Through the franchise system, the AUTOBACS Group provides a variety of products and services to a large number of customers. We recognize that maintaining and enhancing the AUTOBACS brand to earn further support and trust from all stakeholders is our most important management challenge. Accordingly, we have worked continuously to clarify management responsibilities and increase the speed of decision making by streamlining our management structure. At the same time, we are striving to raise management transparency by strengthening the management oversight function and enhancing timely-disclosure, in order to fulfill our corporate social responsibilities.

For AUTOBACS, making efforts to “strengthen brand power” and thus further boost the support and trust of stakeholders is equally important as improving its financial results. To this end, the Company works hard to fulfill its social responsibilities by developing a management system that ensures the appropriateness of daily operations. Accordingly, in May 2006 the Board of Directors of AUTOBACS adopted the “Basic Policy for Building an Internal Control System.”

• In July 2006, the Company established the “Corporate Governance & Internal Control System Architecture Project.” At present, the project has six full-time members and seven part-time ones. In February 2007, the Company formulated the “Master Plan for Building an Internal Control System,” and the following efforts are under way.
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• Through various means, such as adoption of an executive officer system and appointment outside directors, the Company has already enhanced the directors’ supervision function. Corporate auditors receive periodic progress reports of building an internal control system, and they attend important internal meetings to monitor directors’ execution of duties. Meanwhile, the Company continues to upgrade its internal rules while reinforcing its Orange Hotline, an internal direct reporting system for violations of laws and regulations and other aspects of compliance. At the same time, the Company has continuously sought to maintain and boost the overall awareness of executives and employees regarding legal and ethical compliance.
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• The Company has developed internal information management rules and procedures pertaining to the storage of internal meeting materials and other important information, in both hard copy and electronic form. The information is protected and managed through various security measures, such as devices for limiting access and use of passwords.
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• AUTOBACS is conducting a “companywide risk diagnosis” to identify and evaluate risks associated with overall operations. It has also formulated “Risk Information Management Regulations” as part of asystem to prevent problems occurring in the first place. Furthermore, regular meetings of chief officers are held to receive reports and swiftly consider counter-measures to address events that will have potentially a significant impact on the Company’s operations.
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• Based on Article 370 of the Company Law, AUTOBACS has cited “Omission of resolutions at Board of Directors meetings” to facilitate efficient execution of duties. However, the Company emphasizes in-depth deliberation of all relevant matters at its Board meetings and thus has clearly defined this rule’s application to prevent its abuse. In addition, the Company has incrementally reduced the number of directors serving concurrently as executive officers to help them perform their duties more efficiently.
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• Through operational guidelines for subsidiaries and Group corporate auditor meetings, AUTOBACS is endeavoring to boost awareness about the importance of legal and ethical compliance.
• To cite a specific example, the Company is rebuilding its IT system to enable real-time sharing of sales figures and other key information between AUTOBACS and its stores, including those operated by franchisees. The Company also deploys various operational systems to review expenses, fixed assets, and financial results as required. In these ways, AUTOBACS is stepping up efforts to ensure the adequacy of its operations.
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• Following requests by and discussions with corporate auditors, since April 2007 the Company has assigned employees to assist corporate auditors in the pursuit of their duties.
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• The assignment and replacement of employees to assist corporate auditors are to be discussed by corporate auditors and directors. Performance evaluation of such employees is to be conducted via meetings of corporate auditors.
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• Through various forums, such as Board of Directors and management meetings attended by corporate auditors, directors and officers are to report to corporate auditors on a regular basis regarding the status of execution of duties, as well as important matters in corporate and business management. If a matter that could lead to a significant loss for the Company is identified, it is to be reported immediately to the corporate auditors.
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• In addition to meetings of the Board of Directors, corporate auditors participate in other meetings as deemed necessary, and request reports from directors, officers, and employees as appropriate. Through such reports, corporate auditors gain an understanding of the status of operations. Through periodic meetings with the Company’s representative director, corporate auditors endeavor to deepen mutual understanding and build trusting relationships.
• Directors instruct personnel in charge of management of subsidiaries to participate in Group corporate auditor meetings, which are attended by corporate auditors of AUTOBACS and its subsidiaries. This is to ensure that communication and information gathering/exchanges are carried out appropriately. In executing their duties, corporate auditors are able to work with lawyers, certified public accountants, and other external experts as necessary, without restriction. The Company also gives corporate auditors opportunities to meet with outside specialists as needed.