Internal Control

Basic Policy Concerning the Development of an Internal Control System

MIYAJI ENGINEERING GROUP, INC. (hereinafter referred to as the “Company”) shall work on the development of an internal control system by establishing the following basic policy, pursuant to a resolution of the Company’s Board of Directors, concerning the development of an internal control system based on the Companies Act, that includes a legal compliance system and a risk management system at its core, and a system for storing and managing information, a system for ensuring the efficiency of the execution of duties, a system for ensuring the appropriateness of the operations of the Group, and a system for ensuring the effectiveness of audits by the Audit and Supervisory Committee. The Company’s operating subsidiaries shall also work on the development of internal control systems, pursuant to a resolution of the Company’s Board of Directors, in accordance with similar basic policies for the development of an internal control system. Through the development of such systems, the Group shall strive for sound corporate development by further strengthening our efforts to provide safe and superior products, construction, and services as a corporate group that is trusted by our clients and other stakeholders.
Furthermore, as a holding company, the Company monitors the status of our operating subsidiaries and manages the Group, and is also accountable for their performance.

1. System to ensure that the execution of duties of Directors and employees complies with laws and regulations and the Articles of Incorporation

   1. The Company has established a Charter of Corporate Behavior and a Code of Conduct as a Group, which set forth that the Directors and employees of the entire Group shall comply with laws, regulations, and the Articles of Incorporation and indicate standards for acting in accordance with social norms, and the Company will ensure that the Charter and Code are well known and thoroughly enforced. We have also established Whistleblowing Regulations for the Company and each operating subsidiary, and have set up an internal and an external (lawyers) hotline for compliance reporting and consultations.
   2. The Company and each operating subsidiary shall appoint an officer in charge of compliance and risk management and shall have the officer manage and oversee the establishment and maintenance of compliance and risk management systems.
   3. The Company shall establish a Compliance and Risk Management Committee, to be chaired by the President and attended by Directors and lawyers, as an organization that laterally oversees the Group-wide compliance system and risk management, to deliberate important issues relating to compliance and risk management and to establish and maintain systems. The Compliance and Risk Management Committee shall regularly report on or submit matters it has deliberated and decided to the Board of Directors.
   4. The Company shall establish an Audit Office. The Audit Office shall, in close cooperation with the Audit and Supervisory Committee and the internal audit divisions at operating subsidiaries, conduct regular audits of the business execution and the status of compliance and risk management for the entire Group, and shall report the results to the Compliance and Risk Management Committee.
   5. The Company shall stipulate that it will have no relationships with anti-social forces or groups that threaten the order and safety of civil society in its Charter of Corporate Behavior and Code of Conduct, and shall work to prevent damage by striving to gather information by regularly exchanging information with external professional organizations and others. In the event that an incident occurs such as being subject to an unreasonable demand, the Company shall establish a system to respond in cooperation with external professional organizations and legal advisors.

2. System for retaining and managing information pertaining to the execution of duties by Directors

   Directors shall properly store and manage the minutes of the Board of Directors’ and other important meetings, request for decisions (ringi), and other records and documents pertaining to the execution of duties and decision-making, in accordance with the Document Management Regulations and other internal regulations.
   Such information shall be available for inspection at any time upon request of the Audit and Supervisory Committee.

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

   1. The Compliance and Risk Management Committee shall deliberate and formulate basic policies, promotion systems, and other important matters concerning risk management for the entire Group, and strive to establish and maintain systems that can appropriately respond to potential risks in the Group’s corporate activities.
   2. Each operating subsidiary shall establish and maintain regulations, guidelines, and response manuals regarding risks associated with the operations of each operating subsidiary, including quality controls, safety controls, compliance, and information security, and shall ensure such regulations, guidelines, and response manuals are well-known and thoroughly enforced.
   3. In the event of a disaster or other unforeseen circumstance, a task force shall be established under the direction of the President to prevent the spread of damage and ensure the continuation of business activities.
   4. The Company’s Audit Office and the internal audit divisions of operating subsidiaries shall conduct regular audits of the status of risk management and report to the Compliance and Risk Management Committee.

4. System to ensure that the execution of the duties of Directors is performed efficiently

   1. In principle, the Company shall hold meetings of the Board of Directors regularly once a month, as well as on an ad-hoc as-needed basis, to make decisions on important matters involving the management of the Company and operating subsidiaries as set forth in the Board of Directors Rules, and to supervise the execution of duties by Directors.
   2. With respect to the execution of business based on decisions by the Board of Directors, the Regulations on Division and Authority of Duties shall clarify each Director’s authority and responsibilities, and execution procedures for the efficient execution of duties.
   3. The Company shall formulate medium-term and annual plans for the entire Group, and based on such plans, each operating subsidiary shall formulate individual medium-term and annual plans and specific annual targets, action plans, and budgets, and implement monthly and quarterly performance management based on such plans.
   4. Key operating subsidiaries shall delegate authority for business execution to Operating Officers based on the operating officer system, clarify respective authority for management and supervision, and business execution, and promote efficient and prompt decision-making and business execution.
   5. Each operating subsidiary shall hold meetings of the Board of Directors regularly once a month, as well as on an ad-hoc as-needed basis, to make decisions on important matters and to supervise the execution of business by Directors.
   6. Key operating subsidiaries shall engage in deliberations at the Management Committee, which is composed of Directors and Operating Officers, to assist the President and Representative Director to make decisions on the Company’s business execution, and shall set up a meeting body to engage in deliberations as necessary.

5. System to ensure appropriate operations at the Group

   1. As a holding company, the Company’s Directors, through the Board of Directors, shall make decisions on important matters for the entire Group, and manage operations and supervise the execution of business by operating subsidiaries.
   2. A Board of Directors, corporate auditors, and an accounting auditor shall be established at major operating subsidiaries to ensure appropriate reciprocal monitoring of business decisions and business execution.
   3. The Company shall formulate and review the Group’s shared management philosophy, Charter of Corporate Behavior, Code of Conduct, and Legal Compliance Manual, and ensure they are well-known and thoroughly enforced by all Group members.
   4. The Company shall establish rules for approving and reporting by operating subsidiaries to the Company in accordance with the Affiliated Company Management Regulations, etc., and shall establish and maintain the operation management and management guidance systems for each operating subsidiary based on such rules.
   5. The Audit Office and the internal audit divisions at each operating subsidiary shall regularly audit operating subsidiaries to promote appropriate business activities.
   6. Each operating subsidiary shall autonomously establish and maintain internal control systems, based on their size, nature, organizational design, and other corporate characteristics, while cooperating and sharing information with the Company.
   7. Each operating subsidiary, as a Group company of the Company, shall comply with laws, regulations, and their Articles of Incorporation, and conduct corporate management that maintains their corporate independence and uniqueness while respecting the Company’s management policies and the management system of the corporate group.

6. Matters concerning Directors and employees assisting the duties of the Audit and Supervisory Committee

   1. In addition to assigning staff to assist the duties of the Audit and Supervisory Committee, related divisions, centered on the Audit Office, shall support the duties of the Audit and Supervisory Committee.
   2. The opinion of the Audit and Supervisory Committee regarding the appointment, dismissal, transfer, and performance evaluation of employees who assist the duties of the Audit and Supervisory Committee, shall be heard and respected. Furthermore, employees who receive orders from the Audit and Supervisory Committee necessary to perform audits shall not accept instructions or orders from anyone other than the Audit and Supervisory Committee with respect to such orders.

7. System for reporting to the Audit and Supervisory Committee

   1. The Company’s Directors (excluding Directors who are Audit and Supervisory Committee Members) and employees, as well as Directors and employees of each operating subsidiary, shall report on the state of the business execution of each company upon request by the Company’s Audit and Supervisory Committee. In addition to legally required matters, matters that have a significant impact on the entire company, the status of implementation of internal audits, and serious violations of laws, regulations, or the Articles of Incorporation shall also be reported without delay.
   2. The Company shall establish and maintain an appropriate reporting system to the Audit and Supervisory Committee with regard to matters that have a significant impact on the entire Company and serious violations of laws, regulations, and the Articles of Incorporation through the operation of a whistleblowing system.
   3. The Company shall stipulate that a person who makes such a report shall not be treated disadvantageously on the grounds of having made such report in its Whistleblowing Regulations, and shall ensure that such regulations are well-known and thoroughly enforced.

8. Matters concerning policies pertaining to the treatment of expenses or liabilities incurred with respect to the execution of duties of Audit and Supervisory Committee Members (limited to duties related to those of the Audit and Supervisory Committee)

   The Company shall respond promptly when any of the Audit and Supervisory Board Members request expenses in connection with the execution of their duties (limited to duties related to those of the Audit and Supervisory Committee).

9. Other systems to ensure that audits by the Audit and Supervisory Committee are conducted effectively

   1. Audit and Supervisory Committee Members’ right of access to important corporate information, including attendance at meetings of the Board of Directors and other important meetings, shall be guaranteed.
   2. The Audit and Supervisory Committee shall regularly exchange information and opinions with the President of the Company and the presidents of each operating subsidiary.
   3. The Audit and Supervisory Committee shall maintain close cooperation with the Audit Office and shall request investigations by the Audit Office as necessary.
   4. The Audit and Supervisory Committee shall hold regular meetings with the accounting auditor to exchange opinions and information, and shall request reports from the accounting auditor as necessary.

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