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Internal Control System

The internal control system of the Kubota Group is a mechanism for clearly providing the rules that should be followed during the performance of business, and for checking whether or not business has been managed according to those rules. This system consists of the segments of business management, which entails the performance of business operations based on rules, and risk management, which entails the management of major risks in management.
In business management, basic matters necessary for operating businesses are determined in business rules, and each business division checks its daily business operations in accordance with the business rules. Business rules comprise of common business rules (basic rules) and functional business rules.
In risk management, operations that each department in charge of risk management should implement are determined in the risk management rules. Based on these rules, necessary actions to be promoted for risk management are identified and the departments are audited, thereby verifying the effectiveness of the risk management.
In the internal control system, major risks in Kubota’s management are classified into the following three categories:

  • 1. Internal control over reliability of financial reporting
  • 2. Internal control over the basic functions of the company, such as fair trade, environmental conservation, and health and safety
  • 3. Internal control over compliance, such as compliance with rules and regulations related to equipment, and import and export control

To avoid these risks, each department in charge implements necessary actions to be promoted and conducts audits of the relevant operational division, and reports the results and the measures for the next fiscal year to the President and the Board of Directors. Thus the PDCA cycle for risk management is implemented properly.

Internal Control System Overview

Internal Control System Overview

Internal Control System Operation Activities (Risk Management Activities)

Kubota positions risk management activities as part of its business activities. Based on the awareness that risk management is the foundation of business activities, Kubota identifies risks common to the entire Kubota Group, such as those relating to the reliability of financial reporting, and exerts efforts to manage risks appropriately through continuous steady improvement to “immediately correct any inadequacies.” At the same time, while accelerating the global development of its businesses, Kubota strongly recognizes that risk management activities are the foundation for the continuity of its businesses, and strives to improve such activities both in Japan and overseas.
In FY2017, as part of Kubota’s initiative continuing from FY2016 to enforce risk management, each business division determined the risks that seemed most critical under the current circumstances.


Number of Audits and Contents of Risk Management

Risk management items Risk to be avoided Number of
audited items
for FY20171
Internal control over
reliability of financial
reporting
Financial reporting · Risk to reliability of financial reporting 3,502
Internal control over
the basic functions
of the company
Fair trade · Bid-rigging and price cartels
· Unfair trading concerning trading with distributors, etc.
· Non-compliance with the Subcontract Act
133
Environmental
conservation
· Non-compliance with laws and regulations
· Environmental accidents
· Past environmental debt
10,308
Health and Safety · Occurrence of serious accidents
· Occupational illnesses
· Administrative disposition and litigations
2,132
Quality assurance · Occurrence of quality problems detrimental to the
Kubota brand, etc.
337
Labor management · Breach of obligation on attention to safety of
employees
· Improper management of working conditions
· Improper management of employees under irregular
employment, and contract and temporary workers
· Occurrence of overseas labor problems
4,768
Information security · Computer virus infection
· Information leakage
· Information system failure
1,357
Intellectual property · Infringement of other companies’ intellectual property 716
Internal control over
compliance
Compliance with
rules and regulations
related to equipment
· Non-compliance with laws and regulations of the
Building Standards Act, the Fire Service Act, and the
Industrial Safety and Health Act, etc. in connection
with assets and facilities owned by Kubota
580
Earthquake and other
disaster response
management
· Important managerial losses including danger to
human lives due to earthquakes and other disasters,
damage to equipment, and destruction of the
information system
205
Compliance with
the Construction
Business Act
· Non-compliance with the Construction Business Act 783
Human rights
advancement*2
· Occurrence of human rights violation issues
Safe driving
management
· Accidents arising from non-compliance with traffic
laws and regulations and violating acts
139
Prevention of illegal
payments
· Trading with antisocial forces · Non-compliance with the Political Funds Control Act · Making inappropriate payments to overseas public
servants
460
Classified information
management
· The outflow of classified information including plans
for development and sale of new products
1,453
Protection of personal
information
· Leakage and loss of personal information related to
customers, employees, etc. · Improper use of personal information
319
Import and export
control
· Non-compliance with laws and regulations related to
importing and exporting, including the Customs Act,
the Foreign Exchange and Foreign Trade Control Law,
the Basel Convention, and laws related to chemical
substances
155
Compliance with
laws and regulations
related to logistics
· Non-compliance with the three major road laws,
including the Road Traffic Act; and with the laws and
regulations related to distribution, including the Labor
Standards Act, etc.
638
  • 1 Number of audited items is a sum of the number of items audited in each of the divisions subject to audit.
  • 2 Activities for human rights advancement focused mainly on training, the release of information, and the follow-up of survey results.

Kubota Hotline (whistleblowing system)

As a framework to support risk management, Kubota operates a whistleblowing system. This system aims to prevent, or quickly detect and correct, any illegal or unethical acts as well as to develop an open corporate culture.


[Types of contact points and matters handled]

  • CSR Planning Department: Compliance issues other than human rights (anonymous reporting acceptable)
  • Human Rights Advancement Department: Issues of human rights (anonymous reporting acceptable)
  • Outside lawyers: Compliance in general including human rights issues

* Human Rights Advancement Consultation Office has been established at each company and business site so that people can more easily seek consultation.
* Starting from 2017, consultation by e-mail, in addition to telephone, is acceptable for outside lawyers.


[Available to]

  • Full-time, part-time and temporary employees of Kubota and its Group companies in Japan

* Each overseas location handles reporting individually and notifies the Kubota head office of any significant issues.
* Starting from 2017, all whistle-blowing cases in China are reported to the Kubota head office.


[Protection of informants]

The Whistle Blowing System Operation Rules clearly states:

  • “the informer shall not be disadvantaged as a result of reporting an issue.”
  • “excluding cases necessarily requiring investigations and official reporting, the content of the reported issue, personal information obtained during investigations, and all other information shall not be used or disclosed.”

[Activities to raise awareness of the system]

Various creative ways have been employed to alleviate unease about the system, which is often the result of a lack of understanding.
The company newsletter and website provide information on:

  • The number of reports received for each content category, and past cases (outline)
  • The flow of processes for using the Hotline
  • The objective of the system, protection of informants, handling of anonymity, etc.

[Number of cases reported (in Japan)]

  • Jan.–Dec., 2015 37 cases
  • Jan.–Dec., 2016 30 cases
  • Jan.–Dec., 2017 52 cases

* Including enquiries and matters that were found not to be problematic as a result of investigation


[Other]

Moreover, the Kubota Group Employee CSR Awareness Survey, which is answered in anonymity, has a space to accept free comments, as an opportunity for employees to frankly give reports and opinions to the Company. Thus, Kubota strives to develop an open corporate culture.


Flowchart of Kubota Hotline

Flowchart of Kubota Hotline


Securing reliability of financial reporting

Kubota has established and operates an internal control system in order to confirm the reliability of financial reporting for the entire Kubota Group, including its overseas subsidiaries.
Also to confirm the effectiveness of the system, the Corporate Auditing Department and the auditing divisions of the subsidiaries conduct regular internal audits.
Kubota has also created a system for evaluating the effectiveness of internal controls on a Group consolidated basis. This assessment is based on the results of the abovementioned auditing results, and conforms to the internal control reporting system related to financial reporting stipulated by the Finance Instruments and Exchange Act (J-SOX) and other ordinances.


Compliance with the Anti-Monopoly Act/Competition Law

The President declared in the management policy, “No sales or profits achieved by undermining the corporate dignity exist in the Kubota Group,” and emphasized that ensuring compliance is a major prerequisite for the Kubota Group’s business activities.


Education and enlightenment activities

Kubota continuously offers training programs on the Anti-Monopoly Act/Competition Law at its business divisions as well as its Group companies both in Japan and overseas, for enlightenment and awareness-raising to ensure compliance. Legal training programs, which cover a broad range of legal matters including competition laws, are also provided for employees who are to be dispatched to overseas Group companies as managers.


Auditing and risk management surveys

Kubota continuously conducts audits under the Anti-Monopoly Act, including on-site inspection, targeting Kubota Corporation and its Group companies in Japan. For overseas Group companies, Kubota conducts written audits, on-site interviews, and opinion exchange meetings, through which it determines the status of risk management.


Maintaining and expanding the consultation system

Kubota shares information with the relevant business departments and Group companies on matters related to business activities of Kubota and its Group companies that require examination under the Anti-Monopoly Act, and implements necessary measures including facilitating advance consultation with external experts, such as lawyers, and consulting the Fair Trade Commission.


Compliance with the Act against Delay in Payment to Subcontractors

Kubota conducts written surveys targeting each of its business divisions and Group companies in Japan on a periodic basis. This fiscal year, Kubota also conducted on-site surveys. Kubota also offers training programs to promote understanding of the Act against Delay in Payment to Subcontractors at each business site and Group company and holds consultancy sessions concerning practical operations, such as ordering, related to the Subcontractors Act, thereby developing voluntary risk management systems.


Prevention of illegal payments

Among illegal payments, Kubota has placed particular focus on preventing bribery, and formulated the Kubota Group Anti-Bribery Policy, which delivers to all officers and employees a clear message from its top management that bribery will not be tolerated under any circumstances.
In response to this message, Kubota has employed the risk-based approach, in which risk assessment is conducted in advance to determine the departments, markets, or business forms that are exposed to high risk, and prioritized risk management activities are conducted to tackle them. With this approach, Kubota aims to develop and operate effective programs. In FY2017, Kubota conducted written surveys at 81 departments/companies in Japan and 38 overseas bases as a part of its risk assessment.
Furthermore, Kubota has established the Prevention of Illegal Payments Committee to investigate whether preventative frameworks are in place and sufficiently functioning in accordance with the Rules for Preventing Illegal Payments, as well as whether or not there have been any illegal payments.
As an effort to educate directors and employees on prevention of bribery, the Company repeatedly and continuously holds training sessions using the Kubota Group Handbook for Anti-Bribery. At these training sessions, the latest information is provided on laws and regulations related to preventing bribery as well as appropriate responses to bribery risks.
The Kubota Group Handbook for Anti-Bribery contains the globally common contents, and has been prepared in Japanese, English, Chinese (simplified and traditional), Indonesian, Filipino, Korean, and Vietnamese.
In addition to these, Kubota is preparing a handbook for each country, which contains more detailed information on the points to be noted and actions to be taken in the respective country or region. At present, handbooks for the People’s Republic of China, South Korea, Indonesia, Myanmar and the Philippines have been formulated, with which training sessions by local lawyers have been provided at 14 Kubota Group companies located in those countries. The handbook for Vietnam is now being prepared in cooperation with local law firms.
The policies for these risk management activities and the results of the activities are periodically reported to the President, the Board of Directors, and the Audits & Supervisory Board through the Company-wide Risk Management Committee, composed mainly of Directors, and based on their feedbacks, the contents of activities are occasionally revised, thereby improving the level of the activities.


The Kubota Group Anti-Bribery Policy (excerpt)

As specified in the Kubota Group Charter for Action, we commit ourselves to “conducting corporate activities based on compliance with legal regulations and ethical principles.” As such, the Kubota Group never allows any business based on unfair practices such as bribery. The Group also strictly prohibits all of its companies, officers and employees from being involved in bribery.


President, Kubota Corporation

Anti-bribery training session in South Korea
Anti-bribery training session in South Korea

Related Information

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