Compliance and governance

【Corporate governance】

1. 1)　The Board of Directors makes decisions about important management-related matters and supervises directors’ execution of their responsibilities in accordance with applicable laws, the company’s Articles of Incorporation, General Shareholders Meeting resolutions, Board of Directors Rules, and the company’s Corporate Philosophy and Action Guidelines.
2. 2)　Directors are responsible for carrying out the company’s business in accordance with their roles as determined by the Board of Directors, applicable laws, the company’s Articles of Incorporation, Board of Directors resolutions, the Administrative Authority and Responsibility Rules (including the Administrative Authority and Responsibility Chart), and other internal rules.
3. 3)　Auditors exercise their authority under the law and work with internal audit departments and accounting auditors to audit directors’ execution of their responsibilities in accordance with the Board of Auditors Rules.

【Compliance】

1. 1)　Recognizing that compliance is a key management priority, we’ve formulated the Orchid Group Compliance Code of Conduct as a guide for ensuring that all executives and employees of the group conduct themselves in accordance with applicable laws, the company’s Articles of Incorporation, and societal norms. We review the Code on a regular basis, and we strive to ensure that all group employees are aware of the importance of compliance, for example by offering compliance education and training.
2. 2)　The Compliance Committee monitors the status of the group’s compliance structures and advises and reports to the Board of Directors and other entities as necessary. Additionally, we have created and continue to operate both company and third-party hotlines for internal reporting so that all group executives and employees can provide information directly in the event of conduct that raises legal questions.

【Development of structures for ensuring the suitability of financial reporting】

1. 1)　We develop and operate a system of internal controls related to financial reporting that includes accounting rules and other guidelines in accordance with the Companies Act and related regulations to ensure the reliability and suitability of our financial reporting.

【Internal audits】

1. 1)　The Audit Section carries out regular internal audits of the group’s operations in accordance with the Internal Audit Rules and reports the results to the president, auditors, and involved executives. It also follows up on the status of corrective action undertaken to address issues uncovered by, and advice included with, internal audits. Audit Committee meetings are held to address important matters in order to report on progress in improvements and to discuss and consider potential countermeasures.

1. 1)　We retain and manage information in the form of minutes of General Shareholders Meetings, minutes of Board of Directors meetings, decision-making documents, contracts, and other documents related to directors’ execution of their responsibilities in accordance with the Document Management Rules.
2. 2)　Directors and auditors are authorized to view the information described in 1) above at any time.
3. 3)　Recognizing that information systems comprise an important asset, we have formulated the Orchid Group Information Security Basic Policy, Information Security Detailed Rules, and Information System Administration Rules to protect the integrity of information systems, and we strive to improve the reliability, safety, and efficiency of those systems.

1. 1)　Recognizing that risk management is a key management priority, we have created a specialized administrative department to carry out risk analysis, evaluation, response, and monitoring for credit risk, financial risk, legal and compliance risk, information systems risk and information leak risk, product quality risk, labor/human resources risk, and other types of risk. Additionally, we regularly verify the effectiveness of our risk management structures.
2. 2)　With regard to crisis response, we work to take immediate action in the event of an emergency and to communicate with outside stakeholders in an appropriate manner in accordance with our Crisis Management Manual. It is our policy to deal with emergencies caused by natural disasters and accidents (earthquakes, fires, etc.) by establishing a task force to coordinate our response.

1. 1)　The Board of Directors meets regularly to discuss and make decisions about important matters in accordance with applicable laws, the company’s Articles of Incorporation, and the Board of Directors Rules.
2. 2)　We have established a Management Council to improve management efficiency by discussing and reporting on important matters and by discussing agenda items for Board of Directors meetings in advance. We have also created various specialized committees to discuss specialized matters in areas such as distribution, information systems, and new businesses in advance.
3. 3)　To ensure directors and employees can execute their responsibilities in an appropriate and efficient manner, we have developed internal rules including Organizational Rules, Rules on the Division of Administrative Responsibilities, Administrative Authority and Responsibility Rules (including the Administrative Authority and Responsibility Chart) in an effort to clarify authority and responsibilities.
4. 4)　We formulate medium-term business plans and annual business plans (including departmental plans), review progress, and consider action measures.

1. 1)　We have established a department to manage each subsidiary, and each of these departments works with administrative departments to manage subsidiaries’ operations and to offer management guidance in accordance with the Affiliate Management Rules. Additionally, we assign directors and auditors to serve at subsidiaries as part of an effort to ensure subsidiaries operate in an appropriate manner.
2. 2)　Decisions on important matters involving subsidiaries require advance resolution by the company’s Board of Directors and its president or the manager of the managing department in accordance with the List of Decision-making Items (a table that is part of the Affiliate Management Rules).
3. 3)　Officials including the company’s president and the managers of managing departments receive regular reports on each subsidiary’s operating results, financial standing, and other important topics.
4. 4)　The Audit Section conducts internal audits of subsidiary operations. Additionally, we have created and continue to operate both company and third-party hotlines for internal reporting so that all executives and employees of subsidiaries and other entities can provide information directly in the event of conduct that raises legal questions.

1. 1)　Auditors are authorized to make use of employees assigned to the Audit Section to assist with the execution of their responsibilities as necessary.
2. 2)　Only auditors are authorized to offer instructions to employees serving as assistants in the execution of their responsibilities.

1. 1)　Directors are required to report to auditors in a timely fashion on topics such as management, finance, compliance, risk management, and the status of internal audits at the request of auditors, and to report major violations of laws or internal rules in the course of the execution of their responsibilities, as well as issues that pose the risk of serious damage to the company to auditors immediately.
2. 2)　Employees may report the following matters directly to auditors:
   • ・Issues that pose the risk of serious damage to the company
   • ・Issues that comprise major violations of laws or the company’s Articles of Incorporation
3. 3)　Executives and employees of subsidiaries are required to report in a timely and appropriate manner on matters related to the execution of their responsibilities when asked to do so by the company’s auditors. Additionally, executives and employees of subsidiaries may report the following matters directly to auditors:
   • ・Issues that pose the risk of serious damage to the company
   • ・Issues that comprise major violations of laws or the company’s Articles of Incorporation
4. 4)　In the event of a report of a legal violation or other issue involving an executive or employee, the manager of the Audit Section is required to report it to the company’s auditors in accordance with the Internal Reporting System Guidelines.

1. 1)　Company rules prohibit subjecting directors or employees making reports to auditors to disadvantageous treatment, and we ensure that executives and employees are made aware of the terms of those rules.

1. 1)　Auditors are authorized to attend meetings of the Board of Directors, Management Council, specialized committees, and other important meetings and to voice their views there. In addition, auditors are authorized to view the minutes of important meetings, important application documents relating to resolutions made by directors, and other documents at any time.
2. 2)　Auditors hold regular meetings with the president to exchange views on important issues related to the company’s management.
3. 3)　The Audit Section works to facilitate the close exchange of information and collaboration, for example by facilitating discussions among auditors about internal audit plans for each business year and holding regular meetings to discuss the results of internal audits, issues identified in audits, and advice issued as part of audits and to exchange information.
4. 4)　Auditors exchange views on topics such as important corporate accounting and legal issues regularly with the company’s accounting firm.
5. 5)　Auditors are authorized to make use of outside experts such as attorneys, certified public accountants, and consultants when deemed necessary in connection with audits.
6. 6)　The company budgets funds each year to cover anticipated expenses arising from auditors’ execution of their responsibilities.