Basic policy for building an internal control system
August 11, 2015
1. Framework to ensure that the execution of duties by directors and employees conforms to laws and regulations and the Articles of Incorporation
- The Company, as an organization that oversees compliance as a whole, shall establish a Compliance Committee, chaired by the President and also attended by external lawyers. Thereby, the Company will strive to develop a comprehensive compliance structure across the Shinko Shoji Group and understand problems.
- In order to ensure that the execution of duties by directors and employees comply with laws and regulations, the Articles of Incorporation and social norms, the Company shall build a framework for practical application and thorough implementation of its Corporate Philosophy, Corporate Code of Conduct, Corporate Action Guideline, Corporate Ethics Compliance Regulation, and the like.
- In order to ensure thorough compliance, the Presidents and directors who are responsible for business execution shall conduct education and training on compliance on employees of the Shinko Shoji Group.
- The Auditing Office under the direct control of the President shall examine through internal audits which are conducted on a regular basis whether all operations are conducted appropriately, validly and reasonably in accordance with laws and regulations, the Articles of Incorporation as well as various in-company regulations.
- In order to provide a means for employees to seek consultation about compliance and directly notify of any doubt concerning actions that may violate laws and regulations, the Company shall assign multiple number of liaisons that includes outside attorneys. In this case, the Company shall guarantee the anonymity of the whistleblowers while ensuring that such whistleblowers will not receive any disadvantageous treatment.
- The Company fully recognizes its social responsibility as a corporate. It will follow the laws and regulations and act firmly against, refuse any unfair demand from anti-social forces that pursue economic interests using violence, power and fraudulent methods, and block any relationship with them that may raise suspicion to others that the Company has a business with or provides funds to such forces.
2. Framework concerning the retention and management of information on the execution of duties by directors
- Directors shall appropriately retain and manage the following documents or electromagnetic records (hereinafter referred to as "Documents") related to the performance of their duties and otherwise important information according to the laws and regulations as well as the Document Management Regulations in accordance with their respective duties.
① Minutes of general meeting of shareholders and related materials thereof
② Minutes of board meetings and related materials thereof
③ Minutes of other important meetings held by directors and related materials thereof
④ Documents related to decision-making in which directors are the decision-makers and appended documents thereof
⑤ Other important documents concerning the execution of duties by directors
- Documents prescribed above shall be kept for 10 years while keeping them available for view by directors and corporate auditors as necessary.
3. Framework for regulations concerning the management of risk of loss and other matters
- In order to address the potential risk of any loss that may undermine the Company’s efforts in increasing the corporate value and realizing the sustainable development of its business activities, the Company has established the Risk Management Committee chaired by the President, as an organization to oversee the entire risk management.
- The Risk Management Committee shall comprehensively manage the risks that Shinko Shoji Group may suffer, assign responsible departments for each risk category, and review countermeasures to periodically reduce the risks.
- In addition to the above-mentioned matters, the Company has established a framework to ensure the continuation of its business against the following risks.
① Risks of suffering serious loss due to disasters such as earthquakes, floods, accidents and fires
② Risks that may seriously impede sales and other activities due to inappropriate execution of operations by directors and employees
③ Risks of suffering serious damage due to the failure of the core IT system functions.
④ Other risks that the Board of Directors deems serious
4. Framework for ensuring efficient execution of duties by directors
- The Board of Directors shall have the President and directors responsible for respective operations conduct the operations based on the management organization determined by the Board of Directors and the division of duties of the President and directors responsible for the execution of respective duties.
- In respect of matters the decision-making of which are delegated to the President and otherwise directors responsible for the execution of operations, necessary decisions shall be made through the organizations or procedures set forth in the Regulations for Dividing Duties and Regulations for Administrative Authority.
These regulations shall be revised from time to time where necessary following revisions or abolitions of laws and regulations or/and when the efficiency of performance of duties needs to be improved.
5. Framework to ensure the appropriateness of operations across the Group that consists of the Company and its subsidiaries
- In addition to various measures to ensure that the execution of operations conforms to the laws and regulations as well as the Articles of Incorporation, the Company has established regulations called Affiliated Companies Management Regulations in order to ensure the appropriateness and efficiency of operations performed by the Shinko Shoji Group.
- Transactions across companies within the Shinko Shoji Group shall be appropriate in light of the laws and regulations, accounting principles, tax laws, company norms and others.
- The President and directors responsible for the execution of respective operations shall instruct the group companies to develop appropriate internal control systems according to their division of duties. This includes the President directing the directors of each company of the Shinko Shoji Group as to how a framework is developed for the retention and management of information on the execution of duties by directors.
- The Shinko Shoji Group shall develop a framework for reporting matters relating to the execution of duties by directors and employees of subsidiaries, and also frameworks for risk management, business management and compliance. It shall also report the operational status of such frameworks at meetings of the Board of Directors of the Company on a regular basis. Further, the Company shall examine such reports and issue an instruction for improvement where necessary.
- If a subsidiary becomes aware that the Company violates any law or regulation or conflict with socially accepted norms in respect of the business management of such subsidiary by the Company or the guidance to such subsidiary on the management, such subsidiary shall report the matter to the Corporate Auditors of the Company. At this time, it shall be made sure that the whistleblower shall not receive any disadvantageous treatment from the subsidiary.
- The Auditing Office shall conduct internal audits on the Shinko Shoji Group to ensure the effectiveness and validity of the internal control across the entire operation of the Shinko Shoji Group. The annual plan of operation audits, the implementation situation and the audit results shall be reported to the Board of Directors according to the level of importance.
- The Board of Corporate Auditors shall build an appropriate framework for close collaboration with the Auditing Office and the Corporate Auditors so that an audit of the entire group could be conducted effectively and properly in line with the consolidated management of the Shinko Shoji Group via such Board of Corporate Auditors and the Corporate Auditors.
6. Framework to ensure that internal control concerning financial reporting is carried out in a practical manner
- In order to meet the internal control evaluation reporting system related to financial reporting required by the Financial Instruments and Exchange Act, the Company shall establish an internal control team in the Auditing Office and work on the improvement of the internal control evaluation system of each consolidated subsidiary.
- The Company shall prepare "Basic Policy for Development, Operation and Evaluation of Internal Control concerning Financial Reporting" and "Basic Plan for Development, Operation and Evaluation of Internal Control concerning Financial Reporting" each fiscal year and review them where necessary.
7. Matters concerning an assistant and the independence of the said assistant from directors in the event that the Corporate Auditors seek to use an assistant who assists Corporate Auditors in their duties.
- The Board of Corporate Auditors may order the Auditing Office and the General Affairs Department to do work necessary for audits as an assistant who assists the Corporate Auditors in their duties.
- In order to ensure the independence of the Auditing Office and the General Affairs Department, prior consent of the Board of Corporate Auditors shall be obtained for decisions on organizational changes concerning said assistant.
- In cases where the Corporate Auditors seek to use an assistant for assisting their duties, the Auditing Office, which is responsible for conducting internal audits or/and the General Affairs Department shall assist them, where necessary. Such assistant shall be placed exclusively under the direction of the Corporate Auditors.
8. Framework for directors and employees of the Company and directors and employees of subsidiaries to report to the Corporate Auditors and also framework concerning reporting to the Corporate Auditors.
- The President and directors responsible for the execution of operations shall report the execution status of the respective operation from time to time at important meetings such as Board of Directors meetings.
- The President and directors responsible for the execution of operations shall promptly report the matters as specified below to the Corporate Auditors.
① Matters that significantly reduced or may reduce the credibility of the Shinko Shoji Group.
② Matters that had or may have a significant adverse effect on the business performance of the Shinko Shoji Group.
③ Matters that seriously damaged or may damage the environment, safety or health inside or outside the Company.
④ Critical violation of the Corporate Action Guideline and Corporate Ethics Compliance Regulations
⑤ Other matters equivalent to ① to ④ above
- Directors and employees shall respond promptly and accurately when the Corporate Auditors request them to report operation status.
- Directors and employees of the Company and directors and employees of the subsidiaries shall immediately report to the Company's Corporate Auditors and other personnel as soon as they become aware of any instance that may cause significant damage to the Shinko Shoji Group such as violations of laws and regulations.
- The Company shall prohibit the directors and employees of the Group company where the whistleblower belongs to who reported to the Corporate Auditors or other personnel from giving disadvantageous treatment against the whistleblower for the reason of having reported. When there is any objection to such treatment, the Corporate Auditors may request the Board of Directors to correct such treatment.
9. Framework to ensure that audits by the Corporate Auditors are effectively conducted
- The Corporate Auditors shall create opportunities for individual interviews with directors and important employees responsible for the execution of operations as well as directors and employees of group subsidiaries.
- The Board of Corporate Auditors shall regularly hold meetings with the President, the Audit Office and the Accounting Auditors, respectively.
- In respect of procedures such as advance payment or reimbursement of audit expenses that incur in the course of execution of duties of the Corporate Auditors and treatment of other audit costs, the Company shall complete the procedures immediately unless said expenses or debt are deemed unnecessary for the execution of duties of the Corporate Auditors.