Internal Control

Fundamental Perspective on the Internal Control System

The corporate group comprising SHIFT and its subsidiaries (hereinafter, the “SHIFT Group”) has formulate a fundamental policy related to the internal control system. This policy, outlined below, is intended to instruct the establishment and operation of a system that ensures operational appropriateness. The company constantly assesses the establishment and operation of the internal control system based on this fundamental policy and takes any necessary improvement measures. The company constantly reviews this fundamental policy in response to changes in the management environment as it endeavors to put in place and operate an increasingly effective internal control system.

1. Systems for ensuring that the execution of duties by the SHIFT Group’s directors and employees conform with laws and regulations and the Articles of Incorporation

• The company has formulated Compliance Regulations. The SHIFT Group adheres to these regulations to comply with laws and regulations, the Articles of Incorporation, and social norms and promotes the creation of a compliance system.
• As one aspect of creating a compliance system, the company has established the Compliance Committee, which reports directly to the president and CEO. The company also promotes awareness and training activities for the SHIFT Group’s directors and employees, as necessary.
• From a fair and unbiased perspective, Directors who are Audit & Supervisory Committee members perform audits, as appropriate, on the status of the execution of duties by the SHIFT Group’s directors. In the event that Directors who are Audit & Supervisory Committee members uncover facts with respect to the illegality of the company’s operations or facts that raise concerns about legality, the members point out these facts, report to the Board of Directors so the course of action can be changed, and, depending on the situation, request that actions be suspended.
• Based on the Internal Audit Regulations, the internal auditors audit business operations and the management of property, checking that the execution of duties by the SHIFT Group’s directors and employees conform with laws and regulations and the Articles of Incorporation. The internal auditors also report audit results to the president and CEO.
• We have in place an internal reporting system, with outside general counsel and other specialists serving as points of contact, to prevent and quickly detect fraudulent activity.
• Our fundamental stance is to provide no financial or other economic benefit in any circumstances to anti-social forces, and this stance is clearly documented and made known throughout the company.

2. System for the storage and management of information related to the execution of duties by directors

In accordance with the Document Management Regulations, information related to the execution of directors’ duties is recorded in documents or on electromagnetic media and stored. Directors and Audit & Supervisory Board member can browse this information as necessary.

3. Regulations related to danger of losses by the SHIFT Group and other systems

• The company has formulated various internal regulations in preparation for the increasingly diverse risks the SHIFT Group faces and to promote compliance, and has created a risk management structure.
• The Board of Directors carefully deliberates important matters relate to the SHIFT Group and endeavors to eliminate or minimize business risks.
• The Management Council shares information among departments, and the Business Administration Division takes the lead in detecting at an early stage and preventing the manifestation of risks affecting the SHIFT Group.
• In unexpected situations, as the person with overall responsibility for the company the president and CEO considers companywide countermeasures.

4. Systems to ensure the efficient execution of directors’ duties

• The Board of Directors decides legally mandated matters and important matters that affect the overall group and supervise business execution. Regular Board of Directors meetings are held on a monthly basis. Extraordinary meetings are also held as necessary to ensure swift and accurate decision-making.
• Individual divisions transfer authority based on the Regulations on Administrative Authority and the Regulations on the Separation of Business, ensuring speed and effectiveness by clarifying responsibility.

5. Systems to ensure the adequacy of the SHIFT Group’s operations

• In accordance with the Affiliated Company Management Regulations, the Business Administration Division determines the status of internal controls at affiliated companies and provides guidance on improvements, as necessary.
• Internal auditors conduct internal audits of the SHIFT Group, provide guidance on measures for improving internal controls, and provide support and advice on their implementation.
• Directors who are Audit & Supervisory Committee members audit the execution of duties by the SHIFT Group’s directors and employees and provide guidance.
• Directors in charge of the company’s subsidiaries receive periodic reports from the subsidiaries about their management status and the execution of duties by directors.

6. If Directors who are Audit & Supervisory Committee members request employees be designated to assist them with their duties, matters related to those employees and the independence of those employees from directors

If Directors who are Audit & Supervisory Committee members request employees be designated to assist them with their duties, the company shall assign employees to assist Directors who are Audit & Supervisory Committee members in their duties, as necessary. Furthermore, such employees shall follow the instructions of Directors who are Audit & Supervisory Committee members and shall not receive commands from directors or other superiors.

7. Systems for reporting to Directors who are Audit & Supervisory Committee members by the company’s directors and employees and subsidiaries’ directors, Directors who are Audit & Supervisory Committee members and employees, as well as other systems for reporting to Directors who are Audit & Supervisory Committee members

• To determine the process for making important decisions and the status of operational execution, Directors who are Audit & Supervisory Committee members browse Board of Directors meeting minutes, approval documents, and other important documents, as necessary. They may also call upon the company’s directors or employees or subsidiaries’ directors, Audit & Supervisory Board member, or employees for explanations.
• Systems are in place that enable the company’s directors and employees, as well as subsidiaries’ directors, Directors who are Audit & Supervisory Committee members, and employees to report to Directors who are Audit & Supervisory Committee members on legal matters, matters that significantly affect operations or operating performance, the implementation status of internal audits, and the status and content of notifications via the internal reporting system. The company cooperates with Directors who are Audit & Supervisory Committee members in gathering and exchanging information.
• Directors and employees of the company and directors, Directors who are Audit & Supervisory Committee members, and employees of subsidiaries who have reported to Directors who are Audit & Supervisory Committee members shall not be subjected to unfair treatment due to such reporting.

8. Other systems for ensuring the effectiveness of audits by Audit & Supervisory Board members

• Directors who are Audit & Supervisory Committee members liaise and exchange information with internal auditors and attend internal audits as necessary. Furthermore, Directors who are Audit & Supervisory Committee members regularly meet and exchange information with certified public accountants and accounting auditors in charge of accounting audits. The members may also call for reports from certified public accountants and accounting auditors in charge of accounting audits, as necessary.
• If Director who is Audit & Supervisory Committee member requests the payment of expenses necessary for executing their duties, the company shall such expenses promptly.

Fundamental perspective on and the status of implementation of systems for eliminating anti-social forces

The company maintains a crisis management consciousness with regard to anti-social forces and groups that threaten the social order and corporate activities. As an organization, we take a resolute stance against any requests from such groups. In addition, we liaise with the police, general counsel, and other expert bodies outside the company to collect and manage information pertaining to anti-social forces and strengthen our internal systems.