To live up to the trust of our stakeholders, it is important for us to build and soundly manage a structure that copes with changes in the global environment promptly, and which consists of an efficient system that strengthens our corporate competitiveness as well as a rational and transparent system for performing business operations.

We focus on transparency and fairness in our management as an important business priority and strive to enrich our corporate governance to improve our corporate value.

(1) Corporate Governance System

Our Board of Directors consists of 11 board members, holds meetings on a monthly basis (17 meetings were held in FY 2011), supervises company management, and makes important business decisions for the SII Group. Outside auditors ask questions and provide advice where appropriate from an independent, external standpoint with the aim of ensuring validity and appropriateness. The average attendance rate of the outside auditors to the Board of Directors meetings in FY 2011 was 93.5%.

The Board of Auditors consists of two internal and two external auditors. Each member follows the audit policy and plan determined by the Board of Auditors, gains insight through attending management meetings and meetings with each division, and exchanges opinions. Through these activities they monitor the directors' operations. The Board of Auditors meetings are held almost every month (11 meetings were held in FY 2011) and the average attendance rate by the outside auditors to the Board of Auditors meetings in FY 2011 was 94.5%.

KPMG AZSA LLC was appointed as our accounting auditor. The Board of Auditors and the audit corporation conduct audits by understanding the audit plan and sharing information at regular meetings.

The executive director system was introduced to our management structure in order to separate business execution and supervision.

Our internal audit is performed based on the internal audit system comprised of the Corporate Audit Office, which is the internal audit division, as well as other responsible departments including quality, import/export management, environment and purchasing.

(2) Internal Control System

Since the "Basic Internal Control System Policy" was established in 2006, the SII Board of Directors verifies its operating condition and determines the continuation of the policy every year. As an across-the-board promotion organization for the internal control system, the Corporate Internal Control (CIC) Division, which consists of the Corporate Audit Office and the Compliance Department, has played a central role in enhancing the internal control system.

For our internal control system with regard to financial reporting in compliance with the Financial Instruments and Exchange Act, our senior management evaluates the SII Group's internal control system and we report the results to a publicly listed parent company, Seiko Holdings Corporation (SHD), as their subsidiary company. This is to evaluate and report the internal control system relating to SHD's financial reporting.