Internal Control System

We continually strive to build an internal control system that is even more transparent and robust based on sound corporate ethics

The Basic Policy on Internal Control System below was decided at a meeting of the Board of Directors on May 2, 2006, after the Companies Act came into effect on May 1, 2006. The system was implemented to ensure that the execution of duties by directors is in conformance with laws and regulations and the Articles of Incorporation, and to provide the structure required to ensure the appropriateness of Itochu Enex's business. We continually improve this basic policy to achieve a more appropriate and efficient corporate structure.

Basic Policy on Internal Control System (revised February 21, 2019)

1. System for ensuring that execution of duties by Directors, Executive Officers, employees of the Company, Directors of the Company's subsidiaries, and any other person who is equivalent to those persons(referred to as "Directors, etc." in 4. and 5. below) complies with laws and regulations and the Articles of Incorporation.

(1) Corporate governance
  1. The Board of Directors shall decide important matters related to the management and supervise the Directors' execution of their duties in accordance with laws and regulations, the Articles of Incorporation, resolutions of the General Meeting of Shareholders, the Regulations on Decision-Making Authority, the CSR and Compliance Program, the Declaration of the Group Code of Conduct, the Employee Code of Conduct and the Board of Directors' Regulations.
  2. Directors shall execute the Company's operations in accordance with laws and regulations, the Articles of Incorporation, resolutions of the Board of Directors, and internal regulations.
  3. Executive Officers shall be appointed by resolution of the Board of Directors. In accordance with decision of the Board of Directors, Executive Officers shall execute their duties within the range stipulated in the Regulations on Division of Duties under the command and supervision of Representative Director and the Director in charge of their division of duties.
  4. Representative Directors and Directors who are appointed by resolution of the Board of Directors as Directors who are to execute operations must report situations of execution of their own duties to the Board of Directors at least once every 3 months and whenever necessary.
  5. Audit & Supervisory Board Members shall conduct an audit to check the appropriateness of the execution of duties by the Directors in accordance with the regulations for the Audit & Supervisory Board and the standards for audits by the Audit & Supervisory Board Members.
  6. In principle, the Company shall dispatch its Directors and Audit & Supervisory Board Members to the subject subsidiaries (subsidiaries to which the Company directly contributes funds and key subsidiaries to which it indirectly contributes funds and which need direct management, instructions, etc. from the Company; the same applies hereinafter) and establish a system for securing the appropriate business operation of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) while respecting the autonomy of each subject subsidiary.
(2) Compliance
  1. It is stipulated that Directors, Executive Officers and employees shall behave in accordance not only with laws and the Articles of Incorporation but also with the CSR and compliance program, the Declaration of the Group Code of Conduct, the Employee Code of Conduct and other relevant rules.
  2. The Company has appointed a CCO (Chief Compliance Officer) and established a committee relating to corporate social responsibility (CSR) and compliance and a department that oversees matters concerning CSR and compliance. It has also established a CSR and compliance program to make efforts to improve compliance, such as the appointment of the CSR and compliance managers at each departments, the provision of compliance education and training, the preparation of a compliance manual, the formulation of responses to compliance incidents, the creation of a whistleblowing system and a system under which documents shall be obtained from all Directors, Executive Oficers and employees in connection with compliance with the Employee Code of Conduct.
  3. When an employee learns of any act in violation of a law, ordinance, the Articles of Incorporation or any internal rule or against social norms, he or she shall contact the designated internal consulting contacts in accordance with the CSR and compliance program. With regard to the whistleblowing system, the Company has established whistleblowing regulations to protect whistleblowers and ensure an appropriate response action with transparency maintained.
  4. Under the CSR and compliance program, the Company audits and provides guidance to Subject Subsidiaries for the construction and improvement of compliance systems, for example, with respect to the formulation of their compliance programs, the appointment of CSR and compliance managers, the creation of compliance manuals, the determination of response action to be taken in the wake of the occurrence of any compliance incident, and the development of a group-wide whistleblowing system with the Company’s relevant section and an outside lawyer as consulting contacts. In so doing, the Company is seeking to raise compliance awareness in Our Group.
(3) Development of System for Ensuring Appropriateness of Financial Reporting
  1. The Company has established accounting regulations, the Enex Group international financial reporting standards (IFRS)-compliant uniform accounting principles and other internal rules, ensures compliance with the accounting standards and other related laws and ordinances and has built an internal structure for securing the legality and appropriateness of financial reporting.
  2. The Company has established an organization that engages exclusively in internal control and has constructed a mechanism for regularly evaluating and improving the status of the improvement and operation of the internal system for ensuring the appropriateness and other qualities of financial reporting.
(4) Internal Audit
  1. The Company has installed the Audit Department under the direct control of the President. The Audit Department regularly performs internal audits of overall operations in accordance with the audit regulations, specifically whether or not the laws, ordinances, Articles of Incorporation and internal rules are observed, and whether or not the procedures and details of business execution are appropriate. Subsequently, the department reports the results to the President and the Audit & Supervisory Board Members. It also carries out follow-up audits of whether or not the points noted or proposed that were found in the internal audit have been improved or implemented.
  2. The Company defines the overall business activities of its Subject Subsidiaries as being subject to internal audits conducted by the Audit Department. This department pushes ahead with the construction of an internal control system for Our Group and maintains its close linkage with internal audit bodies inside Our Group in an effort to upgrade the quality of audits conducted in Our Group.
(5) Basic Policy against Antisocial Forces

The Company makes group-wide efforts to preclude any relationship with antisocial forces, irrespective of the circumstances.

2. Structure for storage and management of information on exercise of duties by the Company's Directors (Article 100, paragraph 1, item 1 of the Ordinance for Enforcement of the Companies Act)

(1) Storage and management of information

Directors shall appropriately store and manage statutory documents such as minutes of the General Meeting of Shareholders and minutes of the Board of Directors, and documents containing information on the execution of important duties (including electronic or magnetic records; the same applies hereinafter) as well as relevant documents, pursuant to the provisions of the Regulations on Document Management and other internal regulations.

(2) Access to information

Directors and Audit & Supervisory Board Members may have access to the information set forth in the preceding paragraph at any time.

3. Regulations and other systems for management of the risks of loss for the Company and its subsidiaries (Article 100, paragraph 1, items 2 and 5(b) of the Ordinance for Enforcement of the Companies Act)

In order to deal with market risk arising from changes in commodity markets, foreign exchange rates, interest rates and share prices, credit risk, investment risk, CSR and compliance risk, information security risk and various other risks, the Company shall establish an internal committee and a department or division exclusively responsible for the tracking and management of risks of the Company and subject subsidiaries, develop the necessary risk management system and management methods including the establishment of management rules, criteria for approaches, investment criteria, setting of the maximum amount of risks and transactions, and reporting and monitoring systems, and manage the risks of the Company and subject subsidiaries both comprehensively and individually.

4. System for ensuring efficient execution of duties by Directors of the Company and Directors, etc. of its subsidiaries (Article 100, paragraph 1, items 3 and 5(c) of the Ordinance for Enforcement of the Companies Act)

(1) Various internal committees

For proper and agile decision-making on the execution of their duties, the Company shall establish the Management Advisory Conference as an advisory body for the President, where deliberations are held on the Group's general management policies and business plans and other important matters concerning the execution of their duties, and formulate management benchmarks and business plans, etc. on a consolidated basis. In addition, for the President or the Board of Directors to make decisions in a lawful, fair and efficient manner, the Company shall establish various internal committees where careful deliberations are held on business challenges in each assigned area and that will contribute to the decision-making of the President and the Board of Directors.

(2) Divisional organization system
  1. The Company shall adopt the division organization system where each of multiple divisions operates business in its assigned business domain.
  2. General Managers shall efficiently operate business in accordance with their authority allocated based on the Regulations on Decision-Making Authority and a predetermined business plan.
  3. General Managers shall operate business in the business domain for which they are responsible in accordance with laws and regulations, the Articles of Incorporation, internal regulations and internal criteria. General Managers shall manage operations by setting numerical targets for major items on the balance sheet and income statement for each division, verifying the achievement of those targets periodically, and reporting the status of the execution of operations to the Board of Directors.
(3) Clarification of administrative authority and responsibility

The Company shall develop various internal regulations such as the Regulations on Division of Duties, Regulations on Administrative Authority and the Regulations on Decision-Making Authority, clarify authority and responsibility of each officer or manager, and build a system that enables proper and efficient execution of duties.

5. System for reporting matters on execution of duties by Directors, etc. of the Company's subsidiaries to the Company (Article 100, paragraph 1, item 5(a) of the Ordinance for Enforcement of the Companies Act)

The Company shall require subsidiaries to which it directly contributes funds to report important management matters to the Company in accordance with the Group company management rules. The Company shall also periodically call the presidents of the subject subsidiaries and hold a liaison conference to enhance the business management of the subject subsidiaries.

6. Other system for ensuring that operations of the corporate group that consists of the Company and its parent company and subsidiaries are conducted in an appropriate manner (main sentence of Article 100, paragraph 1, item 5 of the Ordinance for Enforcement of the Companies Act)

(1) Transactions with the parent company

The Company shall determine the terms and conditions of transactions with its parent company in the same manner as general terms and conditions in light of market prices. For transactions for which market prices are not referred to, the Company shall ensure the appropriateness of the transactions by obtaining the opinions of a third party that is independent of the Company and the parent company or other methods, depending on the importance of the transaction.

(2) System for management of subsidiaries
  1. The Company shall assign personnel for supervising the subject subsidiaries to each division and headquarters' administration departments and sections and choose the responsible department or section for each subject subsidiary. Each responsible department or section shall conduct business management and provide business guidance for the relevant subject subsidiary in accordance with the Group company management rules and other internal regulations.
  2. For subsidiaries to which the Company indirectly contributes funds, the Company shall require subsidiaries that directly contribute funds to those subsidiaries to manage their business, except as otherwise provided in this policy. That is, the Company shall manage the business of such subsidiaries through its business guidance and the management of the subsidiaries that directly contribute funds to such subsidiaries.

7. Matters concerning employees who are to assist duties of the Company's Audit & Supervisory Board Members (Article 100, paragraph 3, items 1 through 3 of the Ordinance for Enforcement of the Companies Act)

(1) Appointment of employees assisting Audit & Supervisory Board Members

The Company appoints several employees to assist the Audit & Supervisory Board Members and has the employees serve concurrently with their other posts.

(2) Ensuring of independence of employees assisting Audit & Supervisory Board Members from Directors and effectiveness of directions from Audit & Supervisory Board Members

The command authority over employees assisting Audit & Supervisory Board Members shall belong to the Audit & Supervisory Board Members or the Audit & Supervisory Board to the extent that the auditing services are assisted. Directors, Executive Officers and other employees do not have command authority over employees assisting the Audit & Supervisory Board Members. The prior consent of full-time Audit & Supervisory Board Members is required for decisions on personnel changes, personnel evaluation, disciplinary punishment, etc. of such employees assisting the Audit & Supervisory Board Members.

8. System concerning reporting to the Company's Audit & Supervisory Board Members (Article 100, paragraph 3, items 4 and 5 of the Ordinance for Enforcement of the Companies Act)

(1) Attendance at important meetings

Audit & Supervisory Board Members may attend the Board of Directors’ meetings as well as the Management Advisory Conference and other important meetings, hear the status of the execution of duties by Directors, Executive Officers and employees from them and inspect relevant documents in accordance with auditing plans and the assignment of duties determined by the Audit & Supervisory Board.

(2) Duty to report of Directors, Executive Officers and employees
1.Directors, Executive Officers, heads of the sales division and heads of administration departments and sections, etc. shall report the status of execution of their own duties to the Audit & Supervisory Board Members upon the request of the Audit & Supervisory Board or the Audit & Supervisory Board Members.

2.Other than the matters stipulated by laws and regulations, Directors shall report the following matters to the Audit & Supervisory Board Members immediately in each case:
  • Content of decision, etc. that could affect the finance and business significantly (non-consolidated basis and consolidated basis)
  • Content of announcement of business results and earnings forecasts (non-consolidated basis and consolidated basis)
  • Business plans, financial plans, and status of CSR and compliance
  • Content and results of internal audits
  • Status of provision of information based on the whistle-blowing system
  • Content of administrative dispositions
  • Other cases where an event that greatly affects the Company management occurred or is expected to occur, such as significant losses
  • Matters requested by Audit & Supervisory Board Members, other than those set forth in the preceding items
(3) Report by Executive Officers and employees

Executive Officers and employees may report the following matters directly to Audit & Supervisory Board Members:

  1. Fact that could cause significant damage on the Company
  2. Fact of any material violation of laws and regulations or the Articles of Incorporation
(4) Report on subsidiaries

The Company shall periodically report the results of internal audits for the subject subsidiaries and the operational status of the Group's whistle-blowing system to the Audit & Supervisory Board Members. The Audit & Supervisory Board Members shall hold meetings of the Group's Audit & Supervisory Board and receive reports on the status of compliance, etc. among the subject subsidiaries from the Audit & Supervisory Board Members of the subject subsidiaries.

(5) Prohibition of disadvantageous treatment

The Company shall prohibit any person from treating disadvantageously a person who made a report to the Audit & Supervisory Board Members due to the provision of this report, and communicate and inform all companies in the Group of the prohibition.

(6) Report from subsidiaries

Directors and Audit & Supervisory Board Members of subsidiaries may directly report matters, including facts that could cause significant damage to the subsidiaries, to the Company’s Audit & Supervisory Board Members.

9. System for ensuring that audits by the Company's Audit & Supervisory Board Members are implemented effectively (Article 100, paragraph 3, items 6 and 7 of the Ordinance for Enforcement of the Companies Act)

(1) The Audit Department's cooperation with Audit & Supervisory Board Members

The Audit Department shall deliberate on an internal auditing plan for each fiscal year with the Audit & Supervisory Board Members and seek close exchanges of information and cooperation, for example by holding periodic meetings to discuss and exchange views on the results of internal audits, findings and recommendations, etc. The Audit & Supervisory Board Members and the Audit Department shall also seek cooperation with the Accounting Auditors.

(2) Policy on treatment of audit costs

The Company shall secure a certain amount of budget every year to cover audit costs. In addition, the Audit & Supervisory Board Members may use attorneys at law, certified public accountants, consultants and other external professionals in their own right if deemed necessary in the implementation of audits.