Basic Policy on the Operation of Internal Controls System
1. Systems for ensuring compliance with laws and regulations and the Company’s Articlesof Incorporation in the execution of duties by Directors and employees(1) The Company has established the Basic Policy on Compliance and the Compliance
Manual (Code of Conduct) indicating the general principles that form the standards ofconduct, decisions, and evaluation for officers and employees, and has ensured that allofficers and all employees are well aware of it.
(2) In accordance with the Compliance Management Regulations, the Corporate
Management Headquarters conducts integrated compliance-related management todevelop, promote, and manage compliance systems.
(3) The Company has established the Yokorei Group Whistleblowing and Consultation
Helpdesk in the General Affairs Department as the internal reporting system for legal
violations and other compliance-related facts, which it works to prevent. Based on theWhistleblowing Process Rules, the Company also protects providers of information,
which includes not engaging in unfavorable treatment.
(4) The Company has established the Internal Audit Department under the directsupervision of the President and Representative Director, and it conducts systematicinternal audits, which include the state of compliance, based on an annual plan.
(5) Matters related to the execution of important corporate business are determined by theregular meetings of the Board of Directors held once a month and by extraordinary
meetings of the Board of Directors. The Board of Directors also oversees the executionof duties by the Directors.
(6) The Auditors report their opinions to the Board of Directors as necessary and also
advise on improvements to the execution of duties by the Directors as necessary.
(7) The Company has no relationship of any kind with anti-social forces and the entireorganization will continue its firm stance against interference and other actions byanti-social forces.
2. System regarding the retention and management of information relating to the executionof duties by Directors(1) The President and Representative Director has appointed the Chief of the Corporate
Management Sector as the person responsible for the company-wide supervision ofretention and management of information relating to the execution of duties byDirectors.
(2) The Company has established the Management Rules for Documents Relating to theExecution of Duties by Directors for the retention and management of information
relating to the execution of duties by Directors. Information is recorded on documents

or electromagnetic media, retained and managed based on the rules.
(3) The Directors and Auditors may view these documents at any time.
3. Rules and other systems related to managing the risk of loss
(1) The Company has ensured that all officers and all employees are well aware of theBasic Policy on Risk Management, which stipulates the basic objectives and action
guidelines for risk management activities.
(2) The Board of Directors has established the Risk Management Rules to set out therelevant departments and the emergency response for each type of risk for the priority
management risks.
(3) The Corporate Management Headquarters develops and operates the company-widerisk management system, and will continue the comprehensive and integrated
management of Group-wide risk.
(4) Auditors and the Internal Audit Department audit the effectiveness andappropriateness of risk management in each sector.
4. Systems for ensuring the appropriateness of financial reporting(1) In order to ensure the appropriateness of the Group’s financial reporting, the Company
develops and operates internal controls and evaluates their effectiveness in accordancewith the Internal Control Rules and the Basic Policy on the Development, Operation,and Evaluation of Internal Controls.
(2) Led by the development and operation team of the Internal Control Committee, theCompany will endeavor to develop and operate the systems required to ensure theappropriateness of the Group’s financial reporting.
5. Systems for ensuring the efficient execution of duties by Directors(1) Authority and responsibility are clearly specified based on the rules regarding thedivision of duties and authority so that the Directors execute duties efficiently.
(2) A review of performance and execution of operations is carried out at the meetings ofthe Board of Directors that are held every month with the aim of efficient
implementation of operations by assessing the achievement of management targets andissues.
(3) In order to strengthen the supervisory function and accountability of the Board ofDirectors as well as enhance its deliberations, the Company has established theNomination and Remuneration Advisory Committee, which has independent Outside
Directors as a majority of the members, as an advisory body to the Board of Directors.
The committee reports the details of deliberations on matters related to theappointment, dismissal and remuneration of Directors to the Board of Directors toensure fairness, transparency, and objectivity in the procedures related to thenomination and remuneration of Directors.
(4) Important decisions on management targets and matters with a serious impact aresubmitted to the Board of Directors after full discussion and consideration atManagement meetings in order to expedite and streamline decision-making.
6. Systems for ensuring the proper operation of the corporate group composed of theCompany and its subsidiaries(1) System for reporting matters related to the execution of duties of Directors ofsubsidiaries to the CompanyaIn order to accurately understand the details of management at subsidiaries, theCompany sets out the matters to be discussed and reported to the Company inadvance and manages them appropriately based on the Affiliated Company
Management Rules and the Detailed Rules for the Operation of Subsidiaries basedon them established by the Company.

bThe regular meetings of the Company’s Board of Directors and Management
meetings regularly receive reports on execution of operations, financial position,and other important information from the Representative Directors and otherofficers of subsidiaries.

(2) Rules and other systems for managing the risk of loss at subsidiaries
aBased on the Company’s Risk Management Rules, each subsidiary appoints a
person with responsibility for risk management and makes efforts to prevent anddetect risk.

b

The Company stipulates that each subsidiary will report promptly to theCompany’s Risk Management Committee if a risk of loss is identified and has
established a risk management system for the comprehensive and integrated
management of Group-wide risk.

(3) Systems for ensuring the efficient execution of duties by Directors of subsidiariesaThe Company formulates fiscal year plans and medium-term management plans
for the Group in order to implement appropriate and efficient operations, taking
into consideration the business characteristics, size, and other features ofsubsidiaries.

bThe Chief of the Corporate Management Sector, who is the person withresponsibility for the management of subsidiaries, receives timely reports onimportant decisions related to business activities and matters with a serious
impact from the Representative Directors and other officers of subsidiaries,
considers the content, and, when necessary, gives advice and reports to the Boardof Directors.

(4) Systems for ensuring compliance with laws and regulations and the Articles ofIncorporation in the execution of duties by Directors and employees of subsidiaries.

a

Based on the Detailed Rules for the Operation of Subsidiaries, each subsidiary
ensures that all officers and all employees are well aware of the Company’s Basic
Policy on Compliance and the Compliance Manual (Code of Conduct).

b

Based on the Company’s Compliance Management Rules, each subsidiary appoints
a person who is responsible for compliance to promote compliance and provide
education and guidance.

cThe Company’s Internal Audit Department regularly conducts audits ofsubsidiaries, which include the state of compliance.

7. Matters relating to employees when the Auditors request the assignment of employees toassist in their duties, matters relating to the independence of the employees from theDirectors, and matters relating to ensuring the effectiveness of instructions given by
Auditors to the employees(1) When the Board of Auditors has requested employees to assist with the duties ofAuditors, the employees are appointed in consultation with the Board of Auditors.
(2) Personnel evaluations and transfers of the employees are conducted in consultation
with the Board of Auditors in order to ensure their independence from the Board ofDirectors. Additionally, to ensure the effectiveness of the instructions of the Auditors,
the duties ordered by the Auditors are not subject to commands and orders of theDirectors and persons from the organizations with which the employees are affiliated.
8. Systems related to reports to the Company’s Auditors(1) The Company’s Directors and employees and the Directors, Auditors, and employees ofsubsidiaries report on company business position and the status of development andoperation of the internal control system at the request of the Company’s Auditors.
(2) The General Manager of the Internal Audit Department reports to the Company’sAuditors on the results of audits conducted by the Internal Audit Department. TheGeneral Manager of the General Affairs Department reports to the Company’s Auditorson the status of reports and consultations with the Yokorei Group Whistleblowing andConsultation Help Desk.
(3) The Company’s Directors and employees and the Directors, Auditors, and employees ofsubsidiaries report promptly to the Company’s Auditors after learning of facts thatcould cause significant corporate damage, serious compliance violations, andmisconduct.
(4) The Company and its subsidiaries prohibit unfavorable treatment of any person who
has made a report to the Company’s Auditors for reason of having made such a report,
and ensure that the Company’s Directors and employees and the Directors, Auditors,
and employees of subsidiaries are well aware of this prohibition.

9. Matters relating to policies on processing of audit expenses, etc.
(1) When the Auditors request the Company to pay the expenses for the execution of theirduties in advance, the Company processes the expenses or obligations promptly unlessdeemed unnecessary.
(2) The Company sets a budget each fiscal year for expenses that arise related to theexecution of duties by Auditors.
10. Other systems for ensuring the effectiveness of audits by the Auditors(1) The Auditors hold regular meetings with members of the Management meetingscomposed of the President and Representative Director and others to exchange
opinions and communicate.
(2) The Auditors hold regular meetings with the accounting auditor to exchange
information.
(3) The Auditors collaborate with the Internal Audit Department and endeavor to engage
in appropriate communications and implement effective audit operations.
End of document
Established: May 16, 2006
Partially updated: August 21, 2015
Partially updated: October 25, 2019
Partially updated: December 22, 2021