Internal Control System

Basic Concept and Operation Status of Internal Control System

Basic Concept

Sojitz has been working on implementing and maintaining our internal control systems in terms of rules, organization and systems. The following “Basic Policy Regarding the Establishment of Systems for Ensuring Appropriate Execution of Sojitz Group Business Operations” was resolved by the Board of Directors on April 24, 2015, based on the Companies Act and Ordinance for the Enforcement of the Companies Act of Japan.

 

  • i)Retention and Management of Information relating to the Execution of Directors’ Duties of the Company
  • -With respect to important documents relating to the execution of the Company directors’ duties such as the minutes of Board of Directors meetings and approval documents of the Company, the Company shall prescribe, in accordance with the Company’s Board of Directors rules and the internal rules for document retention and information management, a retention period that is equal to the period required by the relevant law or regulation.
    The Company shall also designate the department in charge of such retention and documents shall be made available for view as necessary.
  • ii)System to Ensure Compliance by Directors and Employees of the Company with Laws and Regulations and the Articles of Incorporation in Execution of Duties
  • -The Company shall establish the Sojitz Group Compliance Code of Conduct and Ethics and the Manual for its implementation, as well as the Sojitz Group Compliance Program to ensure that directors and employees of the Group comply with laws and regulations, the Articles of Incorporation, and internal rules.
  • -In order to fully achieve understanding and compliance of amendments of laws and regulations relating to the Group' s operations, the Company shall promote the reinforcement and improvement of the legal compliance system centering on the Compliance Committee. Also, the Company shall clarify the responsibilities of each department within the Company and the supervisor in charge of Group companies.
  • -The Company shall ensure that the Group does not enter into any business or other relationship with antisocial forces, and shall resolutely reject any improper request with legal measures if necessary.
  • iii)Rules and Other Systems regarding Management of Loss Risks of the Company and its Subsidiaries
  • -In order to prevent, or when impossible to prevent, to minimize economic losses of the Group, the Company shall analyze and categorize various potential risks for economic losses both inside and outside the Company including credit risks, business investment risks, market risks and disaster risks. The Company shall establish internal rules or manuals, and assign a department for managing the risks in each category.
  • -The Company shall periodically review and improve the effectiveness of internal rules and handling procedures.
    Furthermore, in the event that a new type of risk emerges in the Group due to changes in the business environment, the Company shall promptly appoint a person and/or department to be responsible, and prescribe appropriate internal rules with regard to the new risk.
  • iv)System to Ensure Efficiency in Execution of Directors’ Duties of the Company and its Subsidiaries
  • -The Company shall make clear the responsible fields or departments of each director and executive officer of the Company and the responsibility of each department within the Company, as well as chains of command, scopes of authority and decision making rules.
  • -The Company shall clearly prescribe in the Board of Directors rules, important matters requiring Board resolutions and shall convene the Management Committee and other committees to deliberate and decide other important matters. Also, matters to be reported to the Board of Directors shall be set forth in the Board of Directors rules.
  • -The Company shall establish a department to oversee the management structure of the Group and ensure the sound management of the Group companies.
  • -Top management policy of the Group shall be promptly announced to all directors and employees of the Group companies through the Management Committee, Corporate Planning Department or the supervisor in charge, and through other oral and written methods.
  • -The Company shall promote the Group management by preparing the management plan on a consolidated basis and by sharing the management objectives and the management indices with the Group.
  • v) Reporting System to the Company relating to the Execution of Subsidiaries Directors’ Duties and Other Systems for Proper Business Operations in the Company and its Subsidiaries
  • -The Company must designate the supervisor in charge who manages the Group companies as prescribed in the Basic Code of Group Management. The supervisor in charge must request prior consultation to the Group companies regarding important matters, and must report to the Company regularly on the business report, operating activity reports, and other reports.
  • -The Company shall review and develop the business processes of each Group company in the light of internal controls relating to consolidated financial reporting.
  • -The Audit Department of the Company shall conduct internal audits on the Group companies, and ensure the proper conduct of their business operations.
  • vi)Employees Assisting Audit & Supervisory Board Members of the Company and their Independence from Directors, and System to Ensure Efficiency of Instructions to the Employees from the Audit & Supervisory Board Members of the Company
  • -The Company shall establish the Audit & Supervisory Board Members Office to assist Audit & Supervisory Board Members and assign the necessary employees.
  • -These employees shall work under the direction of Audit & Supervisory Board Members, and their performance evaluations and personnel changes shall require the consent of Audit & Supervisory Board Members of the Company.
  • vii)Reports to Audit & Supervisory Board Members of the Company in the Company and its Subsidiaries
  • -The Board of Directors rules shall include a rule that requires any director of the Company to immediately report to Audit & Supervisory Board Members when he/she learns of a fact that may cause significant damage to the Company.
  • -The department in charge of the internal reporting system of the Group shall report regularly to Audit & Supervisory Board Members of the Company on the status of the internal report from directors and employees of the Group through Compliance Committee and others.
  • -The Audit Department of the Company shall provide Audit & Supervisory Board Members of the Company with a copy of the internal audit report upon completion of each internal audit.
  • -The Audit & Supervisory Board of the Company shall be entitled to request a report from an Accounting Auditor, director of the Company or other person, as it deems necessary.
  • viii)System for Ensuring that Person Who Reported to Audit & Supervisory Board Members of the Company Will Not Receive Disadvantageous Treatments for the Reason of the Reporting
  • -The Company shall not carry out disadvantageous treatments to directors or employees of the Group who reported through the internal reporting system and other methods (including the reports to Audit & Supervisory Board Members of the Company and others) for the reason of the reporting.
  • ix)Other Arrangements to Ensure Efficient Auditing by the Audit & Supervisory Board Members of the Company
  • -The Company shall pay expenses deemed necessary, keeping in mind the efficiency and appropriateness of audits by Audit & Supervisory Board Members.
  • -One or more of the Audit & Supervisory Board Members of the Company shall attend every meeting of the Board of Directors of the Company and express opinions as necessary. They may also attend the Management Committee and other important meetings of the Company, directly observing the discussions and reporting on important matters.
  • -Representative directors of the Company shall regularly meet with Audit & Supervisory Board Members of the Company and exchange opinions on key issues for the Company, as well as on the conditions of, and important issues relating to, audits by Audit & Supervisory Board Members.

Status of Establishment and Operation

Overall internal control systems

The Internal Control Committee oversees and regularly monitors the status of establishment and operation of overall internal control systems. It also identifies and examines company-wide issues concerning internal systems and frameworks and provides instructions to and makes improvements for departments in charge. Assessment of Internal Controls regarding Financial Reporting under the Financial Instruments and Exchange Act and securing the reliability of financial reporting are put into practice by the Committee as well. The Internal Control Committee meetings were held four times during fiscal 2015.
In addition, the Committee conducts internal audits on business divisions and corporate departments of the Company, and consolidated subsidiaries, and along with investigations whether governance, risk management, and internal control are appropriately functioning, effective improvement proposals are made towards preventing the occurrence of loss to the Company and solving of various problems.

Compliance

<Overview of Status of Establishment>
Sojitz Group has defined procedures to ensure compliance in the Sojitz Group Compliance Program and established the Sojitz Group Code of Conduct and Ethics as well to present worldwide judgement criteria as a foundation for all directors and employees of the Group.

In addition, the Compliance Committee chaired by the Chief Compliance Officer (CCO) is in charge of developing frameworks, including placing compliance managers and Compliance Committees in the Group companies and overseas bases of the Company. For the purpose of prevention and early detection of compliance violations, all directors and employees of the Group are well informed of the hotline for reports to the CCO and outside legal counsel (whistleblower program), consultation contact with Compliance Committee Secretariat members, and the multilingual Sojitz Ethics Hotline available on a 24-hour, 365-day basis. Furthermore, with the aim to prevent corruption, Sojitz Group Anticorruption Rules and Sojitz Group Anticorruption Guidelines have been formulated and rules in accordance with these have been introduced in overseas local operations and the Group companies.

<Overview of Status of Operation>
Based on the recent amendments of laws and regulations in and outside Japan and changes in social norms, the contents of the Sojitz Group Code of Conduct and Ethics have been reviewed and a revised version of the Code has been applied to the Group companies from the start of fiscal 2016. Under the action plan formulated by the Compliance Committee, the Legal Department, serving as the Secretariat of the Committee, carries out discussions on measures to prevent reoccurrence of compliance matters and provides assistance and guidance on practicing compliance to the Group companies Specific actions for fiscal 2015 are as follows.

・Meetings between the CCO and the Presidents of the Group companies
・Liaison meetings held regularly among the compliance managers of the Group companies
・Briefing sessions on prevention of insider trading and harassment, and anticorruption
・Various training programs including e-learning and responses against antisocial forces, etc.

In fiscal 2015, Compliance Committee meetings were held four times in total, in each quarter period.

Risk Management

<Overview of Status of Establishment>
As a general trading company, the Sojitz Group is engaged in a diverse and globally dispersed range of business. Due to the nature of its business, the Group is exposed to a variety of risks. Consequently, in compliance with the Basic Code of Corporate Risk Management, the risk management officers who have been appointed for each risk define and categorize the risks, formulate the Risk Management Policy and Plan, monitor the status of progress and improvement of risk management on a quarterly basis, and provide summaries at the end of the fiscal year.

<Overview of Status of Operation>
With regard to the formulation of the Risk Management Policy and Plan and the progress of the status of risk management described above, reports are made to the Management Committee and the Board of Directors, upon deliberation by the Internal Control Committee. Additionally, in the event that it becomes necessary to make the whole Company aware of measures to counter changes in the business environment or respond to risks outside of the existing scope of risks, such situations are dealt with, as necessary, upon making the necessary reports to the management on the recognition of issues and the status of responses. Among the ten risk categories, quantifiable risks such as market risks, credit risks, business investment risks and country risks are quantified and managed based on a calculation of risk assets. Nonquantifiable risks such as legal risks, compliance risks, environmental/social (human rights) risks, financing risks, disaster risks and system risks are monitored on a quarterly basis and their management status is reported to the management.

Sojitz conducts education and enlightenment programs in order to firmly establish an awareness of risk management among the employees by providing risk management training and case-study training using examples of failures in risk management to the candidates of managers of the Company and managers of the Group companies.

Management of Group Companies

<Overview of Status of Establishment>
For management of the Group companies, a management system for the Group companies’ business operations has been defined in the Basic Code of Group Management and the Group Management Administration Code, and each of the Group companies has adopted the system. In addition, the Corporate Planning Department confirms the status of adoption of the system by each company. The Directors of the Company adopts a system of monitoring the business management of the Group companies through the supervisors, the Directors or the Audit & Supervisory Board Member or others dispatched to the Group companies by the Company.

<Overview of Status of Operation>
Sojitz manages and supervises the development and operation of an appropriate management base and corporate governance through the Directors and the Audit & Supervisory Board Members, which it has dispatched to each Group company, and receives regular reports including annual business reports and monthly operating activity reports. Sojitz appropriately manages important business execution of the Group companies by requiring prior consultation with Sojitz headquarters regarding important matters.

Additionally, in order to promote Group management, Sojitz makes efforts to firmly establish the Group Corporate Philosophy and policies by having the management policy of the Group explained by the supervisors, as well as at the training seminars for Group company officers and employees.

Other Arrangements to Ensure Effective Auditing by the Audit & Supervisory Board Members

<Overview of Status of Establishment>
Sojitz has established the Audit & Supervisory Board Members Office to assist the audit structure and has appointed dedicated personnel. Sojitz assures the independence of the employees who assist the duties of the Audit & Supervisory Board Members from the Directors as well as the effectiveness of their business execution.

In terms of the system of reporting to Audit & Supervisory Board Members, Sojitz adopts a system in which, in addition to the reports by the Directors, reports on matters related to the Group companies by the Compliance Committee and the Audit Department, business reports from the consolidated subsidiaries and reports required for audits may be made, as necessary. Additionally, relevant rules provide that persons who report to the Audit & Supervisory Board Members will not receive disadvantageous treatment on account of having made the report.

Audit & Supervisory Board Members may request the Company to pay the necessary expenses associated with the audits, including expenses outside of the budget which had been incurred unexpectedly or temporarily.

In terms of accounting audits, Audit & Supervisory Board Members receive explanations on the audit plan and regular reports on the audit status from the accounting auditor, engage in a mutual sharing of information and establish a structure to enable efficient audits as well as a structure to audit the independence of the accounting auditor.

<Overview of Status of Operation>
Reports to the Audit & Supervisory Board Members are being made, whenever necessary, and interviews as well as exchanges of information are being conducted between the Audit & Supervisory Board Members and Directors on a regular basis.

 

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