basic policy

In keeping with our corporate philosophy of "cherish life and benefit society by contributing to better health," we undertake our activities in Japan and overseas guided by a high standard of corporate ethics as we respect human rights and comply with the letter and spirit of all laws and codes of conduct.

1. We established the Compliance Committee, which is chaired by a director in charge and includes the participation of the Director of the Internal Audit Office who serves as a member of the committee. Thoroughgoing guidance is provided to executives and regular employees via training programs, while the Corporate Ethics Hotline has been set up for consultations and reporting matters concerning internal violations. Moreover, we have set Company rules to ensure the accuracy of financial reporting, and developed systems for ensuring the validity and reliability of internal controls over financial reporting of the Group.
2. We are building and operating a structure for reducing and preventing risks. As part of this structure, we established the Risk Management Committee, chaired by a director in charge, with the General Affairs Department responsible for overseeing the committee. For risks concerning compliance, the environment and accidents, we also formulated the Risk Management Guidelines and the Corporate Ethics and Compliance Guidelines as part of a quick-response structure. Additionally, to handle crisis management when dealing with any contingencies, we have set up the Contingency Measures Headquarters under the leadership of the president.
3. In accordance with the Documentation Management Guidelines and other internal regulations, we carry out the appropriate preparation, preservation and management of information regarding directors’ decisions, their execution of other duties and reports concerning directors.
4. To ensure that auditors effectively perform audits, the accounting auditing firm explains the details of the accounting audit to the auditors and exchanges various information while cooperating with the Internal Audit Office in ensuring appropriate communication and effective auditing.

5. Along with establishing compliance committees and risk management committees at each Kyorin Group company, the Compliance Committee and Risk Management Committee oversee and promote compliance and risk management for the entire Group. In addition, we have built a structure for consultation and reporting that covers the whole Group.

   We will create management guidelines for affiliated companies and build a system of support that respects their autonomy. Under this system, we will receive regular business reports from these companies and hold meetings with their management before deciding important issues.

   The Internal Audit Office performs audits of affiliated companies based on internal audit guidelines. Depending on the results of these audits, departments that oversee the operations of the affiliated companies issue instructions or recommendations and provide appropriate guidance. Moreover, we are also building a structure that enables managers to prepare reliable internal control reports for financial reporting. Under this structure, the Internal Audit Office also evaluates and reports on internal controls related to financial reporting based on the newly established Standards and Practice Standards for Management Assessment and Audit Concerning Internal Control Over Financial Reporting.

6. Basic rationale on the elimination of anti-social forces and the establishment of related measures

   Giving consideration to our corporate philosophy, we formulated the Kyorin Corporate Charter to ensure a high standard of corporate ethics and thoroughgoing compliance. This charter clearly states that we will "stand firmly against any anti-social forces or groups that pose a threat to the order and safety of society."

   The Company will eliminate any relationships with and strongly confront anti-social forces or groups. As an internal structure for overall monitoring of our corporate ethics and our compliance structure, we established the Compliance Committee, with the director in charge of the committee also handling overall coordination. As the department in charge of compliance, the General Affairs Department is working to strengthen and promote a wider permeation of corporate ethics and compliance through education and other measures in collaboration with relevant departments.

   We have also established standard measures to prepare for any possible undue demands from anti-social forces. To this end, we have built a structure that includes designating a “person responsible for prevention of undue claims” at our Head Office and all branch offices to respond to encounters with any anti-social forces or groups. We also maintain close communications with police departments with relevant jurisdictions, special crime prevention units and legal advisers to ascertain the latest trends and gather other information on anti-social forces or groups as well as for guidance, consultation and assistance. Also, we have prepared Responding to Telephone Calls and Visits to the Company During the Initial Phase of Claim-related Problems as a manual, to ensure that employees make appropriate initial responses. In this manner, we have established a structure for properly responding to any demands from anti-social groups.

1. Internal Auditors

Internal audits are conducted by the Internal Audit Office, which is staffed by seven employees, reports directly to the president and is independent from other sections. Based on yearly auditing plans, the Internal Audit Office regularly assesses and evaluates the effectiveness and efficiency of the legal compliance and internal control systems in every section of the parent and Group companies. After an audit, the office communicates any problems or areas that need improvement directly to the president and makes the appropriate recommendations.

Another function of the office is to evaluate the Group’s internal controls over financial reporting. The office evaluates the maintenance and operation of these internal controls according to a predetermined scope for evaluation, and makes a report to the President.

2. Corporate Auditors

Corporate auditors conduct audits in line with an auditing policy and plan set by the Board of Auditors at the beginning of each fiscal year. In addition to participating in important meetings, including those of the Board of Directors and the Management Committee, corporate auditors implement comprehensive audits by checking documents and other materials relating to key decisions and inspecting departments, facilities and Group companies.

Under our adopted system, if someone discovers that an executive officer or employee is acting in contravention of either laws and regulations, or the Company’s Articles of Incorporation, they immediately notify the corporate auditors. We are working to establish an environment conducive to more efficient audits by corporate auditors by coordinating closely with executives and regular employees and by fostering deeper understanding of audits. Furthermore, we assign auditing staff to assist the duties of the corporate auditors as necessary, and these human resources are carefully checked by directors and auditors to ensure that they are independent.

Moreover, the senior corporate auditor, Seiyu Miyashita has experience as a director and head of accounting of KYORIN Pharmaceutical Co., Ltd, and has a considerable level of knowledge about finance and accounting.

3. Outside directors and outside corporate auditors

Kyorin has three outside auditors who are neutrally positioned and not compromised by relationships with management or parties having a special interest. These outside auditors all have a considerable level of knowledge of corporate legal matters, and matters of finance and accounting. We utilize their specialist understanding and wide-ranging knowledge and experience to strengthen and enhance our auditing functions. In terms of independence of outside auditors, we do not consider auditors from major shareholding companies and key trading partners to be truly independent. To ensure that execution of duties by directors is legal, transparent, and fair, we believe that outside auditors who have a high level of neutrality that is not compromised by a relationship with management or parties having a special interest, and for whom there is no risk of forming a contradiction of interest with general shareholders, are the most independent.

Our outside corporate auditor, Masaji Obata is well versed in the Corporation Law as a lawyer, and has considerable knowledge concerning finance and accounting.

Moreover, Kyorin Holdings has not appointed an outside director. Compared to an outside director, who would be appointed for only one year, the corporate auditors, who do not execute business duties at Kyorin Holdings, have a more stable position of four years, and have independent compensation and authority. With respect to appointments, the corporate auditors have the auditors’ right of agreement, the right to make proposals and to carry out comprehensive surveys. For these reasons, we believe that corporate auditors are more independent from management than outside directors. Moreover, our outside corporate auditors make an active contribution to Board of Directors and Board of Auditors meetings, offering comments and advice from a specialist perspective informed by wide ranging knowledge and experience. This helps to ensure that execution of duties by the directors is appropriately legal, transparent, and fair, and we believe it is the best way to strengthen oversight functions through links between directors and corporate auditors.

4. Independent Auditors

In accordance with the Corporation Law and the Financial Instruments and Exchange Law, we receive annual audits by Ernst & Young ShinNihon LLC. We benefit from its valuable advice as an accounting auditing firm, as well as from its services as an auditor of our financial accounts.

The following certified public accountants performed the audit of KYORIN Holdings, Inc.

1. Acquisition of treasury stock

Pursuant to the provisions of Article 165, paragraph 2 of the Corporation Law of Japan, the Company’s Articles of Incorporation stipulate that the Company may acquire treasury stock by resolution of the Board of Directors. The aim is to allow management to exercise capital policies as deemed appropriate in response to changes in the operating environment, by allowing the Company to acquire treasury stock through market transactions, etc.

2. Decision-making body for cash dividends from retained earnings

Pursuant to Article 459, paragraph 1 of the Corporation Law of Japan, and except where otherwise specified in a separate applicable legal or regulatory provision, the Company’s Articles of Incorporation stipulate that cash dividends are to be decided by resolution of the Board of Directors, and not the ordinary general shareholders’ meeting. The aim is to allow management to exercise capital policy as deemed appropriate.