Shinko Shoji Co.,Ltd.

Basic Policy of Internal Control System Construction

May 11, 2006

The Company hereby establishes the basic policy of internal control system construction so as to build an internal control system that ensures proper business operation; implement audits that are conducted by corporate auditors, etc.; and disclose decisions, etc. about the internal control system in its business reports.This policy is established in accordance with the Company’s basic tenets of “valuing trust and abiding by the principles of hard work, sincerity and service” while “participating in the creation of new culture and contributing to the society through everyday work” and “enabling boundless business growth and enrichment of employees’ lives,” which were the founding principles.

1.	System to Ensure that Directors’ and Employees’ Performance of Their Duties is in Compliance with Law, Regulations and the Company’s Articles of Incorporation

(1)	The Company shall create the Compliance Committee as the organization that supervises company-wide compliance.The Committee shall be chaired by the CEO and includes an outside attorney at law.With this move, the Company strives to construct a cross-sectional compliance system for Shinko Shoji Group and detect problem areas.
(2)	The Company shall construct a system to have its corporate philosophy, code of conduct, rules of conduct and corporate ethics compliance regulations thoroughly understood and practiced so as to ensure that the performance of job duties by its directors and employees is in compliance with law, regulations, the Company’s articles of incorporation and social norms.
(3)	The CEO and the director in charge of business execution shall provide the employees of Shinko Shoji Co., Ltd. with compliance education and training so as to ensure their full compliance.
(4)	The Audit Office, which directly reports to the CEO, shall ensure that all operations are carried out properly, legitimately and rationally in compliance with law, regulations, the Company’s articles of incorporation and various internal regulations by conducting audits on a regular basis.
(5)	Multiple contact points, including an outside attorney at law, shall be established so as to provide access to employees for consulting about compliance issues or directly notifying the Committee of acts that appear questionable in terms of their compliance with law and regulations.Assurance shall be given to the informer as to his anonymity and protection from any injury.
(6)	The Company shall be fully aware of corporate social responsibility. It shall comply with laws and take a firm attitude toward antisocial forces that pursue economic interests through the use of violence, power, and fraudulent methods, rejecting undue claims and breaking off all relations that may arouse suspicions of the Company’s having transactions with or receiving funding from those forces.

2.	System about the Retention and Control of Information regarding the Execution of Duty by Directors

(1)

Directors shall retain and control the following documents or electronic records (hereinafter referred to as the “Documents, Etc.”) pertaining to the execution of their duties and other important information in accordance with law, regulations and the document control regulations pursuant to their duties.

1)	Minutes of the General Meetings of Shareholders and other pertinent data.
2)	Minutes of the Board of Directors’ Meetings and other pertinent data.
3)	Minutes of other important meetings that are convened by directors and other pertinent data.
4)	Documents that are approved by directors and their accompanying documents.
5)	Other important documents concerning the execution of duties by directors.

(2)

The documents listed above shall be retained for a period of ten (10) years, and kept accessible for review by directors and corporate auditors as necessary.

3. Regulations concerning the Management of Risk of Loss and Other Systems

(1)

The Company shall establish the Risk Management Committee, chaired by the CEO, as the organization to supervise total risk management so as to deal with the risk of all types of loss that can jeopardize the realization of increased corporate value and a sustained expansion of corporate activity.

(2)

The Risk Management Committee shall manage the risks of Shinko Shoji Group comprehensively and exhaustively, specify responsible departments on a risk category-by-category basis, and review risk reduction measures on a regular basis.

(3)

In addition to the foregoing, a system shall be established to protect the continued business operation against the following types of risks:

1)	Risk of grave loss, due to such disasters as earthquakes, floods, accidents and fire.
2)	Risk of a serious disruption of sales activity, etc. as the result of improper execution of business operations by a director or an employee.
3)	Risk of substantial damage, resulting from malfunctioning of the core IT system.
4)	Any other risk that is determined by the Board of Directors to be serious.

4. System to Ensure Efficient Execution of Duty by Directors

(1)

The Board of Directors shall cause the CEO and other directors in charge of individual business operations to execute business operations, based on the business structure that is established by the board of directors, and the segregation of duties among the CEO and other directors who are in charge of business operations.

(2)

When requested by either the CEO or other directors in charge of business operations to make a decision on business operations, the Board of Directors shall make necessary decisions by either going through an organization or following a procedure that is specified by the Rules Concerning Segregation of Duty or the Rules Concerning Duty and Powers.These rules shall be revised from time to time upon a revision or nullification of law or regulations or as necessitated by a need to improve the efficiency of job execution.

5.	System to Ensure Proper Conduct of Business by the Corporate Group, Consisting of the Company and its Subsidiaries

(1)	The Company establishes group-wide rules as Affiliated Company Control Rules to ensure the proper business conduct and efficiency of Shinko Shoji Group in addition to taking various measures to ensure compliance of its business operation with law, regulations and the Company’s articles of incorporation.
(2)	Transactions among companies that are members of Shinko Shoji Group shall be proper when examined against law, regulations, accounting principles, tax law and other company codes.
(3)	The CEO and directors in charge of business operations shall provide guidance to group companies in accordance with their respective duties so that each of the group companies constructs an appropriate internal control system.This guidance shall include the CEO instructing the directors of Shinko Shoji Group companies to construct a system to retain and control information that pertains to the execution of the directors’ duties.
(4)	The Audit Office shall conduct internal audits of the Shinko Shoji Group so as to ensure effectiveness and reasonableness of internal controls over the entire operations of Shinko Shoji Group. Annual plans of operational audits, their implementation status and the results of the audits shall be reported to the Board of Directors, based on their importance.
(5)	A proper system that enables close communication among the Board of Auditors, the Audit Office and the outside accounting firm shall be constructed so as to permit the Board of Auditors, through the Corporate Auditor, to conduct effective and proper audits of the entire Group that correspond to the consolidated business operations of Shinko Shoji Group.
(6)	To respond appropriately to the internal control assessment report system that pertains to financial reports required under the Financial Instruments and Exchange Act, the Company shall set up an internal control office and engage in improving the internal control assessment system at each of the Company’s consolidated group companies.

6.	A System regarding Employees in the Event that the Corporate Auditor Requests the Appointment of Employees to Assist the Corporate Auditor with His Duty, and a System concerning the Independence of Such Employees from Directors

(1)	The Board of Auditors may pick some members of the Audit Office and those of the General Affairs Department as employees to assist the Corporate Auditor with his duty and order them to perform tasks that are necessary for audit work.
(2)	In order to ensure the independence of the members of the Audit Office and those of the General Affairs Dept., prior consent of the Board of Auditors shall be required before these employees may be transferred to different positions, etc.

7.	A System for Directors and Employees to Report to the Corporate Auditor, and a System concerning Other Reports to the Corporate Auditor

(1)

The CEO and directors in charge of business operations shall report on the status of business operations that they are in charge of from time to time at important meetings, such as the Board of Directors’ meetings.

(2)

The CEO and directors in charge of business operations shall promptly provide the Corporate Auditor with a report with respect to the following matters:

1)	Matters that seriously reduced or have the potential of seriously reducing the credit of the Company.
2)	Matters that exerted or have the potential of exerting serious adverse effects on the performance of the Company.
3)	Matters that seriously damaged or have the potential of seriously damaging the environment, safety or health either within or outside the Company.
4)	Serious violations of the Corporate Code of Conduct or the Corporate Ethics Compliance Regulations.
5)	Any other matters that are similar to those described in 1)~4) above.

(3)

Directors and employees shall respond promptly and precisely to any request by the Corporate Auditor for a report of operations.

8.	System to Ensure that Audits by the Corporate Auditor are Implemented Effectively

(1)	The Corporate Auditor shall individually interview directors in charge of business operations and other key employees at least twice every year.
(2)	The Board of Auditors shall hold meetings individually with the CEO, the Audit Office and the outside accounting firm to exchange opinions on a regular basis.

End

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