Matters Concerning the Internal Control System

Matters Concerning the Internal Control System

Basic Policy on Establishment of Internal Control System

1. Systems to ensure that the execution of duties of a Director or an employee of the Company or a subsidiary complies with laws, regulations and the articles of incorporation

• (a) The Board of Directors shall hold regular meetings and establish a sufficient system for Directors to mutually monitor compliance with laws and regulations and the articles of incorporation in the execution of duties.
• (b) The Company shall establish internal rules relating to compliance. Based on these rules, an officer in charge shall be appointed as the chief supervisor, a department with an administrative / secretariat function shall be established under the officer’s supervision to manage the company as a whole, and a compliance officer shall be assigned to each department or branch to perform fine management at each site.
• (c) The Company shall evaluate legal risks on a company-wide basis, determine responses, and carry out effective control activities for risks that should be controlled.
• (d) The Company shall have an internal reporting (whistleblowing) system as an information and communication function.
• (e) The Company shall establish plans and an emergency contact network in readiness for times of crisis.
• (f) With regard to internal control over financial reporting, the Company shall establish a sufficient system, creating a dedicated department to ensure conformity withthe Companies Act, the Financial Instruments and Exchange Act and the Rules of the Tokyo Stock Exchange.
• (g) The Company shall not engage in business relationships or any other relationships with antisocial forces that threaten the order and safety of civil society. If we receive unreasonable demands from antisocial forces, the entire organization will take a resolute stance and work to prevent damage caused by antisocial forces.
• (h) The Company’s Corporate Auditors and Internal Auditing Office shall audit the business activities of subsidiaries from the perspective of compliance with laws and regulations and the Company’s articles of incorporation, and provide necessary advice, recommendations, and guidance.

2. Systems for storing and managing information concerning the execution of duties by Directors and systems for reporting matters concerning the execution of duties by Directors, etc., of subsidiaries to the Company

• (a) The Company shall establish internal rules relating to storage and management of information. Based on these rules, an officer in charge shall be appointed as the chief supervisor, and a department with an administrative / secretariat function shall be established under the officer’s supervision to manage the company as a whole.
• (b) The Company shall define document names, storage periods, storage departments, and storage formats according to the nature of internal regulations, meeting minutes, approval documents, contracts, personnel documents, title deeds, administrative documents, etc., clarify who has responsibility for storage and management, and thoroughly manage such items accordingly.
• (c) The Company shall establish a dedicated department and build sufficient systems for information security measures.
• (d) The Company shall clarify inspection procedures for Directors and Corporate Auditors.
• (e) Subsidiaries shall be obligated to request approval or report certain important matters to the Company before a decision is made by the subsidiary’s Board of Directors.
• (f) The Company shall regularly hold liaison meetings with members such as the presidents of subsidiaries in the Group, and receive reports on management activities, etc.

3. Regulations and other systems related to management of the risk of loss of the Company and a subsidiary

• (a) The Company shall establish internal rules relating to risk management. Based on these rules, an officer in charge shall be appointed as the chief supervisor, and a department with an administrative / secretariat function shall be established under the officer’s supervision to manage the company as a whole.
• (b) The Company shall evaluate risks on a company-wide basis, determine responses, clarify a department with responsibility for each risk that should be controlled, and carry out effective control activities.
• (c) The Company shall establish plans and an emergency contact network in readiness for times of crisis.
• (d) With regard to risk management at subsidiaries, the Company shall receive reports from subsidiaries as appropriate, and the Company’s Corporate Auditors and Internal Auditing Office shall audit the status of risk management at subsidiaries and provide necessary advice, recommendations, and guidance.

4. Systems to ensure that the execution of duties of a Director of the Company and a subsidiary is performed efficiently

• (a) The Board of Directors shall hold meetings to formulate medium to long-term management plans and set business performance targets for each fiscal year. The Board shall also analyze targets as appropriate and revise them as necessary.
• (a) The Board of Directors shall hold meetings to formulate medium to long-term management plans and set business performance targets for each fiscal year. The Board shall also analyze targets as appropriate and revise them as necessary.
• (c) The Company shall establish effective rules for segregation of duties and approvals to enable efficient execution of decision-making by Directors, and operate the organization to execute business effectively.
• (d) The Company’s Internal Auditing Office shall audit the effectiveness of internal control at the Company and for the Group.
• (d) The Company’s Internal Auditing Office shall audit the effectiveness of internal control at the Company and for the Group.
• (f) The Company shall regularly review each subsidiary’s organizational design and business execution system, taking into account their business, scale and position in the Group and shall supervise them for them to build a system to execute operations efficiently.
• (g) With regard to decision-making at subsidiaries, the Company shall clarify the authority and responsibilities of executives at subsidiaries in accordance with the regulations of the Board of Directors, administrative authority regulations, and other various regulations in place at subsidiaries, and provide guidance as necessary to ensure organized and efficient execution of business.

5. Systems for ensuring that the Group conducts its business properly

• (a) The Company shall stipulate matters relating to subsidiaries in Paragraphs 1, 2, 3, and 4 above in the Company’s management regulations for subsidiary and affiliate companies. Based on this, the Company shall also establish an organization to ensure the appropriateness of operations across the entire Group, such as by establishing a department with administrative / secretariat functions within the Company.
• (b) The internal reporting (whistleblowing) system referred to in Item (d) of Paragraph 1 shall cover the entire corporate Group.

6. Systems pertaining to the auditing environment for Corporate Auditors

• (a) Matters concerning assistant employees
  There shall be no regular (full-time) employees assigned to assist Corporate Auditors in their duties, but personnel shall be assigned to assist Corporate Auditors in their duties as necessary. In appointing personnel, the Director in charge and the Corporate Auditors shall exchange opinions from the perspective of ensuring the independence of employees.
• (b) Matters concerning Directors and employees of the Company reporting to Corporate Auditors
  • (i) Directors shall report on the state of execution of their duties at important meetings such as Board of Directors meetings as and when necessary.
  • (ii) Directors and employees shall report promptly to Corporate Auditors regarding any event that has or is likely to have a significant impact on the Company and the corporate Group.
• (c) Systems for Directors, Corporate Auditors, and other officers and employees of subsidiaries to report to the Company’s Corporate Auditors
  Officers and employees of subsidiaries shall report on the state of execution of business at the request of the Company’s Corporate Auditors, and report immediately to the Company’s Corporate Auditors when they discover any matters that may cause significant damage to the Company or its subsidiaries.
• (d) System for protecting those who submit reports to Corporate Auditors from disadvantageous treatment as a result of the reports
  Those who have reported to the Corporate Auditors as provided for under this paragraph shall not be treated disadvantageously because of such reporting (whistleblowing).
• (e) Matters concerning expenses incurred by the Corporate Auditors in the performance of their duties
  When a Corporate Auditor requests that the Company make an advance payment or redemption of expenses for the execution of his or her duties, or other handling of expenses or debts arising in the execution of duties, such expenses or debts shall be handled promptly, except in the case where it is found that the expenses pertaining to the said request are not required for the execution of the duties of the said Corporate Auditor.
• (f) Other matters related to ensuring the effectiveness of audits
  • (i) Corporate Auditors shall have the authority to attend all meetings.
  • (ii) In order to ensure that the authority of Corporate Auditors to investigate and correct with regard to Directors and employees is exercised smoothly, Directors shall cooperate with Corporate Auditors so that communication, collection, and exchange of information between Corporate Auditors and Directors, etc., of the corporate Group can be carried out in a timely and appropriate manner.
  • (iii) The Board of Corporate Auditors shall cooperate with the compliance department(s), information storage and management department(s), risk management department(s), and the Internal Auditing Office, and　receive explanations and exchange information on the contents of accounting audits from Accounting Auditors.