Organizational Governance

Internal Control System

At a meeting held on July 10, 2015, Yorozu’s Board of Directors decided to partially modify the Company’s basic philosophy towards its internal control system and the maintenance situation thereof. This decision was made in light of the fact that the Act to Amend the Companies Act (Act No. 90 of 2014) and the Ministerial Ordinance to Amend the Ordinance for Enforcement of the Companies Act (Ministry of Justice Ordinance No. 6 of 2015) went into effect on May 1, 2015, as well as the fact that the Company switched to a company with an audit and supervisory committee as of the 70th ordinary general meeting of shareholders held on June 10, 2015. Details are given below.

1. Structure to ensure that directors and employees of the Yorozu Group execute their duties in compliance with the law and articles of incorporation

a) Directors and employees shall execute their duties in accordance with the law, the articles of incorporation, and the division of duties, based on the Yorozu Group Charter of Corporate Behavior and the Employee Code of Conduct.
b) The General Affairs Department shall:
1. (1) preside over important compliance issues and their handling in a cross-sectoral manner and provide necessary education to directors and employees of the Yorozu Group;
2. (2) check the status of compliance in each department, prescribe improvements where needed, and follow their progress; and
3. (3) operate an internal whistleblowing system (called the “Don’t Tolerate It Help Box” inside the company), quickly ascertain information related to compliance and corporate ethics, find solutions, and report periodically to the Management Committee.
c) The Internal Auditing and Environmental Management Office shall:
1. (1) audit the status of compliance and report it to the Board of Directors; and
2. (2) develop and apply a system of evaluating and reporting the effectiveness of internal controls related to financial reporting, following the generally accepted standards for the evaluation of internal controls related to financial reporting, in order to ensure the reliability of financial reporting.

2. System for retaining and managing information about directors’ execution of duties

a) Information pertaining to the execution of directors’ duties shall be retained and managed appropriately, based on the law and rules for information security control.
b) The location and method of safekeeping information shall enable prompt inspection when there is a request for such from a director who is or who is not a member of the Audit and Supervisory Committee, and the details regarding said location and method are to be stipulated in the rules for document handling.
c) The period for managing information shall be as stipulated in the rules for document handling unless otherwise provided in the law.

3. Regulations and other structures for managing the risk of loss in the Yorozu Group

a) Based on the rules for risk management, specific risks shall be envisioned and classified in advance, assessments made as to whether the risks merit the taking of measures, and a system for swift and appropriate communication in the event of an emergency as well as emergency procedures developed.
b) In the event of an unforeseen contingency, an emergency headquarters headed by the chairman or president shall be established, loss and damage prevented from spreading, their effects minimized, and measures for preventing a recurrence taken, based on the rules for risk management.
c) The General Affairs Department shall check the status of risk management in each department, prescribe improvements where needed, and follow their progress.
d) The Internal Auditing and Environmental Management Office shall audit the status of risk management and report it to the Board of Directors.

4. Structure to ensure that directors of the Yorozu Group execute their duties efficiently

a) Concrete policies for each stage of an organization shall be established and managed consistently, based on the medium-term management plan and the annual operational plan.
b) Authority for the execution of duties shall be delegated to executive officers and swift decision-making enabled by the adoption of an executive officer system.
c) The Board of Directors shall decide matters prescribed in the management policies and the law as well as other important matters related to management, and monitor directors’ and the executive officers’ execution of business.
d) The Management Committee composed of executive officers and others shall meet at least once a month and swiftly resolve individual management issues related to the execution of business.

5. System for reporting to Yorozu matters related to the execution of duties by directors, etc. of the company’s subsidiaries

a) The directors, etc. of the company’s subsidiaries shall periodically report to the Management Committee the status of the execution of business by the company’s subsidiaries.
b) Persons responsible for functional axes, who exercise cross-sectoral control over the company’s subsidiaries, shall keep abreast of the latest situation by requesting reports on the status of the execution of business from subsidiaries as needed.

6. Other structure to ensure proper operations in the Yorozu Group

The company’s subsidiaries shall conduct business based on the rules established by the company for management of affiliated companies; provided, however, that they obtain approval from the company’s Management Committee, etc. for certain matters.

7. Matters concerning directors and employees assisting with the duties of the Audit and Supervisory Committee, matters concerning the independence of said directors and employees from other directors (excluding directors who are members of the Audit and Supervisory Committee), and matters concerning the ensuring of effectiveness of instructions given by the Audit and Supervisory Committee to said directors and employees

a) Employees of the Internal Auditing and Environmental Management Office shall assist with the duties of the Audit and Supervisory Committee.
b) Approval of the Audit and Supervisory Committee shall be required regarding the reassignment, evaluation, and disciplining of employees of the Internal Auditing and Environmental Management Office engaged in the assistance work, in order to ensure independence from directors (excluding directors who are members of the Audit and Supervisory Committee).
c) Said employees shall give priority to said assistance work over other duties and shall carry it out based solely on instructions from the Audit and Supervisory Committee, thereby ensuring the effectiveness of instructions given by the Audit and Supervisory Committee.

8. Structure for directors (excluding directors who are members of the Audit and Supervisory Committee) and employees as well as directors, auditors, other persons of comparable rank, and employees of subsidiaries, and also persons who received a report from any of these persons, to report to the company’s Audit and Supervisory Committee, and other structure related to reporting to the Audit and Supervisory Committee

a) Representative directors and executive directors shall report as needed within meetings of the Board of Directors on the execution of business for which they are responsible.
b) The General Affairs Department and the Internal Auditing and Environmental Management Office, etc. shall periodically report within meetings of the Board of Directors the status of the development and application of matters specified in this basic policy, in order to ensure that the basic policy functions effectively.
c) Directors (excluding directors who are members of the Audit and Supervisory Committee) and employees of the Yorozu Group shall respond promptly and appropriately if the Audit and Supervisory Committee requests a business report or conducts an investigation into operations and assets.
d) Directors (excluding directors who are members of the Audit and Supervisory Committee) and employees of the company shall immediately report to the Audit and Supervisory Committee upon the discovery of suspicion of fraud, suspicion of violations of the law or articles of incorporation, and upon the discovery of facts that could cause serious damage to the Yorozu Group.
e) The Internal Auditing and Environmental Management Office shall periodically report to the Audit and Supervisory Committee the results of internal audits in the Yorozu Group and the status of its other activities.
f) The General Affairs Department shall periodically report to the Audit and Supervisory Committee the status of whistleblowing in the Yorozu Group.

9. Structure to ensure that persons who have reported to the Audit and Supervisory Committee are not subjected to unfavorable treatment for having made said report

• Directors (excluding directors who are members of the Audit and Supervisory Committee) and employees of the Yorozu Group shall be able to report directly to the Audit and Supervisory Committee, and company rules, etc. shall prohibit their unfavorable treatment for having made said report.

10. Matters related to the advance payment or reimbursement of expenses arising in regards to execution of the duties of directors who are members of the Audit and Supervisory Committee (limited to the execution of duties of the Audit and Supervisory Committee) as well as policy related to other processing of expenses and debts arising with the execution of said duties

a) The company shall, where the Audit and Supervisory Committee has, based on Article 399-2(4) of the Companies Act, requested the company for advance payment, etc. of expenses regarding execution of its duties, promptly process said expenses or debts, except where said expenses or debts are not necessary for the execution of the duties of directors who are members of the Audit and Supervisory Committee.
b) The company shall, where the Audit and Supervisory Committee has, in its own right, requested the use of an outside expert for the execution of the duties of a director who is a member of the Audit and Supervisory Committee, bear the expenses, except where not required for the execution of the duties of a director who is a member of the Audit and Supervisory Committee.

11. Other structures to ensure effective implementation of audits by the Audit and Supervisory Committee

The company shall obtain the attendance of directors who are members of the Audit and Supervisory Committee at major meetings of executive officers, such as the Management Committee, and shall secure opportunities for directors who are members of the Audit and Supervisory Committee to inspect important documents and to exchange information on a regular basis and whenever necessary with the representative directors and the accounting auditors.

12. Basic Approach and Systems to Exclude Antisocial Forces

The company has declared in a code of conduct to be observed by all directors and employees of the Yorozu Group that we will respond resolutely to antisocial activity and forces and will never engage in under-the-table payoffs in response to any kind of undue claims or pressure. We have precluded relationships with antisocial forces through the thorough adherence to the code of conduct. The General Affairs Department, which is in charge of controlling responses to antisocial forces, constantly obtains relevant information and issues reminders for vigilance, thereby preventing contact with antisocial forces. Furthermore, should some kind of relationship occur, such as the receipt of undue claims from antisocial forces by a director or employee of the Yorozu Group, we have developed a system to enable immediate reporting to and consultation with the General Affairs Department as well as a system for quickly severing the relationship through cooperation, centered on the General Affairs Department, with the police and other external agencies concerned.