Basic Policies on Internal Controls

Basic Policy on Our Internal Control System and its Operation

(i) A system to ensure that the execution of duties by directors and employees of the Company and its subsidiaries complies with laws, regulations, and the Articles of Incorporation

The Company shall establish a Charter of Corporate Behavior and ensure that all officers and employees of the Company and its subsidiaries fully understand the fundamental principles of corporate activities as stipulated in the Charter of Corporate Behavior, thereby ensuring thorough awareness of the need to comply with laws and regulations.
The Company will ensure that the directors of the Company and its subsidiaries comply with laws and regulations and the Articles of Incorporation and that they act in accordance with the corporate philosophy by monitoring and ensuring that the Board of Directors meetings and management meetings of each company do indeed act in accordance with the corporate philosophy.
The Company shall establish basic standards of conduct to be observed by officers and employees of the Company and its subsidiaries in the course of their daily operations and shall establish a Compliance Committee as an organization to carry out activities and controls to promote compliance by the Company and its subsidiaries. In addition, a summary of the activities of the Compliance Committee shall regularly be reported to the Board of Directors.
The Company shall establish a whistleblowing system covering the entire Pasona Group, with internal and external contact points for whistleblowing, and shall work to prevent and promptly identify serious facts that might violate laws and regulations, either organizationally or individually, as reported by Pasona Group employees and other parties.
The Company's Audit Department and the Group Internal Audit Office shall conduct internal audits of the Company and its subsidiaries (excluding listed subsidiaries) so as to audit the appropriateness, validity, and legality of business execution and to improve internal controls.
Based on the Charter of Corporate Behavior, the Company shall take a resolute attitude toward anti-social forces and sever all relationships with such forces. In addition, the Company shall establish a department in charge of responding to unjustified demands, etc., and shall prepare rules and regulations concerning reporting and response in the event of an incident, while taking resolute action in cooperation with law enforcement and other relevant organizations.
The Company shall ensure legality by appointing outside directors who have no vested interest in the Company and by strengthening the mutual monitoring and supervision of directors.
The Company shall conduct monitoring by full-time Audit & Supervisory Board members and outside directors who are Audit & Supervisory Board members with no vested interest in the Company.

(ii) System for the storage and management of information related to the execution of duties by directors

The preparation, storage, and disposal of important documents used for decision-making by directors or for reporting to directors shall be thoroughly implemented in accordance with the established document management rules.

(iii) Regulations and other systems for managing the risk of loss of the Company and its subsidiaries

The Company and its major subsidiaries shall manage risks in accordance with the Risk Management Regulations governing crisis management and shall ensure that all officers and employees are thoroughly familiarized with the Crisis Management Manual.
The highest person responsible in the risk management system shall be the group representative. The Risk Management Committee established at the Company and major subsidiaries shall be responsible for the overall management of risks, and the executive officer in charge of the Corporate Governance Division shall be designated as the person responsible for overall management of risks.
The Risk Management Committee shall assume and categorize specific risks in advance based on the Crisis Management Manual and shall maintain a system to ensure prompt and appropriate communication of information in the event of an emergency.
The Company's Audit Department and the Group Internal Audit Office of the Company shall conduct audits of the daily risk management status of each department of the Company and its subsidiaries (excluding listed subsidiaries).

(iv) System to ensure that the directors of the Company and its subsidiaries execute their duties efficiently

With respect to the execution of duties by the directors of the Company and its subsidiaries, the division of duties and authority shall be defined in the organizational rules of each company to clarify responsibilities and ensure the efficient execution of duties.
The Board of Directors holds a regular meeting once a month and extraordinary meetings as necessary. In addition, management issues related to business execution are deliberated at management meetings attended by directors who are not Audit & Supervisory Board members, full-time Audit & Supervisory Board members, and executive officers.
The subsidiary stipulates in its Board of Directors Regulations that regular meetings of the Board of Directors shall be held monthly or at least once a quarter, depending on the size of the company, and the Company's Corporate Planning Department shall periodically confirm the status of such meetings. The subsidiaries also hold extraordinary meetings of the Board of Directors as necessary.
The Board of Directors of the Company and its subsidiaries shall make decisions on management execution policies, matters required by law, and other important management matters and shall supervise the execution of business operations.

(Ⅴ) The Board of Directors of the Company and its subsidiaries shall make decisions on management execution policies, matters required by law and other important management matters, and supervise the execution of business operations

In addition to the matters listed in (I) through (iv) above:

The Company shall dispatch directors or corporate auditors of subsidiaries from the Company to the subsidiaries to monitor and supervise the management status through attendance at Board of Directors meetings and audits by corporate auditors.
The Company shall enter into group management agreements with its subsidiaries (excluding listed subsidiaries) and shall establish a system under which the Company receives reports on important matters related to the execution of duties by directors and others.
The Company's Audit Department and the Group Internal Audit Department conduct internal audits of the Company and its subsidiaries (excluding publicly listed subsidiaries), reports its findings during internal audit meetings attended by the full-time directors, the Supervisory Committee members, and by titled executive officers, and performs necessary management as circumstances may require.
To ensure the appropriateness of financial reporting, the Company's Internal Control Committee shall formulate an internal control evaluation plan, monitor the internal control evaluation conducted by the Group Internal Audit Office, and prepare and submit an internal control report to the Board of Directors in accordance with the Internal Control Committee Rules.

(vi) Matters concerning directors and employees who are assigned to assist in the duties of the Supervisory Committee

The personnel of the Audit Department assist in the duties of the Supervisory Committee.

(vii) Matters concerning the independence of the directors and employees mentioned in the preceding item from other directors (excluding directors who are members of the Audit and Supervisory Committee) and ensuring the effectiveness of the Audit and Supervisory Committee's instructions to such directors and employees

The employees who assist in the duties of the Supervisory Committee perform duties instructed by the Supervisory Committee under the command of the Supervisory Committee.　　
Personnel transfers, evaluations, and disciplinary actions of employees assisting the Audit and Supervisory Committee shall be approved in advance by the Audit and Supervisory Committee.

(viii) Systems for reporting by directors and employees of the Company and its subsidiaries to the Audit and Supervisory Committee of the Company and systems to ensure that persons who report to the Audit and Supervisory Committee of the Company or to the auditors of subsidiaries are not disadvantaged because of their reporting

The employees who assist in the duties of the Supervisory Committee perform duties instructed by the Supervisory Committee under the command of the Supervisory Committee.
The Company and its subsidiaries shall stipulate in their Compliance Hotline Regulations that no disadvantageous treatment will be accorded to any person who makes a report under the preceding paragraph because of such report and shall ensure that such a report is made thoroughly.

(ix) Policies for handling expenses incurred in the performance of duties by Audit and Supervisory Committee members and other systems to ensure that audits by the Audit and Supervisory Committee are carried out effectively

Procedures for advance payment or reimbursement of expenses incurred in the performance of duties by Audit and Supervisory Board Members and other expenses or liabilities incurred in the performance of such duties shall be handled appropriately upon application from Audit and Supervisory Board Members.
The Supervisory Committee works closely with the president and representative director, accounting auditors, the Audit Department and the Group Internal Audit Department, and subsidiaries' supervisory committees and auditors, and holds meetings from time to time to exchange information.

Operation of the Internal Control System

An overview of the operation of the system to ensure the appropriateness of business operations is as follows.

(i) Overall internal control system

The Company's Audit Department, the Group Internal Audit Office, and the Internal Control Committee (which has met four times during the current fiscal year) monitor the status of the development and operation of the Company and its subsidiaries' internal control systems in general and promote improvements. The Group Internal Audit Office and the Internal Control Committee evaluate the effectiveness of internal control over financial reporting based on Japan's Financial Instruments and Exchange Act.
The Company's Group Internal Audit Office conducts internal audits of subsidiaries in accordance with an audit plan to ensure the appropriateness, adequacy, and legality of business execution. The results of these audits are reported to directors and executive officers, and measures to prevent recurrence are discussed.

(ii) Compliance

The Company has established the Pasona Group Charter of Corporate Behavior as a code of conduct for all officers and employees of the Group and conducts regular compliance training for officers and employees by rank. In addition, the Company has established a Compliance Manual to be shared throughout the Company and its subsidiaries and has stipulated the Pasona Group Code of Conduct with the aim of further ensuring the implementation of the basic principle of thorough compliance.
The Company's Compliance Committee (which met 12 times during the fiscal year under review) plays a central role in inspecting and strengthening the Company's legal compliance system and reports to the Board of Directors on the compliance system and status at the Company and its subsidiaries.
Based on the corporate philosophy of "solving society's problems" and in order to fulfill the Company's corporate social responsibility (CSR), the Compliance Committee identifies compliance-related issues at the Company and its subsidiaries and formulates and implements measures to deal with such issues, and when a material violation of laws and regulations occurs or is feared to occur, the Company and its Compliance Committee investigate, correct, and recommend measures in cooperation with the subsidiary.
With the aim of maintaining public trust in the Company through the early detection and prevention of legal violations and misconduct, Pasona Group has established the Pasona Group Compliance Hotline Regulations and established the Pasona Group Compliance Hotline, an internal reporting system that serves the Company's hotline secretariat and third-party organizations. The Company has established the Pasona Group Compliance Hotline at the Company and its domestic and overseas subsidiaries and has put in place a system to ensure that reports are immediately reported to the Company's Audit and Compliance Committee. In addition, the Pasona Group Compliance Hotline Regulations stipulate that whistleblowers shall not be subject to any disadvantageous treatment.

(iii) Risk management

The Company has established its Risk Management Regulations to stipulate basic matters concerning risk management and to prevent crises that could have a serious impact on the Company's management and to minimize damage in the event that such crises should occur. The Risk Management Committee (which met once during the fiscal year under review) has been established to oversee the Group's risk management activities.

In accordance with the Crisis Management Manual, the Risk Management Committee identifies critical risks by centrally assuming and categorizing specific risks in advance, thereby preventing risks before they occur and responding promptly and appropriately should they occur. In addition, drills are conducted as necessary to simulate disasters.

(iv) Subsidiary management

With regard to management control of subsidiaries, the Corporate Planning Department of the Company establishes and oversees the management control system of subsidiaries, and in accordance with the "Group Management Agreement" concluded with subsidiaries (excluding listed subsidiaries), the Company has established a system whereby the respective lead departments of the Company receive prior approval applications or reports from the subsidiaries on matters to be discussed in advance as stipulated in the agreement. In addition, in accordance with the "Group Management Agreement" concluded with subsidiaries (excluding listed subsidiaries), the Company has established a system under which the Company's lead department receives prior approval applications or reports from subsidiaries on matters to be discussed in advance as stipulated in the agreement.

In addition, important business operations conducted by subsidiaries are discussed and reported at meetings of the Company's Board of Directors and Management Committee.

The Company's Group Internal Audit Office conducts audits of subsidiaries (excluding listed subsidiaries) to ensure efficient monitoring in response to group management.

(v) Execution of directors' duties

Pasona Group has established internal regulations such as the Pasona Group Charter of Corporate Behavior and the Rules for the Handling of Officers to ensure that directors act in accordance with laws, regulations and the Articles of Incorporation. The division of duties and authority are stipulated in the Organization Regulations to clarify responsibilities and ensure efficient execution of operations.

Important matters as required by law and important management matters are discussed in advance at the Management Committee before being brought to the Board of Directors. During the fiscal year under review, the Board of Directors met 16 times for the active discussion and exchange of opinions to ensure the effectiveness of decision-making and supervision.

In addition, the Company has strengthened its supervisory function by appointing several outside directors and by providing opportunities for outside directors to actively express their opinions at Board of Directors' meetings and other meetings.

(vi) Audit and Supervisory Committee

Audit and Supervisory Committee members, including outside directors, attend meetings of the Board of Directors, and full-time Audit and Supervisory Committee members attend management meetings and other important meetings to confirm the status of the development and operation of internal control systems for which the Internal Control Committee and organizations related to internal control are responsible. They also monitor the Company's overall internal control system and provide advice on more-efficient operation through interactive information exchange with the accounting auditors, Audit Department, Group Internal Audit Office, and other internal control-related organizations, as necessary. The Audit and Supervisory Committee Office, to which full-time assistant employees belong, is established under the direct control of the Audit and Supervisory Committee and is separated from the organization of executive departments. Personnel matters such as the transfer and treatment of assistant employees are implemented after obtaining prior approval from the Audit and Supervisory Committee.