About Basic Policy on Internal Control System
At the meeting of the Board of Directors on May 19, 2006, the resolution was made to maintain systems stipulated in the Ministry of Justice Order, as systems required to ensure that performance of the duties of Directors complies with laws, regulations, and the Articles of Association, and other systems required to ensure the appropriate performance of the corporation’s work. After several revisions, the latest partial revision was made by resolution at the meeting of the Board of Directors on July 16, 2021. The basic policy following this revision is as follows:
(1) System to ensure that the performance of duties of the Directors and employees of the Company and its subsidiaries comply with relevant laws, regulations, and the Articles of Association
a) Management philosophy
The Group’s management philosophy is to contribute to development in agriculture, horticulture and related businesses while complying with the corporate ethics, based on the spirits of “Quality,” “Reliability,” and “Service,” which are the creed of the Company. The principal stakeholders of the Group are people engaged in agriculture, horticulture and related businesses, our shareholders, and our employees.
b) Maintenance and implementation of compliance system
We have established compliance-related regulations, including the “Compliance Manual,” and stipulate that all of the Directors, Audit & Supervisory Board Members, and employees of the Group comply with laws, regulations, and corporate ethics. In addition, we have established a “Compliance Committee,” headed by the President, to make decisions on the important policy regarding the practice of compliance programs such as training and education in the Group. The “Compliance Committee” reports the necessary information to the Board of Directors. We have established the “Compliance Consultation Hotlines” both inside and outside our companies as an organization for employees of the Company and its domestic subsidiaries to consult and report on the matters relevant to laws, regulations, and corporate ethics in the Group, and we maintain an appropriate whistleblowing system for our overseas subsidiaries according to their respective sizes. The Group keeps the consultation details confidential, and does not mistreat the consulters in violation of the Whistleblower Protection Act or other laws, regulations, and internal rules.
c) Elimination of anti-social forces
The Group takes a firm stance against forces or groups that threaten public order and healthy corporate activities, and has no relation with such forces or groups. We act according to three principles, i.e. “pay no money to,” “do not use,” and “have no fear of” anti-social forces. We also make effort to collect information from the competent governmental authorities and so on, and to establish such systems that we can communicate with these governmental authorities and legal professionals immediately upon the occurrence of these problems so that we can resolve them promptly.
d) Maintenance of a system to ensure the reliability of financial reports
We have established the “Internal Control Implementation Rules” to ensure the reliability of financial reports, and have developed a basic policy of internal control in relation to financial reports, and based on this we maintain related regulations such as the “Implementation Guidance of Internal Control over Financial Reporting” to promote the maintenance and operation of internal control. We also evaluate the effectiveness of internal control relevant to financial reports via the person in charge of internal control evaluation, and have developed an “Internal Control Report” as set forth in the Financial Instruments and Exchange Act under the responsibility of the President (the Representative Director). In the event where there is any point to be improved in internal control relevant to the financial reports, the person in charge of internal control evaluation offers an improvement plan to the President and takes steps.
(2) System relating to the storage and management of information relevant to the performance of duties of Directors of the Company
In relation to information relevant to the performance of duties of Directors (including, but not limited to, information via electromagnetic media) accompanied with the related materials, we maintain and manage them in the responsible divisions and keep them available for review as needed, as set forth in the “Company’s Regulations on the Management of Documents.” In addition, we manage information based on the “Basic Policy for Information Security,” the “Regulations on the Management of Personal Information,” and the “Regulations on the Management of Trade Secrets.”
(3) Regulations and other systems relevant to risk and loss management in the Company and its subsidiaries
We maintain internal manuals to minimize any loss or disadvantage the Group may suffer, and establish control systems against each risk such as climate change, geopolitical and social changes in the areas we conduct business, research and development, infringement of intellectual property rights, safety, finance, crime or scandal by employees, disaster or accident. In the event any risk arises, the responsible and related departments as a whole take prompt action in accordance with the internal manuals.
(4) System to ensure the efficient performance of duties of Directors of the Company and its subsidiaries
a) The Board of Directors
We properly operate the Board of Directors in accordance with the internal rules. The meeting of the Board of Directors is basically held monthly to discuss and make resolutions on the important business matters in the Group stipulated in laws, regulations, the Articles of Association, internal rules and others. In addition, the meeting of the Board of Directors defines the works commissioned to the Directors and Executive Officers and the allocation of duties to each organization.
b) Management Meeting
The Management Meeting, in principle, meets monthly to discuss matters pertaining to the Group’s management, as a preliminary review organization of the Board of Directors, to facilitate prompt and smooth discussions and resolutions at the meeting of the Board of Directors. It consists of the President and Representative Director, Directors, and Managing Executive Officers pursuant to internal rules.
c) Introduction of an executive system
The Company has introduced an executive system so that the role of Directors is focused on management supervision and for flexible and agile business execution. In addition, a Managing Executive Officer has been assigned as a Supervisor for each business division to build a prompt business execution system.
d) System of circulars for approval
We have adopted a system of circulars for approval based on the internal rules, for Directors and Executive Officers to efficiently perform their routine duties. Concerning the performance of duties, we stipulate the details of authorities for the efficient operation, according to the tasks and responsible persons.
e) Establishment of system in the subsidiaries
We have established a standard relating to the distribution of duties, the chain of command, authority, decisionmaking and other matters for organizations of the Group, and make our subsidiaries establish a system in compliance with it.
f) Enforcement of business policy in the Group
We hold meetings basically twice a year with Directors, Audit & Supervisory Board Members, respective Senior General Managers of the functional headquarters, and presidents of major subsidiaries, to enforce the operational policy and business objectives of the entire Group.
In addition, as the need arises we make up a cross-national organization, whose secretariat is our relevant responsible functional headquarters, for research and development, production and logistics, information system, quality control, and marketing to streamline and improve business efficiency with a global view.
(5) System to ensure the business appropriateness in the corporate Group composed of the Company and its subsidiaries
a) Management and administration of subsidiaries
The Corporate Planning Department is responsible for management and oversight of appropriate business at subsidiaries. Among Directors and Executive Officers, we appoint Supervisors for respective subsidiaries. The Corporate Planning Department and the Supervisors aim for a regime of cooperation including information exchange and interchange of personnel in accordance with the internal rules and through the Board of Directors of the subsidiaries, to instruct the subsidiaries on the appropriate business performance, by which we construct a solid system of internal control over the entire corporate group.
b) System concerning reporting to the Company on matters relevant to the performance of duties of the directors of subsidiaries
We oblige our subsidiaries to report monthly on their business results, financial status, personnel, and other important information. We also require subsidiaries to submit an annual full-year earnings forecasts and business plans for the following year so that we can discuss them at the Board of Directors.
(6) Matters concerning personnel requested by Audit & Supervisory Board Members to assist their duties, independence of such personnel from Directors, and effectiveness of instructions of such personnel
In response to requests from the Audit & Supervisory Board Members, we establish an “Audit & Supervisory Board Members Office” and, if necessary, appoint personnel to assist the duties of the Audit & Supervisory Board Members.
Directors consult with the Audit & Supervisory Board in advance on the number and the position of such personnel, and the chain of command, compensation and personnel changes relevant to such personnel.
(7) System for Directors and employees of the Company and subsidiaries to report to Audit & Supervisory Board Members, and system to ensure that persons who made a report are not treated adversely based on such report
Directors and employees of the Group report to Audit & Supervisory Board Members of the Company in case they are aware of such matters that could cause significant harm or serious impact to the Group, and dishonest activities or any other activities that are in violation of laws and regulations, or the Articles of Association by Directors.
Persons making reports will not be treated adversely based on such reporting by the Company.
For the purpose of smooth and efficient performance of the Audit & Supervisory Board Members in their duties, Directors and employees of the Group promptly and appropriately report to the Audit & Supervisory Board Members of the Company upon request on the important matters for business and performance status of operations.
(8) Matters relevant to the advance payment and the reimbursement arising out of performance of Audit & Supervisory Board Members of the Company in their duties, and payment for the other cost and debt arising out of performance of such duties
We allocate a budget each year to pay for the costs and expenses arising out of the performance of Audit & Supervisory Board Members of the Company in their duties.
When the Audit & Supervisory Board Members of the Company claim us for the advance payment for the performance of their duties based on Article 388 of the Companies Act, we discuss in the responsible division and promptly approve it except for cases where such costs and debt are determined to be unnecessary for the performance of duties of such Audit & Supervisory Board Members.
(9) System to ensure the effective performance of Audit & Supervisory Board Members of the Company in their auditing
The Company’s Representative Director and Audit & Supervisory Board Members regularly hold meetings to mutually communicate. The Company’s Audit & Supervisory Board Members receive a report on status of the audit implementation and performance of operations from the responsible person of the Internal Audit Office and audit and supervisory board members of the subsidiaries or equivalent when they consider it is necessary for their duties to improve the effectiveness of the audit by exchange of information. The Audit & Supervisory Board Members at their own discretion may appoint lawyers, certified public accountants, and other external professionals for their audit duties.
The Audit & Supervisory Board Members may also attend important meetings including those of the Management Meeting, Business Execution Meeting, Compliance Committee meetings and others, and review circulars for approval and documents on settled accounts.
[Last Updated: July 16, 2021]