Internal Control

Current Status of Internal Control System

Based on its Basic Polices for the Construction of an Internal Control System, Nabtesco is working to enhance all the areas associated with internal control—such as increased efficiency of management, compliance, information management, risk management and collaboration with the Audit & Supervisory Board Members under consistent principles, and integrate them to construct an internal control system.

Internal control for the Nabtesco Group shall be based on making The Nabtesco Way and the Nabtesco Group Code of Ethics cornerstones of proper and fair business activities, and requiring the Group’s directors, Audit & Supervisory Board Members and employees to comply with these norms and rules.

The Chief Executive Officer (CEO) shall be the top executive responsible for the promotion of internal control. The Board of Directors shall examine the maintenance of internal control systems on a continual basis in line with changes in the business environment and social needs, revisions to laws and regulations, risk diversification and other factors, and shall conduct a review yearly and whenever else necessary.

Matters related to the internal control system

Revised on December 25, 2019

1. Basic views on the internal control system and progress of system development

The Chief Executive Officer (CEO) shall be the top executive responsible for the promotion of internal control.
The Board of Directors shall examine the maintenance of internal control systems on a continual basis in line with changes in the business environment and social needs, revisions to laws and regulations, risk diversification and other factors, and shall conduct a review yearly and whenever else necessary.

1. The System to ensure that Directors, Executive Officers and employees perform their duties in compliance with laws and the Articles of Incorporation

  1. (i) Directors, Executive Officers and employees shall comply with the Nabtesco Way and the Nabtesco Group Code of Ethics as the basis of appropriate and fair business activities, shall behave in accordance with social norms/ethics as members of society, and shall endeavor to establish and maintain a sound corporate culture.
  2. (ii) (The Board of) Directors and Executive Officers shall make proper decisions on important management matters stipulated in laws and regulations, the Articles of Incorporation, the Board of Directors’ rules, the Responsibility and Authority Regulations, etc.
  3. (iii)Executive Directors and Executive Officers shall perform their respectively delegated duties in accordance with proper decisions by the Board of Directors, and shall report on the execution of their duties to the Board of Directors. Should a Director or an Executive Officer have any doubts on whether the execution of the duties by himself/herself or other Directors/Executive Officers are in compliance with laws and regulations and the Articles of Incorporation, the Director or the Executive Officer shall report these doubts to the Board of Directors and Audit & Supervisory Board Members (or the Audit & Supervisory Board).
  4. (iv) Directors, Executive Officers and employees shall ensure the rationality, adequacy and legality of their decisions by actively and thoroughly hearing the expert opinions of expert staff members of the Head Office and/or outside experts during decision-making and performance of duties.
  5. (v) The Board of Directors shall make use of the multifaceted and impartial advice provided by Outside Directors and Audit & Supervisory Board Members (Independent) to make appropriate decisions.
  6. (vi)In order to promote the compliance of the Group, the Compliance Committee shall be set up as an advisory body of the Board of Directors. The Committee shall deliberate important matters, etc. concerning compliance and report to the Board of Directors.
  7. (vii)To assist the CEO in promoting compliance, organizations responsible for promoting compliance shall be set up to review compliance systems in accordance with social conditions, revision of laws, etc., and to provide training on compliance to Directors, Executive Officers and employees.
  8. (viii)Directors, Executive Officers and employees shall be obliged to report any misconduct within the Group, and a corporate ethics hotline shall be established and operated as one of the methods to achieve this. The person who used this corporate ethics hotline will not be treated unfavorably on the grounds of having made such reports.
  9. (ix)To ensure the adequacy of financial reports, an internal control system over financial reports and a system to evaluate its validity shall be developed and operated.

2. The System for storing and managing information on the performance of duties by Directors and Executive Officers

  1. (i) Directors and Executive Officers shall properly prepare, store and manage the following information (in written form or on electromagnetic record; the same applies hereinafter) on the performance of their duties in keeping with their respective duties and in accordance with laws and company regulations.
    1. (a) Minutes of general shareholders’ meetings and related documentation
    2. (b)Minutes of Board of Directors’ meetings and related documentation
    3. (c)Records of the proceedings at other important meetings hosted by Directors or Executive Officers (e.g., Management Committee meetings) and related documentation
    4. (d)Notices of decisions made by Directors or Executive Officers, and appended documentation
    5. (e)Other important documentation related to Directors’ and Executive Officers’ performance of their duties
  2. (ii)The parties responsible for the preparation, storage and management of the information set forth in (i) above shall be the chairmen of the respective meetings or a separately assigned Director, decision-maker, or the Director or the Executive Officer responsible for performing the duties in question.
  3. (iii) Efforts shall be made to establish and continually strengthen and improve adequate security for electromagnetic records to combat the risks of unauthorized disclosure posed by the increasing sophistication of information technology.

3. The Regulations and other systems for managing the risk of loss.

  1. (i)The system shall be developed so that a scheme shall be put in place to ensure that profits and losses, asset efficiency, quality issues, accidents, and other matters concerning the execution of operations are reported to the Board of Directors in a suitable and timely fashion, and to ensure that Directors and employees who became aware of matters that could have a seriously adverse impact on Nabtesco and its Group report these promptly and precisely to (the Board of) Directors, and efforts shall be made to discover risks early so as to minimize losses.
  2. (ii)To manage various risks and prevent losses with regard to business activities of Nabtesco and its Group, the Risk Management Committee, Group Quality & PL (Product Liability) Committee, Group ESH (Environment, Safety and Health) Committee, etc., shall be established as cross-group organizations, and the rules for information security and business continuity plan at the time of a critical accident and disaster, and other relevant company regulations shall be established.
  3. (iii)Risk management shall be conducted while ensuring rationality, adequacy and legality of decision-making through deliberation on the performance of important matters concerning the execution of operations by the Board of Directors and Management Committee and compliance with, and thoroughgoing implementation of, the Responsibility and Authority Regulations.
  4. (iv)Reporting requirements in the event of accidents, disasters or critical quality problems and other events that may have serious adverse effects on the Group’s business performance, financial condition and credibility shall be set forth within company regulations, and steps shall be taken to ensure that information is promptly and suitably conveyed and that contingency measures are implemented during emergencies in accordance with these regulations.
  5. (v)Expert members of the Head Office, particularly in the Business Auditing Department, shall conduct cross-organizational audits of operational risk management, and shall offer necessary and appropriate advice with regard to operational improvements.

4. The System to ensure that Directors and Executive Officers perform their duties efficiently

  1. (i)The necessary organizations shall be formed to ensure that Directors and Executive Officers perform their duties efficiently, and the respective responsibilities of these organizations shall be stipulated. Responsibility for operations shall be divided among Executive Directors and Executive Officers in accordance with Board of Directors’ resolutions, and Executive Directors and Executive Officers shall perform their duties in keeping with these divisions of responsibility.
  2. (ii)A company shall be established as a strategic business unit. Each company shall perform operations in accordance with the Responsibility and Authority Regulations and report on the same.
  3. (iii)Efforts shall be made to ensure the suitability and efficiency of decision-making by the Board of Directors with regard to the performance of operations to be submitted for consideration to the Board of Directors by having the Management Committee conduct preliminary examinations to clarify the points of issue before passing the matter on to the Board of Directors.

5. The System to ensure the suitability of operations by the Company and the Group

  1. (i)All principles and policies for internal control shall be applied to the whole Nabtesco Group, and efforts shall be made to disseminate and standardize these throughout the Group as a whole.
  2. (ii)Group Companies Management Regulations shall be established to stipulate management classifications and management items for subsidiaries, and the Responsibility and Authority Regulations shall be set up, taking into account the scale and importance (impact onto the Group) of subsidiaries as well as their autonomy. Furthermore, a system shall be developed so that subsidiaries shall report their important matters with regard to the performance of operations to the Company.
  3. (iii)Efforts shall be made to improve the suitability and efficiency of business operations at subsidiaries as well as to make qualitative improvements to financial reports by adopting a fully-consolidated basis and appropriately reflecting the performance of all subsidiaries into the consolidated performance of the company and by conducting performance assessment of the management of companies on a consolidated basis.
  4. (iv) Efforts shall be made to dispatch its personnel as Directors and Audit & Supervisory Board Members to subsidiaries from the Company to ensure more suitable decision-making and performance of operations and to homogenize and improve audits of subsidiaries through the Group Audit & Supervisory Board.
  5. (v) Internal audits of subsidiaries shall be performed by our Business Auditing Department. Advice regarding improvements shall be provided as necessary and appropriate as part of these audits.
  6. (vi) Efforts shall be made to thoroughly communicate the Nabtesco Group Code of Ethics to subsidiaries and to develop and strengthen compliance systems at subsidiaries by means of training on compliance and information sharing.

6. Items on employees to support Audit & Supervisory Board Member (“support personnel”), when Audit & Supervisory Board Members requested to assign employees to support Audit & Supervisory Board Members

  1. (i)Should Audit & Supervisory Board Members (or Audit & Supervisory Board) request that support personnel be assigned, the appropriate personnel shall be promptly secured after preliminary discussions with Audit & Supervisory Board Member (or Audit & Supervisory Board).
  2. (ii)To ensure the independence of support personnel from Directors, reassignments and evaluations of these support personnel shall be made only after prior consultation with Audit & Supervisory Board Member (or Audit & Supervisory Board).
  3. (iii)Support personnel shall be subject to the instructions and orders of Audit & Supervisory Board Member (or Audit & Supervisory Board) in engaging in such support tasks.

7. The System enabling Directors, Executive Officers and employees to report to Audit & Supervisory Board Member; other systems for reporting to Audit & Supervisory Board Member

  1. (i) Directors aware of matters that could have a seriously adverse impact on the Company and its Group shall immediately report these to Audit & Supervisory Board Member(or Audit & Supervisory Board).
  2. (ii)Directors, Executive Officers and employees shall respond promptly and appropriately to requests by Audit & Supervisory Board Member for reports on the Company’s business or for cooperation in investigating the status of the Company’s operations and assets.
  3. (iii)With the aim of enhancing cooperation between Audit & Supervisory Board Members and the Business Auditing Department, consultations and exchange of information and views concerning audits shall be carried out through the Audit Council, etc. Furthermore, Group Audit & Supervisory Board shall conduct consultations and report and exchange views with Audit & Supervisory Board Members and Audit & Supervisory Board Members of subsidiaries with regard to audits.
  4. (iv)The departments associated with internal control shall periodically report on the development and operation status of the internal control system (including reports from Directors and employees, etc. of subsidiaries to the relevant departments) to Audit & Supervisory Board Members.
  5. (v) Information on “Audit & Supervisory Board Member’s Hotline” established by Audit & Supervisory Board shall be noticed to Directors, Executive Officers and employees.
  6. (vi)The person who reported the relevant matter to a Audit & Supervisory Board Member(including those who reported the same to “Audit & Supervisory Board Member’s Hotline”) will not be treated unfavorably on the grounds of having made such reports.

8. The Systems to ensure that audits by Audit & Supervisory Board Members are carried out effectively

  1. (i)A certain amount of the budget shall be set yearly for paying expenses, etc., with respect to the performance of duties of the Audit & Supervisory Board Members. In the event that a Audit & Supervisory Board Member requests from the Company advance payment of expenses associated with the performance of their duties, the Company shall account for such expenses, etc., immediately according to laws and regulations, regardless of whether or not the expenses requested are within the budget.
  2. (ii)Audit & Supervisory Board Members shall be permitted to attend Management Committee meetings and all other important meetings and to view all management information, to enable themselves to implement audits and check the decision-making process on the important matters in the performance of operations, based on the information equivalent to information available to Directors.
  3. (iii)Audit & Supervisory Board Members may hold regular meetings to exchange views with CEO and the Representative Directors.
  4. (iv)Audit & Supervisory Board Members may request Executive Officers and other important employees to report on the performance of duties.
  5. (v)A system shall be ensured to enable Audit & Supervisory Board Members to exchange views with financial auditor and the Accounting & Finance Department regularly and confirm the adequacy of financial reports.

2. Basic views on elimination of anti-social forces and implementation status

The Nabtesco Group Code of Ethics stipulates that “We will avoid any relationship with anti-social forces, and will firmly and resolutely oppose and refuse any improper demands made by anti-social forces.” In entering into agreements, clauses concerning the elimination of anti-social forces are included.
The Company designates a staff member responsible for matters related to anti-social forces within the General Administration Department, which serves as the supervisory organization. The department centrally manages information about anti-social forces, distributes the Manual on Special Anti-violence Countermeasures to all staff members of the department, and regularly provides them with external training.
Furthermore, the latest information on anti-social forces as well as advice is obtained based on strengthened collaborative relationships with the police and other special anti-violence bodies.

Related Information

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