Basic Policy for Developing Systems to Ensure the Propriety of Operations (Basic Policy on Internal Control System)

The basic approach of our internal control system is to ensure the propriety of business operations by ensuring their effectiveness, efficiency, and reliability. We also ensure the propriety of the operations of the Company’s corporate group (including the Company, hereinafter referred to as the “Group”), taking into consideration factors such as the size and business characteristics of each constituent company, and the risks associated with them.
We have also established an Internal Control Committee to laterally promote the development of the Group’s internal control system.
We have set out the following basic policy for the development of our internal control system.

1. System to ensure that the execution of duties by directors and employees complies with laws, regulations, and the Articles of Incorporation
   1. In addition to appointing an executive in charge of compliance and establishing the Compliance Office as the promotion department, we ensure the proper operation of the whistle-blower system (including consultation and reporting contacts and the like) and set up compliance programs for important promotion topics. The Compliance Committee, which is under the Internal Control Committee, uses the PDCA cycle and other methods to manage these operations and programs to ensure a system that facilitates the implementation and enhancement of compliance.
   2. We have established the Group Action Guidelines, which sets out the basic standards of conduct for Group executives and employees, and distribute it to the executives and employees via an internal network. We also conduct ongoing compliance-related training tailored to the respective duties of directors and employees at all levels to ensure thorough compliance.
   3. We appoint outside directors with ample experience and insight in a wide range of fields beyond the Company’s to strengthen guidance and supervision of our business execution from diverse perspectives.
2. System for storing and managing information pertaining to directors’ execution of duties
   We create, store, and manage records of meetings of the Board of Directors and other important meetings, approval documents, and other information pertaining to directors’ execution of duties in the form of documents and electromagnetic media in accordance with Company rules on document control. We have also established a Basic Policy for Information Security and Rules for Information Management, which we disseminate in an effort to rigorously prevent information leaks.
3. Rules and other systems for managing the risk of loss
   1. In addition to appointing an executive in charge of risk management, we have set out Risk Management Regulations and established an interdepartmental (including administrative, sales, and technical engineering departments) Risk Management Committee under the Internal Control Committee to promote company-wide risk management, identify and assess risks—including those of major affiliates—and implement measures against critical risks, all in an effort to prevent risks and promote risk reduction activities.
   2. We have established Crisis Management Regulations and have systems in place for responding appropriately to unforeseen circumstances, for example by convening and holding company-wide crisis management meetings to take prompt and proper action when serious risks materialize.
   3. We have established a business continuity plan for large-scale disasters and the like, which we revise through regularly conducted drills in order to enhance its effectiveness; these and other efforts enhance our ability to sustain our business in the event of unforeseen circumstances.
   4. We will also establish a system for proper management of functional risks—among them quality, safety, environment, compliance, information, profit and loss—to designate the departments to take action in the context of the aforementioned risk identification and evaluation process.
4. System to ensure directors’ efficient execution of duties
   1. We have established a Management Council chaired by the President and Representative Director under the Board of Directors and introduced an executive officer system to clarify management decision-making and supervisory functions on one side and business execution functions on the other, thereby promoting prompt and efficient management.
   2. To expedite decision-making and streamline business execution and other aspects of management, we establish rules—for example rules of administrative authority, rules on division of duties, and rules on decision-making—and revise them as appropriate.
5. System to ensure the propriety of operations of the corporate group comprising the Company and its subsidiaries
   1. We have established a system for managing the management of subsidiaries while respecting their autonomy. Specifically, we place internal departments in charge of managing the management of subsidiaries and set out rules for discussing and reporting important matters in rules for managing affiliates, among other things.
      In other words, certain important matters at subsidiaries are discussed in advance and approved by the Company. We also require subsidiaries to report their operating results, financial position, and other important information to us. Furthermore, we hold regular meetings attended by Company executives and subsidiary presidents to ensure the propriety of business operations. Notably, when risks materialize, subsidiaries are required to promptly report to the Company department with which they liaise.
   2. To ensure that subsidiaries have the same basic approach as the Company, we have established the Group Action Guidelines, which sets out basic standards of conduct, and have also developed internal rules for each subsidiary, thereby properly operating a compliance system that includes a risk management system, crisis management system, and whistle-blower system for the Group.
   3. The Internal Audit Office audits the Company and its subsidiaries and reports the results directly to the Board of Directors and the Audit & Supervisory Board Member’s Office as necessary. We also monitor the propriety of subsidiaries’ business execution through such efforts as dispatching Company directors to them as appropriate.
   4. The Audit & Supervisory Board Member’s Office regularly audits the status of business execution at subsidiaries.
   5. We will develop an internal control system to ensure the propriety and reliability of financial reporting.
6. Matters pertaining to employees assisting the Audit & Supervisory Board Member’s Office, the independence of those employees from directors (excluding directors who are Audit & Supervisory Board members), and ensuring the effectiveness of instructions given to those employees
   We established an Audit & Supervisory Board Member’s Office to assist directors who are Audit & Supervisory Board members in their duties. Additionally, the Audit & Supervisory Board Member’s Office has the right to direct and give orders to employees engaged in duties in the Audit & Supervisory Board Member’s Office. Therefore, personnel evaluations, transfers, disciplinary actions, and other personnel matters involving those employees are managed in accordance with the Company’s operational rules upon consultation with directors who are Audit & Supervisory Board members.
7. System for directors and employees to report to the Audit & Supervisory Board Member’s Office, and system for other reports to the Audit & Supervisory Board Member’s Office
   Regarding matters to be reported by directors and employees to directors who are Audit & Supervisory Board members, we have established rules for establishing an audit environment for the Audit & Supervisory Board Member’s Office to create a system for reporting not only statutory matters but also events that cause significant damage, serious misconduct such as internal scandals or violation of laws and regulations, results of internal audits, status of whistle-blowing, and other matters pertaining to the Company or its subsidiaries. We have also designed the systems to ensure that directors who are Audit & Supervisory Board members have the right to attend important meetings and facilitate their understanding of the status of business execution at any given time.
8. System to ensure that people who make reports to the Audit & Supervisory Board Member’s Office are not subject to disadvantageous treatment because they made the reports
   The rules for establishing an audit environment for the Audit & Supervisory Board Member’s Office clearly state that people who make reports to the Audit & Supervisory Board Member’s Office as described in the preceding paragraph shall not be subject to disadvantageous treatment because they made the reports.
9. Matters pertaining to the policy for the treatment of expenses and liabilities arising from the execution of duties by directors who are Audit & Supervisory Board members
   When a director who is a member of the Audit & Supervisory Board requests the payment of requisite expenses or debts regarding the execution of their duties, we will pay the expenses or debts unless they are deemed unnecessary for executing the duties of that director. Additionally, to ensure the effectiveness of audits, a budget is secured for various audit expenses.
10. Other systems to ensure that audits by the Audit & Supervisory Board Member’s Office are conducted effectively
    1. Outside directors comprise the majority of the Audit & Supervisory Board Member’s Office.
    2. Directors who are Audit & Supervisory Board members monitor the status of governance, attend important meetings, inspect important approval documents, visit business locations, and take other actions while also utilizing means such as telephones and the internet in accordance with the audit policy and audit plan set out by the Audit & Supervisory Board Member’s Office. Directors who are Audit & Supervisory Board members also hold regular meetings with the President and Representative Director to exchange opinions and communicate with each other.
    3. Directors who are Audit & Supervisory Board members, the Internal Audit Office, and the Accounting Auditors regularly discuss the status of audits, share information, and collaborate to conduct effective and efficient audits.
11. Basic policy on eliminating antisocial forces and development status thereof
    To cut off relations with antisocial forces and organizations, the Group Action Guidelines calls for us to take a firm stance against antisocial forces and organizations and to not have any relations with them, and we will use education and training to thoroughly spread the word, collaborate with specialized outside organizations, and take other steps to establish an internal system for taking such action.