Internal Control Policy | 日本セラミック株式会社 [Nippon Ceramic Co., Ltd]

The company adopted the “Basic Policy for Building an Internal Control System” via a resolution of the Board of Directors. In order to perform operations appropriately and efficiently, the company will continue to make efforts to establish and strengthen internal controls in response to internal control effectiveness assessments related to financial reporting under the Companies Act and the Financial Instruments and Exchange Act.

(Revised on March 29, 2018)

Basic policy for building an internal control system

System for storing and managing information related to Directors’ execution of duties
1. The system shall store and manage important materials such as the minutes of General Shareholders’ meetings, Board of Directors’ meetings, and liaison meetings; approval documents; seal application forms; and accounting-related materials according to laws and internal document management regulations and allow for these materials to be viewed by the necessary parties.
2. In accordance with our information security policy, we shall endeavor to protect all information assets owned by the company and take measures to mitigate risks of information leakage so that we may maintain the trust placed on us by society.
3. With regard to personal information, we shall acquire the information through lawful and fair means according to the law and the company’s Privacy Policy and thoroughly protect and manage this information through the proper handling of personal information in daily operations.
System for rules on loss exposure and other risk management
1. As necessary, we shall review internal regulations related to risk management such as our approval rules and rules for accounts receivable (credit management) from the perspective of risk management.
2. To reduce investment risk, the investments department shall draft proposals in line with the approval rules and the management department and related business departments shall participate in the decision-making process. The internal audit team and affiliate management team shall identify risks from internal audits and the operational circumstances of affiliate companies, summarize countermeasures, report them to the president, and advise each business division on resolving these risks.
3. In accordance with the risk management rules, the company and its group affiliates shall establish a system of management to protect against potential risk and respond to any occurrences of risk with appropriate management and operations.
System to ensure efficient performance of duties by directors
1. An executive officer system shall be introduced to separate the duties of directors and executive officers to the maximum possible extent, thereby enhancing director functionality and improving efficiency.
2. At the Board of Directors meeting, the board shall make decisions on important matters and oversee the performance of directors. The head of each business division shall report on the weekly progress of their division and discuss it with the directors. The directors shall participate in liaison meetings held each morning to confirm the status of daily operations. In addition, ad-hoc management meetings shall be held when necessary to draft policies and plans regarding the overall execution of management, as well as for other investigations, deliberations, planning, management, communications, and adjustments.
System to ensure that performance of duties by directors and employees conforms with the law and with the Articles of Incorporation
1. The company shall ensure that employees’ performance of duties is compliant with the law and with the Articles of Incorporation by defining the procedures for each business operation through separate internally defined rules, including the Board of Directors Meeting Rules, Management Meeting Rules, Executive Officer Rules, Job Authority Rules, and Duty Segregation Rules.
2. Business division heads including directors shall attend the liaison meeting every morning to discuss the operational status and problems of each business division and to deploy information across the company horizontally.
3. When directors (excluding those in the Audit and Supervisory Committee) and employees discover any significant legal or internal regulations violation, they shall report it immediately to the Audit and Supervisory Committee, and this shall be reported without delay at the Board of Directors meeting as well.
4. The company shall ensure the legality of business operations by consulting with specialists (e.g., certified accountants, tax accountants, lawyers, etc.).
5. The Internal Audit Team shall confirm the status of compliance with internal regulations and the status of business execution from the perspective of ensuring compliance.
6. The company shall block all business relationships with Anti-Social Forces that pose a threat to civil society, and the whole organization shall cooperate with the police and external organizations to promote the expulsion of these forces in responding to the threat posed by such forces, in line with our Anti-Social Forces Exclusion Policy.
System to ensure the appropriateness of operations in the corporate group, consisting of the parent company and its subsidiaries
1. The Affiliate Management Team shall manage each company in accordance with the affiliate company management rules to ensure the appropriateness of the company’s and group affiliates’ operations; for example, approval will be received from our company before implementing important investment projects there.
2. The accounting auditor, Audit and Supervisory Committee, internal audit team, accounting department, and other related parties shall meet regularly to share information about the compliance system of the company and its group affiliates, as well as any other issues.
Matters concerning employees when the Audit and Supervisory Committee requests for employees’ assistance
When the Audit and Supervisory Committee requests employees to assist them in their duties, the directors in the Audit and Supervisory Committee and the other directors (excluding those in the Audit and Supervisory Committee) shall assign employees after discussion. The number of employees that are required to assist the Audit and Supervisory Committee, their positions, and whether or not they are allowed to work in other departments concurrently shall be determined through discussion by the directors in the Audit and Supervisory Committee and other directors (excluding the directors in the Audit and Supervisory Committee).
Matters concerning the independence of employees assisting the Audit and Supervisory Committee from directors (excluding those in the Audit and Supervisory Committee)
To ensure the independence of employees who assist the Audit and Supervisory Committee, prior approval of the Audit and Supervisory Committee is required for personnel evaluation, transfer, disciplining, or dismissal of such employees.
Matters related to ensuring the effectiveness of instructions to employees assisting the Audit and Supervisory Committee
When an employee who assists the Audit and Supervisory Committee receives instructions from a Director in the Audit and Supervisory Committee, the employee shall perform as instructed and report directly to the Audit and Supervisory Committee.
System for directors (excluding those in the Audit and Supervisory Committee) and employees reporting to the Audit and Supervisory Committee
1. In addition to board meetings, directors who are full-time members of the Audit and Supervisory Committee shall attend all internal meetings such as the management meeting and daily liaison meetings, as necessary.
2. Directors (excluding those in the Audit and Supervisory Committee) and employees shall immediately report to the Audit and Supervisory Committee when they discover issues that may cause significant damage to the company and shall respond promptly to any requests from the Audit and Supervisory Committee to provide reports or materials concerning the execution of business.
3. The Audit and Supervisory Committee can view approval documents and other documents related to business execution and can request directors (excluding directors in the Audit and Supervisory Committee) and employees to explain these documents to them.
4. At Audit and Supervisory Committee meetings, directors who are members of the Audit and Supervisory Committee shall regularly receive audit reports from the accounting auditor and exchange information and opinions regarding the status of audits, such as matters to be reported to the Audit and Supervisory Committee regarding the job execution of directors (excluding those in the Audit and Supervisory Committee) and employees.
System to ensure that persons who report to the Audit and Supervisory Committee do not receive unfavorable treatment for having made the report
To quickly become aware of and correct actions that violate the law or internal regulations, that have a significant impact on the reliability of our financial reports, that violate corporate ethics, and that harm or impair the company’s social credibility, we have established an internal whistleblower policy to enable the Audit and Supervisory Committee to receive reports from individuals who have discovered these actions. Individuals who have reported to the Audit and Supervisory Committee shall not receive any unfair treatment as a result of having made the report.
Matters concerning policies for prepayment or reimbursement of expenses incurred by directors while performing their duties as members of the Audit and Supervisory Committee and other expense or debt processing
When a director in the Audit and Supervisory Committee requests for payment from the company for performance of committee duties such as prepayment of expenses under Article 399-2, Paragraph 4 of the Companies Act, the company shall check the claim against its own internal regulations and promptly process the expense or debt according to these regulations, except for cases in which the claimed expense or debt is determined to be unnecessary for the performance of duties by the director in the Audit and Supervisory Committee.
Other systems to ensure the effective performance of audits by the Audit and Supervisory Committee
1. The Audit and Supervisory Committee shall collaborate and share information with the Internal Audit Team and accounting auditor to quickly identify any problem areas.
2. According to the Audit and Supervisory Committee Audit Plan approved by the Audit and Supervisory Committee, directors (excluding those in the Audit and Supervisory Committee) and employees shall cooperate with any requests to submit materials, etc., during audits of the company and the entire affiliate group.
3. The Audit and Supervisory Committee shall meet regularly with the representative directors to exchange opinions on the appropriateness of business execution in the company and its group affiliates and the compliance system, as well as to confirm any other issues.

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