Basic Policies for Internal Control System

Basic policies for the execution of duties

The Company and its subsidiaries (hereinafter “the Group”) promote corporate governance by setting “compliance with laws, regulations and social ethical norms” (hereinafter “compliance with laws, etc.”), “sincere responses and appropriate information disclosure to stakeholders,” “transparent and sound management” and “contribution to society through the creation of corporate value in business activities” as the basic policies for the execution of duties.
　Under the basic policies, the Company will improve systems to ensure the properness of operations of the Group as stipulated in the Company Act and the Ordinance for Enforcement of the Companies Act.

System to ensure the conformity of the execution of duties by the directors and employees of the Group with laws and regulations

Setting compliance with laws, etc. as the basic policy, the Company enacts regulations on compliance and establishes the Compliance Committee to promote Group efforts for compliance.
　In addition, the Internal Audit Department, under the control of the President and Chief Executive Officer, makes assessments on the efficacy of internal control over the assurance of credibility of operating audit activities and financial reporting, centering on the effectiveness and efficiency of operations. The Internal Audit Department reports the situation of these activities to the President and Chief Executive Officer, as well as the Board of Directors, the Board of Statutory Auditors and audited divisions.
　Efforts for compliance are promoted mainly by the Compliance Committee in cooperation with the divisions of the Group.
　The Company has established a compliance helpline for employees to directly provide information about legally questionable acts, etc. The Company has adopted a system to report legally questionable acts, etc., if an officer or an employee of the Group discovers such acts, to the Compliance Committee and the Board of Statutory Auditors via their reporting line or the compliance helpline. The Compliance Committee or the Board of Directors has also drawn up preventive measures in cooperation with the divisions of the Group according to the degree of importance of the content reported and has made the content fully known to the officers and employees of the Group.

System to store and manage information on the execution of duties of directors

Information on the execution of duties of directors is recorded and stored in documents or electromagnetic media (hereinafter “documents, etc.”), and directors and statutory auditors are able to inspect the documents, etc. at all times.
　The documents, etc. are managed in accordance with the Regulations on Document Management and Information Security and other relevant rules, etc.

Regulations and other systems of the Group for managing loss risk

Risk pertaining to the execution of duties is analyzed and countermeasures are considered by each division of the Company and by its subsidiaries within the scope of their authority. Important risks and risks beyond the authority of each division and subsidiaries are deliberated by the Management Committee or the Board of Directors of the Company to make decisions and are subsequently monitored on a continuous basis.
　The management of and response to risks pertaining to the execution of duties and the credibility of financial reporting are audited by the Internal Audit Department, and the Internal Audit Department reports the audit results to the President and Chief Executive Officer, as well as the Board of Directors and the Board of Statutory Auditors. With respect to the management of and response to other company-wide risks, the Compliance Committee considers and promotes measures to address them and reports the situation of these activities to the Board of Directors.
　To assess individual risks and implement Group-wide management in response to them, the Company improves and strengthens a system to manage Group-wide risks exhaustively and comprehensively by enacting regulations on the risk management system.
　To ensure and maintain information security, the Company has enacted regulations on the use and protection of information assets and has established the Information Security Committee to improve and strengthen the system that uses and protects information assets in order to contribute to the management activities of the Group.

System to ensure the efficient execution of duties by the directors of the Group

The Group formulates a medium-term management plan and a budget for each fiscal year as company-wide objectives, and the divisions and subsidiaries of the Company draw up and implement specific measures to achieve the plan.
　To promote the efficient execution of duties, the Group also considers and implements specific measures which the divisions and the subsidiaries should practice after clarifying the division that each director is in charge of and the work responsibility and authority of directors.
　In addition, the Company holds a regular monthly meeting of the Board of Directors to decide important matters and supervise the execution of duties of directors. The Company also holds the Management Committee, which mainly the directors and the operating officers attend, two or three times a month to discuss important matters related to the execution of duties in order to improve management efficiency and speed up decision-making, and the President and Chief Executive Office makes decisions based on discussions.

The system ensuring the properness of operations in a corporate group consisting of the Company and its subsidiaries

The Company asks its subsidiaries for prior consultation with the Company on certain matters based on the Subsidiaries and Associates Management Regulations and asks them to submit related materials, etc. to accurately understand their management and operations, while respecting their management decisions, and conducts management control of the subsidiaries by giving them advice as necessary.
　The Company has the presidents of its major subsidiaries attend the Management Committee regularly to monitor their business conditions whenever appropriate. The Company also strengthens its checks and balances by consolidating the control functions of the subsidiaries into the administrative division of the Company. The Company will continue to improve the control system of the subsidiaries by promoting the documentation of guidelines on the management control of the subsidiaries.
　For the Company to ensure that operations are appropriate, the Internal Audit Department will conduct operating audit activities and regularly exchange information with the Compliance Committee and the divisions of the Group.

Matters related to an employee if a statutory auditor requests the assignment of an employee for assistance in the performance of duties

As an entity to assist statutory auditors in the performance of their duties, the Company assigns an employee to assist a director in his/her audit and establishes the Secretariat of the Board of Statutory Auditors.

Matters related to the independence of the employee from the director in the preceding paragraph

The personnel change and evaluation of the employee assigned to assist the director is reported to the Board of Statutory Auditors for approval.

Matters related to securing the effectiveness of instructions to the employee who assists the duties of the statutory auditor

The Company fully informs its directors and employees that the employee assigned to assist the director is to follow the instructions of the director.

System for directors and employees to make reports to statutory auditors and other systems for reporting to statutory auditors

If a director discovers any fact that could do noticeable damage to the Group or a material fact about compliance, the director will immediately report it a statutory auditor, and the same shall apply if an employee discovers such facts.
　More than half of the statutory auditors are external statutory auditors, one or more of whom is a standing statutory auditor. The statutory auditors strengthen the supervisory functions of management through various activities, including attendance at the Board of Directors meeting and other important meetings.

System to prevent reporters to statutory auditors from being treated unfavorably

The Company prohibits directors, statutory auditors and employees of the Group who have made a report to a statutory auditor from being treated unfavorably on the grounds of their making the report and has made this fact fully known to the directors, statutory auditors and employees of the Group.

Matters related to policies for the prepayment or reimbursement of expenses arising from the execution of duties of statutory auditors

The Company secures a budget for expenses arising from the execution of duties of statutory auditors based on their annual audit plan. If a statutory auditor requests the prepayment, reimbursement, etc. of expenses, the Company shall bear the expenses, unless they are deemed unnecessary for the execution of duties of the statutory auditor.

System to ensure the effective audit of statutory auditors

The Board of Statutory Auditors regularly holds meetings to exchange opinions with the President and Chief Executive Officer and Ernst & Young ShinNihon LLC. In addition, to understand the important decisions of the divisions and the subsidiaries of the Company and the situation of their execution of operations, the statutory auditors regularly interview the heads of the Company divisions and the directors, statutory auditors and employees of the subsidiaries individually and inspects important documents, such as approval documents.

System to ensure the credibility of financial reporting

To ensure the credibility of financial reporting, the Company has constructed a framework for the internal control of financial reporting to be conducted effectively as stipulated in the Financial Instruments and Exchange Act under the instruction of the President and Chief Executive Officer, continuously evaluates whether the framework functions properly, and makes necessary corrections if there is any defect.

Response to antisocial forces

The Group does not have any relationship with an antisocial group or individual that could constitute a threat to the social order or the healthy business activities of the Company and will not grant them any favors. Being a member of the Tokuboren, the Company collects the latest information by reading the newsletters and the Tokuboren news and participating in seminars, etc. sponsored by the Tokuboren. The Company has also assigned responsible officials for the prevention of undue claims and, if an undue claim, etc. is made, the official takes appropriate measures in cooperation with the legal advisor, the police station with jurisdiction and the Tokuboren, with the Legal Affairs Office and Intellectual Property Department as a contact.