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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 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.

Number of Audits and Contents of Risk Management

Risk management items

Risk to be avoided

Number of audited items for FY2019*1
Internal control over
reliability of financial
reporting
Financial reporting · Risk to reliability of financial reporting 7,196
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
97
Environmental
conservation
· Non-compliance with laws and regulations
· Environmental accidents
· Past environmental debt
11,284
Health and Safety · Occurrence of serious accidents
· Occupational illnesses
· Administrative disposition and litigations
1,304
Quality assurance · Occurrence of quality problems detrimental to the
Kubota brand, etc.
378
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
7,298
Information security · Computer virus infection
· Information leakage
· Information system failure
1,908
Intellectual property · Infringement of other companies’ intellectual property 774
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
560
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
136
Compliance with
the Construction
Business Act
· Non-compliance with the Construction Business Act 810
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
178
Prevention of illegal
payments
· Trading with antisocial forces
· Non-compliance with the Political Funds Control Act
· Making inappropriate payments to overseas public
servants
46
Classified information
management
· The outflow of classified information including plans
for development and sale of new products
1,197
Protection of personal
information
· Leakage and loss of personal information related to
customers, employees, etc.
· Improper use of personal information
208
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
124
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.
713
  • *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 whistleblowing cases in China are reported to the Kubota head office.

[Protection of informants]

The Whistleblowing System Operation Rules clearly state:

  • “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., 2016 30 cases
  • Jan.–Dec., 2017 52 cases
  • Jan.–Dec., 2018 71 cases
  • Jan.–Dec., 2019 59 cases
  • Including enquiries and matters that were found not to be problematic as a result of investigation

[Other]

Moreover, we have set up a space to write free comments in the Kubota Group Employee CSR Awareness Survey, which is answered in anonymity. It is an opportunity for employees to give their frank reports and opinions, enabling the Company 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

We realize that full implementation of compliance is key to establishing Kubota as a Global Major Brand. The Kubota Group therefore engages in the risk management activities set out below to ensure advance preventive action against any infringement of antimonopoly or competition law.

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 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 lawyers and other external experts.

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. 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 will work to achieve SDG 16.5: Substantially reduce corruption and bribery in all their forms. Amid increasing international moves to anti-bribery, we marked December 9—designated by the United Nations as International Anti-Corruption Day—by broadcasting a President’s Message to all Kubota Group officers and employees. In the message, our executive leadership made a clear commitment by declaring that‘the Kubota Group rejects bribery and all other inappropriate business practices.’ Meanwhile, as an initiative directed toward outside the company, a Request to Suppliers (Japanese only) was posted on the Kubota website in the name of the General Manager of CSR Planning & Coordination Headquarters. The text outlined to suppliers the Kubota Group’s approach to bribery prevention and asked for their understanding and cooperation in bribery prevention activities. Furthermore, Kubota has established the Committee on Prevention of Illegal Payments to investigate whether preventive frameworks are in place and sufficiently functioning in accordance with the Rules on Prevention of Illegal Payments, as well as whether or not there have been any illegal payments. In FY2019, Kubota conducted document surveys at 19 departments/companies in Japan and 30 overseas base. As an initiative to educate officers and employees on prevention of bribery, Kubota runs a continuous program of training sessions in Japan and overseas. In FY2019, training sessions were held at four departments or companies in Japan and at 26 overseas bases in Europe and China etc. At these sessions, information on bribery-related legislation and enforcement conditions in different countries is presented and case studies and other materials are used to disseminate the latest information and to promote awareness of bribery prevention. Additionally, we have put together a Kubota Group Handbook for Anti-Bribery which outlines our Anti-Bribery Policy and the main points of our Anti-Bribery Guidelines. The handbook is issued in a global version with universal content available in Japanese, English, and French, and in individual country versions that supplement the universal content with more detailed information on the points to be noted and actions to be taken in the particular country or region. These are available for China, Thailand, South Korea, Indonesia, Myanmar, the Philippines, Vietnam, and Mexico.
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 feedback, 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

  • Anti-bribery training session in Europe