Systems Ensuring Directors’ Compliance with Laws and Regulations and the Company’s Articles of Incorporation in Executing Their Duties, and Other Systems Ensuring the Appropriateness of Operations of Corporations of the Stock Company
To ensure effective and efficient operations, the reliability of financial statements, compliance with laws and regulations, and the protection of assets, the Company determined the “Basic Policy for the Establishment of Internal Control System” by resolution of the Board of Directors’ meeting held on June 21, 2019, in accordance with the provisions of Article 362, Paragraph 5, of the Companies Act and Article 362, Paragraph 4, Item 6, of the said Act and Article 100, Paragraph 1 and Paragraph 3, of the Ordinance for Enforcement of the Companies Act as follows.
- The Company, to maintain and improve the supervisory function with respect to the execution of duties by directors, separates the execution and supervisory functions by adopting an officer system and continuously elects independent outside directors.
- The Company establishes effective and efficient audit and supervisory system of Audit and Supervisory Committee to strengthen the audit and supervisory function for business executives
- The Corporate Governance Committee, an advisory body for the Board of Directors chaired by an outside director, shall be established to consult on the appointment, dismissal and remuneration system of directors, etc. and other matters concerning governance, to enhance the transparency and objectivity of decision-making processes.
- Directors, officers and employees pursue lawful and fair business activities that accommodate social needs in accordance with “AUTOBACS Code of Conduct and Guidelines for Action”
- Compliance rules will be established and the officer in charge shall be appointed to be responsible for controlling all compliance-related matters. Under the control of the officer, a compliance department will be established to control all compliance-related matters.
- The Company develops the foundations for complying with legal requirements by identifying laws and regulations, etc., applicable to the Company’s business and providing education and enlightening activities as needed.
- To promote early detection and correction of legal violations and other problems concerning compliance, the “Orange Hotline” (the Group’s reporting system) will be established for reporting legal violations and compliance issues directly to an outside commissioned company.
- The Audit and Supervisory Committee shall perform audit and oversight function on the execution of directors’ duties from an independent standpoint, including the development and implementation status of the internal control system.
- The internal audit department shall assess internal controls and audit the appropriateness and effectiveness of operations and performs regular reporting of the results of auditing to the representative director and chief executive officer, and the Audit and Supervisory Committee.
- Rules concerning measures against antisocial forces will be established and a system shall be implemented to cut off any relationships with antisocial forces and reject any unlawful demands.
- With respect to information concerning the execution of duties by directors, the Company stores and manages it in reliable and searchable conditions that suit relevant storage media pursuant to internal rules related to document management and confidential information management, etc.
- Directors or the Audit and Supervisory Committee may view these documents at any time, as necessary, to audit or supervise directors’ performance of duties.
- The Company will develop a risk management system designed to accurately identify and evaluate risks, and appropriately control them. The Company will also put in place a crisis management system that prevents and minimizes damage and loss in the event of serious incidents. Combining these two systems, the Company will establish an integrated risk management system.
- The Risk Management Committee, chaired by the representative director and chief executive officer, formulates annual risk management policies. In accordance with said annual policies and risk management rules, the Committee promotes risk management activities in a smooth and appropriate manner.
- The Company will audit the effectiveness and appropriateness of the integrated risk management system by internal audit and periodically report to the Board of Directors and the Audit and Supervisory Committee.
- In the event of serious crisis, the representative director and chief executive officer, who chairs the Risk Management Committee, sets up the Crisis Management Headquarters in accordance with the crisis management rules and other rules, and takes the lead in ensuring a prompt and appropriate response and early recovery.
- To ensure improved quality of discussions and prompt decision making at Board of Directors’ meetings, an appropriate number of directors shall be maintained.
- The Board of Directors will establish the Executive Committee as a forum for forming a consensus among officers. The Executive Committee will hold preliminary discussions on matters to be resolved at the Board of Directors’ meeting and provide adequate information for decision making, including the results of preliminary discussions, to the Board of Directors.
- The Board of Directors formulates the medium- to long-term business plans and the annual business plan, and periodically verifies the status of progress, etc., of business strategies and various measures pursued based on business plans.
- The Board of Directors delegates the execution of duties to the representative director, executive directors and officers based on the management structure and segregation of roles.
- The representative director, as the person in charge of execution, controls the execution of duties of the executive directors and officers, aiming at achieving the Group’s goals.
Executive directors and officers decide on specific goals in the areas for which they are responsible and develop an efficient business execution system.
（1）Systems for reporting matters related to the execution of duties by directors, etc., of the Company’s subsidiaries to the Company
- Based on the affiliates’ management rules stipulated by the Company and the subsidiaries’ operational standards based on these rules, the Company shall request submission of necessary related documents to understand its subsidiaries’ business management accurately.
- The Company shall request that the Company’s officers or employees attend important meetings such as board of directors’ meeting held by each subsidiary so that each subsidiary can report to the Company the results of operation, financial position and other important information of the subsidiary.
（2）Rules and other systems concerning the control of risks of loss at the Company’s subsidiaries
- The Company shall formulate risk management rules concerning the risk management of the entire Group, request that its subsidiaries conduct risk management based on these rules and control the risks of the entire Group comprehensively and in an integrated manner.
- The Company shall establish a Risk Management Committee in charge of the risk management of the Group, including the subsidiaries of the Company, and deliberate on issues related to the promotion of risk management of the entire Group to formulate measures to address such issues.
（3）Systems that ensure the efficient execution of duties by directors, etc., of the Company’s subsidiaries
- While paying respect to the autonomy and independence of the management of its subsidiaries, the Company shall draw up basic policies and operational policies for managing subsidiaries to contribute to the appropriate and efficient operation of Group management.
- The Company stipulates organizational standards for its subsidiaries related to chain of command, authority, decision making, etc. and has the subsidiaries establish their own system in line with these standards. Thus, based on the scope and scale of each subsidiary’s business, the subsidiaries may choose whether to install a system without a board of directors or an officer system.
（4）Systems that ensure the subsidiaries’ directors, etc., and employees comply with laws and regulations and the Company’s Articles of Incorporation in executing their duties
- The Company shall have its subsidiaries establish a system in which directors, officers and employees pursue lawful and fair business activities that accommodate social needs in accordance with “AUTOBACS Code of Conduct and Guidelines for Action”
- The Company shall have its subsidiaries establish a system to deploy an appropriate number of audit and supervisory board members and persons in charge of promotion of compliance and dispatch audit and supervisory board members as necessary, in accordance with the scope and scale, etc. of each subsidiary’s business.
- The Company shall have its subsidiaries establish a system whereby their audit and supervisory board members audit the execution of duties by their directors, including the establishment and operation of internal control systems.
- The Company shall have its subsidiaries establish a system to use the Orange Hot Line, which was established for early detection and correction of legal violations and other issues concerning compliance.
（5）Other systems to ensure the appropriateness of business operations by the Group
- The Company ensures the appropriate and effective use of information technology within the relevant range of information communication and business operations of the Company and its subsidiaries.
- The Company’s Audit and Supervisory Committee and internal audit department investigates the appropriateness of the business operations of its subsidiaries.
The Company will assign employees dedicated to supporting the duties of Audit and Supervisory Committee. With respect to the number of employees, the selection of employees and other matters, the consent of the Audit and Supervisory Committee shall be obtained in advance.
Employees who assist with the duties of the Audit and Supervisory Committee shall perform their duties only under the direction and order of the Audit and Supervisory Committee. The head of the Audit and Supervisory Committee shall evaluate the performance of those employees, and directors who are audit and supervisory committee members and the representative director shall consult each other with respect to the transfer and treatment of said employees.
The Company shall notify all the directors, officers and employees of the Company that the employees who assist with the duties of Audit and Supervisory Committee must comply with directions and orders from the Audit and Supervisory Committee.
（1）System that allows the Company’s directors and employees, etc. to report to the Audit and Supervisory Committee
- Directors and officers periodically reports to the Audit and Supervisory Committee through important meetings such as the Board of Directors’ meetings and other opportunities, on the status of execution of their duties including matters concerning to the Company’s subsidiaries, and provides supplementary reports as needed without delay.
- Directors, officers, and employees shall promptly and accurately respond when they are requested by the Audit and Supervisory Committee to report on their duties, or when the Committee conducts research on business and asset status of the Group.
- Directors and officers shall immediately report to the Audit and Supervisory Committee when they discover anything that has caused or may cause substantial damage to the Company, such as violations of laws and regulations.
（2）System that allows persons who received reports from directors, audit and supervisory board members and employees, etc. of the Company’s subsidiaries, to report to the Company’s Audit and Supervisory Committee
- Directors, audit and supervisory board members, officers and employees of the Company’s subsidiaries shall promptly make an appropriate report on their duties if they are requested by the Audit and Supervisory Committee of the Company to do so.
- In an incident that could cause substantial damage to the Company or its subsidiaries, such as legal violations, the directors, audit and supervisory board members, officers and employees of the Company’s subsidiaries shall immediately make appropriate report within the subsidiary as well as report to the department in charge of managing the Company’s subsidiaries or use the Orange Hot Line.
- The Company’s corporate audit department and internal control department shall hold a meeting regularly to report to the Company’s Audit and Supervisory Committee on the actual status of internal audits, compliance, risk management, etc. at the subsidiaries.
- The department in charge of the Orange Hot Line shall report the status of internal reporting from the Group’s directors, officers and employees on a regular basis to the Company’s Audit and Supervisory Committee and Board of Directors, while ensuring the anonymity of the report’s source.
The Company prohibits the Group’s directors, officers and employees who reported to the Audit and Supervisory Committee from being treated unreasonably because of such reporting. This directive shall be thoroughly disseminated to the Group’s directors, officers and employees.
- In cases when the Audit and Supervisory Committee bill the Company for prepaid expenses incurred through the execution of their duties, the department handling such matters shall deliberate on said bills and pay the expenses or liabilities without delay, except in cases when it was determined and verified that such expenses or liabilities were unnecessary for the execution of the duties.
- To pay expenses incurred by the execution of duties by the Audit and Supervisory Committee, a certain amount of the budget shall be set aside each year.
- To enhance the audit function of the Audit and Supervisory Committee, the Company will consider their expertise as well as independence when electing outside audit and supervisory committee members.
- The Audit and Supervisory Committee holds regular meetings with the independent auditor, the internal audit department and other parties to exchange information and opinions and promote close cooperation.
- The Audit and Supervisory Committee holds regular meetings with the representative director to audit the execution of duties by directors and further improve the audit system.
- The Audit and Supervisory Committee shall promote cooperation with lawyers, certified public accountants, and other experts outside the Company when the members of the Committee believe it necessary to do so in executing their duties.
Established on May 19, 2006
Revised June 21, 2019