Internal Control System

Basic Policies for Constructing an Internal Control System is as follows.

1.System to ensure that the execution of the duties of directors and employees conforms with laws, regulations, and the articles of incorporation

  1. (1)The Company and its consolidated subsidiaries (the "Group Companies"), will comply with laws and regulations in accordance with social ethics and have specified actions based on compliance with laws, regulations, and social ethics as a prerequisite for corporate activities to construct transparent and fair relationships with shareholders, customers, employees, local communities, and trade partners at all places in which business activities are conducted. We have also established Core Values (fairness, transparency, integrity, safety and compatibility) that officers and employees should emphasize, and the Code of Conduct with which officers and employees should comply, transcending differences in their language, custom and cultural background, to fully enforce actions based on compliance with laws, regulations and social ethics in our daily business activities. In addition, the Company and the Group Companies will stand up to antisocial forces that potentially pose a threat to social order and safety with a resolute attitude, and work to fight off the unjustified claims of antisocial forces in a determined manner.
  2. (2)The Company sets up the Environmental & Social Committee, which is chaired by the Director, and the Group Environmental & Social Committee, which is also chaired by the same Director and whose members are the representatives of the Group Companies. In these Committees, the members set out policies and important measures for compliance activities, and convey them to all employees through the divisions, and the department committees of the Group Companies. The Company will also work continuously to raise the compliance level by regularly reporting the status of activities and their results to the Board of Directors. If the Chairman of these Committees determines that there is a serious problem or a doubt related to compliance, the Chairman will immediately report it to the President, and then formulate and implement remedial actions and preventive measures. The President or the Chairman of these Committees will report these events to the Board of Director and the Audit & Supervisory Board whenever appropriate.
  3. (3)The Company establishes the Internal Auditing Department, which is placed under the direct control of the President, to conduct internal audits on matters such as those related to compliance activities.
  4. (4)The Company establishes the Public Interest Whistle-Brower Protection Regulations as a mechanism for the employees of the Company and the Group Companies to directly provide information about legally doubtful conducts, etc. In conjunction with these regulations, the Company also establishes the Compliance Counselling Office. The Company also works to ensure the fairness and transparency of the management of the Company and the Group Companies by regularly reporting the status of the operation of the contact for Public Interest Whistle-Blowing to the Board of Directors.
  5. (5)The Company establishes and operates the "Internal Control Reporting System" in accordance with the Financial Instruments and Exchange Act to ensure the accuracy of the financial reporting of the Company and the Group Companies. Monitoring, advices on improvement, and support for improvement for the operation of the System are implemented, with the Internal Auditing Department as the responsible department.
    In addition, the Accounting Department in the Corporate Planning Division shares responsibility for monitoring, recommendations for improvement, and support for improvement related to the "operations process control inside the Company" and the "account settlement and financial reporting process control of consolidated subsidiaries from a company-wide perspective."
  6. (6)In response to the "Corporate Governance Code" set forth in the Securities Listing Regulations of the Tokyo Stock Exchange, the Company establishes policies for corporate governance and strengthens its corporate governance, with the aim of realizing transparent, fair, prompt, and decisive decision-making and more effective management supervision of the Company and the Group Companies.

2.System to store and manage information about the execution of the duties of directors

Information about the execution of the duties of directors is recorded and stored in documents or electromagnetic media in accordance with the Document Regulations and the Confidential Information Management Regulations established by the Board of Directors. The directors and the members of the Audit & Supervisory Board may inspect these documents, etc. when necessary.

3.Regulations and other systems for managing the risk of loss

  1. (1)Risks pertaining to the Company and the Group Companies are monitored and risk management is promoted, with the General Manager of the Corporate Planning Division acting as the officer in charge. The General Manager of the Corporate Planning Division regularly analyzes and assesses the risks of the Company and the Group Companies, and makes efforts to prevent the occurrence of risks through continuous monitoring. If a risk that may have a material impact on management arises, the General Manager of the Corporate Planning Division will appoint a responsible official, draw up a system to address the risk, and immediately issue a command after gaining the approval of the President. The responsible official will immediately implement countermeasures and report the impact of the risk, the status of correcting the risk, and the measures for preventing the risk to the President and the General Manager of the Corporate Planning Division.
  2. (2)In regards to serious risks, the Chairman of the Environmental & Social Committee will be the responsible official for risks related to compliance, and the Chairman of the Headquarters Health and Safety Committee will be the responsible official for risks related to health, safety, and disasters. Risks that are directly related to daily business activities are addressed by the general managers of the divisions, who acts as the responsible official. Other day-to-day risks related to quality, the environment, information security, and export regulations, etc. are addressed by their respective departments.
  3. (3)The General Manager of the Corporate Planning Division, the Chairmen of the Committees, and the general managers of the divisions regularly report the status of activities to promote risk management and compliance to the Board of Directors, and report the occurrence and result of material risks to the Board of Directors and the Audit & Supervisory Board whenever appropriate.
  4. (4)The status of the implementation of risk management and improvements is monitored, with the Internal Auditing Department acting as the responsible department.

4.System to ensure the efficient execution of duties by the directors

The Company will improve the efficiency of the execution of duties of the directors based on the following management control system and mechanism.

  1. (1)The Board of Directors specifies the operations delegated to the directors, the executive officers, and the responsible officials of organizations (managerial personnel with the rank higher than general manager of a division or an office).
  2. (2)The Board of Directors formulates a long-term vision, a medium-term management plan, and a business plan for a single fiscal year, and sets out the targets, policies, and focused measures for each organization. The Board of Directors also implements monthly and quarterly business controls in relation to the consolidated and non-consolidated targets of the Company and the business departments.
  3. (3)The final decision application system is set up, in line with the Executive Committee and the Final Decision and Examination Regulations, as a decision-making system to complement the resolutions made at the Board of Directors meetings.
  4. (4)The Executive Committee makes decisions and conducts a review of matters resolved at the Board of Directors meetings to facilitate the decision making progress at the Board of Directors meeting when necessary. The Executive Committee consists of the President, directors with a rank of managing director or above, the General Manager of the Corporate Planning Division, and the directors and executive officers appointed by the President. The committee meets twice a month in principle, and on a temporary basis when necessary. In the Executive Committee, the members deliberate matters related to the management of the Company and the Group Companies, conduct a monthly and quarterly check of whether targets have been achieved and the status of implementation of policies and measures, and give the directors and the executive officers in charge instructions to correct deviations. The members of the Audit & Supervisory Board may attend the Executive Committee.
  5. (5)The decision to establish, revise, or abolish the Final Decision and Examination Regulations is made by the Board of Directors. For the directors and the executive directors to conduct their duties more efficiently, internal regulations conforming to the Final Decision and Examination Regulations are established and implemented.

5.System to ensure the accuracy of operations in a corporate group consisting of the Company and its subsidiaries

The Company and Group Companies perform operations appropriately by the following systems and the frameworks that are in place.

  1. (1)The Company and Group Companies set a medium-term management plan and a business plan for a single fiscal year based on a unified outline for formulating plans.
  2. (2)The overall management of Group Companies is controlled by the Corporate Planning Division. In addition, an officer and a department of the Company in charge of each Group Company are appointed to regularly determine the status of the business performance achieved and the status of risk management based on the medium-term management plan and the business plan for a single fiscal year, and to provide the Group Companies with guidance.
  3. (3)A Board of Directors is set up in each Group Company, and the Company or Group Companies dispatch a (non-standing) director and (non-standing) member of the Audit & Supervisory Board to monitor the management of the Board of Directors, business performance, settlement of accounts, and risks. If a decision needs to be made as the Group Companies, the Executive Committee of the Company deliberates the matter and makes the decision in accordance with "7. Matters related to subsidiaries and associates in Japan and overseas," an appendix of the Final Decision and Examination Regulations of the Company, or the Board of Directors or the Executive Committee of the Company makes the decision.
  4. (4)In regards to the Group Companies' efforts related to compliance, the Group Environmental & Social Committee stated in Article 1, Paragraph 2 of the Basic Polices for Constructing an Internal Control System sets out policies and implements specific measures. In addition, the system for ensuring the accuracy of the financial reporting by the Group is considered and established as part of the approaches stated in Article 1, Paragraph 5.
  5. (5)The Group Companies report the status of their management, sales activities, manufacturing, and risk management, etc. to the Company regularly, such as on a monthly or quarterly basis.

6.Matters related to an employee if a member of the Audit & Supervisory Board requests the assignment of the employee to assist him/her, matters related to the independence of the employee from the directors, and matters related to ensuring the effectiveness of instructions issued to the employee

  1. (1)The Audit & Supervisory Board of the Company may appoint a full-time assistant. If a full-time assistant is not appointed, a member of the Audit & Supervisory Board may instruct a certain employee who belongs to the Internal Auditing Department to assist his/her auditing work as necessary.
  2. (2)The employee who assists the auditing work of the member of the Audit & Supervisory Board in accordance with the instruction described in the preceding paragraph provides assistance independent of the directors and within the necessary scope of assistance. In addition, the opinions of the member of the Audit & Supervisory Board are respected regarding personnel changes and evaluations, etc. of the employee.
  3. (3)The employee who assists the auditing work of the member of the Audit & Supervisory Board may regularly attend places where opinions are exchanged between the Representative Director and the accounting auditor within the company of the member of the Audit & Supervisory Board.

7.System for the directors and employees of the Company and Group Companies to report to the Audit & Supervisory Board, and other systems for reporting to the Audit & Supervisory Board

  1. (1)In order to regularly confirm that the directors, executive officers and employees of the Company perform operations appropriately, the members of the Audit & Supervisory Board are required to attend the Board of Directors meetings. They may also attend the Executive Committee and the Environmental & Social Committee, etc.
  2. (2)The members of the Audit & Supervisory Board of the Company may inspect documents, etc. necessary for their auditing work at any time, irrespective of the provisions of the Document Regulations, the Confidential Information Management Regulations, and other regulations.
  3. (3)The directors of the Company report important matters related to the execution of duties to the members of the Audit & Supervisory Board or the Audit & Supervisory Board whenever appropriate through the Board of Directors meetings and other important meetings.
  4. (4)The executive officers and employees of the Company and the directors, the members of the Audit & Supervisory Board, and the employees of the Group Companies report matters stipulated in laws and regulations as well as cases of compliance violations, cases in dispute, the occurrence of material risks, and matters related to accounting and the settlement of accounts, etc. to the respective departments in charge within the Company. The departments in charge report the details of reports from the executive officers and employees of the Company and the directors, members of the Audit & Supervisory Board and employees of Group Companies to the members of the Audit & Supervisory Board or the Audit & Supervisory Board when necessary. In addition, the departments in charge also make necessary reports at the request of a member of the Audit & Supervisory Board.
  5. (5)The Company prohibits those who made a report to a department in charge, a member of the Audit & Supervisory Board, or the Audit & Supervisory Board in accordance with the provisions of the preceding paragraph from being treated unfavorably on the grounds of making a report, and makes this fact fully known to the directors, executive officers and employees of the Company and the directors and employees of the Group Companies.

8.Other systems to ensure the effective auditing of the Audit & Supervisory Board

  1. (1)A meeting for the President and the members of the Audit & Supervisory Board or the Audit & Supervisory Board to exchange opinions is held regularly.
  2. (2)The Audit & Supervisory Board establishes standards for appointing, dismissing, and refusing to reappoint the accounting auditor, and nominates a candidate for the accounting auditor. The Company and the Group Companies secure sufficient amount of time for the accounting auditor to conduct a high-quality audit. The members of the Audit & Supervisory Board, the Internal Auditing Department, and the accounting auditor promote a cooperation by mutually checking each other’s audit plans and sharing their concerns.
  3. (3)The members of the Audit & Supervisory Board or the Audit & Supervisory Board hold discussions and exchange opinions with the Internal Auditing Department and the audit corporation when necessary.
  4. (4)The Audit & Supervisory Board allocates expenses that are deemed necessary for the execution of duties in advance. However, the Audit & Supervisory Board may charge the Company postmortem for expenses it spent on urgent or provisional matters.