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. The Company establishes the cross-sectional Risk Management Committee under the Internal Control Committee, including administration, sales and technology divisions to formulate the Risk Management Rules and promote company-wide risk management, as well as appoint Risk Officer. The Company also promotes activities to prevent and mitigate risks through identification/assessment of risks including major affiliated companies and implementation of measures to deal with material risks.
   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. The Company improves its capability to continue business in the event of emergency circumstances by developing a business continuity plan in case of a wide-scale disaster and other events and reviewing and enhancing the effectiveness of the plan through a regular drill.
   4. For risks by function such as quality, safety, environment, compliance, information and profit/loss, the Company develops a proper risk management system by appointing departments in charge in identifying/assessing the risks mentioned above.
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 Concerning Employees Who Assist Audit & Supervisory Committee, Matters Concerning the Independence of Such Employees From Directors (excluding Directors who are Audit & Supervisory Committee members) and Matters Concerning Securing of the Effectiveness of Instructions to Such Employees
   Continue from past fiscal year, the Company establishes the Audit & Supervisory Committee Office which consists of dedicated employees independent from the function of performance of duty and assists duties of audit & supervisory committee members. Audit & Supervisory Committee retains the right to lead and issue orders to employees engaged in duties of the Audit & Supervisory Committee Office. Therefore, the Company manages HR matters for these employees including performance review, transfer and disciplinary action in accordance with the Company’s rules and after consultation with Directors who are Audit & Supervisory Committee members.
7. System for Directors and Employees to Report to the Audit & Supervisory Committee, and Other System on Reporting to the Audit & Supervisory Committee
   For matters to be reported to audit & supervisory committee members by directors and employees, the Company formulates the Regulation for Development of Audit Environment for Audit & Supervisory Committee and develops a system to report any event which causes significant damage, material misconduct such as an internal scandal or legal violation, results of an internal audit and status of whistle-blowing in addition to statutory matters at the Company and its subsidiaries. The Company develops a system which secures rights of Directors who are Audit & Supervisory Committee members to attend important meetings such as meetings of the Board of Directors and thus allows them to keep track of the status of execution of duty.
8. System to Ensure That Anyone Who Reported to the Audit & Supervisory Committee Is Not Treated Unfairly on the Grounds of Such Reporting
   The Company clarifies a system in the Regulation for Development of Audit Environment for Audit & Supervisory Committee to ensure that a person who made the report mentioned above to Audit & Supervisory Committee is not treated unfairly on the grounds of such reporting.
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. In accordance with the Audit Policy and Audit Plan established by the Audit & Supervisory Committee, the Directors who are Audit & Supervisory Committee members shall monitor the status of corporate governance, attend meetings of the Board of Directors, Management Council and other important meetings, inspect important approval documents, and visit the Company's offices for on-site audits, while also utilizing means such as telephone lines, the Internet and others. Directors who are Audit & Supervisory Committee members also had communication with the President and Representative Director by regularly holding meetings and exchanging opinions.
    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.