Basic Principles and Systems of CK’s Internal Control
Basic Views on Internal Control System and Progress of System Development
The Board of Directors of the Company resolved to develop its internal control system (frameworks for ensuring appropriate operations of the Company) in accordance with the Companies Act and the Ordinance for Enforcement of the Companies Act as follows.
1. System to ensure compliance with applicable laws and regulations and compliance with CK’s Articles of Association by CK’s board members and employees
Calsonic Kansei Corporation (hereinafter referred to as “CK”) shall enact and enforce relevant company rules and regulations such as “Calsonic Kansei Code of Conduct” (Japanese version),“Regulations for Meetings of Board of Directors”, “Regulations on Management of Safety and Health”, “Regulations for Personal Data Management”, and “Regulations for Management of Insider Trading Prevention” and shall place CK’s board members and employees on notice that they must be familiar with such company rules and regulations and comply with such rules and regulations, the Articles of Association of CK and all applicable laws and regulations. The Internal Audit Office, as established, shall perform its regular internal audit in order to confirm compliance with all applicable laws and regulations and the Articles of Association of CK.
In the event that any report related to a violation of laws and regulations or the Articles of Association of CK is brought to CK based upon CK’s internal reporting program, CK shall work through its compliance with applicable laws and regulations and the Articles of Association of CK with the Global Compliance Risk Management Committee. When operating the internal reporting system, CK shall prohibit any disadvantageous treatment of reporters and define the effect in the Code of Conduct.
CK shall assume a resolute attitude toward antisocial forces. If a board member or an employee of CK receives any approach by antisocial forces, he or she shall report to the superior and relevant departments immediately and follow their instructions. Further, if a board member or an employee of CK, directly or indirectly, encounters any illegal or criminal activities such as fraud and extortion during business execution, he or she shall assume a resolute attitude toward the activity, report to the superior and relevant departments immediately, and follow their instructions.
CK shall maintain and strengthen the structure of internal control that ensures the reliability of financial reports, in accordance with the Financial Instruments and Exchange Act and related regulations and standards.
2. System regarding the retention and management of information relating to business of CK’s board members
Minutes of the meetings of the Board of Directors and/or other official documents authorized by CK’s Rule for Delegations of Authorities shall be retained and kept by the responsible departments in accordance with CK’s rules relating to the retention of documents. Board members and/or statutory auditors can review such minutes and official documents at any time.
3. Rules and systems for company’s proper management of risk and loss
With respect to CK’s company-wide risk management, the Risk Management Committee shall meet on regular basis and shall continuously review each division of CK for compliance with CK’s risk management rules and systems. In addition, a specific sub-committee will be established, as needed, to address specific risks. Such sub-committees shall make best efforts to minimize individual risk and loss, including preparing manuals addressing such risks and loss. Further, the chief officer of each division is responsible for managing and addressing risk and loss, as applicable to his or her own division, in an appropriate manner.
4. System to ensure efficient execution of business plans established by CK’s board members
Board members and high-ranking officers shall, in accordance with CK’s rules and regulations, including but not limited to the Regulations for Meetings of Board of Directors, make decisions and authorize actions and establish policies only after in depth deliberation of each business matter at both the committee level, including the Global Executive Committee involving officers and employees of CK’s subsidiaries as Committee members which shall meet on a regular basis, and at regular and special meetings of the Board of Directors. A corporate-officers system is adopted and “Regulations for Duties of Departments” are established by CK to facilitate delegation of authority in order to facilitate swift decisions. Further, CK’s Rules of Delegation of Authority, which apply globally to all of CK’s subsidiaries, shall require that all business decisions be transparent and clear. CK shall embody the management policy and business objectives by developing a medium-term management plan and an annual business plan, and conduct an efficient and effective business by sharing the plans with CK and CK’s subsidiaries.
5. System to ensure proper and legitimate business activities of a company group consisting of CK, parent companies and subsidiary companies (hereinafter referred to as the “Group”)
All of CK’s divisions shall coordinate with each corresponding division of the parent company to establish proper and legitimate business Group activities. CK as a listed company shall make its own decisions independent from the parent company even though CK has requirements to report material business matters to or obtain confirmation from the parent company as a member of the Group.
CK’s policies shall be provided to CK’s subsidiaries and information shall be mutually shared through the Global Executive Committee and committees to be held on regular basis in each department and, material business matters of each CK’s subsidiary shall be provided to CK for the purpose of reporting to and/or confirmation from CK based upon clear and transparent delegation of authority established on a global scale to ensure the proper operation of CK’s subsidiaries.
The supervision scope of Risk Management Committee shall include all CK’s subsidiaries for risk management and the same setup for risk management shall be applied to all. Internal Audit Office shall perform regular internal audits on subsidiaries of CK in order to review both (i) compliance with laws and regulations and CK’s articles of association; and (ii) risk management systems of such subsidiaries.
In order to ensure the appropriateness of the operation, Calsonic Kansei Global Code of Conduct shall be established and applied to CK’s subsidiaries. Each CK’s subsidiary shall establish its own Code of Conduct to comply with laws and regulations and corporate ethics.
Each CK’s subsidiary shall also incorporate introduce an internal reporting system and if there is any violation of laws and regulations or the articles of association, the subsidiary shall report to CK. CK’s Global Compliance Risk Management Committee is designed to deliberate not only on CK’s own material matters but also on those of CK’s subsidiaries reported through the internal reporting system of each subsidiary to ensure CK’s subsidiaries’ compliance with laws and regulations and with the articles of association.
6. System addressing the independence from board members when a company is asked to place employees supporting the activities of statutory auditors at the request of the statutory auditors, and matters related to the ensuring of effectiveness of instruction for the employees
Corporate Auditors Office is established to support the activities of the statutory auditors and place employees including full-time managerial positions to support the activities of the statutory auditors. Employees of the Corporate Auditors Office shall perform their duties under the direction of statutory auditors. Consent of Board of Statutory Auditors shall be required prior to initiating any personnel transfer, personnel appraisal and/or disciplinary action toward such employees.
7. System for reporting issues to CK’s statutory auditors
Board members and/or employees shall, based upon requests of statutory auditors, explain to the statutory auditors the business activities of CK and shall report to the statutory auditors material decisions, policies and business activities of CK and CK’s subsidiary at all meetings joined by statutory auditors. In addition, board members and/or employees shall report important business activities and business issues to statutory auditors when statutory auditors conduct their regular auditing on each of CK’s divisions in accordance with annual audit schedule. Internal Audit Office shall make regular report to the statutory auditors at meetings of the Board of Statutory Auditors.
CK shall ensure its statutory auditors attend the meetings of Global Compliance Risk Management Committee which deliberates on cases violating the laws and regulations or the articles of association in CK and CK’s subsidiaries including those reported through the internal reporting system of CK and CK’s subsidiaries.
When operating the internal reporting system, CK shall prohibit any disadvantageous treatment of reporters and define the effect in the Code of Conduct.
8. System to ensure effective and valid auditing by statutory auditors in a company with Auditors
Statutory auditors shall have an opportunity to exchange views with the President/Representative Director of CK on a regular basis and receive regular reports from the auditing (accounting) firm.
CK shall take appropriate measures to ensure that the costs necessary for statutory auditors to perform their duties are paid based on the laws and regulations.