Internal Control

Based on our corporate philosophy of contributing to society through technology, we strive to build sound relationships with a wide range of stakeholders and enhance corporate value by establishing a management system and organizational structure that enables flexible management decision-making in response to changes in the market environment, while ensuring rational, sound, and highly transparent management through appropriate delegation of authority, and we operate our financial reporting in an appropriate and effective manner.

In addition, to further enhance its effectiveness, we are working to develop and improve our systems from various perspectives, and with respect to internal audits, our Internal Audit Department, which reports directly to the President, conducts periodic audits of all departments of the Company and group companies; furthermore, in order to ensure that the Board of Directors and the Audit and Supervisory Committee fully perform their functions, we have established a system in which the Internal Audit Department directly reports the results of internal audits and related matters to the Board of Directors and the Audit and Supervisory Committee; moreover, the head of internal audit maintains coordination with the Audit and Supervisory Committee and the accounting auditor while exchanging opinions, provides corrective instructions and improvement proposals to each workplace, and conducts follow-up thereafter.

The Audit and Supervisory Committee and its members also ensure coordination by receiving explanations of accounting audits from the accounting auditor, reports on internal audits from the Internal Audit Department, and audit reports from auditors of affiliated companies, thereby facilitating the necessary exchange of information; furthermore, Audit and Supervisory Committee Members attend not only meetings of the Board of Directors but also other important meetings such as management meetings in order to understand the process of important decision-making and the status of business execution, review major approval documents and other important documents related to business operations, and request explanations from Directors or employees as necessary, while the President promotes mutual communication through regular meetings held with the Audit and Supervisory Committee and the accounting auditor.

As the basic approach to internal control of the Group, we have established a basic policy for the internal control system.

Basic Approach

1. System to Ensure that the Execution of Duties by Directors and Employees Complies with Laws and Regulations and the Articles of Incorporation

①Based on the recognition that thorough compliance is indispensable for the continued existence of a company, the Company strives to establish a compliance-oriented management system grounded in “Liberty & Law,” which is one of the Company’s corporate philosophies.

②The Company promotes compliance, education, and training in accordance with the “Oiles Group Corporate Conduct Charter,” the “Oiles Group Code of Conduct,” the “Group Compliance Regulations,” and the “Oiles Group Compliance Implementation Guidelines,” which are formulated under the Compliance Sub-Committee, the organization that oversees overall compliance, and officers and employees strive to build a more fair, transparent corporate culture with a high sense of ethics.

③The Company operates an internal reporting system for consultations related to compliance and the reporting of misconduct, specifically by establishing an internal reporting contact point covering the entire Group within the secretariat of the Compliance Sub-Committee, in addition to an external reporting contact point (a law firm) for all employees of the Group, thereby ensuring thorough protection of whistleblowers, and the Company also develops a system to report the content of internal reports to the Audit and Supervisory Committee.

④The Company makes decisions on important matters and supervises the execution of duties by Directors through regular meetings of the Board of Directors, and the Audit and Supervisory Committee supervises the Board of Directors and executive functions and has the authority to inspect all evidence related to all documents and operations within the Group.

⑤The Audit and Supervisory Committee appoints full-time Audit and Supervisory Committee Members to strengthen its supervisory functions over execution.

⑥Through internal audits conducted by the Internal Audit Department, the Company investigates and verifies whether operations are conducted appropriately, properly, and reasonably in compliance with laws and regulations, the Articles of Incorporation, and internal rules, and reports the results to the President, and in order to ensure the effective functioning of the Board of Directors, the Company establishes a system in which the Internal Audit Department directly reports the results of internal audits and related matters to the Board of Directors.

2. System for the Preservation and Management of Information Related to the Execution of Duties by Directors

The Company appropriately records information related to the execution of duties by Directors, including records of decision-making at important meetings such as the General Meeting of Shareholders and the Board of Directors, as well as documents approved by each Director and Operating Officer in accordance with internal approval regulations, and preserves and manages such information for a specified period under the responsibility of the document management officer in accordance with laws and regulations and the “Document Management Regulations,” etc.

3. Regulations and Other Systems for Managing the Risk of Loss for the Company and the Group

①The Company conducts risk assessments for the Company and the Group, identifies the magnitude and likelihood of various risks, and responds in an organized manner to minimize risks by preparing appropriate countermeasures in advance.

②The Board of Directors monitors the status of responses to significant risks related to the execution of operations of the Company and its group subsidiaries through internal audits and other means.

③The Company establishes a Risk Management Committee as an organization that oversees risks across the Company and the Group, appoints a responsible Director, and formulates the “Group Risk Management Regulations” and the “Group Crisis Management Regulations,” thereby building a risk management system for the Group.

④With respect to environmental matters and health and safety, the Company’s Environmental Health and Safety Office monitors the operation of internal control from a specialized standpoint, while with respect to quality, the Company’s Quality Assurance Office monitors the operation of internal control from a specialized standpoint.

⑤With respect to accounting, autonomous management by each department of the Company and the Group is taken as the basic principle, while the Company’s accounting department manages the Group as a whole from a numerical perspective.

4. System to Ensure the Efficient Execution of Duties by Directors of the Company and the Group

①In order to further strengthen the functions of the Board of Directors and improve management efficiency, the Company and the Group hold meetings such as regular management meetings attended by all Directors and employees designated by the President, as well as strategic meetings, as appropriate, to examine and deliberate on basic matters and important matters related to business execution, thereby making careful and flexible decisions while also taking sufficient time to discuss important management issues.

②Under the Long-Term Vision of the Group, the Company formulates group targets and develops a Medium-Term Management Plan and annual plans for their realization, and the Company and its group subsidiaries formulate and implement specific measures to achieve those targets and plans.

③In order to ensure the agility of management, the Company separates decision-making and supervisory functions from business execution functions through the operating officer system, and the term of office of Directors responsible for decision-making and supervisory functions is one year for Directors who are not Audit and Supervisory Committee Members and two years for Directors who are Audit and Supervisory Committee Members.

5. System to Ensure the Proper Conduct of Operations in the Company and the Group

①The Company establishes the “Oiles Group Corporate Conduct Charter” and the “Oiles Group Code of Conduct,” which are common to the Group, appoints compliance promotion officers and implementation leaders in each Group company, and the Compliance Sub-Committee oversees and promotes compliance across the entire Group.

②Based on the “Group Affiliated Company Management Regulations,” the Corporate Strategy Department conducts appropriate management by receiving necessary prior consultations and reports from each Group company in cooperation with the planning departments of each business division.

③The Company ensures the proper conduct of operations by the Audit and Supervisory Committee and the Internal Audit Department conducting regular audits of subsidiaries, and with respect to major subsidiaries of the Group, by having Company employees serve as Audit & Supervisory Board Members, etc., to conduct audits.

④The Company organizes the “Oiles Group Audit & Supervisory Board Members Meeting,” in which Directors who are Audit and Supervisory Committee Members and Audit & Supervisory Board Members (or Directors) of subsidiaries participate.

⑤Audit & Supervisory Board Members (or Directors) of subsidiaries report the status of compliance of each subsidiary at the Oiles Group Audit & Supervisory Board Members Meeting and, by taking necessary countermeasures, ensure the proper conduct of operations across the entire Group in an integrated manner.

⑥The Audit and Supervisory Committee maintains close coordination with the internal control departments (the Company’s Internal Audit Department and other departments responsible for monitoring functions within the Group’s internal control system; the same shall apply hereinafter), receives reports on the status of operation of the internal control system, and requests investigations as necessary.

⑦The internal control departments conduct audit support operations for the Audit and Supervisory Committee as necessary and shall be subject to its direction and orders.

6. Matters Concerning Employees Who Assist the Audit and Supervisory Committee in the Performance of Its Duties

The Company shall, in response to requests from the Audit and Supervisory Committee, assign staff members to assist in the performance of its duties, and such staff members shall be subject to the direction and orders of the Audit and Supervisory Committee, and matters concerning their personnel affairs, treatment, and working conditions shall be determined in consultation with the Audit and Supervisory Committee, and the Company shall obtain prior consent from the Audit and Supervisory Committee with respect to personnel transfers, performance evaluations, and disciplinary actions concerning such staff members.

7. System for Reporting to the Audit and Supervisory Committee by Directors and Employees, and Other Systems for Reporting to Auditors

①When officers and employees of the Group become aware of any fact that may cause significant damage to the Company, or when they discover any illegal or improper conduct by officers or employees, they shall immediately report such matters directly or through the internal reporting system, etc., to Audit and Supervisory Committee Members or the Audit and Supervisory Committee.

②Audit and Supervisory Committee Members attend not only meetings of the Board of Directors but also other important meetings such as management meetings in order to understand the process of important decision-making and the status of business execution, and review major approval documents and other important documents related to business execution, and when necessary request explanations from Directors or employees.

③The General Manager of the Internal Audit Department reports on the status of internal audits to the Audit and Supervisory Committee and receives instructions for investigations as necessary.

8. System for Reporting to the Audit and Supervisory Committee by Persons Who Have Received Reports from Directors, Audit & Supervisory Board Members, etc., and Employees of Subsidiaries

①When officers and employees of the Group are requested by the Audit and Supervisory Committee to report on matters related to business execution, they shall promptly provide appropriate reports.

②Officers and employees of the Group are required to report any compliance violations to the secretariat of the Compliance Sub-Committee immediately upon discovery, and such matters shall be reported to the Audit and Supervisory Committee through the said secretariat.

③The Company prohibits any disadvantageous treatment of officers and employees of the Group who have made such reports on the grounds of having made the report, ensures the protection of reporters, and thoroughly disseminates this policy to officers and employees of the Group.

9. System to Ensure the Effective Implementation of Audits by the Audit and Supervisory Committee

①The Company and the Group shall endeavor to deepen understanding of audits by the Audit and Supervisory Committee among each department of the Group and to develop an environment that facilitates such audits.

②The President of the Company shall hold regular meetings with the Audit and Supervisory Committee to promote mutual communication, and shall also hold regular meetings with the accounting auditor.

③The Audit and Supervisory Committee shall, in order to conduct its audits effectively, secure close coordination through necessary information exchange, including receiving explanations of accounting audits from the accounting auditor and regularly receiving reports on internal audits from the Internal Audit Department.

④When the Audit and Supervisory Committee makes a request to the Company for advance payment of expenses, etc. based on Article 399-2, Paragraph 4 of the Companies Act in connection with the performance of its duties, the Company shall promptly process such expenses or obligations.

10. Basic Approach to the Elimination of Antisocial Forces

①In the Oiles Group Corporate Conduct Charter, the Group stipulates that it shall have no relationship whatsoever with antisocial forces and organizations that pose a threat to the order and safety of society and shall confront them resolutely.

②The Group distributes the Oiles Group Compliance Implementation Guidelines to its officers and employees and ensures thorough dissemination of the Oiles Group Corporate Conduct Charter, including the elimination of relationships with antisocial forces, and also promotes cooperation with relevant authorities such as the police and associations for the prevention of organized crime, and conducts necessary information gathering for corporate protection.

③The Group shall provide maximum protection to officers and employees who resolutely confront antisocial forces and organizations.