Internal Control System

Basic Philosophy on Internal Control Systems and Progress on System Development

Revised March 27, 2019

1. System for ensuring the execution of duties by directors and employees of the Company and its subsidiaries (the “Sanwa Group”) complies with laws and regulations and the Articles of Incorporation

  • (1)The Sanwa Group shall set our mission as “The Sanwa Group is committed to offering products and services that provide safety, security and convenience to further contribute to the prosperity of society” and establish our values and principles of business to realize our mission. The Compliance Code of Conduct shall be formulated to ensure these concepts are reflected in actual behavior.
  • (2)The Compliance Code of Conduct booklet shall be distributed to all officers and employees of the Sanwa Group to ensure that they are fully aware of and comply with the code. A document promising observance to the Compliance Code of Conduct during operations shall be obtained from each person to promote sincere corporate activities that comply with laws, internal rules and regulations and social demands.
  • (3)In order to ensure that the execution of duties of the Sanwa Group’s executive officers and employees conforms to laws and regulations and the Articles of Incorporation, the Company has established a Group CSR Promotion Council, chaired by the director responsible for the Corporate Planning Unit, and its subordinate organization the Quality, Environment and CSR Promotion Council, which sets policy for Group companies in Japan and manages progress. CSR Promotion Committees have also been established in each Group company. Using this framework, the Company oversees the establishment and promotion of compliance activities, strives to enhance compliance awareness and provide related education and training, and regularly reports on conditions to the Board of Directors.
  • (4)The Company’s Representative Directors strive to enhance awareness of compliance through such means as disseminating a message to all Group employees explaining the importance of compliance at the start of each fiscal year. The Sanwa Group holds Compliance Month in November every year to check and confirm that departmental and individual behavior is in line with laws, internal rules and regulations and corporate ethics, while study sessions are also held during the month as part of efforts to increase awareness of compliance and ensure action based on the Compliance Code of Conduct.
  • (5)A Corporate Ethics Hotline has been set up as an internal whistleblower system, in which the General Affairs Department and a third-party organization serve as contacts. The Company has informed all Group executive officers and employees, as well as affiliated companies, of the existence of the hotline to enable reporting and consultation on matters related to compliance and so that any breaches or potential breaches are detected swiftly. In such cases, the matters are dealt with appropriately and reported to the Board of Directors in a timely manner. Whistleblowers are guaranteed confidentiality in terms of the reporting and the content of the report based on the Corporate Ethics Hotline Operating Regulations. The Company also guarantees that whistleblowers will not be treated disadvantageously.
  • (6)The Sanwa Group shall take an uncompromising stance toward anti-social forces and organizations that threaten the order and security of civil society and shall sever any and all relations with such individuals and groups. We shall maintain close relationships with law enforcement authorities, attorneys and others and take a firm stance in rejecting any improper or unreasonable demands from anti-social forces or organizations. The General Affairs Department is in charge of dealing with these matters.

2. System concerning storage and management of information in regard to the execution of duties by directors

  • (1)The Sanwa Group shall store information relating to the execution of duties by directors, including minutes of important meetings concerning decisions made by the Board of Directors, etc. and documents that have been approved based on Regulations on Authorities and Responsibilities, for the period specified pursuant to laws, regulations and internal rules such as Board of Directors Regulations and Document Handling Regulations.
  • (2)Information in the aforementioned documents, etc. shall be made available for viewing by directors at all times and managed appropriately based on Information Security Regulations.

3. Rules and other systems regarding the management of the Sanwa Group’s risk of losses

  • (1)The Sanwa Group identifies, analyzes and evaluates business risk in the execution of duties based on Risk Management Regulations, and takes steps to avoid or reduce this risk as necessary. The Group also creates, establishes and operates a risk management system that covers from reporting when a risk emerges to recovery measures in order to minimize losses in case of an emergency and to ensure the Company does not suffer damage to its credibility.
  • (2) The Group CSR Promotion Council establishes basic policy for the Group’s risk management, makes plans concerning risk management, and reports and deliberates on the progress of the measures. Its subordinate organization, the Quality, Environment and CSR Promotion Council, and the CSR Promotion Committee within each Group company manage risks by responding appropriately and swiftly to risks that emerge as our business expands.
  • (3) The Audit Department conducts audits on the status of risk management and risk management operations in the Group. The findings are reported to the Representative Director, the director responsible for the Corporate Planning Unit, and the Audit & Supervisory Committee. The General Affairs Department then sets about making improvements following approval from the Board of Directors based on the instruction of the director responsible for the Corporate Planning Unit.
  • (4)The purchasing, production and engineering divisions at Sanwa Group companies evaluate business partners in the fields of procurement, production, logistics and installment in terms of quality, cost, delivery time and environmental approach. They also provide guidance on such areas as improvements in areas of potential risk throughout the supply chain from the perspectives of quality, supply and safety.

4. System for ensuring the duties of directors are executed efficiently

  • (1)The Sanwa Group shall separate the management decision-making and oversight function from the business execution function to invigorate the Board of Directors, and has introduced an executive officer system to strengthen the Group’s management capability through faster decision-making and the delegation of authority.
  • (2)The Sanwa Group shall adopt a framework that ensures the appropriate and efficient execution of duties by exercising the following: Formulate Board of Directors Regulations, Regulations concerning Duties by Directors and Executive Officers, Regulations concerning Duties and Authority, Regulations concerning Internal Approval System, and other rules and regulations; and clarify matters to be resolved and matters to be reported at meetings of the Board of Directors, as well as responsibilities, authority and decision-making rules based on rank-based decision-making criteria for the internal approval system, etc.
  • (3)The Management Conference shall be established as an advisory body for important matters regarding corporate management. The conference shall strive to ensure the smooth execution of corporate management by deliberating on essential matters requiring approval from a director who has been entrusted with making decisions on important business execution. The conference shall also work to accelerate decision-making and enhance efficiency in the Board of Directors through advance deliberation contributing to decisions on important matters to be discussed by the Board of Directors.
  • (4)The Board of Directors formulates management vision, medium- and long-term management policy, management targets and yearly business plans. Regional PDCA Council meetings led by the director responsible for the Group company are held monthly or quarterly to verify the implementation status of PDCA (Plan, Do, Check, Action) measures aimed at achieving Group company goals as well as the status of safety, quality and compliance. The meetings serve as the basis for providing guidance, giving recommendations and making evaluations, with progress reports made to the Board of Directors.

5. Other systems for ensuring the appropriateness of Sanwa Group operations

  • (1)The Sanwa Group shall ensure that each Group company is fully aware of our mission, our values, our principles of business and our Compliance Code of Conduct to enable the appropriateness of operations in light of optimal benefit for the Group while respecting the autonomous and independent management and responsibilities of each entity. The Group shall promote wholesome and efficient corporate group activities through a Group-wide compliance system, quality assurance system and risk management system, etc. In addition, various rules and regulations shall be established and a suitable internal control system created to ensure the appropriateness of operations, including operations at Group companies.
  • (2)Sanwa Group companies are managed autonomously as independent companies and fulfill their management responsibilities in compliance with laws and internal regulations and rules. To ensure and promote the appropriateness of operations, the director responsible for each Group company monitors the operational decisions and status of business execution at each company, provides guidance, issues recommendations and reports to the Board of Directors to improve business management transparency.
  • (3)Regional PDCA Council meetings and other meetings are held to formulate management policy, management targets and yearly business plans based on pertinent two-way discussions with each group company.
  • (4)An executive officer or employee of the Company or an executive officer or employee appointed by the Company takes on a position as director or Audit & Supervisory Board member at each group company to ensure the legality and effectiveness of management.
  • (5)The Sanwa Group requires Group companies to seek preliminary consultation or approval on certain matters concerning business execution, as well as to submit follow-up reports, in accordance with the Group Company Management Regulations and the standards of respective regulating authorities for companies in Europe, the United States and Asia. Matters that fall under certain standards shall be deemed matters to be resolved or matters to be reported at meetings of the Company’s Board of Directors. The division presiding over a Group company shall provide support when needed based on reports received on such matters as the status of business execution, from the company.
  • (6)The Audit Department conducts internal audits related to the status of business execution, compliance and risk management at Group companies that do not have their own internal auditing function. The Department monitors the implementation status of audits and confirms the quality of the audits at companies with their own internal audit division. The results of the audits and the monitoring are reported to the Representative Director and the director responsible for the Corporate Planning Unit and to the Audit & Supervisory Committee. Feedback is then given to the audited division and efforts are made to improve the appropriateness and effectiveness of business execution.

6. Matters concerning directors and employees assisting with the duties of the Audit & Supervisory Committee, matters concerning the independence of said directors and employees from other directors (excluding directors who are Audit & Supervisory Committee members) and matters concerning efforts to ensure the effectiveness of directives given by the Audit & Supervisory Committee to said directors and employees

  • (1)The Audit Department shall assist with the duties of the Audit & Supervisory Committee.
  • (2)The Audit Department is required to obtain the approval of the Audit & Supervisory Committee for evaluations, personnel changes and other activities to ensure its independence from business execution divisions.
  • (3)Employees of the Audit Department shall follow the directives of the Audit & Supervisory Committee when providing assistance to the duties of the committee to ensure the effectiveness of said directives.

7. System for ensuring directors and employees, etc. of the Sanwa Group and persons who received reports from such persons report to the Audit & Supervisory Committee, other system concerning reports to the Audit & Supervisory Committee, and system for ensuring persons who have reported shall not be treated unfavorably on the grounds of such reporting

  • (1)Directors who are Audit & Supervisory Committee members shall participate in important meetings of the Management Conference, Regional PDCA Councils, and Group CSR Promotion Council, etc., express their opinion and request reports. Said directors can also view important documents concerning business execution such as the minutes of meetings and documents seeking internal approval as necessary, and request reports from the executive officers and employees of the Sanwa Group as required.
  • (2)The executive officers and employees of the Sanwa Group shall report swiftly to the Audit & Supervisory Committee on matters that may have a material impact on the operations or results of the Group or that may be in violation of laws and regulations or the Articles of Incorporation.
  • (3)The Audit Department shall regularly report to the representative directors and the Audit & Supervisory Committee on the results of internal audits, progress in improvements and the status of evaluations of internal controls pertaining to financial reporting. The General Affairs Department shall regularly report to the representative directors and the Audit & Supervisory Committee on the status of internal whistleblowing.
  • (4)The Sanwa Group shall prohibit the disadvantageous treatment of persons who report to the Audit & Supervisory Committee on the grounds of such reporting and shall make this point abundantly clear throughout the Group.

8. Procedures concerning the advance payment or reimbursement of expenses arising in regards to the execution of duties by directors who are Audit & Supervisory Committee members (limited to the execution of duties of the Audit & Supervisory Committee) and policy concerning the processing of other expenses and debts arising with the execution of said duties

  • (1)The Sanwa Group shall promptly process requests for advance payment, etc. related to the execution of duties from directors who are Audit & Supervisory Committee members, except in cases in which the expenses are clearly not necessary for the execution of these duties by the Audit Department.
  • (2)The Audit Department shall assign a budget each year for expenses and other costs recognized as necessary for the execution of duties by directors who are Audit & Supervisory Committee members in consultation with the Audit & Supervisory Committee.

9. Other systems for ensuring the effective implementation of audits by the Audit & Supervisory Committee

  • (1)The Audit & Supervisory Committee shall exchange opinions regularly and as required with the representative directors and consult regularly and maintain close relations with the Independent Auditors and Audit Department in order to enhance the effectiveness of audits.
  • (2)Directors who are Audit & Supervisory Committee members can request an explanation or report in regards to matters concerning business execution from executive officers and employees of the Sanwa Group, as well as investigate the status of operations and finances. In such cases, said executive officers and employees shall respond promptly and accurately.
  • (3)The Audit & Supervisory Committee can employ the services of experts such as attorneys, certified public accountants and consultants as required when undertaking audits.

10. System for ensuring the reliability of the Sanwa Group’s financial reporting

  • (1)Sanwa Group companies shall create, establish and implement an internal control system that can ensure appropriate accounting processes and financial reporting based on the Financial Instruments and Exchange Act and other related laws and regulations.
  • (2)The Audit Department regularly evaluates the development and operation of internal controls relating to financial reporting at each Group company as well as the effectiveness of these controls and reports to the Representative Director and the director responsible for the Corporate Planning Unit. The findings are reported to the Board of Directors following assessment by an independent accounting auditor and steps are taken to ensure ongoing improvement and guarantee the appropriateness and reliability of financial reporting.

Basic Approach and System for Eliminating Anti-social Forces

  • The representative directors take an uncompromising stance toward pressure from anti-social forces in the Compliance Code of Conduct. The Sanwa Group has a firm policy of rejecting improper or unreasonable requests from anti-social forces or groups that are a threat to the order and security of civil society, and will sever any relations with such individuals and groups.
  • The General Affairs Department has been designated as the unit in charge of dealing with these matters. The Company also maintains close relationships with law enforcement authorities, attorneys and others to prevent interference from anti-social forces or groups.
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