Internal Control System

1.System to ensure that execution of business activities by directors is in compliance with laws and regulations and Articles of Incorporation

The Company has adopted the executive officer system to clearly distinguish the supervisory function of the directors from the executive function of the executive officers. Under this system, executive officers report on the execution of business at meetings of the Board of Directors, which are held regularly, thereby preparing and improving a supervision system for the execution of business activities.

The Company also elects independent outside directors in order to enhance the legitimacy, efficiency and propriety of the decision making of the Board of Directors.

Regarding the execution of important business, the Company has established criteria for submitting matters to the Board of Directors for proper decision making by the Board. The Management Committee deliberates on important issues affecting the execution of business, among other matters. After deliberation at the Management Committee, some specific issues are put forward to the Board of Directors for further deliberation. The corporate auditors attend important meetings such as meetings of the Board of Directors and audit the performance of business activities by the directors, as well as business activities of each department as appropriate. The Board of Corporate Auditors, no less than half of which consists of outside corporate auditors, performs systematic audits, forms appropriate opinions, and improves the effectiveness of auditing.

The Company provides compliance training programs and other relevant activities for directors, executive officers and corporate auditors through the Compliance Promotion Committee and the like to deepen their understanding of compliance and to foster their respect for compliance.

In its regulations on the management of insider information and insider trading, the Company establishes basic matters for compliance regarding the management and public announcement of insider information obtained in connection with its business and also the sale or purchase of the shares, etc. of the Company or other listed companies, thus working to prevent insider trading.

In its system for internal control over financial reporting, the Company makes sure that its financial reports are appropriate by complying with relevant laws and regulations, as well as accounting standards, in its accounting treatment. In parallel with this, the Company makes sure that its financial reporting is reliable by carrying out evaluation and analysis of the impacts that management decision making and accounting facts have on financial reporting.

With the establishment of Whistle Blowing System, the Company provides contacts for whistle-blowing not only inside the Company, but also outside the Company, at a law firm. With this structure, the Company works to enhance compliance by seeking to detect organizational or individual violations of laws and regulations at an early stage and to correct such violations.

The Company resolutely rejects any relationship with unlawful groups. It tackles unjust claims and other interventions in a well-organized manner through cooperation and collaboration among the departments concerned and in close cooperation with external specialized institutions, including the police. The Company provides absolutely no payoffs to unlawful groups. When entering into contracts, the Company confirms that the other parties to the contracts are not connected with unlawful groups. In cases where contracts are concluded in writing, the Company specifies in written contracts and the like special provisions allowing it to cancel a contract if it is discovered that the other party to such contract is connected to an unlawful group.

The Company recognizes the importance of managing personal information and the ethical responsibility it has to manage such information. The Company wholeheartedly complies with laws and regulations, and internal company rules related to the protection of personal information, and handles personal information in an appropriate manner.

The Company takes steps to prevent sexual harassment and power harassment in the workplace to create a comfortable work environment.

2.System for retention and management of information pertaining to execution of business activities by directors

Particulars about the preparation of minutes of meetings of the Board of Directors, committees and other bodies are specified in the relevant rules. The preparation of documents regarding other important decision making is covered by the rules for internal circulars for managerial decisions. Regarding the arrangement, retention and disposal of documents, the Company formulates document retention and management rules in order to manage information properly.

The corporate auditors examine whether documents, company rules, important records and other important information are adequately arranged, retained and managed. When deemed necessary, they must request explanations from, or deliver their opinions to, directors, executive officers or employees.

In its regulations on the management of insider information and insider trading, the Company establishes basic matters for compliance regarding the management and public announcement of insider information obtained in connection with its business and also the sale or purchase of the shares, etc. of the Company or other listed companies, thus working to prevent insider trading.

For confidential information of the Company and the subsidiaries and affiliates that constitute the Group, an appropriate management system is established to ensure that confidentiality obligations are thoroughly observed.

The Company recognizes the importance of managing personal information and the ethical responsibility it has to manage such information. The Company wholeheartedly complies with laws and regulations, and internal company rules related to the protection of personal information, and handles personal information in an appropriate manner.

3.Rules and other systems for management of risk of loss

With regard to risk in particularly important areas, the Company has set up individual committees and established relevant rules. Each business division conducts risk-management activities tailored to their respective needs. If a new risk factor occurs or is expected to occur, an executive officer is promptly assigned to be in charge of handling the matter. The Board of Directors receives reports, demands reporting, as needed, from committees and the executive officer in charge or strives to identify the risk, and implements necessary countermeasures.

The Company aims to implement preventive measures to avoid unexpected losses and trouble arising from the spread and use of social media.

(Note) At present, the Company has in place a structure that includes the Environment Safety Promotion Committee, the Anti-Monopoly Law Observance Committee, the Product Safety Committee, the Security Trade Control Committee, the Financial Reporting Risk Assessment Committee, the Compliance Promotion Committee, and the Safety and Health Committee, and has established rules accordingly.

4.System to ensure that directors' duties are performed efficiently

The Company has adopted the executive officer system, which enables the clear separation of decision making on important management issues and supervisory function from executive function, thereby reducing the size of the Board of Directors. In line with this system, the Company apportions authority, defines business structures, divisions of duties and the organization of offices, and also clarifies the chain of command to develop a system that facilitates prompt and appropriate decision making.

5.System to ensure that employees perform duties in compliance with laws and regulations and Articles of Incorporation

Alongside its corporate rules such as organizational rules and working regulations, the Company has developed an internal audit system to help ensure that its employees properly and diligently perform their duties in accordance with the Company's clearly defined chain of command. Regarding matters of specific importance, several committees have been set up to conduct studies and deliberations, and to offer guidance and awareness-promotion activities for the prevention of illegal acts.

The Company provides compliance training programs and other relevant activities for its employees to deepen their understanding of compliance and to foster their respect for compliance.

In its regulations on the management of insider information and insider trading, the Company establishes basic matters for compliance regarding the management and public announcement of insider information obtained in connection with its business and also the sale or purchase of the shares, etc. of the Company or other listed companies, thus working to prevent insider trading.

In its system for internal control over financial reporting, the Company makes sure that its financial reports are appropriate by complying with relevant laws and regulations, as well as accounting standards, in its accounting treatment. In parallel with this, the Company makes sure that its financial reporting is reliable by carrying out evaluation and analysis of the impacts that management decision making and accounting facts have on financial reporting.

With the establishment of Whistle Blowing System, the Company provides contacts for whistle-blowing not only inside the Company, but also outside the Company, at a law firm. With this structure, the Company works to enhance compliance by seeking to detect organizational or individual violations of laws and regulations at an early stage and to correct such violations.

The Company resolutely rejects any relationship with unlawful groups. It tackles unjust claims and other interventions in a well-organized manner through cooperation and collaboration among the departments concerned and in close cooperation with external specialized institutions, including the police. The Company provides absolutely no payoffs to unlawful groups. When entering into contracts, the Company confirms that the other parties to the contracts are not connected with unlawful groups. In cases where contracts are concluded in writing, the Company specifies in written contracts and the like special provisions allowing it to cancel a contract if it is discovered that the other party to such agreement is connected to an unlawful group.

The Company recognizes the importance of managing personal information and the ethical responsibility it has to manage such information. The Company wholeheartedly complies with laws and regulations, and internal company rules related to the protection of personal information, and handles personal information in an appropriate manner.

The Company takes steps to prevent sexual harassment and power harassment in the workplace to create a comfortable work environment.

(Note) At present, the Company has in place a structure that includes the Environment Safety Promotion Committee, the Anti-Monopoly Law Observance Committee, the Product Safety Committee, the Security Trade Control Committee, the Financial Reporting Risk Assessment Committee, the Compliance Promotion Committee, and the Safety and Health Committee, and has established rules accordingly.

6.System to ensure appropriateness of business operations within the Group

  • 1. System related to reporting on matters concerning duties handled by subsidiary directors and others
  • 2. Regulations and other systems related to the management of risk of loss at subsidiaries
  • 3. System to ensure efficient execution of duties handled by subsidiary directors and others
  • 4. System to ensure that subsidiary directors, employees and others comply with law, regulations, and Articles of Incorporation

Directors from the Company are selected to serve as the chief supervisor of each subsidiary. In addition, managing departments are selected to provide instruction and oversee the operations of each subsidiary. Each managing department appropriately reports on and discusses the operations of the subsidiary it oversees to the chief supervisor in charge. The subsidiary, when necessary, shall report on its earnings performance and on the details of its operations at the Company’ important internal meetings. Moreover, matters that are decided by the president of the subsidiary and which require reporting shall be detailed in a written report and submitted to the managing department.

Various committees shall be established to deal with risks that are deemed especially important and internal rules shall be formulated. In addition, each managing department shall be responsible for managing the risks at the subsidiary it oversees. An executive director should quickly be appointed to be in charge of handling new risks as they arise or if there is the potential of new risks. The committees and executive directors shall report on these risks to the Board of Directors when necessary. In some cases, the Board of Directors may request reports. In this manner, risks, including social responsibilities, are monitored and necessary measures are put into action.

Subsidiaries, in line with the spirit of independence and autonomy, aim to carry out business development. In addition, in line with the general management policies and consolidated management system of the Company, subsidiaries shall aim to promote the development of the overall Central Glass Group.

The Company has set up a department in charge of managing its subsidiaries and the like. It has also established rules for the management of subsidiaries, and exercises necessary control over subsidiaries in accordance with their circumstances.

Standards and rules governing decisions by the president, directors in charge, and the head of managing departments at the Company, and the president of subsidiaries shall be set forth to ensure that operations related to the Company and its subsidiaries are executed smoothly and efficiently by constantly working closely together.

In an effort to thoroughly promote compliance within the Group, regarding matters of specific importance, several committees have been set up to conduct studies and deliberations, and to offer guidance and awareness-promotion activities for the prevention of illegal acts.

In addition, the Company provides compliance training programs and other relevant activities for the employees of the Group to deepen their understanding of compliance and to foster their respect for compliance.

In its regulations on the management of insider information and insider trading, the Company establishes basic matters for compliance regarding the management and public announcement of insider information obtained in connection with its business and also the sale or purchase of the shares, etc. of the Company or other listed companies, thus working to prevent insider trading.

In its system for internal control over financial reporting, the Company makes sure that its financial reports are appropriate by complying with relevant laws and regulations, as well as accounting standards, in its accounting treatment. In parallel with this, the Company makes sure that its financial reporting is reliable by carrying out evaluation and analysis of the impacts that management decision making and accounting facts have on financial reporting.

With the establishment of Whistle Blowing System, the Company provides contacts for whistle-blowing not only inside the Company, but also outside the Company, at a law firm. With this structure, the Company works to enhance compliance by seeking to detect organizational or individual violations of laws and regulations at an early stage and to correct such violations.

For confidential information of the Company and the subsidiaries and affiliates that constitute the Group, an appropriate management system is established to ensure that confidentiality obligations are thoroughly observed.

The Company resolutely rejects any relationship with unlawful groups. It tackles unjust claims and other interventions in a well-organized manner through cooperation and collaboration among the departments concerned and in close cooperation with external specialized institutions, including the police. The Company provides absolutely no payoffs to unlawful groups. When entering into contracts, the Company confirms that the other parties to the contracts are not connected with unlawful groups. In cases where contracts are concluded in writing, the Company specifies in written contracts and the like special provisions allowing it to cancel a contract if it is discovered that the other party to such agreement is connected to an unlawful group.

The Company aims to implement preventive measures to avoid unexpected losses and trouble arising from the spread and use of social media.

The Company recognizes the importance of managing personal information and the ethical responsibility it has to manage such information. The Company wholeheartedly complies with laws and regulations, and internal company rules related to the protection of personal information, and handles personal information in an appropriate manner.

The Company takes steps to prevent sexual harassment and power harassment in the workplace to create a comfortable work environment.

(Note) At present, the Company has in place a structure that includes the Environment Safety Promotion Committee, the Anti-Monopoly Law Observance Committee, the Product Safety Committee, the Security Trade Control Committee, the Financial Reporting Risk Assessment Committee, the Compliance Promotion Committee, and the Safety and Health Committee, and has established rules accordingly.

7.Matters regarding employees who are requested for allocation by corporate auditors to assist them with their duties

An administrative office has been established in the Board of Corporate Auditors, consisting of corporate auditor staff, who are employees that assist the corporate auditors in their duties. To this end, the necessary personnel are allocated to the administrative office to serve as corporate auditor staff. The internal audit, finance & accounting, general administration and legal departments also assist the corporate auditors.

8.Matters related to independence of employees assisting with auditing duties from directors

While taking into consideration ensuring the independence of the corporate auditor staff from the directors and executive officers, the corporate auditors must hold consultations with directors and executive officers when necessary.

With regard to matters related to transfer or discipline of employees assisting the corporate auditors, the prior agreement of the corporate auditors must be secured.

9.Matters related to ensuring the efficiency of instructions to employees assisting with auditing duties

Taking into account scale, industry, management risks, and other unique corporate characteristics, measures shall be taken to strengthen the structure for employees that assist auditors in their duties to ensure the efficacy of audits.

Auditors can make a request to a director or the Board of Directors for assistance in the following cases. (1) Taking the audit structure into account, the auditor deems that there are an insufficient number of assistants necessary for properly executing auditing duties or a lack of specialization (expertise). (2) The shortage of manpower places unreasonable limits on the execution of the auditor’s instructions, including attendance at meetings, gathering of information, and other necessary duties. (3) The auditor’s command structure is unreasonably hindered. (4) The auditor does not consent to the transfer (including where an employee is transferred), personnel evaluation, and disciplinary actions related to employees that assist auditors. (5) Special circumstances that hinder the efficacy of the auditor’s audit. When necessary, this request shall be brought before the Board of Corporate Auditors. In the event that the directors or Board of Directors does not implement appropriate measures without just cause, the auditor shall discuss the lack of action with the Board of Corporate Auditors and point this out in the audit report.

10. 1.System for reporting by directors and employees to corporate auditors
2. Reporting system to auditors from subsidiary directors, auditors, employees, and others that receive reports from subsidiary directors, auditors, and employees

The corporate auditors attend meetings of the Board of Directors in which directors, executive officers and others give reports on the execution of their business activities, and listen to such reports. They also attend important meetings or meetings of committees in order to monitor the processes by which important decisions are made, as well as the execution of the relevant business activities. For those meetings they do not attend, the corporate auditors receive explanations on the matters discussed in such meetings and inspect the relevant materials.

Directors and executive directors are obligated to immediately report on matters that could potentially cause irreparable damage to the company as soon as they are discovered.

Directors, executive directors, and employees of the Company and its subsidiaries, or anyone that has received a report from one of these individuals are required to immediately report to the corporate auditors in the event an auditor requests an inspection, report, or explanation of relevant matters.

Auditors shall implement measures to fortify the reporting structure for receiving reports from directors, executive directors, and employees.

Under the structure for reporting to auditors, in the following cases, auditors can request that a director or the Board of Directors take action as needed. (1) In cases where there are no measures in place to ensure opportunities for auditors to attend important meetings and other necessary events other than the Board of Directors meetings. (2) In cases where there are no measures in place that enable auditors to view, in a timely fashion and at their request, documents, minutes, and other materials from meetings that they do not attend. (3) In cases where there are no measures in place that enable auditors to view, in a timely fashion and at their request, information on matters that have been approved and other important documents regarding the decision-making for business execution. (4) In cases where directors, the internal audit department, and internal control department fail to report on items that are supposed to be regularly reported to auditors. (5) In cases where directors, the internal audit department, and internal control department fail to report in a timely fashion on items other than those in (4) above. (6) In cases where information from the whistle blowing system is not reported to the auditor. The auditor request is discussed by the Board of Corporate Auditors when necessary. In the event that the directors or Board of Directors does not implement appropriate measures without just cause, the auditor shall discuss the lack of action with the Board of Corporate Auditors and point this out in the audit report.

11.System to ensure that subsidiary directors, auditors, employees, and others that receive reports from subsidiary directors, auditors, and employees are protected from mistreatment for reporting to auditors

Directors, executive directors, and employees of the Company and its subsidiaries, or anyone that has received a report from one of these individuals shall not be treated unfairly and discriminated against because of what they have reported. However, falsified reports or reports for unfair reasons shall not be condoned.

12.Matters related to policies on procedures for advanced payments and redemptions, and treatment of expenses and liabilities incurred by auditors when conducting auditing duties

Auditors are permitted to invoice the Company for costs paid in advance or for repayment of expenses incurred in the line of business, and for expenses and liabilities incurred for the execution of other relevant duties. Auditors must ensure that auditing expenses are efficient and fair.

13.Other systems to ensure that audits by corporate auditors are performed effectively

The corporate auditors and the Board of Corporate Auditors exchange opinions with the representative directors and deepen mutual understanding at periodical meetings. They exchange opinions on matters such as enhancing the environment for their audits and important auditing problems in addition to issues faced by the Company and risks surrounding the Company. As part of their work to deepen mutual understanding, the corporate auditors and the Board of Corporate Auditors also make requests to the representative directors on matters they deem necessary. The corporate auditors conduct efficient auditing of the Company's business, asset conditions, as well as other auditing duties, in close coordination with the internal audit department and other sections. They are authorized to demand for the internal audit department and other sections to conduct investigations when necessary.

The corporate auditors and the Board of Corporate Auditors maintain close coordination with the accounting auditor through regular meetings. They also receive outlines of the accounting auditor's audit plans and explanations on the understanding of the accounting auditor regarding such matters as the condition of the internal control system, risk assessment, and high-priority auditing issues, and exchange opinions accordingly. In addition to this, where necessary, the corporate auditors attend audit visits made by the accounting auditor and observe feedback sessions on audits held by them, and request reports from the accounting auditor on the audit process as appropriate.

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