Basic Policy on Internal Control
1．System to ensure that the execution of duties by Directors and employees complies with laws and regulations and the Articles of Incorporation
- （1）In order to ensure that Directors, Executive Officers, and employees (workers) comply with laws and regulations, social ethics, and corporate ethics, the "Code of Business Practice" is established in the Compliance Regulations.
- （2）In accordance with corporate ethics, we shall stand resolutely against antisocial forces that threaten the order and safety of civil society, and shall not have any relationship with them.
- （3）With regard to the establishment and operation of the compliance system, related policies, responses and important matters shall be discussed and decided in the "Management Committee" (consisted of Representative Directors, Executive Officers(Corporate) and Division Director, and is chaired by President).
- （4）Compliance with the "Code of Business Practice" and compliance efforts are overseen by Human Resources & General Affairs Department as the secretariat of the Management Committee, which analyzes risks inherent in new businesses and new projects and reports them to the Management Committee in a timely manner. In addition, Human Resources & General Affairs Department reports to the Board of Directors as necessary. Furthermore, Human Resources & General Affairs Department conducts employee training and various internal meetings to raise awareness of the significance of compliance.
- （5）If a Director, Executive Officers and employee discovers a compliance problem, the Director, Executive Officers and employee shall report or whistle blow the problem through the normal reporting channels or the whistle-blowing system as a means of reporting, which is different from the normal ones, as stipulated in the Compliance Regulations.
- （6）For internal control over financial reporting, the Company shall develop and enhance systems necessary to ensure the appropriateness and reliability of financial reporting.
2．Matters related to the storage and management of information related to the execution of duties by Directors
- （1）Information regarding the execution of duties by Directors shall be stored and managed by Human Resources & General Affairs Department in accordance with the Document Management Regulations.
- （2）Directors and Audit & Supervisory Board Members may inspect documents (including electromagnetic media records) at any time pertaining to the execution of duties by Directors, Executive Officers and employees, which are required to be managed by the Document Management Regulations.
- （3）Revision or abolishment of the Document Management Regulations is internally approved for the draft made by the Human Resources & General Affairs Department and approved by the Board of Directors.
3．Regulations and other systems concerning the management of risk of loss
- （1）Business Support Department supervises the risk management in the Company and the Group based on the Risk Management Regulations, which specify the risk analysis, classification and response system. When new risks are identified, Business Support Department analyzes and classifies them, and proposes to revise or abolish Risk Management Regulations. Revision or abolishment of the Risk Management Regulations is internally approved for the draft made by the Business Support Department and approved by the Board of Directors.
- （2）In the event that the risks assumed in Risk Management Regulations have actualized or other serious risks have occurred, President (or its representative) shall take overall control and organize an emergency headquarters, and a person designated by the Division Manager of the emergency headquarters who is directly responsible for calming the crisis shall work with the emergency headquarters to limit the spread of the crisis or damage. The process during this period is reported by the person in charge of implementation to the emergency headquarters. The emergency headquarters determines the policy for the countermeasures and reports the details of the implementation to the Board of Directors.
- （3）In cases where the impact of actualized or occurring risks on the Company's management is relatively minor and where only a limited number of departments or parties are involved, this shall be dealt with by the Management Committee and the normal division of duties and chain of command.
4．System to ensure efficient execution of duties by Directors
- （1）The Company shall establish decision-making rules for Directors, Executive Officers and employees in accordance with the Authority for Duties Regulations and the Approval Request Regulations, clarify the authority and responsibilities of each officer, and establish a proper and efficient system.
- （2）Monthly reports and reviews are conducted on the performance of each business division, profits and losses of the Company and its affiliates, management indicators deemed important by the Company, and general conditions of internal audits. The "Division Director Committee" (consisted of Representative Directors and all Executive Officers and Division Directors, and is chaired by President) is held once a month to determine the following activity policies.
- （3）Prior to the submission of resolutions to the Board of Directors, for important projects such as investments, including the planning stage, relevant officers meetings are held to discuss and coordinate pending issues and to disseminate information.
- （4）The Company shall establish a Nomination and Compensation Committee (comprised of three or more Directors selected by resolution of the Board of Directors, of which the majority shall be selected from External Officers and External Officers shall, in principle, be selected from independent External Directors ) as an advisory board to the Board of Directors in order to maintain fairness, transparency and objectivity in procedures related to the nomination and compensation of Directors, Audit & Supervisory Board Members and Executive Officers and to strengthen corporate governance and shall report back to the Board of Directors.
- （5）The Company shall establish a Special Committee (comprised solely of three or more External Officers selected by resolution of the Board of Directors who, in principle, shall be selected from independent External Directors) as an advisory board to the Board of Directors in order to protect minority shareholders in transactions or actions that may result in a conflict of interest between controlling shareholders or major shareholders and minority shareholders and shall report back to the Board of Directors.
- （6）"Sales Division Directors Committee" (consisted of Representative Directors, Executive Officers and Division Directors(Sales and Development), and is chaired by President) is held once a month for the purpose of sharing sales and development information.
- （7）The Company shall establish a Sustainability Committee (consisted of Representative Directors, Executive Officers, the Director of Corporate Division and Division Directors (development), and is chaired by the President) to promote sustainability initiatives in order to contribute to the realization of a sustainable society and enhance corporate value and shall periodically report back on its activities to the Board of Directors.
- （8）At the end of the fiscal year, the budget for the following fiscal year and beyond shall be formulated and approved by the Board of Directors. At the end of the interim fiscal year, the budget achievement forecast for the second half shall be formulated and reported to the Board of Directors.
5．System to ensure the appropriateness of business operations in the Company and the Group, which is comprised of the parent company and the subsidiaries
- （1）Executive Officers or Division Directors and presidents of Group companies in charge of each division of the Company or Group company shall establish, maintain and operate internal controls to ensure the appropriate execution of business at each division or Group company. For the establishment and maintenance of internal controls, based on the responses for efficient business execution described in 4) below and the results of the internal audit described in 5) below, Executive Officers(Corporate) and Division Directors of the Company gather information as necessary, and the specialized staff of each administrative division of the Company provide support.
- （2）The presidents of each Group company shall, in accordance with Affiliate Company Management Regulations and Budget Management Regulations of the Company, obtain the Company's approval for necessary matters, and report financial conditions, including financial results and administrative results, as well as operating results and other important information to the Executive Officers or Division Directors of the Company in charge of each Group company, and administrative divisions of the Company, which has jurisdiction over reported matters. Upon receiving such reports, the Executive Officers or Division Directors in charge of each company, or the administrative division of the Company in charge of matters reported shall report at the Division Directors Committee and Sales Division Directors Committee held once a month. This will maintain and enhance the reporting system to the Company regarding the execution of duties by directors and others at Group companies.
- （3）The Group shall maintain and enhance the regulations and other systems for managing the risk of loss at each Group company by positioning each Group company as same as each division of the Company, and comprehensively managing all companies in accordance with Risk Management Regulations of the Company.
- （4）System to ensure efficient execution of duties by directors and others of each Group company shall be maintained and enhanced through the formulation of business plans, etc. on a consolidated basis in accordance with Budget Management Regulations, etc. of the Company, provision of guidelines, etc. from each administrative division of the Company that contribute to the management of indirect business operations, etc. of each Group company, and reports and consultations to each administrative division of the Company from each Group company.
- （5）Each Group company shall establish and operate individual Compliance Regulations to ensure that the execution of duties by directors and employees complies with laws and regulations and the Articles of Incorporation. Internal Auditing Office of the Company conducts internal audits of the Company and the companies of the Group, and reports the results to Representative Directors of the Company, Executive Officers or Division Directors of the Company in charge of each division of the Company or Group company, Executive Officers(Corporate) and Division Directors of the Company, and explains the results to the General Managers of divisions subject to audits and the presidents of Group companies.
- （6）While ensuring the independence of management, the Group, as a member of the parent company (Toyota Tsusho Corporation) group, shares the spirit of the group basic principles and seeks to harmonize with a system to ensure the appropriateness of operations for the entire parent company group. In addition, contracts and terms and conditions with the parent company group shall be rationally determined with reference to the contract terms and market prices in transactions with other customers.
6．In cases where Audit & Supervisory Board Members has requested employees to be assigned to assist with their duties, matters concerning the system on such employee, the independence of such employee from the Directors, and the effectiveness of instructions given to such employee
- （1）Secretariat of the Audit & Supervisory Board, which is held concurrently by a member of Finance & Accounting Department, assists in the exchange of information with the Accounting Auditors and in other matters related to audit operations. At the request of Audit & Supervisory Board Members, other members of the Corporate Division also concurrently serve as the Secretariat of the Audit & Supervisory Board.
- （2）Audit & Supervisory Board Members may order employees of each administrative division including Internal Auditing Office to carry out matters necessary for audit operations. The member who received such an order shall, in accordance with the direction of the Audit & Supervisory Board Member, investigate the matter independently from the internal chain of command and report the results directly to the Audit & Supervisory Board Member.
- （3）President shall explain to the Audit & Supervisory Board Member in advance and hear the opinions of the Audit & Supervisory Board Member regarding the issuance of personnel changes or disciplinary actions against members who are ordered by the members of the secretariat office of the Audit & Supervisory Board or Audit & Supervisory Board Member to carry out matters necessary for audit operations.
7．A system for the officers and employees, etc. of the Company and its subsidiaries to report to Audit & Supervisory Board Members of the Company, and a system to ensure that those who have made such reports are not treated adversely for the reason of making such reports
- （1）Directors of the Company shall report to Audit & Supervisory Board Members of the Company the matters related to each Group company as follows:
ａ In the event of a situation that may cause serious damage to the Group, facts, circumstances, response policy and its results
ｂ Matters on monthly profit and loss trends and other management status of Group companies
ｃ Matters on the status of internal audits
ｄ Important matters on risk management and compliance management
- （2）When Audit & Supervisory Board Members of the Company request reports from Executive Officers and employees of the Company, or from the officers and employees of Group companies (hereinafter referred to as "Group officers and employees") for the matters of information that the Audit & Supervisory Board Members judged necessary to perform audit, the relevant Group officers and employees shall adjust all business schedules and give highest priority to the Audit & Supervisory Board Members of the Company.
- （3）The Company shall not treat Group officers and employees who have reported to the Audit & Supervisory Board Members of the Company in an adverse manner for the reason of making such reports.
8．System to ensure that matters related to policies concerning the processing of costs or obligations that arise in connection with the execution of the duties of Audit & Supervisory Board Members and other audits by Audit & Supervisory Board Members are conducted effectively
- （1）The Company shall appropriate expenses incurred in connection with the execution of the duties of Audit & Supervisory Board Members in the general and administrative expense budget each year.
- （2）The Company shall, when requested by Audit & Supervisory Board Members to pay expenses required for ordinary audits or extraordinary expenses in connection with audits (including requests for advance payment of expenses under Article 388 of the Companies Act), hold deliberations in accordance with the decision-making authority of the department in charge, and promptly process payments unless it is determined that expenses and obligations related to such requests are not based on the execution of duties by Audit & Supervisory Board Members.
- （3）Other than meetings of the Board of Directors, Audit & Supervisory Board Members may attend other important meetings such as Division Directors Committee of the Company.
- （4）Audit & Supervisory Board Members may accompany an audit conducted by an Accounting Auditor and an audit conducted by the Internal Auditing Office, and attend meetings that report the results of the audit.