control was not maintained
sufficiently at Minoshima Works, therefore, people suggested that there was not enoughunderstanding among the employees at Minoshima Works on issues such as how the seal productsthat they were producing were being used and what kind of impact will result when there are quality
issues with the products. Considering this, it can be thought that the fact that the education about thequality control was not sufficient was, in a way, a factor for a mindset of the self-righteous
arrogance about the quality control to be ingrained at Minoshima Works.
Also, with the closed nature of personnel at Minoshima Works as a background, which wasmentioned in 1(2) above, it is thought that such mindset of arrogance about quality control was
justified as “something that senior employees had done for many years as common sense” and wasleft unchanged.40
Further, it is undeniable that, in the process of such inappropriate conducts prolonging andbecoming permanent, an awareness of compliance with customer specifications started to be
reduced and the compliance awareness, including the quality compliance, became dull.
(6)

Low risk sensitivity in quality issues
Nowadays, if a Specification Non-Conformance develops into a quality issue, it can have a

40

Obviously, it is recognized that some concerned individuals, including the onsite inspectors, felt the doubts and disagreements
about the Misconduct, and expressed their sentiments during interviews. On the other hand, it is also true that the Misconduct had
continued for many years in Minoshima Works without being raised widely through internal reporting systems. The abovereference is not meant to show that there was no resistance or problem awareness in engaging in the Misconduct by eachconcerned individual, but rather, to consider the structural cause based on the fact that it has been continued for a long time as
mentioned above.

39

huge impact on the company, its customers, and the society, so it is necessary to consciously
respond based on the way the society will accept quality issue risks and by keeping the level ofsensitivity high. Based on this perspective, looking back at MCI’s responses after the Misconduct atissue surfaced, it seems that, not only just the employees that handled each individual situation, butalso the management team that came to know of the Misconduct had a problem where their risk
sensitivity to the quality problem was insufficient.
For example, as mentioned in Section 5.10 above, according to the Former President, hethought that “Minoshima Works would be unable to handle customers’ audits and individual
demands, etc., and also unable to deliver products, and that it could ultimately expand to MCI being
liable for damages and lead to MCI’s business failure if reports on the Misconduct were made to allaffected customers at once,” so he was aiming to reach a “soft-landing” resolution. However, it isclear that the situation was very serious based on the number of customers and products that werepotentially affected by the Lists, the use of the products covered in the Lists, and the work
necessary to confirm the safety, and considering the situation where shipment of Non-Conforming
Products was still being continued, criticism is unavoidable that the timing of stepping in for each
response, such as sharing information among the management team, and directors in particular,suspending delivery of Non-Conforming Products, and providing explanations to customers, waslate. Even though there were reasons mentioned in (3) above as a background to such responses, it
must be stated that there was a lack of sensitivity for the risk caused by delaying the response to the
Misconduct, and in addition, the risk that quality issue will bring to the business.
Also, as mentioned in (5) above, at Minoshima Works, with the reduction in the
consciousness for customer specifications compliance and the existence of arrogance in terms of
quality control in the background, the risk sensitivity for quality issues was lowered for Minoshima
Works as a whole, and it seems that things ran toward the easy direction of the maintenance andcontinuance of the Misconduct without sufficiently thinking about the effects to the company, itscustomers, and the society from the series of inappropriate conducts at issue. In other words, while
inappropriate conducts such as shipment of Non-Conforming Products have been continued formany years, there was a gap in common sense between the society and Minoshima Works regarding
the effects of the quality issues, and as a result of this gap widening, it is thought that the loweringof risk sensitivity towards quality issues resulted.
Section 7

1

Recurrence Prevention Plans

Automation of the inspection system
As mentioned in Section 4.1(1)A above, the situation surrounding the rewriting of the test

data using the Lists was a system where it was possible to rewrite the test data easily; when
Specification Non-Conformances were detected by the onsite inspector, the numerical value was40

recorded in handwriting, and on the other hand, test reports to be submitted to customers were justprepared by recording numerical values within the specification range.
From the point of view of preventing the rewriting of test data in the system, it is necessary
to automate the inspection system and eliminate the opportunity to rewrite the test data. From thisperspective, as a first step, an inspection system that does not involve human manipulations, where
the test data is directly reflected in test reports, should be introduced. Further, since standards ofseal products are diverse and complicated, in the future, it should be considered to introduce asystem that does not involve human judgment, where each inspection standard and measured result
will be compared automatically, and the inspection results are automatically determined. Althoughthese measures, as a method of compliance issue resolution, have the characteristic of treating thesymptoms rather than the fundamental resolution, it should be implemented quickly as a means totake countermeasures early on, considering the occurrence of the Misconduct.

2

Review of quality improvement cycle and strengthening of the “elaboration” system inproduct development steps
As referenced in Section 6.2(1) above, it appears that the operation of the quality

improvement cycle was insufficient at Minoshima Works in the past, and as referenced in Section
6.2(2) above, the system encouraging the production and quality assurance departments to influence
production development and process of order intakes, such as DR, did not fully function as intended
at the time of the system design, and it appears that the “elaboration” regarding the products at thedevelopment steps might have been insufficient.
Therefore, it is necessary to review the quality improvement cycle and strengthen the“elaboration” system of the products in the development steps.
The DR system was introduced in 1995 at Minoshima Works, and there were system
reforms that had been done to enhance the system, but there was no effective feedback being madefrom the Quality Assurance Department and Production Department to the Engineering
Development Department, so overall DR in the related departments may have become what could
be called a “half-hearted” effort. Going forward, the company should strive for a system to preventthe occurrence of the Non-Conforming Products beforehand by accumulating the knowledge in the
newly established Quality Assurance Division and Production Department with regards to the
product development steps, such as DR, and receive effective feedback from the Quality Assurance
Division and Production Department and doing the “elaboration” in the development steps thatcover more broad perspectives, while reviewing the quality improvement cycle so that the Quality
Assurance Division and Production Department can properly run the collection and analysis of thequality information.

41

3

Sufficient resource allocation for the quality assurance departments

As mentioned in Section 6.2(3) above, it seems that the resource allocation for the Quality
Assurance Department being insufficient had become the norm, leading to the vulnerability of the
Quality Assurance Department as an organization, and as a result, there arose motivation to avoid
the business burden needed for the standard responses for the Non-Conforming Products and apreventing factor for conducting standard responses.
Therefore, it is necessary to remove any of the abovementioned preventing factors forstandard responses by allocating sufficient resources to the Quality Assurance Division andstrengthening the structure as a quality assurance department.
It is necessary to nurture the independence as a quality assurance department by reinforcing
the core personnel in the Quality Assurance Division and accumulating an organizational
knowledge by moving key-position employees, who are well-versed in seal products’ standards,
such as people who have worked in the Engineering Development Department, to the Quality
Assurance Division, or bring in people from the outside. Also, an appropriate number of inspectors
should be secured based on accurate understanding of the workload of currently ongoing necessary
inspections. Furthermore, an automation of inspection facilities as in 1 above will, in addition toeliminating human-induced rewriting of test data, improve the efficiency of the inspections, andfrom the viewpoint of reducing the burden on the inspection sites, its effective application methodshould be carried out in sequence.

4

Strengthen the independence of the quality assurance departments

As in Section 6.2(4) above, the Inspection Section stands in a position to receive the strain
from a chain of pressure from the Engineering Development Department and Production
Department, without being able to diverge its pressure to other departments, and that in itself seems
to have led to the response of loosening the inspection standards by setting the permissible values inthe Lists.
In order to avoid the strain due to a chain of pressure on the Inspection Section, there is aneed to strengthen the quality assurance departments’ independence by separating the quality
assurance departments from Minoshima Works organizationally and taking such measures as
making it an organization under the direct control of the President. To this end, as described infootnote 1 above, on February 1, 2018, the Quality Assurance Division was newly established as anorganization that directly reports to the President. At the same time, the Seal Products Quality
Assurance Department was established under the Quality Assurance Division, to which thefunctions of the former Quality Assurance Department of Minoshima Works were transferred.
In order for the quality assurance departments’ independence not to be just in appearance
but to let it truly demonstrate its function, the quality assurance departments should take a central
42role by correcting the recognition that the quality assurance departments are not departments thatshould play an active role in quality improvement and not only just “not ship Non-Conforming
Products” but aim for a quality control system with the goal of “not manufacturing or designing
Non-Conforming Products.” On top of that, it should be considered for the quality assurance
departments that became independent from the works to be a central department for quality control
within MCI, performing in-depth quality audits on each works and being responsible for checking
quality frauds as well.

5

Fostering the mindset of quality control, not just for the quality assurance
departments, but also the development and production departments, and improvementof compliance awarenessAs mentioned in Section 6.2(5) above, it is thought that there was an arrogance of assumingthat the quality can be controlled at Minoshima Works, such as “The impact of the Specification
Non-Conformances on the seal products’ functionality and safety can be judged on our own,” andalso, as a background that brought about such arrogance, it is thought that there was a dullness ofthe compliance awareness while the Misconduct lasted for a long time, and the insufficiency of thecompliance education, which includes quality compliance. Further, such mindset was somethingthat could be commonly seen throughout the Engineering Development Department, Production
Department, and Quality Assurance Department.
Therefore, it is necessary to foster the spirit of quality control by reaffirming the basic
principles of compliance with customer specifications with not only the Quality Assurance
Division, but also targeting the employees of the Engineering Development Department andProduction Department to improve the educational system on quality control companywide, while
deepening their understanding on how the products they produce are being used and the kind of
impact it will have when quality problems arise regarding the products.
In addition, by reinforcing the company-wide compliance education, further improvement incompliance awareness, which also includes quality compliance, should be planned.

6

Awareness makeover in the quality issues
As referenced in Section 6.2(6) above, looking at the responses and so forth after the

Misconduct surfaced, it must be stated that the risk sensitivity to the quality issues was low in theparticipating officials, including the management team and executives, that recognized andresponded to the Misconduct.
Hence, going forward, it is essential to promote awareness reform in the quality issues at
MCI. As a result of inappropriate behaviors, such as shipment of Non-Conforming Products, being
continued for such a long time at Minoshima Works, it is necessary to change the “common sense”
43that became ingrained in the concerned individuals. In order to do that, various problems raised by
the Misconduct and its process of responses that the relevant individuals experienced should beshared and remembered as the organization’s history by the management team, and upon elevating
their own risk sensitivity related to the quality issues, it is necessary to move forward andcontinuously send messages to the employees from top-down. Also, the efforts to prevent theoccurrence of the company’s common sense derailing from that of the society should be promoted,
such as by actively bringing in external perspectives from quality consultants and so forth.
Through these measures, it is necessary to plan continuous reform of awareness relating to
the quality issues at the companywide level.

END

44

Attachment 2

Preventive Measures for the Non-Conforming Product Shipment Issue at Minoshima Works

February 20, 2018

Mitsubishi Cable Industries, Ltd.

1. Introduction
We express sincere apology for the difficulties that we have caused to all concerned parties,
including our customers and business contacts, in connection with certain misconduct.
A quality audit performed by Mitsubishi Materials Corporation (the “Parent Company”) led
Mitsubishi Cable Industries, Ltd. (“MCI”) to become aware in its internal investigation of the factthat the inspection departments at Minoshima Works (the “Works”) were engaged in inappropriate
conducts such as rewriting of measurements for dimensions and material properties of seal products
and the omission of testing of certain inspection items. MCI has worked, through an internal projectteam, to confirm the underlying facts, identify non-conforming products and consider ways to ensure
safety.
Given the limitation on the internal investigation to determine the causes and backgroundcircumstances of the present matter, on November 13, 2017, MCI established an investigationcommittee, including an external lawyer, with the goal of investigating the underlying facts.
Additionally, in the process of the subsequent internal investigation, MCI discovered that certain
misconducts, including rewriting of data, also existed with respect to rectangular magnet wire (atMCI, the product name is “MEXCEL”).
This report summarizes (i) our preventive measures for recurrence to be undertaken based on theinvestigation report (“Investigation Report”) prepared by external lawyers and submitted to theinvestigation committee and (ii) the outcome of the internal investigation.

22. Occurrence Factors of Issues

Based on the contents of the Investigation Report and the outcome of our internal investigation, weclassified the occurrence factors of the issues pertaining to the Works and our headquarters(“Headquarters”) respectively and compiled as follows.

(1) Occurrence Factors at the Works
A) Insufficient consideration of the product development, production and inspection processes
when receiving orders
B) Insufficient allocation of the human and material resources for the quality assurance
departments, resulting in its organizational vulnerabilityC) Insufficient system for conducting appropriate inspectionsD) Insufficient system to ensure appropriateness of the inspection operations
E)

Lack of compliance awareness with respect to specifications and standards agreed withcustomers

F)

Insufficient structure for raising issues with regard to material information in the Works andresolving such issues(2) Occurrence Factors at the Headquarters
A) Insufficient framework for quality control at the Headquarters
B) Insufficient communication between the Headquarters and the Works
C) Insufficient quality audit from an independent position

3. Preventive Measures for Recurrence

Measures at the Works(1) Strengthening of front-loading (corresponding to 2. Occurrence Factors of Issues (1) A))
A) Establishment of a framework for discussions on an organizational basis from the design anddevelopment stage

Make the involvement of production departments, quality assurance departments andproduction administration departments from the design development stage mandatory, andalso make the sales departments be involved as necessaryHave the quality assurance departments conduct the final inspections for the transition to themass production process and have the General Manager of the Works make the approval

Review the rules and regulations (e.g. rules and regulations, statements, standards, manuals,
and forms) related to the design and development in accordance with the above3B) Establishment of a framework to understand and share the process capability
Establish a framework that enables understanding, analyzing and sharing of the processcapability (e.g., understanding the levels of quality by utilizing a production control system
and inspection data) in a timely and appropriate manner at the stages of order intake, designand development, transition to mass production and thereafter, and as a result appropriately
address a lack of process capability(2) Automation of the inspection system (corresponding to 2. Occurrence Factors of Issues (1) B)
and C))A) Introduction of the automatic inspection systemWith respect to product inspection data, establish a system which prevents data rewriting andother misconducts and accurately and promptly confirms the conformance of the inspection
data to the specifications required by customers. In connection with the promotion of theautomation, introduce necessary inspection equipment and provide necessary system support(3) Strengthening the quality assurance departments at the Works (corresponding to 2. Occurrence
Factors of Issues (1) B) and D))Strengthen the structures of the Quality Assurance Section and the Inspection Section in thequality assurance departments at the Works

A) Strengthening of the structure of the Quality Assurance Section


Review and revise the quality control-related regulations of the Works to match thecompany-wide quality control-related regulations, and clarify the roles, responsibilities,
authorities and rules of the Quality Assurance SectionIncrease the number of staff of the Quality Assurance SectionB) Strengthening of the structure of the Inspection SectionIncrease the number of staff of the Inspection Section (specific number of staff to be
increased will be determined in light of the introduction of inspection equipment)

Additionally introduce necessary equipment (e.g. automatic dimension measurement
instruments) to increase inspection efficiency

Conduct periodic rotation of the Inspection Section members

C) Review of regulations related to product inspections


Review the product inspection-related regulations in order to ensure appropriate inspections.
In addition to the revisions to the regulations, develop an inspection process based on

4appropriate inspection items and inspection methods, and consistently hold briefing sessions
for all inspectors to ensure thorough implementation of the inspection process(4) Enhancement of the technology and quality improvement activities (corresponding to 2.
Occurrence Factors of Issues (1) A))

In addition to the enhancement of front-loading, enhance the activities to fundamentally
improve technology and quality issues, personnel development and other initiatives

Measures at the Headquarters(5) Restructuring of the quality assurance framework (corresponding to 2. Occurrence Factors of
Issues (2) A))
A) Ensuring of independence of the quality assurance departments


Establish the Quality Assurance Department in the Headquarters, which is to promote andoversee quality control on a company-wide basis

Establish a quality control framework that ensures independence from the Works andAmagasaki Works (collectively, the “Two Works”) by having their quality assurance
departments directly report to the Quality Assurance Department of the Headquarters.



Clarify the roles of the quality assurance departments of the Headquarters and the Two Works,
and assign personnel who can enable the Headquarters to effectively fulfill its role toward theTwo Works in the quality assurance departments of the Headquarters and the Two Works

Enhance the rotation and communication of the quality control-related personnel between the
Parent Company and MCI(6) Enhancement of governance of the manufacturing site (corresponding to 2. Occurrence Factorsof Issues (1) A) and F), and (2) A) and B))
A) Strengthening of the company-wide quality control framework


Review the company-wide quality control-related regulations (clarification of roles,
responsibilities, authorities and rules)



Redesign the company-wide quality management system to establish a framework that caneffectively and efficiently exert a control function against the Two Works (A cycle of policy
management, operation, audit, management review and improvement will be redesigned into
a company-wide PDCA cycle, rather than a cycle closed within each of the Two Works)

Conduct monitoring of the status of compliance with the quality control regulations at the
Two Works as well as their inspection data by the quality assurance departments of the
Headquarters

5B) Formulate rules regarding the reporting of risk information related to quality at the TwoWorks

Restructure and integrate committees and other similar organizations related to quality, andclarify the routes, contents and responsibilities of reporting within each of the Two Works
and to the quality assurance departments of the Headquarters and the Parent Company

C) Confirmation of appropriateness of the quality control rules at the Two Works

Have the quality assurance departments of the Headquarters confirm that the rules (e.g. rules
and regulations, statements, standards, manuals and forms) of each of the Two Works matchthe company-wide quality control rules, and issue directives to correct any inconsistency asnecessaryD) Review of risk managementHave the quality assurance departments of the Headquarters review the risk management
process, including risk identification and assessment, formulation and implementation ofcountermeasures, progress confirmation and formulation and implementation of corrective
measures, establish a specific operation method, and familiarize all employees with suchprocessProvide education aimed at improving and maintaining risk sensitivity under the initiative of
the Headquarters(7) Awareness reform for quality compliance (corresponding to 2. Occurrence Factors of Issues (1)D) and E), and (2) B))
A) Changes in corporate culture

In order to change the mindset of prioritizing delivery deadlines, productivity and profits,
promote awareness reform based on the code of conduct of the Mitsubishi Material Group
that manifests a quality-oriented mindsetIn order to promote employees’ awareness reform, provide education and training that lead
employees to understand the formulated code of conduct and the quality control rules andthink for themselves how they make use of them in the course of their daily activities

B) Enhancement of compliance training by job levelRevise the contents of the compliance training that has been provided to date so as to raiseawareness of each employee by adding this incident and its factors to the contents as a
specific example

6C) Confirmation of employees’ comprehension and penetration of complianceConsistently conduct employee compliance awareness surveys to monitor the comprehension
and penetration, and consider additional countermeasures for any organization that shows apossible lack of comprehension and penetration

D) Reflection of the participation in personnel evaluation


Introduce a framework to proactively recognize the participation in compliance training andcompliance awareness surveys, and consider measures to create a culture that places value on
compliance and to reflect the degree of participation in personnel evaluation



Introduce a framework in which when an individual raises a question or make a report to his
or her superior or via whistleblower hotline with respect to an issue that he or she has learnedin the course of business, the reporter will not suffer a disadvantage but rather be positively
recognized, and by doing so create a culture that encourages “speaking up”

E)Encourage active communication

Implement personnel rotation between the Headquarters and the Two Works and within the
Two Works so as to prevent entrenched personnel deployment within organizations andensure new staff are constantly assigned, and eventually aim for the realization of(i) discovery of new issues from a new perspective and (ii) elimination of the culture ofholding back in the organization.

Encourage active company-wide communication beyond the vertical and horizontal
relationships, including relationships of departments and job titles(8) Strengthening of internal audit (corresponding to 2. Occurrence Factors of Issues (2) C))A)Strengthening of quality audit

Conduct objective quality audit by the audit departments of the HeadquartersEnhance development of human resources in charge of quality audit

B) Strengthening of the audit system


Review the system, roles, audit items, and other similar matters of the audit departments ofthe Headquarters (Recheck whether the company-wide governance and check-and-balancesystem is working with respect to not only quality but also, among other things, safety andenvironment)

Increase the number of staff of the internal audit departments74. Other

We take it very seriously that we have caused difficulties to all concerned parties, including ourcustomers and business contacts, in connection with our recent misconduct, and have decided that
the President, General Manager of the Minoshima Works, and other Directors will voluntarily returnsome of their monthly remunerations by 30% for March 2018, 30% for March to May 2018, and
10% for March 2018, respectively.
Moreover, the former President will resign as director, and under the initiative of the President who
assumed the office on December 1, 2017, the Company is determined to work together to resolve thepresent matter at an early date and implement the recurrence preventive measures so as to restore
trust.

END

8

Attachment 3

February 20, 2018
Mitsubishi Cable Industries, Ltd.

Change of a Director

We hereby announce that we will effect a change of a director as of February 28, 2018, as below.
1.

Contents of the change
Resignation of a director
Title
Director

Name
Hiroaki Murata

Title after
resignationCounsellor

Direct any questions to:
Corporate Administration & Personnel Section
Administrative Division
Mitsubishi Cable Industries, Ltd.
TEL: 03Ǧ3216Ǧ1551
END