Principles of internal control system
Systems to Ensure that the Execution of Duties by Directors Complies with Laws and Regulations and the Articles of Incorporation, and Other Systems to Ensure the Properness of Operations
We are a company with Audit and Supervisory Board. Our Board of Directors makes deliberations and decisions on all important matters related to the management and execution of operations. The Board of Directors also makes mutual monitoring and supervision among themselves, concerning the execution of their duties. Besides, we organize the Executive Committee as an advisory organ of the President and Chief Executive Officer (CEO), and make reports and deliberations concerning the execution of operations.
System to Ensure that the Execution of Duties by Directors and Employees Complies with Laws and Regulations and the Articles of Incorporation
- To ensure that the execution of duties complies with laws and regulations, we formulate Code of Conduct, Compliance Manual, and other related rules. Furthermore, all directors, executive officers and employees submit written oaths and comply with them.
We organize the Compliance Committee, headed by Chief Compliance Officer (CCO), to operate and monitor educational campaigns on compliance and our compliance systems.
- The Compliance Committee plans the educational campaigns out. The educational campaigns are executed by mainly its secretariat and the division and department heads.
- Division and department heads arrange and confirm the laws and regulations to comply with in their execution of operations, develop and revise the work procedures and check lists, and strive to fully comply with them.
- The Compliance Committee receives reports on compliance violation cases and reviews countermeasure situations thereto.
- The Compliance Committee confirms and evaluates the state of execution of the above, and CCO periodically reports it to the Board of Directors and the Executive Committee. The Board of Directors, based on the reports, conducts a management review once a year.
- We maintain a whistle–blowing system and a procedure to properly report the compliance matters to the Board of Directors and the Audit and Supervisory Board. For this purpose, we set up internal and external contacts for consultation and whistle–blow, and prohibit unfair treatment of whistle-blower by our internal rules.
- Audit and Supervisory Board Members audit on a periodic and as-needed basis whether there is any important fact violating any laws and regulations and the Article of Incorporation concerning the execution of duties by directors, or whether there is any improperness from the viewpoint of good manager’s duty of care and duty of loyalty by directors concerning the management decision by the Board of Directors and other organs. Furthermore, Audit and Supervisory Board Members and Internal auditing divisions audit compliance in individual divisions and departments, and report the results to the Board of Directors and other organs.
- To ensure the reliability of financial reporting required under the Financial Instruments and Exchange Act, we develop, operate and evaluate the internal control systems.
- We do not have any relations with antisocial organizations. In such a case as when any undue claims are received, we cooperate with police and the consulting lawyer and deal with such organizations in a resolute attitude through our General Affairs and Corporate Secretary Division as the controlling division.
Systems to Store and Control Information Related to Duties Performed by the Directors
- We properly store and control information about execution of duties by directors (minutes of General Meeting of Shareholders, minutes of Board of Directors, record of Executive Committee, financial data such as accounting forms, etc.) in accordance with the laws and regulations as well as our internal rules for document control.
- We properly store and control general information, including protection of personal information, in accordance with the information asset management rules and the basic policies on HSSE, quality and information security.
Regulations and Systems Related to Management of Risk of Loss
- We identify all events and phenomena that may contain risks, including changes in business environment across all of our businesses, and clarify processes, responsible divisions, and applicable rules and regulations so as to classify, analyze, assess and handle the risks. In this manner, we develop our risk management system.
We develop rules, procedures, and work flows and operates them as described below. Besides, we shall assess and share major risks to be recognized.
- Basic policies of the important business transactions are deliberated and approved by the Board of Directors and the Executive Committee.
- Project Risk Management Committee is set up under the Executive Committee to make detailed risk assessment and study of measures concerning proposal and project risks.
We establish crisis management rules to take agile measures against urgent and serious crises that may inflict significant damage on businesses, properties, honor or reputation of us or life and body of executives and employees and that may endanger the existence of us unless proper measures are taken in a timely manner. On this basis, we establish the crisis management systems described below.
- Under the crisis management systems, a permanently-organized Crisis Management Team and the divisions and departments concerned, in ordinary times, promptly scent and identify possibilities that may lead to crises. At the outbreak of crisis, Crisis Headquarters under the direct rule of the President and CEO makes necessary decisions on all matters concerning crisis measures.
- In accordance with the crisis management rules, we work out a business continuity plan to draw up emergency procedures and operation methods in crisis and conduct preventive measures and educational and training programs. We review the plan periodically and correct deficiencies, if necessary.
Systems to Ensure Effective and Efficient Execution of Duties by Directors
- For deciding medium- to long-term management strategy and other important management matters, we hold a regular board meeting once a month, a board meeting for reporting operation execution once in three months, and extraordinary board meetings as required.
- To facilitate prompt and efficient execution of duties by Directors, we set up the Executive Officer system. Executive Officers, appointed by the Board of Directors, execute delegated duties under the supervision of Directors. In the Executive Committee, Senior Executive Officers take central roles to report and deliberate matters about work execution.
- In the fast-changing market environment, we review periodically Rules of Board of Directors, Rules on Executive Committee and Standard for Deliberation of Board of Directors and Executive Committees so as to ensure prompt managerial decision making as well as transparent and rational managerial judgment. From a similar viewpoint, we review periodically Regulations on Organization and Authority of Management and other rules stipulating officers’ operation execution authority, responsibility, execution procedures, and other matters.
Systems to Ensure the Properness of Operations in the Group
- To promote sound management and efficient execution of duties by group companies, we define the authority and responsibilities of each of them by Group Company Rules. In addition, group management divisions will harmonize policies of each of the group companies and us on the business plans, operation policies, profit targets and other matters, and deal with corporate issues concerning the group management.
- We support the reinforcement of the basis and functions of EPC (engineering, procurement and construction) of relevant group companies, and share and coordinate the group strategies concerning the sales and marketing operation.
- We develop and operate compliance systems of our group as a whole, taking compatibility with local laws and regulations of group companies into considerations. With regard to efforts for ensuring the reliability of financial reporting and full observation of security trade control system, the divisions and departments concerned cooperate for achievement.
- Group companies establish their risk control systems and crisis control systems, respectively. Besides, concerning risks that may affect seriously on the group management, group management divisions accurately understand and control the state of respective group companies.
- Group management divisions require group companies to report periodically concerning their operation execution and financial state, and conduct control and administration in a planned manner, in cooperation with internal auditing divisions, accounting and finance divisions and Audit and Supervisory Board Members.
- We establish appropriate control system for equity method affiliates in proportion to the equity and the responsibility to assume, and the Group Management Divisions carry out the administration.
- In transactions with our two major shareholders (Mitsui & Co., Ltd. and Mitsui Chemicals, Inc.), we make deliberations with transparency in examining the transactions and setting business terms, in the same manner as transactions with other business partners.
- In managing affiliates having minority shareholders, we make deliberations with transparency, respecting the profit of minority shareholders and never imposing unfair or undue transactions.
Employees Assisting Duties of Audit and Supervisory Board Members
- We set up Secretariat for Audit and Supervisory Board to assist Audit and Supervisory Board Members’ duties. While the persons in charge of the Secretariat for Audit and Supervisory Board are to serve concurrently related divisions in view of the auditing environment described in Paragraph 7, these employees follow directions and orders of Audit and Supervisory Board Members when the employees perform audit-related duties.
- In order to maintain the system and independency mentioned above, persons in charge of the Secretariat for Audit and Supervisory Board are nominated subject to Audit and Supervisory Board Members’ approval. Their personnel issues, such as transfer and disciplinary action, are to be handled subject to a prior negotiation with Audit and Supervisory Board Members.
Systems to Report to Audit and Supervisory Board Members, and Systems to Ensure Effective Auditing by Audit and Supervisory Board Members
- Full-time Audit and Supervisory Board Members attend all meetings that are important for corporate management.
- We hold regular meetings of Representative Directors and Audit and Supervisory Board Members quarterly to discuss corporate business environment and risks, challenges to be taken up by us, state of Audit and Supervisory Board Members’ auditing environment improvement, important challenges in auditing, and other matters.
- Audit and Supervisory Board Members promote collaboration between their audit and internal audit, through periodic and extraordinary conference with the internal auditing divisions.
- Full-time Audit and Supervisory Board Members conduct, on a periodic or as-needed basis, audit interviews as well as visiting audits with major domestic and overseas affiliates and construction sites. The Directors improve the visiting audit system.
- Full-time Audit and Supervisory Board Members report the details of Audit and Supervisory Board Members’ Auditing Standard and operating policies to the Board of Directors and other organs and seek for cooperation to auditing from the Directors and Operation Divisions.
- Directors consistently ensure that settlement documents and other documents important for corporate management are reported without delay to Full-time Audit and Supervisory Board Members regularly or at occurrence of an event and at decision making. Directors also consistently ensure that the reporter to Audit and Supervisory Board Member is not treated unfairly on the grounds of the reporting.
- Directors cooperate with audit by Audit and Supervisory Board Members and allocate the budget for audit expenses to secure the effectiveness of audits.