3. The Progress of Internal Control System Development

Basic Views on Internal Control System and the Progress of System Development

1. System for retention and management of information on the execution of duties by Directors of the Company

   The Company prepares approval documents, meeting minutes, and other documents necessary for the execution of the duties by the executive director or employee, in accordance with the internal rules of the Company.
   Documents (including electronic media) that have been prepared are stored and managed in a secure, fully searchable format appropriate for each storage medium, and are maintained in a viewable form as necessary.
   The management division specified in the Document Management Rules takes charge of the management of such records and prevents leakage to external parties.

2. Rules for controlling the risk of operating loss incurred by the Company and its subsidiaries (“the Group”) and other systems

   The Company designates President and CEO as the executive director of risk management and a director in charge of each unit.. These individuals are tasked with developing a system and environment to ensure business continuity and the safety of human lives.
   The Group has established Rules for Crises  to prevent crises or minimize damages in the event of a crisis, striving to reduce risk and mitigate any damages. We have designated management divisions to address risk management by category, and we strive to improve overall corporate value by managing risks of loss for the group as a whole.
   In addition, for the Company to be able to protect and manage information assets from organizational, human, physical, and technical perspectives, the Company has established the Information Security Management Rules to clarify the responsibility hierarchies structures for information security for the Group, and strive to maintain and improve the information security level, as well as information systems of the Company.
   The Company shall establish the Risk Management Committee chaired by the director of administrative manager to discuss issues and countermeasures related to the promotion of risk management for the entire Group, and report the proceedings to the Management Meeting. Compliance matters deemed highly important by the Compliance Committee are escalated to the board of directors and included in annual reporting.
   In order to enhance the effectiveness of risk management, the Department in charge of internal audits formulates an annual audit plan and conducts internal audits in accordance with the Internal Auditing Rules. The annual audit plan will be reported to the Board of Directors.

3. System to ensure the efficiency of duties executed by Directors of the Company, and directors, executive officers, employees who execute business operations, personnel who execute duties as specified in Article 598, Paragraph 1 of the Companies Act, and other persons equivalent to such personnel of the Company’s subsidiaries (“subsidiaries’ directors, etc.”)

   In addition to holding regular Board of Directors meetings at least once a month, AEON MALL convenes extraordinary meetings of the Board of Directors as deemed necessary.
   Decisions encompassing substantial risk threatening far-reaching impact on the Group are brought to the Management Meeting for discussion. These decisions are then approved by the President and/or by resolution of the Board of Directors.
   The Management Strategy Advisory Committee meets once a month to establish topics in advance from important policy and management issues in response to consultation from the president and CEO. The committee discusses and exchanges opinions on approaches, the direction of initiatives, specific plans, progress, etc., and implements policies and resolves management issues based on the opinions and advice of Independent Outside Directors.
   In the execution of duties, management responsibilities are clarified by granting the authority required for the performance of duties according to the predetermined Rules for Organization Management, Rules for Segregation of Duties, and Rules of Jurisdiction.
   As a system to ensure the efficiency of the performance of duties of the subsidiaries’ directors, etc., the Company approves a Group Medium-term Management Plan, annual management goals, budget distribution, etc. that include subsidiaries at the meetings of the Board of Directors, inspects the progress of business strategies and measures in line with such plan and goals on a quarterly basis, and receives reports on other important information.

4. System to ensure compliance in the performance of duties by Directors and employees the Company, and directors, etc. and employees of its subsidiaries with laws and regulations and the Articles of Incorporation

   We emphasize compliance management, fostering improved relations with local communities and meeting our social responsibilities. To prevent harassment, we will establish Anti-Harassment Regulations, providing education and awareness building for employees. To prevent bribery, we are improving our internal structures within the Group and conducting education based on the Basic Rules for the Prevention of Bribery.
   AEON MALL has established a Compliance Committee, which is chaired by the director of administrative manager. The role of this committee is to ensure compliance with laws, regulations, the Articles of Incorporation, and internal rules. The committee is also responsible for identifying problems and advancing discussions to resolve said problems. Compliance matters deemed highly important by the Compliance Committee are escalated to the board of directors and included in annual reporting.
   The company has established a help line (AEON MALL Hotline) for internal reporting. The helpline will be set up at subsidiaries in accordance with the Company's system. We ensure privacy protection for users of this help line and that such users are not penalized. Additionally, we investigate any problems reported to the company through this help line. If wrongdoing is confirmed, we take necessary actions in line with our internal rules. The issue in question is reported to the Compliance Committee and the company implements Group-wide measures to prevent recurrence in the future.

5. System to ensure the appropriate operations of the corporate group, comprising the Company, its parent, and subsidiaries

   At the Management Council, discussions are initiated for any business transactions conducted by a director where conflicts of interest may occur between the director or any third party (e.g. the parent company, a subsidiary, or other AEON Group company) and the company, or in those instances where there is, in essence, competition with the same. Such transactions are only allowed to proceed upon approval by the board of directors.
   When conducting transactions with AEON Group companies, such transactions comply with the provisions of our Rules for Managing Related-Party Transactions. Once a year, we report the rate of increase/decrease in annual transaction amounts with each affiliated business partners, and scrutinize the rationality and appropriateness of transactions.
   The Governance Committee, which is an advisory body to the Board of Directors and is composed solely of independent outside directors, examines the fairness and reasonableness of such transactions deemed important. This examination reflects the perspective of improving the corporate value of the Company. Once the examination is completed, the matter is submitted to the Board of Directors for approval. Individuals with special interests in the transaction are excluded from the discussions to ensure the fairness of the procedures.
   The Group also makes decisions after confirming the fairness and reasonableness of transactions.
   As a system of reporting matters concerning the performance of duties by the subsidiaries’ directors, etc. to the Company, the Company requires subsidiaries to report to the Management Meeting based on Rules for Management of Affiliates established by the Company.
   The department in charge of internal auditing performs audits of the Company and its subsidiaries according to the Internal Auditing Rules to ensure the appropriate operations of the Company and its subsidiaries and reports to the President and the full-time Audit & Supervisory Board Members by means of a written internal audit report. Audit results are reported to the Board of Directors on a regular basis.

6. Matters concerning employees who provide assistance with the duties of Audit & Supervisory Board Members of the Company (“Assistants”) when the Audit & Supervisory Board Members decide to hire such Assistants, matters concerning the independence of the Assistants from Directors of the Company, and matters related to ensuring the effectiveness of the instructions provided to the Assistants

   The Company selects and appoints Assistants for the Audit & Supervisory Board Members upon consultation with the Audit & Supervisory Board. The Assistants will not receive orders or instructions from the Directors or any other employees.
   The personnel appraisal of Assistants is performed through consultation with the Audit & Supervisory Board Members, and personnel changes and reprimanding of Assistants require the advance agreement of the Audit & Supervisory Board members.

7. System of reporting to Audit & Supervisory Board Members of the Company

   Company Directors and employees, as well as Directors and employees of subsidiaries, report on management status, business operations, financial position, the progress of internal audits, the status of risk management and compliance, and other matters at meetings of the Board of Directors or Management Meeting attended by the Audit & Supervisory Board Members.
   If Directors or employees of the Company, or directors, etc. or employees of its subsidiaries discover matters that affect the operations or business performance of the Company or its subsidiaries, violations of laws and regulations, or other issues concerning legal compliance, which may cause serious damage to the Company or its subsidiaries, or these have been reported by any of such persons, they shall immediately report to Audit & Supervisory Board of the Company.
   The Company or its subsidiaries prohibit treating the persons who have made such a report in an unfair manner because they have made the report, and will ensure that this rule is clearly communicated to Directors and employees of the Company, and directors, etc., Audit & Supervisory Board Members, and employees of its subsidiaries.

8. Matters concerning policies for the advance payment of expenses required for the performance of duties by Audit & Supervisory Board Members of the Company and reimbursement and other procedures for the treatment of expenses or obligations associated with the performance of such duties

   When the Company receives a request for the advance payment, etc. of expenses from Audit & Supervisory Board Members based on Article 388 of the Companies Act, the Company shall pay such expenses without delay based on the internal rules. The responsible department takes measures regarding the budget required for such payment in every fiscal period.

9. Other systems to ensure the effective auditing by Audit & Supervisory Board Members of the Company

   The department in charge of internal auditing works closely with the Audit & Supervisory Board by, for instance, discussing the details of internal audits with the Audit & Supervisory Board Members as appropriate, and performs audit operations in cooperation to contribute to effective auditing by the Audit & Supervisory Board Members.

Basic Approach to Eliminating Anti-Social Forces

1. Basic Approach

   The Company does not engage in relationships with anti-social forces, reflecting our total commitment to compliance and defense of our corporate entity. We respond resolutely in the face of unreasonable demands and recognize our social responsibility as a company to reject anti-social forces in any form

2. Status of Efforts to Reject Anti-Social Forces

   1. Unreasonable demands by anti-social forces are not dealt with as an individual, but rather as an organization working in close coordination with third-party specialists and investigative organizations, including civil and criminal proceedings.
   2. The Company is a member of the Foundation for Chiba Prefecture's Assembly for Expulsion of Anti-social Forces. We maintain close coordination with the police and anti-crime associations, participating in efforts to collect information on anti-social forces through the reach of our various business units. We use information gathered for educational purposes internally.
   3. In accordance with the Rules on Managing Transactions, the Company conducts background checks to ensure business partners are not involved with anti-social forces. This is one more way in which we work toward the rejection of anti-social forces.