Corporate Governance

Ever since its foundation, Idemitsu has consistently held the utmost "respect for human beings," and has worked diligently to become a socially respected and highly regarded company. In adhering to this concept, the Company recognizes the importance of constructing positive relationships with all stakeholders, including customers, shareholders, business partners, local communities and employees, by fulfilling its social responsibility as a good corporate citizen, improving management transparency and promoting sound and sustainable growth. In line with the philosophy expressed above, Idemitsu adopted the company with corporate auditors structure, established a robust corporate governance system and continues to engage in activities aimed at improving its capabilities in this field.

To increase efficiency in the executive function, the Company has adopted the corporate executive officer system. The Board of Directors appoints executive officers and meets, in principle, twice a month to deliberate and make decisions on important management issues and to monitor and supervise executive officers in the execution of their responsibilities in accordance with laws and ordinances, the Company’s Articles of Incorporation and the Board of Directors’ regulations. Idemitsu has also established two advisory committees comprising external advisers on the Company’s Board of Directors to strengthen the Board’s overall functions. The mechanism to monitor management encompasses both supervision by the Board of Directors and auditing by statutory as well as accounting auditors. In support of the aforementioned, the Company has established the Internal Audit Office, which remains independent from operating divisions and under the direct control of the President. This office conducts internal audits and internal control based on internal audit regulations as well as regulations relating to internal control of financial reporting. Furthermore, Idemitsu has created the Management Committee as an organization to deliberate on and consider management strategies and issues both for the entire Group as well as individual business divisions as well as a sub-committee structure comprising the Risk Management, Compliance and Quality Assurance committees.

From an internal auditing perspective, each operating division carries out its own self-management based on individual selfmanagement regulations. The Internal Audit Group within the Internal Audit Office also periodically audits and confirms the legality of the business operations and the status of risk management and business execution of each operating division based on internal regulations. Results of the internal audits are reported to the President, the Executive Vice President, the director in charge of the relevant operating division or business area and statutory auditors. If necessary, the President or the director in charge gives instructions to the division in question. An operating division that receives advice or recommendations in the course of an internal audit shall prepare a remediation plan and submit it to the general manager of the Internal Audit Office.

On April 1, 2008, Idemitsu established the Internal Control Group within its Internal Audit Office in response to the introduction of an internal control system from April 2008 as prescribed under the Financial Instruments and Exchange Law. Accordingly, the Company is working to develop and maintain an internal control implementation structure, based on internal control regulations of financial reporting to ensure the accuracy and reliability of financial reports across the Group.

All of the five statutory auditors attend board meetings, audit non-consolidated and consolidated business reports and financial statements and conduct audits on the daily execution of the duties of directors. Standing statutory auditors attend important internal meetings including meetings of the Management Committee, and execute their auditing duties by interviewing general managers, overseas branch managers and the presidents of subsidiaries. Nonstanding statutory auditors carry out audits by visiting major departments and branches. Meetings are held between statutory auditors and representative directors on a quarterly basis. These meetings serve as a forum to raise and deliberate on pertinent issues.

Idemitsu’s accounting audit is conducted by Ernst & Young ShinNihon. In undertaking the accounting audit, principal certified public accountants, Mr. Yutaka Kuroda, Mr. Eishi Daikoku and Mr. Seiichi Harayama, are supported by a team of 18 certified public accountants, five assistants and 29 other staff. There are no vested interests between the accounting auditor and Idemitsu or its executive staff. Furthermore, Ernst & Young ShinNihon has executed an audit agreement with Idemitsu pursuant to independent audit guidelines outlined in the Companies Act and Financial Instruments and Exchange law. Remuneration is paid to the accounting auditor in accordance with this agreement.

In order to maintain the transparency and fairness of management, the Company has established the following two committees consisting of external experts as advisory organs to the Board of Directors.

The Management Advisory Committee was launched in December 2003 as the advisory committee related to corporate ethics, and later it extended its advisory functions to cover a wide range of themes including corporate social responsibility (CSR). The Committee comprises six external advisers, who express their opinions and provide advice.

The Safety & Security Advisory Committee was established in December 2003, with the aim of obtaining the opinions of external experts on safety and security issues and applying those opinions to the improvement and strengthening of the Group’s business structures. The Committee is composed of four external experts, who provide valuable third-party guidance and advice on a wide range of safety and security matters concerning the prevention of large-scale disasters at refineries and petrochemical plants. Utilizing these insights, the Company delves deeply into the nature of potential problems and works to devise effective disaster prevention measures.

The Company improves its internal control system from the viewpoint of a law-abiding management based on thorough compliance, securing the reliability of financial statements and pursuing the effectiveness and efficiency of business operations. It constantly reviews and improves the system. The Company considers it especially important that it be compliant with not only laws and ordinances, but also with social ethics, internal regulations and agreements, and sets this as one of the top-priority management assignments of the Idemitsu Group. Under the concept expressed above, and considering the changes in the business environment, the Company renewed and reestablished systems as follows.

• System to secure execution of duties of directors and employees in compliance with laws, ordinances and the Company’s Articles of Incorporation
• System related to the preservation and control of information regarding the execution of directors’ duties
• System for internal regulation for risk management of losses
• Internal control concerning financial statements
• Blocking relationships with antisocial groups
• System to secure efficient execution of duties of directors
• System to secure fair execution of duties in the corporate group consisting of affiliated companies, the parent company and its subsidiaries
• System related to relevant employees in the case that statutory auditors request that they be allocated as assistants
• Matters from directors related to the independence of the employees described above
• System for directors and employees who report to statutory auditors or the Board of Statutory Auditors, and other systems of reporting to statutory auditors
• System to secure effective audits by statutory auditors or the Board of Statutory Auditors