We view the enhancement and strengthening of corporate governance with the aim of ensuring sound and efficient corporate management to be crucial in achieving sustainable growth. We are building and maintaining organizational systems that can respond precisely to environmental changes, and implementing and fair and transparent management systems.

Toyoda Gosei supports the Corporate Governance Code formulated by the Financial Services Agency and the Tokyo Stock Exchange, and has voluntarily implemented various policies based on the letter and spirit of those principles and rules to enhance our corporate governance.

Toyoda Gosei has adopted an audit and supervisory board system and set up the shareholders’ meeting, Board of Directors, Board of Auditors, and accounting auditors as statutory entities. We have also installed internal auditors and other internal control systems.

The Board of Directors consists of nine directors, and holds regular monthly meetings (extraordinary meetings held as needed), where matters prescribed by law and important matters related to corporate management are reported, discussed, and decided.

A system of corporate officers is used to speed up decisionmaking and business execution. For important business matters, monthly management meetings are held. Functional conferences and committee meetings relevant to key areas such as technology, costs, and personnel are also held as needed for good management decisions.

The Board of Auditors consists of five auditors and holds regular meetings. Auditors also attend important meetings such as Board of Directors’ meetings and audit each department and subsidiary, through which they fulfill their function of auditing corporate management.

Accounting auditors are external auditors who combine auditing functions with ensuring an independent and fair auditing system.

Toyoda Gosei has formulated a basic policy for setting internal controls, based on the provisions of the Companies Act. By establishing internal control systems for things including discussion of important matters, checks of business execution status, internal audits, compliance, and risk management in line with this policy, we are striving to build and operate systems to ensure business propriety. The establishment and operational status of internal controls is examined each year at a Board of Directors’meeting, and continuous efforts are made to improve and strengthen these controls.

To cultivate a healthy internal control environment at Toyoda Gosei and its subsidiaries, all Group companies share established Corporate Principles. The Toyoda Gosei Group Charter for Business Ethics, a shared guideline for compliance, has also been instituted and systems are being spread to subsidiaries. While respecting the independence of subsidiary management, we receive regular business reports and set up systems to confirm the propriety and legality of subsidiaries’businesses through advance approval reports. We also send non-executive directors and auditors to key subsidiaries in a system to monitor and act as a check on their business execution.

An Audit Division consisting of eight people has been set up for internal audits. With the aims of both achieving business objectives and preventing dishonest practices or falsification, internal audits are conducted across the entire business from the perspective of legality and rationality based on an internal auditing plan approved by corporate managers at the beginning of each term. This includes audits of the internal control design and operation status in each department.

The results of internal audits are reported to corporate managers via officers in charge of internal audits, and recommendations for improvements in the audited departments are given based on the audit results. The effectiveness of internal audits is increased by confirming the improvement plans and results. Audit plans are prepared through the exchange of opinions with Audit & Supervisory Board members, while at the same time reports on the status of internal audits and their results are made to Audit & Supervisory Board members as required to share information.

To increase the effectiveness of auditors’ audits, criteria for auditors’ audits have been enacted that establish the basic related items. Audits are then conducted based on the pertinent criteria. Each auditor follows the auditing policy and audit plan established by the Audit & Supervisory Board in conducting surveys and interviews in the company and affiliates. They actively participate in Board of Directors meetings, management meetings, and other important meetings and committees, listen to reports on the business from directors and others, view financial statements and other important documents, visit and audit offices and subsidiaries, ensure legality and propriety, and audit the execution of business by directors from the perspectives of protecting assets and rights and preventing loss. A special section has been established to assist the auditors’ audits.

The certified public accountants who perform the accounting audits of Toyoda Gosei are Eiichi Yamanaka and Tomohiro Nishimura of the firm PricewaterhouseCoopers Aarata LLC. They are assisted in the accounting audits of Toyoda Gosei by 11 certified public accountants, 5 accountants who have passed the accountant examination, and 6 others.

Audit & Supervisory Board members, internal auditing department, and accounting auditors regularly meet with regard to their respective auditing systems, auditing policy, auditing plans, implementation status, and audit results. They also contact each other as needed to exchange ideas and share information, and cooperate in performing efficient and effective audits.

Toyoda Gosei appointed two outside directors, Sojiro Tsuchiya and Kimio Yamaka, at its annual stockholders’ meeting on June 15, 2018. Two outside audit & supervisory board members, Takeshi Uchiyamada and Masami Hadama, were also appointed. Together with current outside audit & supervisory board member Hideomi Miyake, the total number of outside audit & supervisory board members that have been appointed is now three.

When electing outside directors, emphasis is placed on extensive experience in corporate management and other areas, plus deep insight. This is in addition to outside requirements from the Companies Act. The outside audit & supervisory board members elected are people with deep experience and knowledge in their field of specialty and management. They stand as outsiders with little direct vested interest and a certain distance from the management team.

Outside audit & supervisory board members attend directors’meetings and serve to raise the viability of management oversight, such as seeking proper explanations for the status of the performance of the Board of Directors. They also visit offices and subsidiaries as appropriate to conduct direct audits while coordinating with other auditors. They meet regularly with accounting auditors and the internal auditing department, which includes an internal control auditing function, with regard to their respective auditing plans, implementation status, and auditing results, and contact them as needed to exchange opinions and share information for efficient and effective auditing.

At Toyoda Gosei, the Board of Directors Office conducts annual interviews of all directors and audit & supervisory board members, including external ones, on the effectiveness of the Board of Directors. The roles and responsibilities of the Board of Directors, the level of discussions, opportunities to improve effectiveness and other matters are assessed from multiple perspectives and the results are reported to the Board of Directors.

The results of the assessment for FY2017 showed that the Board displayed a sufficient level of effectiveness. Meaningful opinions were expressed in the assessment process, and efforts to improve the effectiveness will continue.