In order to increase the transparency of management for shareholders, investors, and society as a whole, including business partners, employees and local communities; and to ensure fair, effective corporate management, Mori Seiki has identified the reinforcement of its corporate governance and the strengthening of its management oversight functions as its top priority. We will continue to improve our corporate values for long-term stability, and will endeavor to ensure that our business activities are rooted in an even greater sense of corporate ethics.

Details of company institutions and maintenance of an internal control system

1. Basic explanation of company institutions
   Mori Seiki has adopted an auditing system.
   As of June 18, 2008, the Board of Directors consists of 17 Directors and the Board of Auditors consists of 5 statutory auditors, 3 of whom are external auditors.
   The Board of Directors meets regularly and whenever necessary to debate important management issues, and to make decisions through lively discussions in which directors state their opinions freely. Also, by making the term served by Board members one year, we have a system in which the mission and responsibilities of the Directors are made clear. In addition, Management Councils are held every month, with the President as chairperson, to discuss risk management and compliance, and Management Meetings, consisting of Directors and General Managers, are also held once a month to report and discuss important matters. This enables us to speed up the decision-making process and to improve the soundness of our administration, strengthening the corporate governance of the whole Mori Seiki Group.
   In recent years, international concern about measures to prevent the proliferation of weapons of mass destruction and the excess stockpiling of conventional weapons has been growing. To address this, Mori Seiki Group has set up an Export Control Committee, with the President as chairperson. This committee formulates the internal regulations (Compliance Program), reviews and changes the contents of the regulations to ensure compliance with export control laws, and conducts rigorous discussions on matters such as the propriety of exports of our products.
   In 2005, as part of the establishment of our internal control system, we established an Information Disclosure Control Committee, with the Executive Officer of the Administrative HQ as its chairperson, which acts as an advisory body to decide rules for the disclosure of information, in order to improve the transparency and soundness of our management.
   In accordance with the auditing policy, the auditors attend meetings of the Board of Directors, Management Councils, Management Meetings and other key meetings, where they express their opinions. In addition to this, they peruse documents about important decisions, and conduct strict audits of every department at the Head Office, as well as each Campus, Technical Center and consolidated Group company.
2. Maintenance of an internal control system and risk management system
   Mori Seiki implements the following “Basic Policy on Internal Controls” decided by the Board of Directors.
   
   • A system to ensure that the business conduct of Directors and employees conforms to all relevant laws and articles.
   • A system for the storage and management of information concerning the business conduct of Directors.
   • Regulations to manage risks of loss, and other systems.
   • A system to ensure that the Directors’ business is conducted efficiently.
   • A system to ensure that the corporate group consisting of Mori Seiki and its affiliated companies conducts business in an appropriate manner.
   • Matters concerning employees who were appointed by auditors to assist them with their duties and the independence of these employees from Directors.
   • A system in which Directors and employees report to the auditors, and systems for other reports to the auditors.
   • A system to ensure that other audits conducted by the auditors are carried out effectively.
3. Basic concept for eliminating the intervention of anti-social forces.
   Under the basic concept: “As an entity, we adopt a resolute attitude against organized violence by anti-social organizations,” Mori Seiki Group formulated a basic policy of eliminating the intervention of anti-social forces. Necessary actions are specified in its Compliance Guidelines, such as “Fight against intimidation by anti-social forces by cooperating closely with the police and other relevant organizations,” and “Implement initiatives to eliminate the intervention of anti-social forces together with industrial organizations and local businesses,” to ensure that all employees fully understand its policy.
4. Status of the internal audit and the audit conducted by statutory auditors
   As part of our internal audit, we have set up an Internal Auditing Department with 6 full-time staff, under the direct supervision of the President, which checks that the business operations of the whole Mori Seiki Group are conducted appropriately and effectively. In order to deal with the Financial Instruments and Exchange Law (the “J-SOX” Act, Japan’s equivalent of the Sarbanes-Oxley Act), reflecting the importance which we place on the reliability of financial reporting, we established a specialist team in the Internal Auditing Department in October 2005, before the bill was approved, to construct and monitor our internal control systems, and completed preparations for starting the operation from April, 2008.
   In accordance with the policy decided by the board of auditors and the auditing plan, the auditors attend meetings of the Board of Directors, Management Councils, Management Meetings and other key meetings, and hear the status of execution of relevant work from the directors, the Internal Auditing Department, and others. They also peruse documents about important decisions, and examine the status of work and assets at every department at the Head Office, as well as each Campus, Technical Center and consolidated Group company. The auditors provide guidance for and auditing of the directors on matters concerning corporate governance, compliance, risk management, and overall business management. The independent auditors and the Internal Auditing Department cooperate closely with each other, and the Internal Auditing Department provides the independent auditors with regular reports about the status of internal controls.
   The independent auditors, Internal Auditing Department, and accounting auditors are making efforts to conduct proper and strict accounting audits, by holding meetings every quarter and whenever necessary to actively exchange their opinions and information.
5. The relationship with directors from outside the company and external auditors
   No directors from outside the company have been appointed. The external auditors have no special financial interests in relation to Mori Seiki.

Mori Seiki carries out risk management relating to the environment, occupational health and safety, and quality through the management system; risk management relating to the reliability of financial reports; risk management relating to export control through the compliance program; and risk management relating to daily business through the company’s internal electronic decision-making system.