Corporate Governance

Basic policy for establishment of Internal Control Systems

Date issued: May 10, 2006
Date revised: July 31, 2009
Date revised: March 30, 2015
Date revised: June 25, 2020

Hakuto Co., Ltd. (the “Company”) resolved, at the meeting of the Board of Directors, the basic policy to establish “Systems for ensuring that execution of duties by directors complies with laws and regulations and the articles of incorporation, and other systems necessary to ensure the properness of operation of a company and its consolidated subsidiaries” (internal control system) provided for in Article 399-13, Paragraph 1, Item 1, (B) and (C) of the Companies Act and Article 110-4, Paragraph 1, Item 1, and Paragraph 2 of the Enforcement Regulations of the Companies Act as follows:

1. Systems for ensuring that actions taken by Directors and employees are in compliance with both the laws and regulations of Japan and the Company’s Articles of Incorporation

  1. AWith the Hakuto Group Ethical Code and the Rules for Compliance serving as the code of conduct for the Company and its consolidated subsidiaries (the “Group”), training and other measures targeting the Group’s Directors and employees shall be regularly implemented to ensure that all company activities are in compliance with the laws and regulations of Japan and consistent with social mores.
  2. BA Director shall be appointed to bear managerial responsibility for compliance activities. Working under this Director, the Legal Dept., which shall bear operational responsibility for compliance activities, shall prepare compliance programs and build and maintain the Group-wide compliance systems. The Internal Control Office shall audit compliance system functions and effectiveness.
  3. CBased on the Rules for Ethics, the Compliance Committee shall be established and chaired by the President of the Company. This Committee shall discuss important compliance matters for the Group as a whole and report the results of these discussions to the Board of Directors.
  4. DBased on the Group’s Whistleblower Protection Rule, a scheme allowing employees to directly report to the arranged organization an information on violations of laws and regulations or social mores shall be established and maintained.
  5. ENo relationship whatsoever shall be had with anti-social factions and groups which may threaten the order or safety of the civil society, and the Company shall take a resolute stance systematically against any undue claims or sabotage attacks through close coordination with outside professionals such as the police and lawyers.

2. Systems for preserving and managing information on Directors’ performance of their duties

  1. ADocuments (including electromagnetic record) relating to Directors’ performance of their duties shall be preserved and managed, together with related information, as required by the Rules for Document Management. This information shall be maintained in viewable condition for at least ten (10) years, as necessary.
  2. BIn accordance with the Information Security Policies, the Rules for Electronic Data Management and other rules for information security, protection, management and use of electronic information shall be improved and facilitated.

3. Rules and other systems to manage the risk of loss

  1. AA Director shall be appointed to be responsible for risk management. Working under this Director, the General Affairs Dept., which shall bear operation responsibility for risk management, shall construct the Group-wide risk management system.
  2. BA Director responsible for risk management decides departments in charge of each type of risk assumed by the Group. Those departments carry out various measures to make risk management more effective, and continuously monitor status of risk management.
  3. CIn preparation for the possibility of the realization of the Group-wide risks, the Rules for Crisis Management including emergency measures, measures for containing damage, recovery measures, and measures for preventing recurrences shall be formulated. When risks are realized, damage shall be minimized by responding swiftly and appropriately.

4. Systems for ensuring Directors perform their duties effectively

  1. A Efficient performance of duties by Directors shall be promoted by appropriately implementing management systems. These systems shall cover the formulation of management plans for the consolidated group companies by the Board of Directors, the setting of performance objectives and budgets and the management of performance on a monthly and quarterly basis for each business segment or by each subsidiary by responsible Directors based on the management plans, and the review of monthly and quarterly performance and the implementation of performance improvement measures by the Board of Directors and Board of Managing Directors.
  2. BThe speed of decision-making shall be increased through measures like simplifying the decision-making process. The Board of Managing Directors shall make a decision on important matters in a council system to ensure decisions are made with heightened caution.
  3. CTo ensure the efficient performance of and establish responsibility for actions taken based on Board of Directors resolutions, responsible parties, their responsibilities and implementation details shall be determined based on the Rules for General Organization, the Rules for Segregation of Duties, the Rules for Administrative Authority and the Rules for Managing Affiliates in Japan and Overseas.

5. Systems for ensuring the propriety of business activities pursued by the Corporate Group consisting of the Company and its subsidiaries

  1. AWith the Hakuto Group Ethical Code serving as a code of conduct for the Group, Internal Control Systems for the Hakuto Group shall be constructed by having each of Group companies adopt necessary rules based on the Group Ethical Code.
  2. BThe Directors responsible for compliance and risk management shall retain authority and responsibility for the construction of compliance and risk management systems at each subsidiary. The General Affairs Dept. and the Legal Dept. shall promote and manage the construction of these systems throughout the Hakuto Group.
  3. CThe Department responsible for management of subsidiaries shall supervise subsidiaries’ management based on the Rules for Managing Affiliates in Japan and Overseas. The responsibilities include: (i) having subsidiaries periodically report to the Company as to their operational performance, financial status and other significant management issues, (ii) holding periodical top management meetings which the Group’s Directors attend and (iii) establishing the reporting system under which any significant issues in subsidiaries are reported to the management meetings.
  4. DBased on the Financial Instruments and Exchange Law, each company of the Group shall establish and implement necessary, appropriate internal controls over financial reporting in order to ensure the reliability of the financial reports of the Group. In addition, the Internal Control Office shall periodically examine the effectiveness of the internal controls, report findings to the Board of Directors and provide advice on improvement and corrective measures as per needed, as required by the Rules for Internal Control.

6. Matters regarding employees whom Audit and Supervisory Committee request to assist them in their duties, the independence of such employees from Directors (Directors serving on the Audit and Supervisory Committee not included), and ensuring the effectiveness of instructions given by the Audit and Supervisory Committee to the employees.

The Rules concerning the employees appointed to support Audit and Supervisory Committee in their duties shall be provided, and employees supporting Audit and Supervisory Committee in their duties shall be appointed from among the Company’s employees. The Audit and Supervisory Committee’s agreement shall be obtained in advance regarding the transfers and performance evaluations of such employees. Employees assigned to assist Audit and Supervisory Committee shall not simultaneously bear responsibility for the Company business activities and shall not follow directions issued by Directors, except Director serving on the Audit and Supervisory Committee are not included.

7. Systems allowing Directors and employees to report to Audit and Supervisory Committee, systems allowing other reports concerning to Audit and Supervisory Committee, and systems for ensuring that employees who make a report under the preceding item are not treated disadvantageously due to making the report

  1. ADirectors and employees shall immediately report to Audit and Supervisory Committee events causing great damage to the Company, events that are likely to cause great damage to the Company or its subsidiaries should they happen, discoveries of illegal or improper activity, and other events specified as warranting a report to Audit and Supervisory Committee. Audit and Supervisory Committee may also seek reports from Directors and employees. Reports shall be submitted in formats determined in discussions by the Directors and Audit and Supervisory Committee.
  2. BAudit and Supervisory Committee shall be periodically reported to by the Internal Control Office regarding the status of the internal audits of the Group, the Legal Dept. shall report the update of the Group compliance and the status of whistle-blowing activity, and by the General Affairs Dept. regarding the update of the Group risk management.
  3. CIt shall be prohibited to give any disadvantageous treatment to a whistle-blower who internally reports to Audit and Supervisory Committee on the ground of such whistleblowing. Full dissemination to all Directors and employees shall be ensured about this matter.

8. Policies concerning the procedure for advance payment or reimbursement of expenses that arise with regard to execution of the duties of the Audit and Supervisory Committee Members or any other processing of expenses or obligations that arise with regard to execution of those duties

Audit and Supervisory Committee shall be able to consult with outside professionals such as lawyers or CPAs when it is necessary for them to conduct their duties, and the Company shall bear such costs.

9. Other systems for ensuring the efficient performance of audits by Audit and Supervisory Committee Members

Discussions shall be regularly held with the President to promote appropriate mutual understanding and the effective performance of audit work.

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