Risk Management and Internal Control

The Brother Group aims for sustainable growth and strives to be a company that is trusted by all its stakeholders. We aim to enhance our ability to realize the Group Vision through recognizing that risks may hinder the creation of customer value, which is manifested in the Group Vision "At your side 2030" from FY2022 to FY2030, and conducting appropriate risk management.
As the group develops multiple businesses globally, we recognize that there is a high level of complexity and uncertainty in the global environment due to global economic effects and geopolitical factors. In addition, we constantly recognize and respond to risks relating to compliance, product safety, export control, information management, environmental laws, safety and health, disaster prevention, and the supply chain. Together with strengthening business continuity in times of crisis and re-examining structures for sustainable value creation, we will aim to recognize and respond to risks with an even more medium- to long-term strategic perspective than before.

The Brother Group has established the Risk Management Committee chaired by the Representative Director & President. We have also formulated a comprehensive risk management system based on the Brother Group's Risk Management Regulations with the aim of reducing risks that are likely to have a serious impact on the group's management. Each organization and subsidiary within the group understands the risks and their probability of occurrence and makes efforts to manage risks by implementing measures for avoiding or reducing the impact of risks. Systems are in place for regularly reporting the status of such implementation to the Board of Directors.

The Risk Management Committee meets regularly once every six months. However, we have created an emergency risk management system for responding swiftly to occurrence of a serious risk event in which the chairman will urgently convene an extraordinary meeting of the Risk Management Committee. When COVID-19 arose, the Committee responded in the early stage of occurrence overseas by urging caution in the whole Brother Group and promptly establishing a countermeasures headquarters.
In addition, we have established dedicated committees with respect to individual risks, including compliance, security trade, product liability, information management, safety, health, disaster prevention, environmental laws and regulations, and supply chain, as subcommittees under the Risk Management Committee. With the Representative Director & President (or a designated executive officer) in charge, they make up a risk management system that understands and diminishes risks as well as responds when risks are apparent. In particular, for product safety, we have established Basic Product Liability Policies and voluntary product safety action plans to provide safer products to customers.

We have created systems for evaluating and responding to business risks focused on persons in charge of risk management in each department as well as group subsidiary. In addition, the Risk Management Committee manages evaluation and the status of response to material risks concerning the group as a whole. Specifically, the Committee conducts reviews of risk matters in each fiscal year and gives instructions for preparing risk evaluation sheets to each group organization and facility. By aggregating the results of the risk evaluation sheets, evaluating the risks according to the level of impact and likelihood of occurrence, and calculating the weight of each risk, the Committee identifies the group's critical risks. It then gives instructions to each person in charge of risks for responding to and monitoring each of the risks.

The Compliance Committee makes the workforce aware of the importance of complying with laws and business ethics and prevents violations and their recurrence through education programs and activities.

The Committee of Security Trade Control ensures the proper management of export transactions and technological offerings based on laws and regulations. This Committee is also working to maintain and improve the management level by staging meetings to discuss important matters every time laws are amended, implementing internal audits, and offering guidance and education to group companies.

The Product Liability Committee is held periodically to ensure product safety in R&D, design and production, sale and use, repair and service, and disposal through coordinated efforts.

To cope with risks associated with information leaks, the Information Management Committee determines a suitable policy for managing information on customers and other aspects of the business retained by the company, and deploys it throughout the group.

The Safety, Health, and Disaster Prevention Committee discusses annual plans, devises and implements measures, and conducts awareness activities for the purpose of ensuring employee safety and health, preventing disasters, and minimizing the damage from such disasters.

The Environmental Law Committee is chaired by the environmental officer and includes executive officers and above who are in charge of development, technology, production, and general affairs fields. The committee discusses and determines measures for environmental issues such as compliance with environmental laws and regulations on products, pollution at business sites, etc.

In addition to ongoing supply chain risk events, the committee identifies potential future supply chain risk impacts, formulates policies to address them, and implements risk mitigation within the group.

The Brother Group has been continuously working to maintain and improve the Internal Control System across the Group with the aim of ensuring reliability of reports, effectiveness and efficiency of operations, and legal compliance and of safeguarding assets in accordance with the Brother Group Global Charter and the Brother Group Principles of Social Responsibility.

Under the direction of the Representative Director & President, global internal audits are conducted in collaboration with internal auditors of subsidiaries in and outside Japan. The internal audit activities aim to contribute to attaining the management targets by evaluating the effectiveness of risk management, the Internal Control System, and governance process of the Brother Group and encouraging improvements.

The audits target respective departments of Brother Industries, Ltd. and all the subsidiaries and cover overall management. Regarding the Internal Control System related to financial reporting, the effectiveness is evaluated from a standpoint that is independent of the business execution departments.

Consulting work, such as advice regarding effectiveness and improvement of the Internal Control System, may be performed at the request of committee organizations and departments. The Brother Group has also been working on initiatives to detect signs of improper conduct, using Computer Assisted Audit Techniques (CAATs) to increase the efficiency of audits and prevent improper conduct within the Group.

The annual audit plan is formulated by the General Manager of the Internal Audit Dept., who conducts risk assessments and selects audit themes and subsidiaries to be audited, and is approved by the Representative Director & President. The audit results are reported to the Representative Director & President.

To ensure the effectiveness of internal audits, the General Manager of the Internal Audit Dept. reports the annual audit plan and audit results directly to the Board of Directors and the Audit & Supervisory Board. The General Manager also exchanges information and opinions periodically with standing Corporate Auditors and attends the three-party auditing^* communication meetings to exchange information and opinions periodically with Corporate Auditors and the Independent Auditor.

• A collective name for three types of audits (audits by Corporate Auditors, audits by the Independent Auditor, and internal audits)