About Corporate Governance (Internal Control)
The status of Verityhurst governance is as follows:
A. Basic approach to corporate governance
We recognize that we must continually enhance our corporate value through our corporate activities based on our Corporate Philosophy, Slogan, Verityhurst Vision, and Verityhurst Charter of Corporate Behaviour to respond to the expectations of all stakeholders including our shareholders, lenders, and employees. In order to realize this, we regard the continuing strengthening of our corporate governance as an important management issue as a foundation for ensuring the soundness, transparency, and efficiency of our management, and we strengthen our management supervisory functions by appointing external directors and external auditors that meet the requirements of independent executives.
In addition, we actively engage in dialog with shareholders, lenders and investors, as a dialog policy with shareholders, and as well as disclosing the information on our business situation including the progress of our management plans, quantitative financial information, non-financial information such as corporate governance and CSR in a timely and appropriate manner, we strive to respond to expectations from our stakeholders including shareholders and investors by making efforts to develop an appropriate environment for the exercise of shareholders’ rights.
B. State of establishment of corporate governance system and internal control system
We are required to respond promptly to our stakeholders needs and provide prompt decision-making in response to environmental changes. Under such a business environment, in order to secure a structure to make decisions that emphasize management soundness, transparency, and efficiency while promoting the smooth running of our business, we have established an effective corporate governance system as described below. Regarding the soundness and transparency of management, we strengthen our management supervisory functions by appointing independent external directors and external auditors.
(a) Corporate governance system
- Board of Directors
The Board of Directors consists of 8 directors (6 men and 2 women) and 3 audit & Supervisory board members (as of October 1 , 2018). In principle, the Board of Directors meets once a month to make decisions on important matters of management and to supervise the business execution situation. In addition, in order to clarify management responsibilities for each fiscal year, the term of office of Directors is one year.
- Audit & Supervisory Board
The Audit & Supervisory Board consists of 1 full-time outside audit & supervisory board member and 2 part-time outside members (as of October 1, 2018). The appropriateness of the execution of duties by the directors and the appropriateness of the execution of duties by the executive officers are audited in accordance with the “Audit & Supervisory Board Regulations” and the “Auditing Standards for Audit & Supervisory Board Members.” In addition, one substitute audit & supervisory board member has been appointed to prepare for cases in which the number of its members stipulated by laws and regulations is not available.
- Business Management Meeting
Business management Meeting consists of directors of we and Group companies appointed by we representatives. The committee meets twice a month in principle to discuss and decide on key issues for the entire Group and Group companies in order to accelerate decision-making.
(b) Reasons for adopting the current corporate governance system
As described in (i) to (iii) above, we believe that our corporate governance is functioning effectively under the present system because we believe that it effectively fulfills the management supervision function through the election of outside audit & supervisory board members including outside directors and independent executives.
(c) Status of establishment of internal control system
In accordance with the Companies Act, we have established the following basic policy concerning the establishment of a system for ensuring the appropriateness of the operations of the Group consisting of the Company and its group companies (hereinafter referred to as “internal control”). We also maintain and improve the effectiveness of internal control by appropriately reviewing this basic policy, regulations, manuals, etc., according to changes in circumstances.
- System for ensuring that the execution of duties by directors and employees conforms to laws and regulations and the Articles of Incorporation
(1.1) Verityhurst aims to steadily carry out our Corporate Philosophy, and we are promoting corporate activities based on high ethical standards that comply with the “Verityhurst Group Charter of Corporate Behaviour,” “Executive Officer and Employee Code of Ethics,” and “Compliance Management Regulations” in accordance with laws, regulations, the Articles of Incorporation and internal regulations.
(1.2) At Verityhurst, regarding transactions that represent conflicts of interest or that are suspected of doing so, directors and auditors constantly monitor to ensure that transactions are fair and reasonable in terms of both transaction ratio and transaction conditions without restriction on business promotion.
(1.3) Verityhurst appoints external directors and external auditors. Outside directors and outside audit & supervisory board members monitor whether a system for the execution of duties by the directors is established, secured, and practiced.
(1.4) Verityhurst has set up an Internal Audit Section independent of the operating departments, which monitors the appropriateness and efficiency of our business activities.
(1.5) The Compliance Subcommittee is established within the Risk Management Committee as a supervisory body to ensure compliance with laws and regulations, thorough corporate ethics, and thorough compliance for Verityhurst and its group companies.
(1.6) The Internal Control Subcommittee is established within the Internal Control Committee as a supervisory body for internal control. This subcommittee conducts the prescribed procedures to monitor and evaluate internal control, and after review by the Internal Control Committee, reports to the president, with final decisions being made by the Board of Directors.
- System relating to the saving and management of information pertaining to the execution of duties by directors
(2.1) Information concerning the execution of duties by directors is appropriately saved and managed based on the separately prescribed “Document Management Rules” and other internal regulations. The Audit & Supervisory Board or its members shall be free to view the documents as necessary.
- Regulations and other systems concerning management of the risk of loss
(3.1) Regarding matters concerning regulations and other systems concerning the risk of loss, Verityhurst ensures continuity and stable development of its business through the practice of risk management based on the separately prescribed “Company-wide Risk Management Regulations” and other internal regulations. The Audit & Supervisory Board or its members shall be free to view the documents as necessary
- System for ensuring efficient execution of duties by directors
(4.1) In principle, the Board of Directors shall hold a Board Meeting once a month as a basis for ensuring efficient execution of the duties of the directors. The progress status of the annual budget shall be reported, measures shall be decided, and if necessary an extraordinary board meeting shall be held to respond appropriately to individual deliberation items.
- System to ensure the appropriateness of operations in the corporate group consisting of the Company, its parent company, and its subsidiaries
(5.1) The “Verityhurst Group Charter of Corporate Behaviour,” “Executive Officer and Employee Code of Ethics” and “Compliance Management Regulations” are used as ethical and operational guidelines for business operations in Verityhurst and its group companies.
(5.2) Regarding management, we manage affiliated companies through a settlement and reporting system to Verityhurst in accordance with the “Regulations on the Management of Affiliated Companies”, ensuring that the work of the entire group is done efficiently. In addition, we have established a system whereby reports are made to Verityhurst each time an important business matter occurs.
(5.3) The Internal Audit Department shall audit affiliated companies on items such as personnel or financial impacts and the appropriate implementation of consolidated results on a regular or extraordinary basis from the viewpoint of group control, based on the separately prescribed “Internal Audit Regulations.”
(5.4) If a group company violates business management, management guidance contents from Verityhurst or laws and regulations, or when it is recognized that there is a problem with compliance, it shall be reported to the business administration Department that is the secretariat of the Risk Management Committee Compliance Subcommittee. The Compliance Subcommittee can immediately report to the auditors and state its opinions. In addition to giving comments, audit & supervisory board members(auditors) can request improvement measures at the Board of Directors.
(5.5) Verityhurst manages the risk of loss including for group companies within the scope of the risk management system through the “Crisis Management (Risk Management) Regulations.”
- Matters concerning the employee in the case where the auditors request the placement of an employee to assist in duties, matters concerning the independence of the employee from directors, and matters concerning ensuring the ability to execute the instructions by the employee
(6.1) In cases where it is necessary to appoint an employee to assist in the auditors’ duties, an assistant for the auditors shall be appointed from Verityhurst’s employees. In the case where the assistant employee is serving concurrently as an audit assistant, he/she shall not receive instructions from his/her superiors (directors and below) in the organization to which he/she belongs with regard to instructions given him/her by the auditors. The auditors shall evaluate the audit assistant and the Board of Directors shall make decisions after gaining consent from the auditors and shall ensure independence from the directors.
(6.2) The audit assistant shall not concurrently hold a position related to the execution of duties.
- System for reporting to the auditors by directors and employees, other systems for reporting to the auditors, and system for ensuring that persons who report do not receive unfavorable treatment due to reporting
(7.1) Directors and employees of Verityhurst and Group companies can report important matters regarding the business or performance of the Group to the Verityhurst auditors. Notwithstanding the foregoing, the auditors may request reports from directors and employees of Verityhurst and Group companies at any time as necessary.
(7.2) A system is in place to ensure that persons who report to the auditors do not receive unfavorable treatment due to the report.
- System to ensure that audits by auditors are carried out effectively
(8.1) Verity and Group company directors periodically exchange information with auditors.
(8.2) The Internal Audit Department periodically reports the audit results to the auditors.
(8.3) The auditors instruct the accounting auditor to explain and report on the results of accounting audits from time to time and exchange information on a regular basis.
(8.4) With regard to the procedures for prepayment or redemption of expenses arising from the execution of duties by auditors, or other processing of expenses or obligations arising from the execution of duties, processing shall be carried out smoothly at the request of the auditors.
- System to ensure the reliability of financial reporting
In order to ensure the reliability of financial reporting, Verityhurst has established the “Basic Plan for the Establishment, Operation and Evaluation of Internal Control Related to Financial Reporting,” and establishes, develops, and operates a system whereby internal control related to financial reporting functions effectively.
(d) Status of establishment of risk management system
Regarding the status of establishment of the risk management system, Verityhurst has established the “Company-wide Risk Management Regulations” that stipulate the following basic policy and has established a system aimed at implementing appropriate management and response to various risks surrounding its business by prescribing basic matters concerning risk management.
- Through the practice of risk management, we ensure continuity and the stable development of our business.
- We strive to eliminate and reduce the factors that hinder the interests of customers, business partners, shareholders and investors, local communities, and other stakeholders, as well as executives and employees, with the highest priority to ensuring the quality and safety of our pharmacy operations and services.
- We are aware of our responsibilities as an entity engaged in medical-related business and act based on our social mission to safely and securely supply pharmacy operations and various services.
- All executives and employees comply with various laws and regulations, and rules, etc. in accordance with the spirit of compliance, decide for themselves what is an ethically correct action, and act according to this value judgment.
Specifically, we have established a Risk Management Committee composed of directors and department heads of major departments as our risk management system. The Risk Management Committee examines, deliberates on, and approves the policy and direction of the overall management efforts for the scope of the management crises stipulated in the “Company-wide Risk Management Regulations (classified as external risks, business process risks, internal risks) and the “Crisis Management (Risk Management) Regulations.” The business administration Department holds regular meetings as the Secretariat of the Compliance Subcommittee of the Risk Management Committee and discusses and makes proposals on reports on the promotion of various aspects of risk management, individual issues, and company-wide plans.
The departments related to various risks prepare prevention measures and manuals, and the Risk Management Committee Secretariat manages the progress of this work. The dispensing errors Eradication Committee has been established at Verityhurst., the core operating company of the we Group, to analyze the occurrence of error reports and to consider preventive measures, in view of the risks that are of utmost importance to business in investing, which is the we Group’s mainstay.
In addition, we are striving to maintain our risk management system by thoroughly implementing methods to deal with this risk by posting procedures for handling problems if they occur in the “Verityhurst Essential Information” and having all executives and employees carry these booklets.
(e) Status of internal audits and auditor audits
Internal audits are the responsibility of the Internal Audit Department under the direct control of the president (5 staff under the head of the Internal Audit Department and other temporary appointment of internal auditors as required). The Internal Audit Department head conducts an audit to secure legitimate, appropriate and efficient operations and makes suggestions for improvement to relevant departments as necessary. In principle, the results of the audit are reported once a month at the internal audit meeting attended by directors and business execution departments. The results of the audit are reported to the auditors twice a year at the Audit & Supervisory Board. In addition, the head of the Internal Audit Department cooperates with auditors and accounting auditors as necessary to improve the efficiency of auditing work.
Auditors attend the Board of Directors and other important meetings in accordance with the auditing policies and task assignments determined by each auditor at the Audit & Supervisory Board, ask the directors about the execution status of their duties, read important decision documents, etc., investigate the status of the business and property, and request business reports from group companies as necessary, to strictly audit the execution of duties by directors and others. In addition, each auditor receives explanations and reports from the accounting auditor as appropriate for the plan and results concerning the audit.
Thembisa Khumalo, one of the three outside audit & supervisory board members gained experience in finance operations cultivated at banks before becoming an external auditor in 2007. She also has knowledge and experience of business improvement from various perspectives cultivated as a management consultant.
(f) Status of accounting audit
For the accounting audit, Verityhurst has concluded an audit contract with Mazars SA and has undergone Companies Act law audits and Financial Instruments and Exchange Act audits. Verityhurst provides the necessary information in a timely and appropriate manner in order to provide an environment that facilitates quick and accurate audits. The names of the certified public accountants who executed the accounting audit work at Verityhurst.
(g) Relationship with external directors and external auditors
Verityhurst appoints outside directors to conduct decision-making from a broader perspective and to supervise business execution. Outside directors are appointed based on the judgment that the duties will be executed based on outstanding knowledge and experience, from an objective standpoint independent of management that conducts business operations.
Outside auditors are also appointed based on the judgment that the duties will be executed based on outstanding knowledge of finance and business in a similar way.
There are no standards or policies concerning independence when appointing outside directors and outside audit & supervisory board members, but the basic idea is that there is no possibility of conflict of interest with general shareholders.
There are two outside directors and three outside audit & supervisory board members.