Internal Control

Basic policy about the internal control system

Under the Group Philosophy “Look Beyond,” the AGC Group positions the four values of “Innovation &Operational Excellence,” “Sustainability for a Blue Planet,” “One Team with Diversity,” and “Integrity & Trust” as the most important values to be shared across the entire Group as the foundation of all actions.
In addition, as a code to properly guide the pursuit of the Group Philosophy “Look Beyond,” the AGC Group has established the AGC Group Charter of Corporate Behavior, which sets forth the social responsibilities to be fulfilled by the Company.
The systems to ensure the appropriateness of operations are as follows.

1. System to ensure compliance with laws, regulations and the Articles of Incorporation in the execution of duties by Directors and employees of the AGC Group (Compliance Program)

Under the Group Philosophy “Look Beyond,” the AGC Group positions “Integrity & Trust” as one of the most important values to be shared across the Group, and is committed to the establishment and strengthening of its compliance framework.
Specifically, the AGC Group appoints a Chief Compliance Officer (CCO) as the person responsible for overseeing and promoting the development of the Group’s compliance framework. The CCO is an Executive Officer to whom authority has been delegated by the President and CEO.
Under the supervision of the CCO, the Group has established Global Compliance Leaders and a Compliance Committee as specialized bodies for ensuring compliance with laws, regulations, and corporate ethics, and these bodies are responsible for the planning and implementation of compliance measures across the AGC Group.
In order to ensure thorough compliance‑oriented conduct, the AGC Group has established the Code of Conduct (AGC Group Code of Conduct), which sets forth globally common compliance requirements as well as country‑ and region‑specific requirements. Based on this Code, the Group has developed its compliance framework and promotes its implementation through education and training programs, among other initiatives.
To address reports and consultations related to compliance, the AGC Group has established reporting and consultation channels (compliance hotlines). The status of compliance across the AGC Group, as well as the operation of the reporting and consultation system, is reported regularly to the Board of Directors.
In addition, the AGC Group has established a legal management framework to identify information on significant legal issues, and such matters are reported periodically to the Board of Directors and the Audit & Supervisory Committee.
With regard to internal audits, the Audit Department and audit personnel assigned in each region conduct internal audits based on annual audit plans, examining the status of system development for management and operations, as well as the legality and reasonableness of business execution. The results of such audits are reported as appropriate to the President and CEO and the Audit & Supervisory Committee, and are reported periodically to the Board of Directors.
Furthermore, in accordance with the Financial Instruments and Exchange Act, the AGC Group has established the “AGC Group Regulations for Internal Control over Financial Reporting” in order to ensure the reliability of financial reporting, and has developed an internal control framework for financial reporting.

2. Information retention and management system with respect to Directors’ execution of duties of the AGC Group (Information Preservation and Management Framework)

The AGC Group appropriately preserves and manages important documents and information in accordance with laws and regulations and internal rules.
With respect to important documents and information, the Group has established a basic policy on information security, which is disseminated throughout the Group. By managing such information in accordance with prescribed procedures, the AGC Group ensures the confidentiality, integrity, and availability of information.

3. Rules and other systems to control risk of damage incurred by the AGC Group (risk management system)

The AGC Group has established the “AGC Group Integrated Risk Management Basic Policy,” which serves as the basic policy for the Group’s risk management framework, and has developed systems for risk management and crisis response.
With respect to risk management, in accordance with internal rules, the AGC Group identifies material risk factors across the Group, and the status of risk management is regularly deliberated and monitored at meetings of the Management Committee and the Board of Directors.
As for individual risks related to business operations within the AGC Group, corporate functional divisions, in‑house companies, and SBUs (Strategic Business Units) analyze risks and consider countermeasures on a business‑ and project‑specific basis, and, as necessary, such matters are deliberated at meetings of the Management Committee and the Board of Directors.
With respect to risks related to compliance, environment, disasters, quality, and other matters, the relevant departments of the Company implement measures such as the establishment and dissemination of guidelines, training, and monitoring, as appropriate.
Regarding crisis response, in accordance with internal rules, the AGC Group has established a crisis management reporting line to ensure that information on unforeseen events that may have a material impact on the Group’s operating results and financial condition is reported to and shared with the President and CEO in a prompt and reliable manner.
Based on the judgment of the President and CEO, a Group Crisis Response Headquarters is established immediately, enabling swift and appropriate initial responses. In addition, the Group has formulated Business Continuity Plans (BCPs) for its critical businesses in order to minimize the risk of business interruption in the event of a crisis.

4. System to ensure efficient execution of duties by Directors of the AGC Group (system for efficient execution of duties)

As a basic policy for the development of its corporate governance framework, the Company clearly separates the management oversight function from the management execution function, with the aim of strengthening oversight while enabling swift decision‑making in management execution.
With respect to management oversight, the Company holds meetings of the Board of Directors composed of a majority of Independent directors, at which the Board determines the basic management policies of the AGC Group, makes decisions on important matters, and oversees the status of management execution.
In addition, the Company has established voluntary Nominating and Compensation Committees, thereby ensuring the objectivity of the evaluation, appointment, and remuneration of Directors and Executive Officers.
With respect to management execution, under the in‑house company structure and the Executive Officer system, the Company delegates execution‑related responsibilities and authorities to each in‑house company and SBU (Strategic Business Unit) based on prescribed criteria. Business operations are conducted and evaluated under specific consolidated performance management indicators aligned with the AGC Group’s management policies and performance targets.
The execution of duties within the AGC Group is carried out in accordance with decision‑making rules based on the allocation of responsibilities and approval authority standards, and the status of such operations is periodically verified through internal audits.

5. System to report matters concerning the execution of duties by executives of subsidiaries to the Company(Reporting system from subsidiaries to the Company)

Subsidiaries report certain matters related to business operations and management to the Company in accordance with the reporting standards established by the Company. In addition, in the event of the occurrence of a crisis incident, subsidiaries promptly report such incidents to the Company in accordance with the crisis management reporting line.
Among these reports, important matters are reported to the Management Committee, the Board of Directors, and the Audit & Supervisory Committee.
With respect to the results of internal audits conducted at subsidiaries, the internal audit department reports such results as appropriate to the President and CEO and the Audit & Supervisory Committee, and reports them periodically to the Board of Directors.

6. Matters Concerning the Audit Framework of the Audit & Supervisory Committee

• Matters concerning employees who assist the duties of the Audit & Supervisory Committee Members

  The Company has established an Audit & Supervisory Committee Office as an organization to assist the duties of the Audit & Supervisory Committee Members.

• Matters concerning the independence of such employees from Directors

  The appointment, transfer, and evaluation of the staff members of the Audit & Supervisory Committee Office are subject to the consent of the Audit & Supervisory Committee, thereby ensuring their independence from Directors.

• Matters to ensure the effectiveness of instructions given by Audit & Supervisory Committee Members to such employees

  Staff members of the Audit & Supervisory Committee Office do not concurrently hold positions in other departments, perform their duties exclusively for matters related to the Audit & Supervisory Committee, and follow the instructions of the Audit & Supervisory Committee Members.

• System for reporting to Audit & Supervisory Committee Members by Directors and employees of the Company, and by Directors and employees of subsidiaries, or by persons who have received reports from them

  Directors and employees of the Company are required to report to the Audit & Supervisory Committee Members any facts that violate laws or the Articles of Incorporation, facts that may cause significant damage to the Company, and other matters specified in internal rules.
  Subsidiaries are required to report to the Company any facts that violate laws or the Articles of Incorporation or may cause significant damage to the Company. Departments that receive such reports are required to promptly report them to the Audit & Supervisory Committee Members.

• System to ensure that persons who make reports under the preceding item are not subject to disadvantageous treatment

  Under the AGC Group Code of Conduct, the AGC Group prohibits any disadvantageous treatment or retaliatory actions against persons who make reports regarding violations of the Code of Conduct or other matters, and ensures that this policy is thoroughly communicated to all Group employees and officers.

• Policy regarding procedures for reimbursement of expenses incurred in the execution of duties by Audit & Supervisory Committee Members

  The Company promptly processes reimbursement of expenses incurred by Audit & Supervisory Committee Members, except where such expenses are deemed unnecessary for the execution of their duties.

• Other systems to ensure the effectiveness of audits by the Audit & Supervisory Committee Members

  Audit & Supervisory Committee Members attend important meetings, including meetings of the Management Committee, Medium‑term Management Plan and Budget Review Committee, and Performance Monitoring Meetings, and hold regular meetings with Directors other than Audit & Supervisory Committee Members.
  They also hold regular meetings with the Audit Department and other internal audit functions, discuss audit policies and plans, and receive reports from the Audit Department on the progress and results of audits.
  As necessary, Audit & Supervisory Committee Members may instruct the Audit Department to investigate and verify the status of the establishment and operation of internal control systems. In cases where instructions from the Audit & Supervisory Committee Members differ from those of the President and CEO, the instructions of the Audit & Supervisory Committee Members take precedence. The appointment and evaluation of the Head of the Audit Department are conducted by the President and CEO in consultation with the Audit & Supervisory Committee Members.
  Through reports from and exchanges of opinions with the Audit Department and the Accounting Auditor, the Audit & Supervisory Committee has established a framework that enables close cooperation and enhances the effectiveness of audits.