At Nagase, our management philosophy has always been to maintain good and fair business practices. To implement this philosophy and continue raising corporate value, we believe that quick decision-making and action, as well as active, transparent management, are vital. In addition, with the advance of globalization, Nagase is aggressively working to strengthen corporate governance as a key management issue.

Business Execution and Auditing Framework

The Board of Directors, at the foundation of a structure to ensure efficiency in the execution of directors’ duties, is clearly positioned as the body in charge of making decisions on management policies and strategies, and supervising the execution of operations. It holds a regular monthly meeting in addition to provisional meetings as necessary, reviews and formulates measures regarding important decisions and tracks business performance.

Under an executive officer system, the roles of executive officers, their responsibilities, and procedures within basic organizational regulations for operation and division of duties are based on decisions of the Board of Directors. Executive officers attend General Managers’ Meetings, where they discuss sales and marketing issues, and Managers’ Meetings, where they discuss administrative issues and establish concrete measures based on status reports received from each department.

Moreover, Nagase has established an Advisory Board with an outside expert, based on our view that objective checks and evaluation of the Company’s management practices are important.

In addition to attending Board of Directors’ meetings and other important meetings, corporate auditors closely monitor the execution of duties by directors and executive officers, based on audit policy and division of duties determined by the Board of Auditors, through surveys of Company operations and assets and management reports from subsidiaries, which they request on an as-needed basis. Monitoring and assignment of tasks are based on policies set at Board of Auditors’ meetings.

The Audit Office is in charge of internal audits, including audits to assess the appropriateness and efficiency of business activities. The Audit Office and Board of Auditors regularly exchange information regarding internal audits and audits of domestic and overseas subsidiaries and hold meetings twice a year with auditors of affiliated companies. In addition, they perform liaison activities including receiving regular reports from Nagase’s independent auditors Ernst & Young ShinNihon LLC regarding accounting matters and associated internal controls. Members of the Audit Office are also present at accounting audits conducted by the independent auditors.

As Nagase’s independent auditors, Ernst & Young ShinNihon LLC conducts fair and impartial audits of the Company’s accounts.

Internal Control System and Risk Management System

The Company enhances the following systems to strengthen and thoroughly implement internal control and risk management.

System to Ensure Compliance with the Law and Nagase’s Articles of Incorporation in the Execution of Directors’ Duties

Based on the management philosophy, “maintain good and fair business practices as a member of society,” which Nagase has upheld for many years, the Company has established a basic policy and code of conduct for legal compliance and employs the services of outside professionals as necessary to prevent violations of the law or Nagase’s Articles of Incorporation. Measures to strengthen the corporate governance system include a provision for a director who discovers a violation of the law or Nagase’s Articles of Incorporation by another director to report immediately to the Board of Directors or corporate auditors.

Storage and Control of Information Related to the Execution of Directors’ Duties

Information related to the execution of directors’ duties is recorded in documents or electronically, and stored according to internal regulations. Directors and corporate auditors can view these materials at any time.

Risk Management System

The Company has established the Risk Management & Compliance Committee to integrate overall risk control, and put in place a structure that sets its functions and authority and clarifies its roles and responsibilities. Under the committee’s leadership, department managers address risks in their particular areas by setting rules and guidelines, holding workshops and preparing and distributing manuals. To deal with additional risks that materialize, Nagase is also working to develop a system that designates the departments responsible for rapid response, ensures speedy and appropriate communications should an incident arise, and handles emergencies.

Compliance System

To upgrade and maintain its compliance structure, the Company established the Risk Management & Compliance Committee and a basic compliance policy, and uses regular workshops and other initiatives to ensure that corporate activities are strictly in line with the Nagase Group Code of Conduct. Should employees of Nagase or its Group companies become aware of legal or other compliance issues, they report to the Risk Management & Compliance Committee, which immediately reports to the Board of Auditors. In addition, the Company has introduced an internal reporting system where employees and others can report or discuss issues directly.

System to Ensure Fairness in Business of the Nagase Group

The Company ensures fairness in business with Group companies through specific articles of operational standards, requiring Group companies to seek the approval of or notify the Company before making decisions and providing in principle for the dispatch of Company executives.

In creating clear targets based on the medium-term management plan and annual budget system, Nagase implements budget and performance control at the Company and Group companies. In order to increase the reliability of financial reporting, the Company documents, evaluates and improves its overall internal control system and the process for preparing financial statements, based on the Financial Instruments and Exchange Law.

System to Ensure Effectiveness in Reports to Directors and Audits

The Company has upgraded the system for corporate auditors to understand the overall state of Company management on a steady basis by attending important meetings including Board of Directors’ meetings and exchanging information, and viewing approval-process documents and reports. Moreover, directors report the following items to the corporate auditors or the Board of Auditors either individually or through the Board of Directors.

The president and the corporate auditors hold regular conferences to exchange opinions to recognize and understand the importance and usefulness of audits. In addition, to enable corporate auditors to carry out their duties efficiently and effectively, the Company has upgraded its system for close coordination and reciprocity between the corporate auditors and the independent auditors, the Audit Office and auditors of affiliated companies.