Internal Control

Basic Views on Internal Control System and the Progress of System Development

On May 19, 2023, the Board of Directors adopted a resolution on the basic policy related to systems for ensuring that directors execute their duties in compliance with laws and regulations and with the Articles of Incorporation, and systems necessary to ensure the appropriateness of the Company's operations and the operations of the corporate group consisting of the Company and its subsidiaries, as follows.

Basic Policy on Internal Control Systems (Updated May 19, 2023)

  1. The system to ensure that the execution of duties by its directors and employees complies with laws and regulations and with the Company's Articles of Incorporation (compliance system)

    1. In addition to complying with laws and regulations and with its Articles of Incorporation, the Company always adheres to its Management Principle and Code of Conduct and acts with high ethical standards.
    2. The Company will implement a system to ensure that the execution of duties by its directors and employees complies with laws and regulations and with its Articles of Incorporation, as follows:
      1. (a) The Board of Directors will make decisions on matters of importance as prescribed by the Board of Directors rules and standards on deliberations as well as provide oversight over the execution of the Company's business operations. Directors will mutually exercise checks and balances within the Board and will ensure that decisions of the Board and the Company's execution of its business comply with laws and regulations and with its Articles of Incorporation;
      2. (b) The Board of Directors will appoint an officer in charge of compliance, and the Group Compliance Division will be under this officer’s control. The officer in charge of compliance and the Group Compliance Division will be responsible for ensuring that the Company and its subsidiaries (hereinafter referred to as the "Group") implement necessary measures to strengthen compliance.
      3. (c) The Company's Group Compliance Division will appoint compliance committee members who do not concurrently serve as directors or officers at Group companies. Under the Company's Group Compliance Division Manager, it will evaluate the appropriateness of their activities and nominate and dismiss committee members.
      4. (d) The Company will require all employees to adhere to laws, regulations, company rules, etc. in the Company's working rules and will organize compliance training periodically or whenever necessary to raise directors' and employees' compliance awareness;
      5. (e) The Company will establish a whistleblower system for early detection and remedy of inappropriate corporate activities and prevention of similar incidents from happening again;
      6. (f) The Group Corporate Audit Department, as an internal audit department, will examine and assess the effectiveness of the compliance system.
  2. The system for preservation of information related to execution of duties by the directors (information preservation system)

    1. The Company will implement a system to appropriately store and preserve documents such as the minutes of the general meetings of shareholders and of the Board of Directors, the preservation of which is a statutory requirement, and other important information, as follows:
      1. (a) In accordance with laws and regulations as well as the internal regulations on document management and other internal regulations, the Company will appropriately store and preserve important documents and electromagnetic digital media relating to execution of business by its directors;
      2. (b) The Company will respond immediately to requests from directors and auditors to examine those documents and media; and
      3. (c) The Company will manage information appropriately in accordance with internal regulations, including regulations on information security management and on protection of personal information, and review such regulations from time to time.
  3. The regulations and systems for management of risk of loss (risk management system)

    1. The Company will implement a system to make necessary decisions and take necessary steps in response to various risks that may arise during the course of business activities, as follows:
      1. (a) As for risk management during the normal course of business, risk management departments, assigned for each risk, will manage risk to prevent risk-related incidents and reduce loss;
      2. (b) The Risk Management Committee, with the Group Internal Control Department serving as its secretariat, shall oversee the evaluation and analysis of risks and proposed countermeasures implemented by the department in charge of each material risk, and shall report the results of such evaluation and analysis to the Board of Directors on a regular basis. In addition, the risk management officers of each Group company shall monitor the management status of their own major risks and report the results to the Chief Risk Management Officer of the Company.If risk becomes actualized and substantial damage can be expected, directors must promptly report it to the Corporate Auditors; and
      3. (c) In times of emergencies, the Disaster Response Headquarters will be established, with the President acting as the head, to enable quicker decision making and execution than during normalcy. In addition, it will prepare the basic regulations and manuals for business continuity in times of crisis (BCP basic regulations), BCP detailed regulations, disaster recovery handbook, etc, periodically revise regulations and manuals, and plan and conduct disaster drills.
      4. (d) The Group Management Audit Department will evaluate the effectiveness of risk management through audits of the departments in charge of risk.
    2. The Company, with its commitment to quality of its operations as a way to concretize "creation of environmental value" enshrined in its Management Principle, will implement a system for maintaining and improving quality so as to continue to win the support of its customers, as follows:
      1. (a) The Company will establish an Integrated Manual on Quality and Environment and review its contents as needed.
      2. (b) The Company shall provide ISO internal auditor qualification training to all Area managers and Cite managers to ensure that operations are conducted in accordance with business management regulations and manuals. In addition, mutual audits will be conducted by ISO internal auditors to confirm the effectiveness of such audits.
  4. The system for ensuring that directors are executing their duties efficiently (system to ensure efficiency)

    1. The Company will implement a system to ensure that directors are executing their duties with efficiency, as follows:
      1. (a) The Company will set out the rules of the Board of Directors and identify those issues that require the resolution of the Board and those issues that must be reported to the Board. As for other issues before the Board, the company will demarcate decision-making authority based on regulations on decision-making and on responsibilities and authority of the directors. It will also set out clearly the division of labor for executing business operations within the organization and the boundaries of jobs and responsibilities;
      2. (b) The Board of Directors shall devote sufficient deliberation to important management decision-making and supervision of management and business execution. In addition, the Company shall implement an executive officer system to improve the efficiency of business execution, and shall utilize such meeting bodies as the Management Committee, Regional Office Management Committee, and AEON delight Group Company President's Committee to ensure efficient management of the Group.
      3. (c) he Company shall establish a system that ensures management efficiency by including multiple independent outside directors on the Board of Directors, examining management proposals from various perspectives, providing highly effective supervision of directors, and supporting prompt and decisive decision-making. The Board of Directors shall establish the Nomination and Compensation Advisory Committee and the Evaluation Advisory Committee as voluntary advisory committees for the purpose of supervising the fairness of the execution of duties and evaluating their appropriateness, and shall appoint an independent outside director as the chairman of these committees.
      4. (d) The basic concepts of the Company's corporate governance, which have been outlined above, will be set down in writing and disclosed in AEON delight Corporate Governance Guidelines.
  5. The system to ensure fair business transactions within the corporate group consisting of the Company, its parent company and subsidiaries (internal control within the corporate group)

    1. Transactions between AEON delight and any of parent company AEON Co., Ltd., AEON Group companies, or AEON delight subsidiaries will be based on the market price. Measures will be implemented to prevent conflict of interest and to ensure fair transaction.
    2. Material transactions that may cause conflicts of interest between controlling shareholders and minority shareholders shall be deliberated and reviewed by a Special Committee consisting of independent outside directors.
    3. AEON delight Group will implement a system for sharing its basic philosophy and principles and reinforcing internal control within the Group, as follows:
      1. (a) The Company will set down the basic framework of governance of subsidiaries by parent companies in the regulations on management of affiliated companies and the regulations on duties and responsibilities of each group company, by stipulating matters that subsidiaries must report to the parent company and matters requiring prior approval of the parent company. The Company will also dispatch its directors and auditors to its subsidiaries to supervise management of the subsidiaries;
      2. (b) In addition to receiving monthly performance reports from its subsidiaries, the Company will organize the Domestic Group Company Presidents' Committee, the China Group Company Presidents' Committee, and the ASEAN Group Company Presidents' Committee, which include the Company’s directors and the Presidents of subsidiaries as members. Through this, the Company will take stock of the performance of its subsidiaries, and establish individual growth strategies, budget performance management, and internal control systems as a part of Group governance.
      3. (c) The AEON delight Group will operate its compliance and whistleblower system under a common, unified framework. The Company will conduct annual compliance training for officers and employees of the Group to foster compliance awareness. The Group Compliance Division will work with the Compliance Committee members appointed for each Group company to carry out activities that raise compliance awareness among the management and employees of each company. In addition, the Company will ensure that all employees are aware of the Group's whistleblower system and will operate it independently of the management of each Group company.
      4. (d) As for internal control related to financial reporting, risk management, and internal audits, AEON delight will have basic policies implemented across the Group. On the other hand, it will also consider the nature, scope and complexity of the businesses of its subsidiaries so that it can determine the reporting and management systems of each of its subsidiaries; and
      5. (e) The Group Corporate Audit Department will regularly inspect the subsidiaries. In conducting business operation audits, the Corporate Audit Department will place under close scrutiny those subsidiaries that are considered high risk in light of past performance audits and whistleblower incidents.
  6. Matters related to employees assisting the Corporate Auditors (assignment of auditor staff)

    1. The Company shall assign dedicated employees to assist the Corporate Auditors at the request of the Corporate Auditors.
    2. Such employees will follow the instructions of the Corporate Auditors and assist their work.
  7. Matters related to the independence of employees assisting the Corporate Auditors (independence of auditor staff)

    1. The Company shall obtain approval from the full-time Corporate Auditor or the Board of Corporate Auditors in advance for matters related to personnel affairs, such as the hiring, selection, and transfer of employees to assist the Corporate Auditor's Office, and the full-time Corporate Auditor shall make personnel evaluations of such employees.
    2. The Company must obtain prior approval of full-time Corporate Auditors or of the Board of Auditors before initiating disciplinary action against employees working in the Audit Office.
  8. The System for enabling directors and employees to report to the Corporate Auditors and other matters related to making reports to the Corporate Auditors (auditor reporting system)

    1. The directors and employees of AEON delight Group must report immediately to the Corporate Auditors or the Board of Auditors if they discover or come to have knowledge of any fact that will have a significant impact on the Group's business or business performance, or if they discover or come to have knowledge of any breach of laws and regulations or other compliance-related issues.
    2. The Group Corporate Audit Department and Group Compliance Department will regularly report the statuses of internal audits, compliance, and risk management to the Corporate auditors.
    3. The Corporate Auditors may attend the Board of Directors meetings and other important meetings related to the management of the Company's business and freely express their views.
    4. The Group Corporate Audit Department will be the office responsible for AEON delight Group's whistleblower system. This department will report the status of whistleblower reports from AEON delight Group’s directors and employees to the Corporate Auditors periodically or as needed.
    5. The Company prohibits anyone from unfavorably treating or taking retaliatory action against any director or employee of AEON delight Group or any user of the whistleblower system for having made a report to a Corporate Auditor or for having used the whistleblower system. The Company will ensure that directors and employees of AEON delight Group are made fully aware of this prohibition.
  9. Other systems for ensuring that the Corporate Auditors can execute their duties effectively (system for ensuring effective audit by auditors)

    1. The Company will implement a system to ensure that the Corporate Auditors can conduct their audits effectively, as follows:
      1. (a) The President will meet regularly with the Board of Corporate Auditors and full-time Corporate Auditors as requested to exchange views on issues that need to be dealt with and other important issues related to audits. In addition, outside directors will regularly attend meetings of the Board of Corporate Auditors to exchange opinions and communicate with each;
      2. (b) To enable effective execution of audit duties, the Corporate Auditors will work in close collaboration with the Corporate Audit Department;
      3. (c) If requested by the Corporate Auditors to make a report or submit related documents and other materials on matters within the remit of the Corporate Auditors, the directors and employees of AEON delight Group will comply with the request promptly and in good faith.
    2. The Company will meet reasonable requests made by the Corporate Auditors for payment of expenses required for
      1. (a) If requested by the Corporate Auditors to make advance payment of costs related to execution of their duties pursuant to the provisions of the Companies Act, Article 388, the Company will promptly settle such expenses or debt; and
      2. (b) The Company will allocate a budget for expenses that the Company deems necessary for the Corporate Auditors to execute their duties. Contingencies paid by the Corporate Auditors will be settled based on a claim made by the Corporate Auditors.
  10. System for eliminating anti-social forces

    1. The Company will sever any and all ties with anti-social forces. If unfair claims are made against the Company by anti-social forces, the Company will work with specialist outside organizations to take legal steps as an organization.
    2. If it comes to light that a business partner of the Company is an anti-social force, has business dealings with anti-social forces, or has resorted to a violent and intimidating anti-social behavior, the Company will immediately rescind all transactions and agreements with such a business partner.
    3. The Company will appoint the Group Legal Affairs Department to handle requests from anti-social forces, actively collect information from external organizations, and strive to eliminate anti-social forces.
  11. Internal control system for financial reporting

    1. The Company will set out the Regulations on Internal Control Related to Financial Reporting based on the Company's internal control and reporting system. The Company will work towards ensuring the accuracy and reliability of financial reporting of AEON delight Group through education, supervision, and evaluation.