Internal Control System

Internal Control System

We have developed and maintained the internal whistleblower system, in order to minimize the damage that may occur to the Company by discovering acts that could violate the law, the internal regulations, social credibility at the early stage, prevent scandals and take appropriate countermeasures. We made efforts to make the system to function properly by setting up the contact points both inside and outside of the Company. The external lawyer will help through the external contact point and establish the reporting structure directly to the Audit and Supervisory Committee which is independent from the top management, allowing employees to make anonymous whistleblowing. Also, we treat the whistleblower and those who supported the investigations anonymously to preclude any repercussions. After the receipt of the report under the management of the compliance committee, whistle-blowing information will be strictly managed and conduct investigations and improvement measures.
In an effort to enhance an organization-wide risk management structure to function by identifying risks that may occur, the Company establishes the “Risk Management Regulations” to take appropriate approaches for various risks prevention and times of unexpected accidents.
We consider that the drafting and implementation of strategies is effective by dealing with climate change issues at our Board of Directors. Accordingly, the Board of Directors deliberate and resolutes on important environmental matters, including climate change. SDGs Promotion Committee, established as an executive management organization, is chaired by the president and CEO, and acts as a chief executive officer of environmental management responsible to oversee discussions regarding climate-related risk and opportunities, policies and goals, progress of initiatives, and to report to the Board of Directors important matters discussed at the SDGs Promotion Committee.

Basic Policy and Structures Regarding Internal Control Systems

We have established the Basic Policy on Internal Control Systems with regard to systems to ensure the appropriateness of operations as stipulated in the Companies Act and the Company Act Enforcement Regulations, and the Board of Directors has adopted a resolution. The overview of the meeting is as follows.

1. System to ensure that the execution of duties by our directors and employees complies with laws and the Articles of Incorporation
   1. In order for the execution of duties by our directors and employees to comply with laws, regulations, and the Articles of Incorporation, and to fulfill our corporate ethics and social responsibilities, we will establish and maintain a compliance committee chaired by the President and Representative Director to build and maintain a compliance system, prevent acts that violate laws and regulations, acts that may violate laws and regulations, or inappropriate transactions, and strengthen the legal compliance system for our directors and employees.
   2. Internal reporting system for directors and employees to report suspected violations of laws, regulations, and company regulations
      A Help Line shall be established to detect and rectify improprieties at an early stage. The Compliance Committee shall investigate matters reported to the Help Line, and if any action requiring corrective action becomes clear, the Compliance Committee shall promptly decide and implement corrective measures and preventive measures.
   3. Necessary measures shall be taken so that a person who has made a notification as prescribed in the preceding item shall not be subjected to adverse treatment by reason of said notification.
   4. The Internal Audit Office shall investigate the compliance system, investigate whether there are any legal or articles of incorporation problems, and report them to the Board of Directors and the Audit and Supervisory Committee.
   5. The Board of Directors shall regularly review the compliance system and strive to identify and improve problems.
   6. The Audit and Supervisory Committee shall audit the effectiveness and functions of this internal control system in an effort to identify and rectify issues at an early stage.
2. System for the storage and management of information related to the execution of duties by our directors
   1. The storage and management of information pertaining to the execution of the duties of our directors shall be appropriately managed and stored in writing or by electromagnetic media in accordance with laws and regulations, Information System Management Guideline and Document Management Guideline.
   2. The Audit and Supervisory Committee members can constantly inspect this information.
3. Rules and Other Systems for Managing the Risk of Loss
   1. Our Chief Risk Management Officer shall be a Director and Executive Vice President, and as appropriate, Directors, Executive Officers, General Managers of Related Divisions and Directors shall identify and evaluate various risks in accordance with the Risk Management Guideline, and take necessary measures in advance to avoid, mitigate or transfer risks.
   2. The Internal Audit Office shall audit the risk management status of each organization and report the results to the Board of Directors and the Audit and Supervisory Committee members.
   3. The Board of Directors shall regularly review the risk management system and endeavor to identify and improve problems.
4. System to ensure that the execution of duties by our directors is efficient
   1. Clarify the duties and responsibilities of directors and each department by stipulating the Board of Directors Guideline, Organizational Guideline, Guideline on Division of Responsibilities, and Job Authority Guideline, etc. In addition, the Board of Directors Guideline stipulates matters to be submitted to the Board of Directors, as well as the range within which each director can make decisions, and establish a system to ensure that directors perform their duties efficiently.
   2. The President and Representative Director drafts the annual management plan based on the Budget Management Guideline, and receives approval from the Board of Directors. The director in charge of each division determines the specific measures to be implemented by each division and the efficient business execution system based on the plans determined.
   3. The President and Representative Director reports regularly to the Board of Directors on the progress of the annual management plan, and the Board of Directors analyzes and improves the relevant measures and factors that hinder the efficient business execution system.
5. System to ensure the appropriateness of operations in the corporate group consisting of us and its subsidiaries (hereinafter referred to as "our group")
   1. One or more directors or Audit and Supervisory Committee members of subsidiaries are dispatched from us to monitor, supervise or audit the execution of duties by directors of subsidiaries. The Business Management Division shall be in charge of the business operations of subsidiaries, the development of compliance systems and risk management systems, and other business management of subsidiaries in accordance with the Subsidiary Management Guideline. Regular reports on the status of business to us and appropriate approvals for important matters shall be obtained, while respecting the autonomy of the management of subsidiaries.
   2. The Internal Audit Office shall conduct internal audits of the status of management of our subsidiaries and the business activities of our subsidiaries.
6. In cases where a Audit and Supervisory Committee Members requests the appointment of an employee who is to assist in the duties of the Audit and Supervisory Committee Members, matters concerning the system concerning such employee, matters concerning the assurance of effectiveness for such employee, and matters concerning independence from the director
   1. In the event that an Audit and Supervisory Committee Members requests the appointment of an employee to assist the Audit and Supervisory Committee Members, the board of directors may, in consultation with the Audit and Supervisory Committee Members, appoint such employee as an employee to assist the Audit and Supervisory Committee Members. During such period of assistance as may be designated by the Audit and Supervisory Committee Members, the authority to direct the appointed employees shall be transferred to the Audit and Supervisory Committee Members and shall not be subject to the direction of the directors.
   2. The prior consent of the Audit and Supervisory Committee Members shall be obtained with respect to personnel changes, personnel evaluation, and disciplinary actions of employees who are to assist the Audit and Supervisory Committee Members.
7. System for Directors and Employees of the Group to Report to Audit and Supervisory Committee Members and Other Systems for Reporting to Audit and Supervisory Committee Members
   1. The directors and employees of our group shall, in addition to recognizing matters that may cause significant damage to us, fraud, important laws and regulations, and violations of the Articles of Incorporation, report important matters and decisions to be submitted to the Board of Directors, important accounting policies, accounting standards and changes thereof, the status of implementation of internal audits, important monthly reports, and other important matters to the Audit and Supervisory Committee member in accordance with laws, regulations, and internal regulations.
   2. Necessary measures shall be taken so that a person who has made a report set forth in the preceding item shall not be subjected to adverse treatment on the grounds that he/she has made said report.
8. Other Systems to Ensure Effective Audits by Audit and Supervisory Committee Members
   1. Audit and Supervisory Committee Members shall attend meetings of the Board of Directors and the The Management Meeting in order to ascertain the important decision-making process and the status of business execution, attend other important meetings, inspect important documents related to business execution, such as application documents, and request explanations to directors and employees.
   2. The Audit and Supervisory Committee Members shall ensure the effectiveness of audits through their independence and authority based on the Rules of the Audit and Supervisory Committee and the Audit and Supervisory Committee Standards, and ensure that audits are conducted effectively while maintaining close cooperation with the Internal Audit Office and the Accounting Auditor.
   3. The President and Representative Director meets regularly with the Audit and Supervisory Committee to exchange opinions on issues to be addressed by the Company, the status of improvement of the environment for Audit and Supervisory Committee Members' audits, and important auditing issues, and to promote mutual communication.
   4. In cases where a request for payment is made with respect to the procedures for advance payment or reimbursement of expenses arising from the execution of the duties of Audit and Supervisory Committee Members or any other expenses or obligations arising from the execution of such duties, the payment shall be made promptly.
9. Structure to Eliminate Antisocial Forces
   We will eliminate any relationships with antisocial forces or organizations that threaten social order or the sound activities of corporations, cooperate with external specialist organizations such as the police and counsel, and take a firm stance toward responding to unfair demands in an organized manner.
10. System to Ensure the Reliability of Financial Reporting
    In order to ensure the reliability of financial reporting, establish, maintain, and operate a system that enables internal control over financial reporting to function effectively.

Basic Approach and Systems to Exclude Anti-Social Forces

ZOZO Group's basic policy is to eliminate any transactions with antisocial forces and organizations that threaten social order and the sound activities of companies, and to cooperate with external specialist organizations such as the police and counsel, while taking a firm stance toward responding to unfair demands in an organized manner. To prevent any relationship with antisocial forces, the Legal Department of the Group conducts surveys before commencing transactions with new suppliers, new subcontractors, etc. In accordance with the standards subsequently established, we have established procedures to conduct surveys by external investigative organizations. After implementing these procedures, we have established a system to commence transactions. In addition, we conduct surveys of existing business partners at least once a year to ensure that we are able to collect information on an ongoing basis.