Basic Policy on Internal Control
SG Holdings Co., Ltd. (hereinafter referred to as "company") has established the Internal Control Basic Policy (hereinafter referred to as "basic policy") as follows pursuant to Paragraph (4), Item (vi) of Article 362 of the Companies Act and Paragraph (1) and Paragraph (3) of Article 100 of the Ordinance for Enforcement of the Companies Act. The company will ensure that the internal control of the company and the SG Holdings Group (hereinafter referred to as "group") functions effectively, and evaluate such internal control to take necessary improvement measures. Furthermore, the company will continuously review the basic policy according to changes, etc. in the management environment, and strive to develop a more effective internal control system.
1. System to ensure that the execution of duties by the Board of Directors and employees complies with laws and regulations and the Articles of Incorporation
- (1) The Board of Directors shall work to establish a management structure which is highly transparent to all stakeholders including shareholders. In addition, the Board of Directors shall ensure that the execution of duties by the Board of Directors and employees complies with laws and regulations, the Articles of Incorporation and internal rules, and that the duties are efficiently executed.
- (2) The company shall perform the following matters to foster a corporate culture under which the Board of Directors and employees conduct business activities in compliance with laws and regulations and the Article of Incorporation.
-  Promote continuous improvement of the compliance system in the "Group Management Strategy Meeting".
-  Comply with laws and regulations and the Articles of Incorporation based on the group's "Charter of Corporate Conduct" to conduct business activities in an ethical manner.
-  Set the group's "Code of Ethics and Conduct" as the action guidelines of the Board of Directors and employees.
-  Evaluate the maintenance conditions of rules, instructions and manuals and review them continuously.
- (3) The company shall stipulate the "Internal Whistle-blowing Regulations" for ensuring the early detection and prevention of violations of laws and regulations and other misconduct, and establish "Compliance Hotline" of the group as an internal whistle-blowing system, as well as protect whistle-blowers, collect information, and promptly take appropriate measures when necessary for correction and improvement of the system.
- (4) The company recognizes that it is an important issue common to the society to eliminate anti-social forces threatening the safety and order of society, and sets forth the following rules regarding the elimination of anti-social forces.
-  Take a resolute stance against and block relationships with anti-social forces.
-  Reject unjust demands from anti-social forces, and conduct no side deals or funding.
-  Deal with anti-social forces systematically and legally, in cooperation with external specialized agencies, and place top priority on the security of the Board of Directors and employees.
- (5) The company shall stipulate the "Information Security Basic Policy" and build an information security management system for ensuring the appropriate maintenance and management of information assets.
2. System to retain and manage information on the execution of duties by the Board of Directors
- (1) The company shall prepare and appropriately retain minutes of shareholders' meetings, Board of Directors meetings and other important meetings in accordance with laws and regulations and the relevant rules.
- (2) The company shall appropriately retain important information, decisions, internal notifications, etc. regarding management and execution of business in accordance with the relevant rules.
- (3) Keep the information described in (1) and (2) above available for reading in a timely fashion.
3. Rules and systems on the management of the risk of loss
- (1) The company shall, to conduct risk management appropriately and efficiently, stipulate "Risk Management Regulations" and establish a risk management system, as well as appropriately respond to events that may cause a loss to corporate management, business activities or corporate image or have a serious impact on the general public.
- (2) The company shall hold "Group Risk Management Meetings" periodically to ensure the prevention and minimization of damage or the reduction of loss in the face of imminent risk, and thus promote strengthening of the risk management system.
- (3) The company shall formulate a Business Continuity Plan (BCP) and establish a Business Continuity Management (BCM) system to minimize business interruption and accomplish its role in the society in emergency situations.
4. System to ensure efficient execution of the Board of Directors' duties
- (1) The Board of Directors shall perform their duties in accordance with the responsibilities of organization/structure and the duties/authority specified by the Board of Directors meeting. In addition, the Board of Directors shall supervise the performance of the duties of the Board of Directors to ensure that the duties are performed appropriately and efficiently.
- (2) The company shall hold meetings in a timely manner to have management issues reviewed and to have important management information shared by the Board of Directors and the Board of Auditors, and shall secure efficient management decision-making at the Board of Directors meetings.
- (3) The company shall formulate "Midterm Management Plans Administrative Regulations", "Group Midterm Management Plans Administrative Regulations", "Budget Administrative Regulations" and "Group Budget Administrative Regulations", and determine midterm management plans and one-year budget at meetings of the Board of Directors, and the Board of Directors shall perform their duties efficiently in accordance with such plans and budgets.
5. System for ensuring group's appropriate operation of business
- (1) The company shall stipulate group's "Charter of Corporate Conduct" and "Code of Ethics and Conduct", and ensure the Board of Directors and employees to comply with the common guidelines.
- (2) The company shall stipulate "Group Companies' Management and Operation Regulations" and "Overseas Corporations' Management and Operation Regulations", and conduct business management and support group companies, while respecting their autonomy and independence.
- (3) The company shall enhance the effectiveness of guidance and management of overall business operations of each group company, by periodically holding "Group Management Strategy Meetings" and "Group Administration Department Managers' Meetings" and transmitting the group management policies, and important decisions and notifications.
- (4) The company shall, regarding important decisions made in management activities of the group companies, stipulate "Duties and Authority Regulations", as the group's uniform standards, and hold necessary prior consultations with, and make reports to, the Board of Directors of the company, and thus work to obtain approval of the Board of Directors of the company on such important decisions.
- (5) The company shall stipulate "Accounting Regulations", related procedures, manuals, etc. to ensure the reliability of financial reports. Furthermore, the company shall hear opinions of outside experts as needed, and establish a system of monitoring and audit.
- (6) The company's internal audit department shall conduct periodical internal audits of each group company and report the results to the Board of Directors. In addition, the department shall instruct the group company to construct a solution when necessary, and manage the progress afterwards.
6. Matters concerning employees requested to support the duties of the corporate auditors
The company shall establish a corporate auditors' office as the department for exclusively assisting in the duties of the corporate auditors, and assign the employees assisting the corporate auditors. The number and qualifications of the employees are decided upon consultation with the Board of Auditors.
7. Matters related to Securing of Independence from the Board of Directors of Employees under the Preceding Item and of Effectiveness of Instructions by Corporate Auditors to such Employees
The company shall have the employees assisting the corporate auditors exclusively engage in work of assisting the corporate auditors, and shall not subject such employees to command and order by the Board of Directors and other organizations of the execution of business operations. Regarding personnel matters of the said employees such as transfers, evaluations, rewards and punishments, approval of the Board of Auditors shall be required.
8. System concerning a report to corporate auditors by the Board of Directors and employees of the group and others
- (1) The Board of Directors and the employees shall report the following matters to the corporate auditors without delay in addition to the matters prescribed by laws:
-  Facts which possibly cause considerable damage to the company
-  Results of internal audits
-  Details of whistle-blowing through whistle-blower system
-  Other matters related to execution of operations the Board of Auditors may request a report for
- (2) The company shall appropriately respond to the Board of Directors and the employees who made reports to the corporate auditors to ensure that they do not receive unfair treatment due to the making of said reports.
9. Other systems to ensure effective audits by corporate auditors
- (1) Corporate auditors exercise their authority under laws and regulations to audit the legality, adequacy and efficiency of the Board of Directors' execution of operations, in cooperation with internal organizations including accounting auditors and the internal audit department.
- (2) Corporate auditors shall appoint lawyers, certified public accountants, consultants and other outside experts when they deem it necessary for the execution of their duties.
- (3) Corporate auditors shall attend Board of Directors meetings and other important internal meetings, when necessary.
- (4) Corporate auditors shall have regular meetings with the representative Board of Directors to exchange information and opinions on key audit tasks.
- (5) Corporate auditors shall have regular meetings with accounting auditors to exchange information and opinions, and request accounting auditors to makes reports, when necessary.
- (6) The company shall bear expenses or obligations incurred by the corporate auditors, if any, in the course of the performance of their duties, except in cases where such expenses or obligations are found to be unnecessary for the execution of the duties of such corporate auditors.