Pursuant to the Companies Act and the Ordinance for Enforcement of the Companies Act, we have developed systems to ensure appropriate operations of the Company and the company group consisting of the Company and its subsidiaries (“Internal Control”), as described below.

1.Systems for ensuring that performance of duties of directors and employees of the Company and its subsidiaries complies with laws and the Articles of Incorporation

  1. In order to spread legal compliance and corporate ethics to all directors and employees of Group companies, we established the Group Charter of Corporate Behavior and strive to make relevant laws and regulations known to all directors and employees, develop internal rules and manuals, and provide training to employees.
  2. The Audit Department, which is responsible for internal audit, audits the compliance of each unit’s execution of operations with applicable laws and the Articles of Incorporation, while developing Compliance Rules and establishing the Compliance Committee chaired by the representative director. In this way, we promote and control across the Group the efforts for legal compliance and corporate ethics compliance within the Group.
  3. We strive to prevent problems by establishing and operating a Daiwabo Helpline overseen by the Legal/Compliance Department, as a means for employees to provide information on legally questionable acts, etc.

2.Systems for storing and managing information on our directors’ performance of duties

  1. By developing the Document Handling Regulations, we will record and store information on directors’ performance of their duties in the form of documents or electronic or magnetic media (hereinafter, “Documents”).
  2. Directors and kansayaku (corresponding to our Audit & Supervisory Board Members) will have access to these Documents at any time.

3.Rules and other systems for managing risk of loss of the Company and its subsidiaries

  1. We have developed the Risk Management Rules and classify risks into three categories—management risk, operational risk, and environmental, safety & quality risk. In this way, we intend to enhance the management functions through the sharing of understanding of, and methods for management of, common risks between units. In addition, by developing the Crisis Management Rules, we will strive to minimize the impact of, and prevent the recurrence of, any significant loss.
  2. In order to control and promote across the Group the efforts for risk management within the Group, we will establish a Risk Management Committee chaired by the representative director. By having the committee promptly determine policies for dealing with various risks that have newly arisen, we will ensure the effectiveness of our risk management systems.

4.Systems for ensuring the efficient performance of duties of the Company’s and its subsidiaries’ directors

  1. As a pure holding company, the Company dedicates its Board of Directors’ function to the development of Group strategies and the supervision of execution of the Group’s operations, and has the directors of Group companies execute and be responsible for operations based on the Group strategies, and clarifies the division of their respective responsibilities. By doing the above, the Company intends to speed up management decision-making and to strengthen supervisory functions, thereby developing an efficient and agile management structure.
  2. The Group will establish three-year medium-term management plans and annual business plans and will thoroughly manage performance by conducting monthly reviews and proposing remedial measures at monthly meetings of the Board of Directors, based on an IT-based management accounting system.
  3. Matters that will have a significant impact on management will be deliberated by the Management Strategy Meeting, etc. The directors of the Company and Group companies will, for themselves, determine specific measures based on the Group strategies and policies as well as systems for performing duties based on operational regulations.

5.Systems for ensuring appropriate operations of the company group consisting of the Company and its subsidiaries

  1. We will carry out appropriate management of business operations that gives top priority to the overall optimality of the Group, by developing Group Business Management Regulations that divide the Group companies into categories and set forth the companies’ basic authority.
  2. The Group companies will carry out appropriate management of business operations for themselves. The Company will appoint directors to supervise such management and will give them authority and responsibility to comply with laws and the Articles of Incorporation and to develop a risk management structure. In addition, the Company’s staff units will provide support to these activities in a cross-functional manner.

6.Matters concerning employees (if any) requested by the Company’s kansayaku to be assigned to assist their duties and matters concerning ensuring these employees’ independence from directors and the effectiveness of kansayaku’s instructions given to the employees

  1. Where necessary, a kansayaku may order employees belonging to the Audit Department to assist the duties of kansayaku.
  2. If employees belonging to the Audit Department receive from kansayaku any order necessary for audit activities, these employees shall not receive directions or orders from directors in connection with that order.

7.Systems for the Company’s directors and employees and subsidiaries’ directors, kansayaku, and employees to make reports to kansayaku and other systems for reporting to kansayaku

  1. The Company’s directors and employees and the Group companies’ directors and employees will report to kansayaku from time to time on the status of execution of the operations that the directors and employees are in charge of and on the following matters, at Board of Directors meetings and/or other important meetings:
    i.   Any matter that is likely to considerably compromise the reputation of the company.
    ii.  Any matter that is likely to cause significant damage to the company.
    iii. Any serious violation of any applicable law or regulation or the Articles of Incorporation or any other important matter.
  2. If any of the Company’s directors or employees or a Group company’s directors, kansayaku or employees discovers any fact related to any of the matters specified in the preceding item, the relevant director, employee or kansayaku shall make a report to kansayaku pursuant to the Daiwabo Helpline Operation Regulations.
  3. If kansayaku deem it necessary to perform their duties, the kansayaku may at any time request a report from any of the Company’s directors or employees or a Group company’s directors, kansayaku or employees, in which case the relevant director, kansayaku or employee must meet the request.

8.Systems for ensuring that the Company’s directors and employees and subsidiaries’ directors, kansayaku, and employees will not receive unfavorable treatment by reason of making a report to a kansayaku

  1. Pursuant to the Daiwabo Helpline Operation Regulations, any dismissal or other unfavorable treatment of a reporter is prohibited.

9.Matters concerning the policy for processing costs or debts arising from the performance of duties of the Company’s kansayaku

  1. If kansayaku request from the Company advance payment, etc. of any cost that will arise from the performance of their duties, the Company will promptly process such cost or debt unless the Company proves that the cost or debt relevant to the request is not necessary for the performance of their duties.

10.Other systems for ensuring the effective conduct of audits by kansayaku

  1. Kansayaku attend Board of Directors meetings and other important meetings and make statements there from an independent standpoint. Kansayaku also visit Group companies’ departments to execute their operations.

  2. Kansayaku must conduct regular business audits with, and otherwise maintain close cooperation with, external auditors. In addition, kansayaku hold regular opinion exchange meetings with the representative director.

 

(Basic views on, and the status of development of systems for, eliminating antisocial forces)

We have developed systems for eliminating antisocial forces as follows:

 

Pursuant to the Group Charter of Corporate Behavior, the Company as a whole, from the top on down, adopts a firm attitude in dealing with antisocial forces and groups that pose a threat to the order and safety of civil society, and firmly rejects any unreasonable demand from them. 
The Personnel General Affairs Department is responsible for dealing with antisocial forces. The department must strive to maintain close cooperation with the police and other relevant external organizations under normal circumstances to collect information, and must develop a system that allows prompt action in the event of an incident.