Risk Management

Risk Management System

We aim to ensure an appropriate risk response by maintaining and implementing the basic policies and systems for risk management outlined in our Risk Management Guidelines.
The Risk Management Committee met four times during the current fiscal year to review internal reporting and deliberate on issues and measures related to promoting risk management across the Group, aiming to accurately identifying and assessing risks and implement appropriate control; the committee reports its findings to the Board of Directors.
Additionally, to strengthen preparedness for earthquakes, BCP (business continuity planning) drills were conducted at each business site. We also implemented risk management training sessions for risk management officers, who play a central role in risk management, and plan to further promote risk awareness through information sharing and related activities.

Basic Policy of Establishing Internal Control System

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

(1)

As the basis of its corporate activities, Punch Industry (the "Company") shall establish "Management Principles," "Corporate Vision," "Corporate Motto," and "Code of Corporate Ethics" as well as "Code of Conduct," and place the basis of its management on compliance with laws and regulations as well as social norms, which Directors and employees shall follow to engage in the execution of duties.
(2)

By establishing a "Risk Management Committee" and developing a risk management system that comprehensively identifies and objectively assesses risks, as well as conducts proper risk controls and the like, the Company shall strive to prevent the occurrence of risks and minimize damage.
(3)

Based on the Internal Audit Basic Rules, the Internal Audit Division will conduct audits regularly on compliance with laws and regulations, the Articles of Incorporation, internal regulations, rules, and the like, as well as on the status of business execution, report the results to President, and regularly provide reports to the Board of Directors and the Audit and Supervisory Committee.
(4)

The Company shall strive to uphold internal controls and improve the system of in-house checks and balances by developing a whistleblower system that allows its stakeholders including Directors and employees to make whistleblowing and have consultation when they found problems and the like on compliance. It should be noted that reports and consultations shall be lodged anonymously to ensure the whistle-blower is not placed at a disadvantage.
(5)

The Company will strive to foster and improve awareness for compliance by implementing compliance education programs and training regularly to Directors and employees.

2. System concerning the storage and management of information on the execution of duties by Directors

(1)

The Company shall properly create, store, and manage the information on the duties of Directors in accordance with laws and regulations as well as internal rules.
(2)

Directors and the Audit and Supervisory Committee may view the information of the preceding item at any time.

3. Rules concerning loss risk management and other systems

(1)

The Company will establish a basic policy and system concerning risk management on business activities and take proper measures for risks by developing and maintaining the system.
(2)

When an unexpected event occurs, the Company will hold an extraordinary Risk Management Committee meeting to take measures promptly in response to the situation, thereby developing a system to minimize damage.

4. System to ensure efficient execution of duties by Directors

(1)

The Company will enhance the executive officer system to enable separation of monitoring/supervision of management and execution as well as prompt decision making by the management, and delegate the authority to execute duties and responsibilities to Executive Officers by selecting President and other titled executive officers from them.
(2)

The Board of Directors will meet at least once a month, and it will deliberate important matters on management, make decisions, and supervise the status of the execution of duties by Executive Officers and other employees.
(3)

The Executive Board consisting of all Executive Officers will meet at least once a month to deliberate and make decisions on matters delegated by the Board of Directors.
(4)

The Company will develop various internal rules concerning the division of duties, official authority, and the like, and strive to clarify the authority and responsibility of each titled executive, thereby building a system where duties are executed properly and efficiently.

5. System to ensure the propriety of business carried out by the company group consisting of the Company and its subsidiaries

(1)

By developing internal rules concerning the management of subsidiaries and appointing an Executive Officer in charge of subsidiary management, the Company will monitor and supervise the business execution by the subsidiaries, thereby ensuring the propriety of business.
(2)

Important decision making on the management activities of subsidiaries shall be made after reporting to the Board of Directors of the Company and obtaining approval therefrom.
(3)

The Company will mandate subsidiaries to report their financial condition, business results, and important matters to be decided to the Company, as well as mandate them to report important events whenever they occur.
(4)

As an organ in charge of the risk management of the Company group (the "Group"), the Company will establish a "Risk Management Committee" in which an Executive Officer in charge of subsidiaries is also involved as a member, whereby deliberating issues and responding measures relating to the promotion of risk management of the entire Group.
(5)

In order to formulate the mid-term business plan of the Group based on future business environments as appropriate and actualize the plan, each division of the Company and subsidiaries will set focused measures individually, and carry out various measures to achieve the goal of the entire Group.
(6)

The Internal Audit Division will closely communicate with the internal audit divisions of subsidiaries, regularly conduct operating audits of the subsidiaries, and report the results to the President as well as provide regular reports to the Board of Directors and the Audit and Supervisory Committee.

6. Matters concerning Directors and employees who should assist the duties of the Audit and Supervisory Committee

The Company will establish the Auditing Office that assists the execution of duties of the Audit and Supervisory Committee and allocate specialized staff.

7. Matters concerning the independence of employees who should assist the duties of the Audit and Supervisory Committee from Directors (excluding Directors who are Audit and Supervisory Committee Members)

Performance reviews of the staff of the Auditing Office shall be conducted by the Audit and Supervisory Committee, and consent shall be obtained in advance from the Audit and Supervisory Committee for personnel transfers, disciplinary actions, and the like.

8. Matters concerning ensuring the effectiveness of the Audit and Supervisory Committee's instructions to directors and employees who are to assist the Audit and Supervisory Committee in its duties

The staff of the Auditing Office who received orders necessary for audits from the Audit and Supervisory Committee shall not serve concurrently in the other departments, solely following the direction and instruction of the Audit and Supervisory Committee.

9. System for Directors (excluding Directors who are Audit and Supervisory Committee Members) and employees to report to the Audit and Supervisory Committee and system for persons who received reporting from the directors, corporate auditors, employees, or similar persons of subsidiaries to report to the Audit and Supervisory Committee of the Company

(1)

Directors (excluding Directors who are Audit and Supervisory Committee Members) and employees shall promptly provide reports on the matters that could arise significant impact on the management of the Company and subsidiaries, in addition to the legally required matters for reporting to the Audit and Supervisory Committee.
(2)

The Internal Audit Division shall regularly report important findings and issues in the internal audit.
(3)

The secretariat for the whistleblower system shall promptly provide reports on the details of cases and the like reported through whistleblowing.
(4)

Directors (excluding Directors who are Audit and Supervisory Committee Members), corporate auditors as well as employees of the Group shall provide proper reports when they are requested to report the matters concerning business execution by the Audit and Supervisory Committee.
(5)

The Company will prohibit to treat any person who has reported to the Audit and Supervisory Committee unfavorably on account of providing such reports, and disseminate to the effect extensively.

10. Matters concerning the procedure of pre-payment or reimbursement of expenses arising in the execution of duties (limited to duties related to the execution of duties of the Audit and Supervisory Committee) by Audit and Supervisory Committee Members and policies on processing other expenses and liabilities arising from the execution of said duties

When Audit and Supervisory Committee Members request the Company pre-payment or the like for expenses to execute duties (limited to those related to the duties of the Audit and Supervisory Committee), the Company will promptly process such expenses or liabilities after the deliberation at the division in charge, except the cases where it is recognized that the expenses or liabilities of the said request are not necessary for the execution of duties by Audit and Supervisory Committee Members.

11. Other systems to ensure that audits are effectively implemented by the Audit and Supervisory Committee

(1)

Audit and Supervisory Committee Members and the Audit and Supervisory Committee will maintain close communication with the Accounting Auditor and Internal Audit Division, build a relationship of mutual check-and-balance, and conduct efficient and effective audits.
(2)

Audit and Supervisory Committee Members will regularly exchange opinions with the Representative Director.
(3)

By attending the Board of Directors meeting, Executive Board meeting, and other important meetings, Audit and Supervisory Committee Members will understand the process of important decision making and status of business execution to improve the effectiveness of audits.

12. System to ensure the reliability of financial reporting

To ensure the reliability of financial reporting, the Company will develop and maintain a system to enable to continuously assess that internal control functions properly for effective and proper submission of the Internal Control Report based on the Financial Instruments and Exchange Act.

13. System to eliminate anti-social forces

(1)
Basic ideas for eliminating transactions with anti-social forces
- ①
  
  By establishing clearly stated grounds in the Company's Code of Conduct, internal rules, and the like, officers and employees in a body will strive to eliminate anti-social forces.
- ②
  
  Including transaction relationships, the Company will not have any relationship with anti-social forces. In addition, the Company will reject any unjust request by anti-social forces.
(2)
Development status for eliminating transactions with anti-social forces
- ①
  
  The Company will establish an integrated management division at the Head Office to promote the elimination of anti-social forces and allocate a responsible person at each office to respond to unjust requests.
- ②
  
  The Company will develop rules and the like for responding anti-social forces and strive to build a system to eliminate anti-social forces.
- ③
  
  The Company will confirm the relationships with anti-social forces for business partners and the like.
- ④
  
  The Company will strive to gather information of anti-social forces obtained from external relative institutions and the like to confirm if falling under anti-social forces.
- ⑤
  
  To prepare for unjust requests from anti-social forces, the Company will build close collaborative relationships at ordinary times with outside professional organizations such as the police and lawyers.