March 28, 2008
Kurita Partially Revises its Fundamental Policy regarding the Establishment of Internal Control Systems
Kurita Water Industries announced that a decision was made at the meeting of its Board of Directors today to partially revise its fundamental policy on the establishment of internal control systems. Details appear below.
This revision comprises the following changes, which will take effect from April 1, 2008:
- The Company’s Internal Control Reporting System will come into effect on April 1, 2008, and the department charged with running and monitoring this system as well as recommending improvements and supporting the implementation of improvements to this system has been specified.
- Details of measures to enhance the Company’s risk management framework and the departments and personnel responsible for risk monitoring have been specified.
- An addition has been made to indicate the Company’s strengthened stance on the elimination of antisocial elements and organizations.
(All changes are underlined. No other changes have been made.)
Fundamental Policy regarding the Establishment of Internal Control Systems
Pursuant to the Corporations Act and the Corporations Act Enforcement Regulations, Kurita Water Industries Ltd. (the Company) and its affiliates (the Group) will establish the systems as outlined below to ensure the maintenance of proper business operations.
Ⅰ. System to Ensure the Execution of Duties by Directors and Employees that Complies with Laws, Regulations, and Articles of Incorporation
- One of the Company’s management principles is defined as follows: "Laws and regulations shall be observed in accordance with the ethics and mores of society. Through all of its business activities, the Company shall build transparent and fair relationships with its shareholders, customers, employees, local communities and business partners." Therefore, the observance of laws and regulations and compliance with social ethics and mores shall be a prerequisite for the Company’s activities. Furthermore, in accordance with this management principle, the Company has formulated "Code of Ethical Conduct, Basic Principles for Practice of Ethical conduct and Guidelines for Ethical Conduct." In its day-to-day business activities, the Company shall practice thorough compliance with respect to laws and regulations and society’s ethical standards. Further, the Company will take a resolute stance against antisocial elements and organizations that threaten social order and safety, and the Company is committed to absolute, categorical refusal of any unjust demands made by such antisocial elements and organizations.
- The Company shall establish a Compliance Committee chaired by the executive senior managing director/representative director. Concurrently, a Group Compliance Committee shall also be established and chaired by the aforementioned representative director, comprising the representatives of each Group company as its members. These two Compliance Committees shall work in tandem to determine compliance activity-related policies and key measures, which shall be conveyed to all Group employees through subordinate compliance committees established within each corporate and business division and Group company. The Company and Group Compliance Committees shall regularly monitor the progress and results of compliance programs and strive for continuous upgrading of these programs. When the chairman of the Compliance Committee judges that significant compliance-related issues or questions have arisen, he shall promptly provide a report to the president/representative director.
Concurrently, the Compliance Committee chairman shall formulate and implement corrective actions and measures to prevent the recurrence of similar problems. The president or Compliance Committee chairman shall provide appropriate reports on the status of such issues to the Board of Directors and the Board of Corporate Auditors.
- The Company shall establish an Internal Auditing Department that reports directly to the president. The Internal Auditing Department shall carry out internal audits-including matters relating to compliance programs-of the Company’s managers as well as Group company representatives, who are required to conduct self-audits.
- With regard to activities or actions that raise legal or regulatory questions, Whistleblower Protection Act shall be formulated to provide a framework under which employees may provide information anonymously through an internal compliance consultation desk and a hotline operated by an independent third party.
- To ensure the propriety of the financial reports of the Group, the Company will establish an Internal Control Reporting System that complies with the Financial Instruments and Exchange Act, and this system will come into effect on April 1, 2008. The Internal Auditing Department will be responsible for monitoring the operation of this system, formulating recommendations for improvement, and supporting the implementation of improvements to the system.
The Finance and Accounting Department, located within the Company’s Administrative Division, will be partially responsible for monitoring, formulating recommendations for improving, and supporting improvements to: the Company’s internal system for controlling its business processes; and financial reporting process control from a company-wide perspective at consolidated subsidiaries.
Ⅱ. System for Storing and Managing Information related to Directors’ Execution of Duties
Information related to directors’ execution of duties shall be recorded and stored on paper or on electronic media in accordance with the record-keeping rules and the rules for managing confidential information with the approved of the Board of Directors. Directors and corporate auditors shall be able to view these records as necessary.
Ⅲ. Risk Management System
- The monitoring and management of risk affecting the Company and the Group as a whole shall be overseen by the general manager of the Corporate Planning Division. The general manager of the Corporate Planning Division will periodically carry out company-wide analyses and evaluations of risk, while continuously monitoring risk and implementing risk prevention measures.
In the event of risk occurrence that may have a material impact on the Company’s management, the general manager of the Corporate Planning Division shall appoint a crisis response officer to oversee an appropriate crisis response plan. This appointment would be announced immediately following approval of the president. The crisis response officer shall promptly implement response measures and report to the president and general manager of the Corporate Planning Division on risk impact, corrective status and measures to prevent recurrence.
- With regard to serious risk, where such risk involves compliance matters, the chairman of the Compliance Committee shall be responsible for risk management. Where such risk involves safety and hygiene issues or disaster issues, the chairman of the Safety & Hygiene Committee shall be responsible for risk management. Measures to address and respond to risk directly related to day-to-day business activities shall be the responsibility of the general managers of each of the Company’s business divisions. Other day-to-day measures to address and respond to risk, including issues related to quality, the environment, information security and export control, shall be carried out by the respective divisions responsible for these areas.
- The general manager of the Corporate Planning Division, the chairmen of each committee, and the general managers of each division shall report to the Board of Directors and the Board of Corporate Auditors as appropriate regarding the occurrence and outcome of serious risk.
- The Internal Auditing Department will be responsible for monitoring the implementation of and status of improvements to risk management.
Ⅳ. System to Ensure the Efficient Execution of Directors’ Duties
Through the following management control system and mechanisms, the Company shall strive to enhance the efficiency of the execution of directors’ duties.
- The Board of Directors shall assign duties to the directors and executive officers and define the division of duties of organizational unit heads (managers at general manager level and above) and organizational units.
- As a decision-making mechanism to complement resolutions of the Board of Directors, the Company shall establish an authorization request system in accordance with authorization and screening rules. The creation, modification or abolition of such a system shall be carried out by resolution of the Board of Directors. To facilitate the efficient execution of the day-to-day duties of the directors and executive officers, bylaws shall be established and operated in accordance with authorization and screening rules.
- The Board of Directors shall formulate a long-term management vision, medium-term management plans and annual business plans, as well as define targets, policies and important measures for each organizational unit. Furthermore, the Board of Directors shall also manage the operating performance of business divisions and Group companies based on monthly and quarterly targets.
- To facilitate the timely and smooth implementation of resolutions of the Board of Directors, the Company shall establish an Executive Committee comprising the president, the executive senior managing director, managing directors and the general manager of the Corporate Planning Division. The Executive Committee shall convene twice a month as a rule, and on additional occasions as necessary. The Executive Committee shall deliberate on matters affecting management of the Company and Group, as well as monitor the progress of targets and the implementation of policies and measures, and issue instructions to the respective directors and executive officers responsible for corrective measures where divergence has occurred. Corporate auditors may attend meetings of the Executive Committee.
Ⅴ. System to Ensure the Proper Operation of the Corporate Group Comprising the Company and Its Subsidiaries
Through the following system and mechanisms, the Company and its consolidated subsidiaries and affiliates (Group companies) shall work to achieve the appropriate management and execution of operations for these companies.
- The Company and its Group companies shall formulate medium-term management plans and annual business plans based on unified management principles.
- General oversight of the management of each Group company shall be carried out by the Corporate Planning Division. For each Group company, a director of the Company and division of the Company shall be appointed in oversight roles, which shall regularly monitor and supervise progress in achieving performance targets set out in medium-term management plans and annual business plans.
- Each Group company shall have its own board of directors. Directors and corporate auditors (both part time) shall be dispatched from the Company to sit on these Group company boards, and monitor the management, performance, financial reporting and risk scenarios of these Group companies. Where Group-level decision making is necessary, the Company’s Executive Committee shall deliberate on such matters, and decisions shall be made by the Board of Directors or be made in accordance with the Company’s authorization and screening rules (Article 5, Matters relating to Domestic and Overseas Affiliate Companies).
- Compliance policies relating to the entire Group and each Group company shall be decided by the Group Compliance Committee in accordance with the stipulations contained in Article I-2 above, and specific measures shall be carried out based on these policies. With regard to the system for ensuring the reliability of financial reports of the Group, measures shall be considered as stipulated in Article I-5 above, with the aim of establishing such a system.
Ⅵ. Matters relating to the Appointment of Employees to Assist the Functioning of the Board of Corporate Auditors and the Independence of those Employees from the Directors
The Company’s Board of Corporate Auditors shall not appoint full-time assistants. However, where necessary, corporate auditors may appoint specific employees from the Corporate Auditors’ Office to assist in the execution of auditing duties.
Ⅶ. System of Reporting to the Board of Corporate Auditors by Directors and Employees and Other Systems for Reporting to the Board of Corporate Auditors
- To regularly ascertain that the directors and employees are properly executing their duties, the corporate auditors may attend meetings of the Board of Directors, Executive Committee, Compliance Committee and other bodies.
- Regardless of record-keeping rules, rules for managing confidential information and other rules, the corporate auditors may at any time view any documents as deemed necessary to fulfill their auditing functions.
- In addition to matters stipulated by law or regulation, directors and employees shall also report to the Board of Corporate Auditors on matters including compliance violations, disputes, occurrence of material risk, and financial accounting and reporting. In response to requests by corporate auditors, directors and employees shall provide business reports.
Ⅷ. System to Ensure that Other Auditing Functions of the Board of Corporate Auditors Are Carried Out Effectively
- The Board of Corporate Auditors and the president shall hold regular meetings in which to exchange views.
- The Board of Corporate Auditors shall, as necessary, hold consultations and exchange views with the Internal Auditing Department and an independent auditor.
1. Abolishment of directors’ retirement benefits
With the aim of enhancing transparency regarding director compensation, Kurita will terminate its current scheme of directors’ retirement benefits, which are paid to company directors and auditors, as of the conclusion of its 72nd annual meeting of shareholders, scheduled to be held in June 2008, and unify the annual salary plans in place since the fiscal year ended March 31, 2007.
Subject to approval at this upcoming annual meeting of shareholders, any retirement benefits accruing, while the current scheme is still in effect, to currently active directors and auditors still in office as of the conclusion of the shareholders meeting will be paid out when those personnel retire or are removed from office.
2. Acquisition of Kurita stock
As of July 2008, Kurita will contribute a fixed proportion of directors’ compensation to the directors’ shareholding association each month, which will be used to acquire Kurita stock. Acquired stock will be held for the term of office of each director, ensuring that director compensation is tied to shareholder value.