Our Basic Thought of Internal Control

1. System to ensure that the execution of duties by the Company’s Directors is in compliance with laws and regulations and the Articles of Incorporation

The Company shall establish Compliance Regulations and various other rules and regulations and take the initiative to ensure compliance throughout the Company and its subsidiaries (hereinafter referred to as the “Shimano Group”).

2. Systems governing the storage and management of information relating to the execution of duties by the Company’s Directors

Any information relating to the execution of duties by Directors that requires storage shall be recorded and stored by the responsible operating department(s) of the Company in accordance with the Information Control Regulations.

3. Regulations and other systems governing management of the risk of losses

(1) The Company recognizes the following major internal and external risks: 1) risks related to management decision-making and execution of operations, 2) risks of legal/regulatory compliance violations, 3) risks related to environmental protection, 4) risks related to product quality, 5) risks related to export/import control, 6) information security risks, and 7) disaster risks. Based on the recognition of these risks, the Company shall establish necessary rules and regulations and shall endeavor to establish systems that facilitate quick response by providing training programs aimed at improving related internal knowledge and expertise.
(2) The internal audit organization shall perform internal audits of the status of operations in each part of the organization in accordance with the Operating Audit Regulations to assess the status. Any points that require improvement shall be noted immediately, and subsequent checks shall be made to follow up on any required changes.

4. Systems to ensure the efficient execution of duties by the Company’s Directors

(1) Regular meetings of the Board of Directors shall be convened once a month. The Board of Directors shall deliberate and decide matters contained in each meeting’s agenda, which is created and managed according to the Board of Directors Regulations.
(2) The Board of Directors shall decide statutory matters relating to business policies, laws and regulations and all other important business-related matters, and oversee the overall operation of the business.
(3) Directors shall endeavor to manage those parts of the organization entrusted to them in accordance with the Regulations for Division of Duties and the Regulations for Clarification of Authority swiftly and efficiently so as to improve the performance of these operations.

5. Systems to ensure that the execution of duties by the Company’s employees is in compliance with laws and regulations and the Articles of Incorporation

(1) Various internal regulations, including the Compliance Regulations, shall be established to ensure that the execution of duties by employees is in full compliance with laws and regulations and the Articles of Incorporation.
(2) The internal audit organization shall perform internal audits of the status of compliance, in accordance with the Operating Audit Regulations and other regulations mentioned above. The results shall be reported in a timely fashion to the Board of Directors and the Audit & Supervisory Board.
(3) The Company shall conduct education and training to ensure that employees have an adequate understanding of the Compliance Regulations.

6. Systems for reporting of matters concerning execution of duties by subsidiaries’ directors etc. to the Company

(1) When a subsidiary makes an important management decision, it shall implement necessary measures in accordance with internal regulations, such as requesting the Company’s prior approval.
(2) Subsidiaries shall periodically report their financial conditions to the Company.

7. Regulations and other systems governing subsidiaries’ management of the risk of losses

The Company’s Directors in charge shall provide comprehensive advice and guidance concerning subsidiaries’ business operations and risk management systems.

8. Systems to ensure efficient execution of duties by subsidiaries’ directors

Information technology shall be utilized appropriately and effectively, such as the introduction of a shared system for consolidated accounting, throughout the Shimano Group for communication of information between the Company and subsidiaries and for business processes to the extent applicable.

9. Systems to ensure that the execution of duties by subsidiaries’ directors and employees is in compliance with laws and regulations and the Articles of Incorporation

Each subsidiary shall establish compliance systems through the establishment of regulations similar to the Company’s Compliance Regulations or other internal rules and regulations, according to each subsidiary’s individual situation.

10. Other systems to ensure the appropriateness of operations across the Shimano Group consisting of the Company and its subsidiaries

With the aim of instituting effective internal controls across the whole Shimano Group, the Company shall appoint managers with requisite responsibilities, assess situations of legal/regulatory compliance and risk management, and swiftly implement necessary countermeasures.

11. Matters concerning employees who provide assistance to Audit & Supervisory Board Members, in the case that the Company’s Audit & Supervisory Board Members request that the Company assign employees as assistants to support their duties

If deemed necessary by Audit & Supervisory Board Members, appropriate personnel shall be exclusively assigned to provide assistance to Audit & Supervisory Board Members.

12. Matters concerning the independence of employees mentioned in (11) above from the Company’s Directors

Employees mentioned in (11) above shall be outside the Directors’ chain of command and follow instructions of the Audit & Supervisory Board Members.

13. Matters concerning the ensuring of effectiveness of instructions of the Company’s Audit & Supervisory Board Members to employees mentioned in (11) above

Employees mentioned in (11) above, in accordance with the instructions issued by the Audit & Supervisory Board Members, shall have authority to perform investigations.

14. Systems for reporting by the Company’s Directors and employees to the Company’s Audit & Supervisory Board Members

Directors and employees shall swiftly report the status of performance of internal audits, as well as statutory matters, to the Company’s Audit & Supervisory Board Members.

15. Systems for reporting by subsidiaries’ directors, audit & supervisory board members and employees, or persons who received reports from such persons, to the Company’s Audit & Supervisory Board Members

Subsidiaries’ directors, audit & supervisory board members and employees shall swiftly report the matters which the Company’s Audit & Supervisory Board Members request, as well as statutory matters. Persons who received reports from subsidiaries’ directors, audit & supervisory board members and employees shall do the same.

16. Other systems for reporting to the Company’s Audit & Supervisory Board Members

(1) Upon request of any Audit & Supervisory Board Member, reporting and information gathering shall be swiftly conducted, in accordance with the stipulations of the Audit & Supervisory Board.
(2) The internal audit organization shall closely collaborate with the Audit & Supervisory Board, including by means of discussion and exchange of opinions.

17. Systems to ensure that reporting persons mentioned in (14)-(16) above do not receive discriminate treatment as a result of such reports

(1) Regarding persons who reported to Audit & Supervisory Board Members, the fact of such reporting and the content of the reporting shall be kept confidential, and it is prohibited to discriminate against persons who have reported to Audit & Supervisory Board Members for that reason alone.
(2) Regarding persons who reported to the designated internal or external point of contact for compliance matters for swift recognition of violations of laws and regulations and/or unethical behaviors, the fact of such reporting and the content of the reporting shall be kept confidential, and it is prohibited to discriminate against persons who reported to the point of contact for that reason alone.

18. Matters concerning procedures for advance payment or reimbursement of expenses incurred in the course of execution of duties by the Company’s Audit & Supervisory Board Members and policies related to processing of expenses or liabilities arising from execution of duties

Audit & Supervisory Board Members may consult lawyers, certified public accountants, and/or other external experts, as necessary, and expenses incurred shall be borne by the Company.

19. Other systems to ensure effective performance of audits by the Company’s Audit & Supervisory Board Members

(1) Opportunities shall be made available for Audit & Supervisory Board Members to attend meetings of the Board of Directors and other important meetings so that Audit & Supervisory Board Members can identify important internal issues and state their views, as necessary.
(2) Forums shall be established, as necessary, to facilitate exchanges of views between Audit & Supervisory Board and Representative Directors.