Basic Policies for Constructing an Internal Control System is as follows.
1.System to ensure that the execution of the duties of Executive Officers and employees conforms with laws, regulations, and the articles of incorporation
- (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 the Kurita Group Code of Conduct and Code of Ethics (fairness, transparency, integrity, safety and compatibility), with which officers, etc. (collective term for Directors, Executive Officers, Corporate Officers, and other personnel equivalent to them and Directors, members of the Audit & Supervisory Board, and personnel equivalent to them of the Group Companies; the same applies hereinafter) and employees of the Company and the Group Companies should comply, irrespective of differences in 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)The Company sets up the Sustainability Committee, which is chaired by the Executive General Manager of the Sustainability Division, who is a Corporate Officer. In this Committee, the members set out policies and important measures for integrity activities*, and convey them to all employees through the divisions, and a committee, etc. of each Group Company. The responsible Executive Officer or Corporate Officer will regularly report the status of activities and their results to the Board of Directors to continuously raise the compliance level. If the Chairperson of this Committee determines that there is a serious problem or a doubt related to compliance, the Chairperson will immediately report it to the President and Representative Executive Officer and the Chairperson of the Audit Committee, and then formulate and implement remedial actions and preventive measures. The President and Representative Executive Officer and the Chairperson of this Committees will report these events to the Board of Director or the Audit Committee whenever appropriate.
- *The term "integrity activities" involve activities related to compliance.
- (3) The Company establishes the Internal Auditing Department to conduct internal audits on matters such as those related to compliance activities. The Internal Auditing Department is placed under the direct control of the President and Representative Executive Officer in the organizational structure and conducts internal audits based on audit plans approved by the Audit Committee and the President and Representative Executive Officer. The General Manager of Internal Auditing Department shall report audit results to the Audit Committee and the President and Representative Executive Officer periodically or after each audit, depending on the type of audit. Moreover, the General Manager of Internal Auditing Department shall, where there is an emergency or special measures are deemed to be required during audits, immediately report to a member of the Audit Committee, and where necessary, to the President and Representative Executive Officer.
- (4)The Company establishes the Operational Regulations for Whistle-Blower Protection Systems as a mechanism for the officers, etc. and 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 Counter. 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)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 Corporate Accounting Department in the Corporate Control and Administration 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)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 Executive Officers
Information about the execution of the duties of Executive Officers is stored and managed in documents (including electromagnetic records) by appointing a responsible person in charging of managing it and setting the storage period, etc., in accordance with the Document Regulations and the Confidential Information Management Regulations. The Directors may inspect these documents, etc. when necessary.
3.Regulations and other systems for managing the risk of loss
- (1)Risks pertaining to the Company and the Group Companies are monitored and risk management is promoted by the Executive General Manager of the Corporate Control and Administration Division. The Executive General Manager of the Corporate Control and Administration 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 becomes apparent, the Executive General Manager of the Corporate Control and Administration 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 and Representative Executive Officer. 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 Representative Executive Officer, the Executive General Manager of the Corporate Control and Administration Division, and the Board of Directors or the Audit Committee.
- (2)In regards to serious risks, the Chairperson of the Sustainability Committee will be the responsible official for risks related to compliance, and the Chairperson of the Headquarters Health and Safety Committee will be the responsible official for risks related to health, safety, and occupational accidents. Risks that are directly related to daily business activities are addressed by the Executive 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)The Executive General Manager of the Corporate Control and Administration Division, the Chairpersons of the Committees, and the Executive General Managers of the divisions regularly report the status of activities to promote risk management and integrity to the Board of Directors.
- (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 Executive Officers
The Company will improve the efficiency of the execution of duties of the Executive Officers based on the following management control system and mechanism.
- (1)The Board of Directors specifies the operations delegated to the Executive Officers and the responsible officials of organizations with the rank equivalent to or higher than Executive General Manager of a division.
- (2)The Board of Directors determines policies for formulating a corporate vision, a medium-term management plan, and a business plan for a single fiscal year, and the Executive Officers formulate a business plan for a single fiscal year in accordance with the said policies and set out the targets, policies, and focused measures for each organization. The Board of Directors receives reports from the Executive Officers on monthly and quarterly business performance in relation to the consolidated and non-consolidated targets of the Company and the business departments and supervises the performance.
- (3)The Board of Directors entrusts the Executive Officers to make decisions on operational execution excluding matters to be resolved by the Board of Directors. In addition, the final decision application system is set up, in line with the Executive Committee and the Final Decision and Examination Regulations, as a system to complement the decision-making.
- (4)The Executive Committee consists of the President and Representative Executive Officer and Executive Officers and Corporate Officers appointed by the President and Representative Executive Officer. The committee meets twice a month in principle, and on a temporary basis when necessary. In the Executive Committee, the members make decisions 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 each Executive Officer and Corporate Officer instructions to correct deviations. The members of the Audit Committee may attend the Executive Committee.
- (5)The decision to establish, revise, or abolish the Final Decision and Examination Regulations is made by the Board of Directors. For the Executive Officers and Corporate Officers 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)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)The overall management of Group Companies is controlled by the Corporate Control and Administration Division. In addition, an Executive Officer, Corporate Officer, and 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)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 decision is made in accordance with "7. Matters related to subsidiaries and associates in Japan and overseas," an appendix 1 of the Final Decision and Examination Regulations of the Company, the Board of Directors, or the Executive Committee of the Company.
- (4)In regards to the Group Companies' efforts related to integrity, the Sustainability Committee of the Company sets out policies and priority measures, and a committee, etc. of each Group Company formulates 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)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 assigned to assist the Audit Committee in fulfilling its duties, matters related to the independence of the employee from the Executive Officers, and matters related to ensuring the effectiveness of instructions issued to the employee
- (1)The Secretariat to the Audit Committee is set up as an organization that assists the Audit Committee in fulfilling its duties, and an employee, etc. is appointed as its full-time staff member. The Audit Committee may instruct a certain employee, etc. who belongs to the Internal Auditing Department to assist the Committee.
- (2)The employee, etc. who assists the Audit Committee in fulfilling its duties provides assistance independent of the Executive Officers. In addition, the opinions of the members of the Audit Committee are respected regarding personnel changes and evaluations, etc. of the employee, etc.
- (3)The employee, etc. who assists the Audit Committee in fulfilling its duties may regularly attend places where opinions are exchanged between the President and Representative Executive Officer and the accounting auditor within the company of a member of the Audit Committee.
7.System for reporting to the Audit Committee
- (1)In order to regularly confirm that the Executive Officers, Corporate Officers, and employees of the Company perform operations appropriately, the members of the Audit Committee may attend the Executive Committee and the Sustainability Committee, etc.
- (2)The members of the Audit Committee selected by the Audit Committee (hereinafter, the "selected members of the Audit Committee") 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)The Executive Officers and Corporate Officers of the Company report important matters related to the execution of duties to the Audit Committee or the members of the Audit Committee whenever appropriate through the Board of Directors meetings and other important meetings.
- (4)The officers, etc. and employees of the Company and the Group Companies immediately report matters which may cause significant damage to the operations or financial standing of the Group, matters which are important for internal audits and risk management, matters related to a grave breach of laws, regulations, or the articles of incorporation, and other matters which are important for complying with corporate ethics, laws, and regulations, to the respective departments in charge within the Company. The departments in charge report the details of the reported matter to the Audit Committee or a member of the Audit Committee.
- (5)The selected members of the Audit Committee may request officers, etc. and employees of the Company and the Group Companies to report matters related to the execution of their duties and operations, and those who were requested to do so shall immediately submit the report. The selected members of the Audit Committee may also request the accounting auditor to report the status of accounting audits and other necessary matters, and the accounting auditor makes a report related to accounting as needed.
- (6)The Company prohibits those who made a report to a department in charge, the Audit Committee or the members of the Audit Committee in accordance with the provisions of the above paragraph (4) from being treated unfavorably on the grounds of making a report, and makes this fact fully known to officers, etc. and employees of the Company and Group Companies.
8.Other systems to ensure the effective auditing of the Audit Committee
- (1)The Audit Committee and the President and Representative Executive Officer exchange opinions regularly. Where the Audit Committee has requested an exchange of opinions, the Executive Officers and other requested personnel provide full cooperation.
- (2)The Audit Committee 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 Audit Committee, the Internal Auditing Department, and the accounting auditor promote a cooperation by mutually checking each other’s audit plans and sharing their concerns.
- (3)The Audit Committee holds discussions and exchange opinions with the Internal Auditing Department and the accounting auditor when necessary.
- (4)The Audit Committee allocates expenses that are deemed necessary for the execution of duties in advance. However, the Audit Committee may charge the Company postmortem for expenses it spent on urgent or provisional matters.