Internal Control System

Basic Concept and Operation Status of Internal Control System

Basic Concept

We have been working on implementing and maintaining our internal control systems on Group-wide basis. The “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 Implementation and Operation

Overall Internal Control System

The Internal Control Committee chaired by the President & CEO, consolidates and monitors the status of implementation and operation of the Internal Control System, and leads maintenance and improvement of our internal control systems.

(Overview of Operational Status)
The Internal Control Committee oversees the implementation and enforcement of the overall internal control system and conducts periodic monitoring. The Committee also identifies issues and considers countermeasures related to the internal systems and frameworks, points these issues out to the relevant departments, and makes improvements. In addition, the Committee monitors the progress of assessments of internal controls over financial reporting based on the Financial Instruments and Exchange Act, and works to ensure the reliability of financial reporting. Each committee (Compliance Committee, CSR Committee, etc.) and subcommittee (the Disclosure Subcommittee, Information Security Subcommittee, etc.) discuss specific initiatives for each area. The Internal Control Committee met five times in the fiscal year ended March 31, 2017, and reported the details to the Board of Directors.

Compliance

We have established “Sojitz Group Compliance Program”, which sets out procedures for achieving thorough compliance, and have also formulated “Sojitz Group Code of Conduct and Ethics”, which provides common criteria for conduct that applies to Group officers and employees globally. The Compliance Committee, chaired by the Chief Compliance Officer (CCO), is at the core of activities to set up compliance systems at the Group companies and overseas bases, such as appointing compliance supervisors and forming compliance committees. To help prevent or quickly detect violations of compliance regulations, we have a hotline (internal reporting system) that provides access to the CCO and outside legal counsel; a consultation desk where Compliance Committee Secretariat members can be contacted; and the multi-lingual Sojitz Ethics Hotline, which is available 24 hours a day, 365 days a year, and publicize them for all Sojitz Group officers and employees. In addition, to prevent corruption, we have established “Sojitz Group Anti-Corruption Rule” and the “Sojitz Group Anti-Corruption Guidelines”, and are also introducing corresponding rules at overseas Group companies and bases.

Measures to prevent harassment pertaining to pregnancy, childbirth, childcare and nursing care leave and other such matters are now mandatory as a result of amendments to the Child Care and Family Care Leave Act and the Equal Employment Opportunity Law (enforcement date: January 1, 2017). Accordingly, we have partially revised our Work Rules to maintain positive workplaces that are free from harassment.

(Overview of Operational Status)
We revised the Sojitz Group Code of Conduct and Ethics in April 2016 in response to recent revisions of domestic and overseas laws and regulations and changes in social norms, and have been introducing it for the Sojitz Group. Moreover, based on the action plan formulated by the Compliance Committee, we provide counsel on measures for preventing recurrence of compliance issues as well as assistance and guidance to the Group companies on practicing said Code of Conduct.

  • Specific activities in the fiscal year ended March 31, 2017 included the following:
  • Meetings between the CCO and presidents of Group companies
  • Regular liaison meetings among the compliance officers of Group companies
  • Seminars and briefings on preventing harassment and corruption
  • Various training programs for newly hired employees, employees hired as mid-career professionals, employees on overseas assignments, and others.
  • The Compliance Committee met a total of four times, once in each quarter, in the fiscal year ended March 31, 2017.

Risk Management

We have designated categories of business activity risk based on the “Basic Rule of Corporate Risk Management”, have assigned the officers responsible for each risk and have formulated the “Risk Management Policy and Plan” in order to take measure for various risks among a general trading company. By implementing a PDCA cycle for formulating, executing, monitoring and summarizing the Risk Management Policy and Plan, we strive to secure its sustainability and further improve risk management system.

(Overview of Operational Status)
“Risk Management Policy and Plan” is resolved at the Board of Directors, and the Internal Control Committee deliberates its operation status and reports to the Board of Directors every quarter. 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 in new fields, such situations are dealt with upon making the necessary reports to the management on the issues and the status of responses.

Among the risk categories, quantifiable risks such as market risk, credit risk, business investment risk and country risk, are managed based on a calculation of risk assets. As for the risks that are difficult to quantify such as legal risk, compliance risk, environmental and social (human rights) risk, funding risk, disaster risk and system risk, their management status is monitored and reported to the management.

We conduct ongoing education programs through a variety of risk management training in order to firmly establish awareness of risk management among the officers and employees of the Sojitz Group.

Management of Group Companies

For management of the Group companies, each of the Group companies maintains a system based on the management system for the Group companies’ business operations defined in the “Basic Rule of Group Management” and the “Group Management Administration Rule”. In addition, the Corporate Planning Department confirms that each Group company maintains the system. Moreover, Directors monitor the business management of the Group companies through the chief of business divisions or corporate departments with primary responsibility or the Directors, Audit & Supervisory Board Members or others dispatched to the Group companies.

(Overview of Operational Status)
We manage and supervise the establishment and operation of an appropriate management foundation and corporate governance through the Directors and the Audit & Supervisory Board Members that it has dispatched to each Group company, and receives regular reports including annual business reports and monthly operating activity reports. Also, as for the important cases of the Group companies, we appropriately manage important business execution by requiring advance consultation with Sojitz headquarters.

Additionally, in order to promote Group management, we explain the Group’s management philosophy via the chief of business divisions or corporate departments with primary responsibility, and make efforts to publicize our management philosophy and policies as well as at the training seminars for Group companies’ officers and employees.

Management and Storage of Information

With respect to handling of important documents related to execution of duties such as the minutes of Board of Directors meetings, the responsible department shall appropriately manage such documents according to the retention period required by law based on guidelines including the internal rules for document retention, and shall make such documents available for viewing as necessary. As for the information related to business execution, a system is in place to monitor the status of operation by establishing rules that define the classification and confidentiality of the information.

(Overview of Operational Status)
With respect to information related to business execution, we regularly review the classification, management method and retention period of information prescribed in the internal rules, and make efforts to ensure proper management. In the fiscal year ended March 31, 2017, we revised the rules for information management and promoted thorough information management in each organization. In addition, we are continuing efforts led by the Information Security Subcommittee to bolster security measures against cyber-attacks and other threats.

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

In terms of the system of reporting to Audit & Supervisory Board Members, we have adopted a system in which, in addition to the reports by the Directors, reports timely required matters for audit such as reporting on Group-wide matters by the Compliance Committee and the Internal Audit Department, business reports from the consolidated subsidiaries. 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. For 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 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 Operational Status)
Audit & Supervisory Board Members receive reports in a timely fashion and set interviews regularly as well as exchange of opinions conducted between the Audit & Supervisory Board Members and Directors.

 

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