Basic Policy for Developing the Internal Control System

1. System to Ensure Compliance by the Directors and Employees of the Company with Laws and Regulations and the Articles of Incorporation in the Execution of Their Duties

  1. ①The Company shall establish the Compliance Standard and shall take measures to fully disseminate its corporate ethics in order to further ensure daily compliance pursuant to the Declaration of Conduct.
  2. ②As a system to promote compliance, the Company shall establish the Compliance Committee, in which the Executive Officer for Compliance will serve as the chairperson, and the Compliance Committee Secretariat, and shall appoint department heads as compliance promotion leaders.
  3. ③The Company shall periodically hold meetings of the Compliance Committee, and shall keep track of the status of promoting compliance. The Compliance Committee shall appropriately provide a summary of the status to the Board of Directors.
  4. ④The Compliance Committee shall formulate and carry out the annual policy of education and training for the Directors and employees.
  5. ⑤The Company shall establish a compliance hotline inside and outside the Company that will serve as a window for reporting and consulting matters related to compliance. The Company shall not adversely treat persons who have reported or consulted such matters on the basis that they made such reports or consultation.
  6. ⑥The Company shall establish a department that is in charge of internal auditing. The department shall audit the status of compliance, and shall appropriately report to the President and CEO, the Executive Officer for Compliance, the Board of Directors and the Audit and Supervisory Committee.

2. System for the Maintenance and Management of Information Concerning the Execution of Duties by the Directors of the Company

The Company shall establish internal regulations with respect to the handling of records and information, and shall appropriately maintain and manage information in connection with the execution of duties by the Directors.

3. Rules and Other Systems Regarding the Management of the Risk of Loss of the Company

  1. ①The Company shall establish the SMP Group Risk Management Policy that provides for basic thoughts of the Group with respect to risk management and shall conduct appropriate risk management.
  2. ②The Company shall establish the Risk Management Rules under which it is clarified that the President and CEO oversees risk management and shall develop systems to promote risk management for respective risks classified on the basis of risk characteristics. The status of operations in each system to promote risk management is periodically reported to the Board of Directors.
  3. ③In order to minimize any effects of an emergency, which is likely to materially affect the management or business activities of the Company, the Company shall establish the Rules for Emergency Response and secure the continuity of management and business.

4. System to Ensure Efficient Execution of Duties by the Directors of the Company

  1. ①The Company shall establish internal regulations such as the Regulations of the Board of Directors, the Regulations of Duties and Authority, the Regulations on Organization and the Rules for Division of Duties, and shall clarify the rules regarding duties and authority, division of duties and decision making.
  2. ②The Company shall aim to realize speedy and efficient management by introducing an executive officer system.
  3. ③The Company shall aim to promote speedy and efficient decision making by introducing an electronic approval system.

5. System to Ensure the Appropriateness of the Operations of the Corporate Group (consisting of the Company, its Parent Company and Subsidiaries)

(1) System to Ensure the Efficient Execution of Duties by Directors, etc. of Subsidiaries

The subsidiaries shall clarify the rules regarding duties and authority, division of duties and decision making.

(2) System Regarding the Report to the Company of Matters Related to the Execution of Duties by Directors, etc. of Subsidiaries

The Company shall establish internal regulations that provide for basic matters to promote appropriate group operations, and through commitment by the subsidiaries to comply with such regulations, shall receive from the subsidiaries, reports regarding material matters on management.

(3) Rules and Other Systems Regarding the Management of the Risk of Loss of Subsidiaries

  1. ①The subsidiaries shall develop systems to promote risk management in accordance with the types of their business and the characteristics of risks and shall conduct appropriate risk management.
  2. ②The Company shall govern risk management of the subsidiaries in general, and shall take necessary measures such as giving advice and instructions.
  3. ③The Company shall develop necessary systems to promote risk management for risks the Group should cross-functionally address and shall enhance the Group’s risk management.

(4) System to Ensure Compliance by Directors, etc. and Employees of Subsidiaries with Laws and Regulations and the Articles of Incorporation in the Execution of Their Duties

  1. ①The subsidiaries shall develop an appropriate system to promote compliance.
  2. ②The Company shall enhance compliance by the subsidiaries by periodically holding meetings, such as committee meetings, related to compliance, which the subsidiaries participate in.
  3. ③The department in charge of internal auditing of the Company shall audit the status of compliance by the subsidiaries, and shall appropriately report to the President and CEO, the Executive Officer for Compliance, the Board of Directors and the Audit and Supervisory Committee of the Company.

(5) Other Systems to Ensure the Appropriateness of the Operations of the Corporate Group (consisting of the Company, its Parent Company and Subsidiaries)

  1. ① The Company shall ensure its independence and shall develop an autonomous internal control system, while respecting the group operation policy of Sumitomo Chemical Co., Ltd., the parent company.
  2. ② The Company shall appropriately conduct transactions with the parent company by ensuring the fairness and rationality of transactions.

6. System to Ensure Effective Implementation of Audits by the Audit and Supervisory Committee

(1) Matters Concerning Directors and Employees Assigned to Assist the Audit and Supervisory Committee in the Execution of Their Duties, Matters Concerning the Independence of Such Directors and Employees from the Directors (excluding such Directors and Directors who are Audit and Supervisory Committee Members) of the Company and Matters for Ensuring the Effectiveness of Instructions Given by the Audit and Supervisory Committee to Such Directors and Employees

  1. ①The Company shall assign one (1) Audit and Supervisory Special Officers, as employees who are independent from the directions and orders of officers and employees who execute operations, to assist the duties of the Audit and Supervisory Committee. Decisions on appointment and dismissal of the Audit and Supervisory Special Officers shall be made based on the resolution of the Board of Directors, with the prior consent of the Audit and Supervisory Committee. Matters concerning remuneration of the Audit and Supervisory Special Officers shall be determined with the prior consent of the Audit and Supervisory Committee.
  2. ②The Company shall establish the Audit and Supervisory Committee Office and assign one (1) or more full-time staff members as employees who are independent from the directions and orders of officers and employees who execute operations, to assist the duties of the Audit and Supervisory Committee and serve as administrative staff of the Audit and Supervisory Committee. Decisions on transfer and evaluation of such staff members will be made upon consultation with the Audit and Supervisory Committee and by respecting its opinions.

(2) System for the Directors and Employees to Report to the Audit and Supervisory Committee

The Company shall establish procedures or the like with respect to reports by the Directors and employees of the Company to the Audit and Supervisory Committee, and shall provide information needed by the Audit and Supervisory Committee in a timely and appropriate manner.

(3) System for the Directors, Audit & Supervisory Board Members, Members Who Execute Operations and Employees of Subsidiaries, or Persons Who Receive Report from the Same, to Report to the Audit and Supervisory Committee of the Company

The Company shall establish procedures or the like with respect to reports by the directors or the like of its subsidiaries to the Audit and Supervisory Committee, and shall provide information needed by the Audit and Supervisory Committee in a timely and appropriate manner.

(4) System to Ensure That Persons Who Have Made Reports As Provided in the Immediately Preceding Two Paragraphs Will Not Receive Any Adverse Treatment for Having Made Such Reports

The Company shall not adversely treat persons who have made reports as provided in the immediately preceding two paragraphs on the basis that they made such reports.

(5) Matters Concerning the Procedures for Advance Payment or the Reimbursement of Expenses Incurred in Relation to the Execution of the Duties by the Audit and Supervisory Committee Members and Any Other Policy for Processing of Costs and Obligations Incurred in Relation to the Execution of Their Duties

The Company shall process the costs and obligations incurred in relation to the execution of duties by the Audit and Supervisory Committee Members in a timely and appropriate manner by respecting their opinions.

(6) Other Systems to Ensure Effective Implementation of Audits by the Audit and Supervisory Committee

  1. ①The Company shall periodically hold meetings between the Audit and Supervisory Committee and the Representative Directors, between the Audit and Supervisory Committee and the department in charge of internal auditing, and among the three (3) parties of the Audit and Supervisory Committee, the department in charge of internal auditing and the Accounting Auditor.
  2. ②The Audit and Supervisory Committee shall receive reports of auditing plans and auditing results from the department in charge of internal auditing, and may as necessary, request investigation or give specific instructions to the department in charge of internal auditing. In case of any inconsistency between the instructions to the department in charge of internal auditing given by the President and CEO and those given by the Audit and Supervisory Committee, the instructions given by the Audit and Supervisory Committee shall prevail.
  3. ③If there is any request from the Audit and Supervisory Committee regarding the duties of the Audit and Supervisory Committee Members, the Company shall respect such request and shall respond to such request in a timely and appropriate manner.

7. Elimination of Anti-Social Forces

The Company shall keep its Directors and employees thoroughly informed to take decisive actions against anti-social forces, and shall promote efforts aimed at cutting off any and all relationships with such forces.