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s-oil

Business Fundamentals

Corporate Governance

S-OIL has established a transparent and sound corporate governance structure through organizing the Board of Directors (BOD) and subcommittees with diversity and rich expertise and ensuring an appropriate level of checks and balances in their activities.

Balance between Diversity and Independence of the BOD

S-OIL nominates director candidates with diversity including nationality, race, gender, etc. and expertise to ensure that various stakeholders' interests are duly represented and mutual complement can be maintained in accordance with ready-made internal procedures. They are officially appointed as directors at the shareholders' meeting. Further, to ensure the independence of the BOD, a candidate is also screened for factors that may be material to that director's ability to be independent. Thus, whether he/she is working or has been working for the Company for the past five years, whether he/she is engaging or has been engaged in any audit or consulting service for the Company, and whether he/she has any material relationship or transaction with the Company are comprehensively taken into consideration. For outside directors, in particular, the Outside Director Candidates Recommendation Committee consisting of four outside directors directly recommends the most suitable candidates to the general shareholders' meeting, after evaluating the candidates in accordance with internal standards to confirm that they have no vested interest in the Company or any other reasons for disqualification.
The BOD, newly launched in 2017, consisted of directors with professionalism in the fields of engineering, economy, trade, accounting, audit, and administration. Having served in various fields, such as the government, international organizations, industry, and academia, they will greatly contribute to enhancing the expertise and independence of the BOD.
Independency Policy of Outside Director

To help the BOD conduct independent and objective decision-making for the protection of the rights of shareholders and investors, S-OIL appoints outside directors who satisfy the following independency policy. Existing outside directors also lose their posts when they cannot meet the independency policy.

  1. Directors, executive directors and employees who are engaged in the regular business of the relevant company, or directors, auditors, executive directors and employees who have engaged in the regular business of the relevant company within the last two years;
  2. The principal, his/her spouse, lineal ascendants, and lineal descendants, in cases where the largest shareholder is a natural person;
  3. Directors, auditors, executive directors and employees of a corporation, in cases where the largest shareholder is the corporation;
  4. The spouses, lineal ascendants, and lineal descendants of directors, auditors and executive directors;
  5. The directors, auditors, executive directors and employees of a parent company or a subsidiary company of the relevant company;
  6. Directors, auditors, executive directors and employees of a corporation which has a significant interest in the relevant company, such as business relations with the company; and
  7. Directors, auditors, executive directors and employees of another company for which directors, executive directors and employees of the relevant company serve as directors and executive directors.

Balance between Checks and Cooperation

S-OIL seeks to establish sound and transparent corporate governance led by the BOD and subcommittees pursuing checks and cooperation. The BOD members are individually appointed to serve a one-year term at the shareholders' meeting and independent outside directors hold over the majority. The roles of the BOD chairman and the CEO have been separated and all members except for the CEO who is an inside director are non-standing directors. This allows the BOD to objectively and independently oversee and check the management activities and performances of the CEO and the Company. Thus, decisions are always made in a way that maximizes the value of stakeholders including shareholders.

Enhancement of Expertise of the BOD

To enhance the expertise of the BOD, S-OIL submits a monthly report to directors on economic, social, and environmental issues that may affect the Company's sustainability. Moreover, in order to support the directors' reasonable decision-making, a pre-meeting to handle business status, risks, and major agenda is held before the BOD convenes. The BOD regularly visits the Onsan Refinery to stay abreast of the Company's operational status. We plan to invite the BOD members to the sites in which we are making a massive investment. In addition, S-OIL has three subcommittees in support of the BOD's independence and efficient decision-making: the Audit Committee, the Compensation Committee, and the Outside Director Candidates Recommendation Committee. Also, the Management Committee contributes to enhancing the Company's sustainable growth by pre-analyzing critical issues on social, economic, and environmental fronts to ensure the BOD's reasonable decision-making on annual and long term management plans, budget, and labor policy.

Compliance Management

Led by the CEO with a firm sense of compliance, S-OIL takes compliance management as its top priority in becoming a global major energy and chemical company. The Company operates a system to ensure that all employees comply with regulations in their everyday work.

Compliance Management as Corporate Culture

Employees at S-OIL examine whether a task meets compliance standards before undertaking the job and look into legal issues which may be involved. The Company provides employees with the latest updates on law amendment and revision in real time while offering education on and monitoring key laws. Compliance activities are reported to the management on a regular basis. Furthermore, S-OIL builds its unique compliance culture through the proactive participation of the management and employees. The Company also enhances employees' awareness of compliance by compliance newsletters, reports of compliance by global corporations, and compliance campaigns. S-OIL reinforces compliance management through in-depth analysis of laws and regulations, guidelines, and, customized education. It is through these programs that S-OIL's compliance activities have been recognized as excellent by the media.
Activities to Comply with the Improper Solicitation and Graft Act
S-OIL conducted comprehensive compliance activities, such as educating its officers and employees on what they must observe while performing their duties, in an effort to fully comply with the Improper Solicitation and Graft Act (the "Anti-Graft Act") that took effect in Sep. 2016.
Appropriate Response to Legal Disputes
S-OIL abides by global regulations and is thus trusted by stakeholders as it takes preventive measures against potential legal disputes and makes appropriate responses if an actual conflict arises. In 2016, S-OIL won the case against Korea National Oil Corporation over the tax reimbursement on oil imports and protected the interests of the Company's shareholders and customers. The victory confirmed that S-OIL complied with laws and regulations in performing business. Korea National Oil Corporation had clawed back KRW 32.8 billion in oil import tax return from S-OIL after judging that the waste gas generated in the oil refinery was not eligible for tax exemption. In response, S-OIL filed a lawsuit claiming that the judgement was a misinterpretation of the current law, resulting in the court ruling in favor of the Company.

Compliance Monitoring System

S-OIL introduced the compliance monitoring system in 2011 to minimize the chances of work confusion and risks due to negligence. The Company conducts compliance monitoring against 120 checklists on 37 regulations on a quarterly basis. The results are reflected in the performance assessment of team leaders and the heads of divisions to encourage employees' voluntary compliance with in-house regulations.
Settlement with DOJ on fuel supply to USFK

In Mar. 2019, the Company accepted that unfair act existed in domestic refiners' bidding for fuel supply to the United States Forces in South Korea (USFK) in 2008 and 2012 and agreed with U.S Department of Justice (DOJ) to pay $43.5 million. In an official statement, the Company expressed regrets about it and pledged to put in best efforts to prevent recurrence. The payment will have minimal financial impact on the Company since it will be paid out of the Company's reserves.

In fact, The Company has been taking various efforts to strengthen compliance as part of the plan to establish sustainable management system since 2012, before investigations by DOJ started. In 2014, the Company launched compliance management activities by enacting regulations on legal compliance, appointing compliance officer and setting up Legal Compliance Team. In accordance with regulations on legal compliance, the Company checks its related activities through unannounced, regular and special compliance check-up system. Anything pertaining to compliance with Fair Trade Act is conducted with clear guideline ("DOs and DON'Ts") that all officers and employees need to follow at all conditions including small meetings with competitors. In Jan. 2015, the Company introduced self-assessment system of ethics management as part of the effort to ensure that ethics management becomes an integral part of our officers/employees' daily lives. By reflecting compliance management and ethics management in performance evaluation of officers and employees, the Company ensures that any violation of laws and internal regulations including Ethics Code is prevented.

Recently the Company strengthened penalty against violation of Ethics Code and fully revised handbook on voluntary compliance of fair trade to ensure compliance with fair trade. We also upgraded e-approval system so as to check compliance in drafting proposals and ensure close examination via compliance system when necessary. Reinforcement of control process on penalty and full upgrade of Compliance IT System, that covers such functions as sharing of laws/regulations, voluntary examination of compliance activities and compliance training, were also implemented.

We shared this issue across the Company to build a consensus around the fact that any duty not in keeping with compliance could leave a serious damage to the Company.
In addition, the Company provided five special fair trade training sessions to all marketers and held workshop on fair trade and compliance to Team Leaders and higher-ranked supervisors in marketing.

Upon completion of the investigation, the Company will review if the upgraded compliance management system is strict enough to prevent recurrence and will take necessary measures if more needs to be done. Also, the Company will discipline personnel involved this issue according to the Company’s internal regulations. The Company is closely examining if there has been non-compliance issues other than this and keeping track of monitoring media news.

Ethics Management

At S-OIL, ethics management consists of three organically connected pillars: Code of Business Ethics & Conduct; Ethics Committee; and Education on Ethics Management.

Methodical Ethics Management System

Code of Business Ethics and Conduct
The Code of Business Ethics and Conduct consists of two parts; Code of Business Ethics stipulates attitudes toward customers, business partners, shareholders, and investors as well as responsibilities to employees, society and the community; and Code of Conduct defines basic ethics for employees, prohibition of conflict of interests, prohibition of bribery/entertainment/convenience, and reporting process of violations. Our business partners, subsidiaries and joint ventures are required to abide by the Code of Business Ethics and Conduct. Business partners, in particular, must sign and submit the "Pledge of Code of Ethics" to register as a vender company. If our suppliers are found to be involved in legal violations or unethical acts, they may either be excluded from partners' list or face disadvantage. S-OIL updates the Code of Business Ethics and Conduct on a regular basis by reflecting the changing social standards on ethics and reviewing ethics regulations of leading global companies.
Ethics Committee
S-OIL operates the Ethics Committee consisting of four officers: three officers for Legal & Compliance, HR, and Corporate Planning Divisions, respectively, and the Controller. They are appointed by the CEO after eligibility assessment by the Audit Committee. The Committee assists the Company in making the best ethical decisions regarding ethics-related matters, such as the conflict of interests. If stakeholders of employees with the highest chances of conflict of interests make a transaction with S-OIL, the Ethics Committee must review the trade to prevent violation of ethics regulations. In 2016, the Ethics Committee convened 27 times and deliberated on 76 cases, out of which only one was found to be a violation of the Code of Business Ethics and Conduct. The case was a "financial transaction between an employee and a customer," so the Company took disciplinary action against the employee according to internal regulations, shared the details with all officers and employees, and gave education to officers and employees in sales offices to prevent the recurrence of similar cases. The Committee reports activities to the CEO and the Audit Committee on a regular basis, while disclosing its activities to all employees through the S-OIL Ethics Management website.
Education on Ethics Management
S-OIL offers education on ethics management tailored for different positions and job functions to raise employees' ethical awareness in daily business activities while inviting outside experts for special lecture. In 2016, seven courses on ethics management were offered. For the company-wide ethics management, in particular, S-OIL held education on the Improper Solicitation and Graft Act given by an outside expert. Also in March 2016, case based marketers' education was open for sales offices with high chances of ethics violation due to frequent encounters with business partners. The Company has been hosting ethics management seminars for employees of business partners since 2013 to help understand the basic principles of ethics regulations, raising the quality of ethics management across the supply chain. Moreover, the self-assessment system of ethics management was introduced in 2015 to raise employees' awareness of ethics. The system will be updated on a regular basis according to revision and amendment regarding relevant regulations.

Human Rights Protection

As a member of the UN Global Compact, S-OIL is committed to protecting employees, suppliers, local residents, and stakeholders in accordance with its independent set of policies established after the principles of the UN Global Compact on human rights and labor. The Company shares human rights policy with business partners and stakeholders according to internal process while identifying potential danger groups and issues by conducting assessment on a regular basis. Risk factors identified in the assessment are addressed, followed by monitoring to prevent the recurrence of similar cases. The assessment result of suppliers, in particular, is reflected when evaluating supplier qualifications. In 2016, a health risk of employees and suppliers while working in high heat during the summer months was found through internal human right inspection process. The Company newly introduced "Thermal Injury Prevention Measures" and also conducted campaigns in cooperation with the Korea Occupational Safety and Health Agency. No other human rights infringement was found.
At S-OIL, it is banned to donate political funds or mobilize the Company's organizations, employees, or properties for political purposes according to the code of ethics. S-OIL has neither donated to nor purchased from a non-profit foundation for political purposes. S-OIL will execute its budget exclusively for social purposes, ensuring that additional budget is not spent in exerting political power.
Human Rights Policies
S-OIL shall respect basic human rights as prescribed in the Universal Declaration of Human Rights, the U.N. Guiding Principles on Business and Human Rights, the U.N. Convention on the Rights of the Child, the ILO Declaration on Fundamental Principles and Rights at Work, and other international human rights policies as below:
  1. (Employees) S-OIL shall observe regulations on working hours and wage prescribed in labor laws, guarantee the freedom of assembly, and ban unfair discrimination, child labor, and forced labor.
  2. (Suppliers) S-OIL shall make the best efforts to work with suppliers which observe labor and human rights laws and standards of international organizations or groups, protect human rights by assessing their implementation of human rights policy in accordance with the pledge of code of ethics for bidders, and encourage business partners to adopt the same human rights policy as the Company.
  3. (Affiliated companies and investors) S-OIL shall invest in businesses which observe labor and human rights laws and standards of international organizations or groups and encourage its affiliated companies and investors to adopt the same human rights policy as the Company.
  4. (Local community) S-OIL shall contribute to economic, environmental, and social development of the local community where its operations are based, respect residents and culture of the local community, and analyze and minimize factors which many have a negative impact on human rights.
  5. (Human rights protection activities) S-OIL shall systemically monitor potential human rights risk groups and issues, promptly take measures upon identifying risk factors, and strive to prevent the recurrence of similar cases.

Risk Management

S-OIL operates a highly-advanced risk management system to overcome potential risks, generate economic, social, and environmental values, and growth together with investors and stakeholders. What is more, the Company conducts a thorough internal audit to address improper practices and inefficient cost structure, thus laying the foundation for sustainable growth.

Systematic Company-wide Risk Management Activities

Given that the causes and nature of risks affecting business management are evolving, a customized response process should be established by understanding different risk factors. Operating the Enterprise Risk Management (ERM), an integrated company-wide risk management system, S-OIL responds to all kinds of risks that may arise from management activities. Also, having developed risk-specific response programs, S-OIL ensures sustainable management under any risk situation. Employees at S-OIL conduct optimized risk response activities through risk management systems including ERM System, Emergency Control Program (ECP), Early Warning System (EWS), and Internal Accounting Management System (IAMS).
Risk Management Governance
S-OIL runs integrated risk management governance where all employees from frontline departments to the Board of Directors perform their duties in a systematic manner. The ERM Committee, spearheaded by top management including the CEO, ensures that risk management activities are up to the Company's strategic management principles. The ERM Committee receives reports on the company-wide risk management status on a regular basis while supervising the risk management process so that the Company can be timely alerted to an emergency and take prompt countermeasures. Important matters involving risk management are reported to the Board of Directors when necessary and then reflected in the Company's strategic risk management policies.
Company-wide Response System to Key Risks
S-OIL operates the ERM to monitor changes in the management environment, thus ensuring that risks do not translate into real dangers which stand in the way of achieving management goals. The ERM makes it possible for the Company to check key risks through identification, assessment, selection of indicators, response, and monitoring processes, and to take countermeasures, enabling systematic control of emerging risks as well.
Optimized Risk Response System of the ECP
In case a major crisis breaks out, S-OIL runs the ECP aimed at taking a company-wide response to minimize loss of people and property. Furthermore, by conducting the company-wide Emergency Drill on a regular basis, S-OIL examines and improves risk response capability. S-OIL updates the organizational and operational regulations on the ECP to ensure efficient collaboration between an on-site response organization and a company-wide supporting organization.
Prompt Risks Response through the EWS
S-OIL's EWS ensures prompt response to a variety of risks related to work by monitoring risk-generating factors. Departments share abnormal data regarding their work via the EWS, taking early actions to prevent the aggravation of risks.
IAMS for Effective Internal Control
S-OIL operates the IAMS and conducts the evaluation of internal control on a yearly basis to let employees independently evaluate work process for the purpose of securing the reliability of financial information and the appropriateness of work execution and complying with laws and regulations. S-OIL upgraded the internal control system to evaluate internal control in a more effective manner in 2016. S-OIL reviewed the control items by key process and removed the ones whose effectiveness of evaluation decreased while developing new evaluation items, thus raising the efficiency of internal control.

Operation of an Efficient Internal Audit System

S-OIL has an independent audit organization under the control of the Audit Committee to guarantee the independence and expertise of internal audit. The Company enhances transparency and corporate value by conducting a comprehensive internal audit of accounting and business in general. Auditors with rich experience and in-depth understanding of business operations concentrate their auditing capabilities on sustaining a sound internal control system and addressing inefficiency in work process and cost structure. In 2016, the Committee issued an improvement recommendation on the management of supplies and nonconforming products at the Onsan Refinery. Also, by recommending the timely recovery of spare parts after construction and the optimization of replacement of gasoline quality standard, the Company will save more than KRW 700 million in cost per year. Auditors carry out an intensive audit and regular monitoring of the ongoing RUC/ODC Project, contributing to the success of the project. In 2016, the Committee launched an intensive audit into procurement for the project, improving contract cost management and contract change process. By conducting regular monitoring activities across the project, the Committee prevents risks involving safety, investment cost, project schedule, and compliance. The Company helps auditors improve competency by supporting education and certificate examination while introducing professional software Audit Command Language (ACL) for in-depth data analysis. S-OIL strives to raise corporate value through the objective and independent operation of the Audit Committee and audit organization, the establishment of an effective audit system equivalent to that of leading global corporations, and the execution of audit centered around process improvement.
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