Internal control system

Basic concept of the internal control system

Our internal control system is a comprehensive framework covering the Corporate Philosophy, Articles of Incorporation, the Board of Directors Regulations, and other standards, rules, regulations, guidelines, and detailed operating rules ("rules and regulations" hereinafter). Accordingly, it is the basic policy of the company Board of Directors to ensure compliance with these rules and regulations, keep abreast of and adapt to changes in laws, regulations, and social conditions affecting our business activities, and review and revise the company's systems and rules and regulations as necessary from the perspective of business execution efficiency to realize the spirit and objectives of the above laws and regulations.

State of development of the internal control system

1. System to ensure that the execution of duties by the company Directors complies with laws and regulations and the Articles of Incorporation, and other systems necessary to ensure the appropriateness of the business operations of the corporate group consisting of the company and its subsidiaries.
   (1) System for ensuring that the execution of the duties of Directors and employees conforms to laws, regulations, and the Articles of Incorporation

   ① In accordance with applicable rules, important matters related to management of the company and Group companies are determined by the Board of Directors after policy deliberations in management meetings. Decisions on important investments are made by the Board of Directors in accordance with the specified review process and applicable rules.

   ② Business execution is implemented by the Director in charge and other authorized personnel under the leadership of the President & CEO, in compliance with ethics laws and regulations and in accordance with organizational authority and the business rules of each section.

   ③ The internal audit section audits the status of compliance with ethics laws and regulations and reports the audit results to the Board of Directors on a regular basis.

   (2) System for ensuring that the duties of Directors are efficiently executed

   ① In addition to substantial and efficient discussions by the Board of Directors and other meeting bodies, we examine business execution from the perspectives of efficacy and efficiency, and review rules on a continual basis in management meetings and on other occasions.

   ② The internal audit section audits business execution efficacy and efficiency and reports the audit results to the Board of Directors on a regular basis.

   (3) System related to retention and management of information related to the execution of the duties of Directors

   This system consists of rules and regulations on the retention and management of information, including comprehensively the Board of Directors Regulations, Information Security Management Rules, Document Management Rules, and Confidential Information Management Rules.

   (4) Rules and other systems related to control of risk of loss

   ① With regard to management-related risks, the Directors in charge and others strive to identify risk management issues in the course of business execution within Company sections. Major risks are individually discussed in management meetings and on other occasions whenever necessary. Risks related to the company's businesses in a cross-sectional manner are identified and response policies are continually deliberated in management meetings and on other occasions.

   ② Risks related to disasters, accidents, and other such incidents are addressed based on the companywide Disaster Management Rules and other rules and regulations. Specific measures and responses or revisions to rules are discussed in management meetings and on other occasions.

   ③ The companywide Crisis Management Committee determines response policies in the event of a serious crisis impacting the entire Company.

   (5) System for securing appropriate business operations within the Group of companies consisting of the company and its parent companies and subsidiaries

   ① The company is a subsidiary of JFE Holdings, Inc. and JFE Steel Corporation. The Group management system of the JFE Group, maintained by its parent companies, is one whereby the company and its subsidiaries are incorporated into a structure based on compliance with ethics laws and regulations, risk management, and financial reporting and information disclosure, among other efforts.

   ② The company requires consultation with parent companies or reporting on certain important matters concerning Group management or important matters regarding Company subsidiaries (including matters related to management of risks of losses). It has established procedures on matters such as decision-making under the company Board of Directors Regulations and other rules and regulations and holds discussions and makes decisions or receives reports from subsidiaries accordingly.

   ③ The company has established a Compliance Committee. In cooperation with the Compliance Committees of the parent companies, the Compliance Committee discusses and makes decisions on basic policies and important matters related to ethical, legal, and regulatory compliance at the company and its subsidiaries. It also monitors the implementation of related measures.

   ④ The company has established and operates a Corporate Ethics Hotline as a system that enables important information concerning ethical, legal, and regulatory compliance at the company and its subsidiaries to be communicated directly from workplaces to top management. The system is arranged so that, in addition to Company employees, employees of the company's subsidiaries are also able to transmit such information.

   ⑤ In cooperation with the internal audit sections of the parent companies, the internal audit sections of the company and its subsidiaries audit the efficacy and efficiency of business operations undertaken by the company and its subsidiaries, as well as their state of compliance with laws, regulations, and the Articles of Incorporation.

   ⑥ The company and its subsidiaries maintain the systems needed to secure the reliability of financial reports and timely and appropriate disclosure of information.

2. System necessary for the execution of duties by Audit & Supervisory Board Members of the company
   (1) Matters related to employees assisting in the duties of Audit & Supervisory Board Members, matters related to their independence, and matters related to ensuring the effectiveness of instructions given to such employees

   While no such employees are currently assigned, discussions related to their assignment would take place if so requested by a company auditor.

   (2) System related to reporting to Audit & Supervisory Board Members

   ① Audit & Supervisory Board Members attend meetings of the Board of Directors, management meetings, and other important meetings and receive reports.

   ② As necessary or if required by the Audit & Supervisory Board or its Members, Directors, executive officers, and employees report to the Audit & Supervisory Board and its Members on the execution status of their duties (including important matters concerning the company and its subsidiaries). Directors, Audit & Supervisory Board Members, executive officers, and employees of Company subsidiaries report to Audit & Supervisory Board Members on the execution status of their duties when necessary or when requested by the Audit & Supervisory Board Members.

   ③ Details of conduct or acts such as violations of laws or regulations covered in whistleblower reports to or consultations with the Corporate Ethics Hotline are reported to Audit & Supervisory Board Members. Measures are in place to ensure those submitting whistleblower reports to or consulting with the Corporate Ethics Hotline or otherwise reporting related matters suffer no disadvantageous treatment as the result of having done so.

   (3) Matters related to procedures for prepayment or refunding costs incurred in the execution of the duties of Audit & Supervisory Board Members or other policies on processing of costs or obligations incurred in the execution of such duties

   The company appropriately processes any requests for expenses necessary for the execution of the duties of Audit & Supervisory Board Members.

   (4) Other systems to ensure audits by Audit & Supervisory Board Members are implemented effectively

   ① Audit & Supervisory Board Members have established Board of Auditors Regulations and created a systematic and effective audit system.

   ② Directors and employees cooperate to maintain the audit environment to ensure that the audits conducted by Audit & Supervisory Board Members, including access to important documents required for audits, on-site inspections, exchange of opinions with Directors and others, subsidiary inspections, and cooperation with Audit & Supervisory Board Members of subsidiaries, proceed smoothly.

   ③ Audit & Supervisory Board Members work closely with and receive reports on audit results from accounting auditors and internal audit section.