Internal Control System

Other Corporate Governance Matters

Kanamoto Internal Control System

Kanamoto has established a variety of bodies as its internal control system. The Internal Control and Auditing Office carries out, evaluates, improves and when necessary rectifies the level of compliance with internal procedures and rules as well as laws and regulations applying to all business activities in addition to internal control pertaining to branch operation, consolidated subsidiaries, and other financial reporting. The Legal Office handles all legal affairs. Kanamoto has also established a Compliance Committee chaired by Kanamoto President and CEO and an Internal Control Committee chaired by the General Manager of the Administration Division.
The basic policy under which the Kanamoto internal control system was formed is as follows:

a.Body Ensuring Execution of Duties of Directors and Employees Appropriately Comply with laws and the Articles of Incorporation

Kanamoto and its subsidiaries have put in place Ethics Guidelines as a code of conduct for compliance. The Compliance Committee chaired by Kanamoto President and CEO has established systems to raise Group awareness and ensure compliance to laws and the Ethics Guidelines. The Committee has also distributed a handbook summarizing the Kanamoto corporate philosophy and employee code of conduct to all executives and employees to further increase compliance awareness. We have also set up internal and external compliance hotlines as a consultation and reporting system to resolve any problems quickly when employees or other individuals directly consult or report an issue. These compliance hotlines observe strict confidentiality and ensure anyone who reports a problem will not suffer any unfavorable treatment.
The Legal Office has been established as a body under the direct supervision of the President and CEO to provide proper legal advice on decisions about important legal matters.

b.Informational Preservation and Management Concerning Director Duties

Kanamoto preserves documents and various other information in accordance with laws as well as document administration and retention rules.
Our informational management system complies with internal informational management regulations and general data management rules in addition to personal information protection standards and the Kanamoto Personal Data Protection Manual.

c.Risk Management Rules and Systems

Kanamoto and its subsidiaries have set up systems to identify, evaluate and prevent manifestation of the inherent risks confronting each division in their business activities. These systems clarify the authority and responsibility of each department, oversee risk management across all divisions under the Board of Directors, and continually identify any new risks that arise.
If any unforeseen risks with a large impact on corporate operations manifest, or have the potential to manifest, Kanamoto responds in accordance with its Emergency Response Manual (Contingency Plan) and takes steps to prevent the recurrence or potential recurrence of said risks.

d.System to Ensure Efficient Execution of Director Duties

Kanamoto and its subsidiaries hold regular and extraordinary Board of Directors meetings to approve important matters and promptly make decisions on the execution and supervision of management strategy and business plans. The Board of Directors receives reports on the financial performance of subsidiary companies and all other important matters. Fiscal year and medium-term management plans outline specific Group-wide numerical targets as overall objectives for the management of each division. These divisions then aim to achieve these objectives by setting their own targets, executing specific measures, and managing progress.
Kanamoto has introduced a corporate officer system to accelerate management decision-making as well as clarify the responsibility of supervision and execution functions. Each of these corporate officers is responsible for achieving the management plans approved by the Board of Directors. Kanamoto has designated a one-year term for directors to rapidly adapt to the dramatically changing management environment.

e.Systems to Ensure Appropriate Business Operations for a Corporate Group Comprised of Kanamoto, Parent Companies and Subsidiaries

Kanamoto requires each Group company follows its Ethics Guidelines while expanding the scope of the Compliance Committee and reporting systems Group wide to ensure proper practices in all business activities.
Kanamoto and its affiliate companies have put in place and operate internal control systems that maintain an environment with excellent oversight in accordance with the Financial Instruments and Exchange Act and can strengthen and properly evaluate the effectiveness of Group-wide internal control and financial reporting audits as well as supervision functions of operational processes. Each body (individual) assumes the following responsibilities for internal control matters concerning financial reporting:

• Management will have the final say in all Kanamoto activities and shall prepare and operate internal control systems according to this basic policy.
• The Board of Directors will assume responsibility for supervising the internal control systems prepared and operated by management and shall monitor and supervise whether management is properly executing financial reporting and internal control functions.
• The Board of Corporate Auditors shall monitor and verify financial reporting as well as progress in preparation and operation of internal control systems from an independent standpoint.
• The Internal Control and Auditing Office shall objectively evaluate the effectiveness of internal control systems related to financial reporting at Kanamoto and affiliate companies on behalf of management from an independent standpoint in accordance with the audit rules and propose any necessary corrective actions or reforms to management and the Board of Directors.

f.Matters Concerning Employees Requested to Assist the Board of Corporate Auditors in Auditing Functions

Kanamoto assigns auditing staff to assist in auditing functions as necessary upon the request of the Board of Corporate Auditors. Kanamoto transfers the authority to supervise auditing staff assisting in matters designated by the Board of Corporate Auditors. The auditing staff also receives no instructions from directors to ensure the directives issued by the Board of Corporate Auditors are effectively carried out.

g.Matters Concerning the Independence of the Auditing Staff Above from Directors

The Board of Corporate Auditors shall have final say over personnel matters of auditing staff (appointments, transfers and evaluations).

h.System for Directors and Employees to Report to the Board of Corporate Auditors and Other Systems for Reporting to the Board of Corporate Auditors and for Securing the Effectiveness of Audits Carried Out by the Board of Auditors

The Board of Corporate Auditors attends not only the Board of Directors meetings to audit director duties but also principal conferences or committee meetings necessary to understand important decisions and the progress of business execution.
The directors and employees of Kanamoto and its subsidiaries promptly report to the Board of Corporate Auditors any facts discovered which cause or may cause significant harm to the Kanamoto Group. Standing corporate auditors circulate a report on these matters for managerial approval and may also request a briefing from said directors or employees as necessary. Kanamoto protects anyone who files a report with the Board of Corporate Auditors from unfavorable treatment on the grounds of said report.
The Board of Corporate Auditors also meet regularly with Kanamoto President and CEO to discuss issues Kanamoto should address as well as important auditing matters. The Internal Control and Auditing Office submits the results of audits as an internal control audit report immediately after completion of an audit to the President and CEO as well as the Board of Corporate Auditors.
The Board of Corporate Auditors and the Internal Control and Auditing Office also exchange information and coordinate with accounting auditors, lawyers and other outside experts.

i.Policy Matters Concerning Expenses, Liabilities and Other Procedures Arising from Board of Corporate Auditor Duties

Kanamoto processes, pays or reimburses expenses and liabilities arising from Board of Corporate Auditor duties upon request by the Board of Corporate Auditors, except when deemed unnecessary for the execution of said Board of Corporate Auditor duties.

j.Basic Approach and Current Measures for the Exclusion of Antisocial Forces

Kanamoto adamantly prohibits any and all business dealings and relationships with antisocial forces, individuals or groups who threaten public order and safety or obstruct sound corporate operations in its Ethics Guidelines. We are not only uncompromising in our stance of exclusion but also strive to gather information from specialized external agencies and conduct internal employee training and other enlightenment programs through the proper departments. In emergency situations, Kanamoto seeks assistance from competent police departments, legal counsel and other relevant authorities to systematically intercept and stop unreasonable demands from antisocial elements.

Status of Systems to Ensure Proper Business Practices at Subsidiaries Subject to Mandatory Reporting

Kanamoto oversees Group company management in accordance with the Guidance Rules for Affiliated Company Operations. The regulations make regular reports from Group companies on business performance, operating results and financial conditions mandatory while also ensuring proper business practices through audits by the Internal Control and Auditing Office when necessary.