The Audit & Supervisory Board Activities

Improving Auditability by Listening to Stakeholders and Engaging at Genba

The Audit & Supervisory Board (ASB) members are entrusted by shareholders to audit Directors’ and Executive Officers’ execution of duties from an independent standpoint. Thus, they are engaged in auditing activities to achieve sound and sustainable growth of Kao and the Group companies and establish governance that builds trust with stakeholders.

Audit policy

The Kao Group has introduced ROIC company-wide and has decisively implemented structural reforms to support its goal of sustaining Global Sharp Top businesses. With management aligned on the urgency of reform, we have adopted an audit policy focused on monitoring the implementation of the K27 Strategic Framework and responses to key management and environmental risks. Our auditing activities also cover sustainability-related matters, reflecting the expectations of stakeholders.

Particularly Important Points in ASB Members’ Activities

Lively Exchange of Opinions

In auditing the execution of duties by Directors and Executive Officers, we place importance on evaluating decision making processes and resolutions at key meetings, including the Board of Directors and the Management Board. We also emphasize open, constructive dialogue with management, including regular opinion-exchange sessions that encourage candid discussion.

Dialogue with People at Genba

We conduct Genba audits and interviews at worksites, divisions, and both domestic and overseas subsidiaries and affiliates. These audits emphasize understanding how well corporate strategy is shared, identifying proactive efforts, uncovering local challenges, and gathering feedback and requests from the field. The results are shared directly with management to inform decision-making. To enhance effectiveness, we apply the PDCA cycle by sharing comments and recommendations from ASB members following Genba audits and interviews. These include both suggestions for improvement and recognition of best practices, which divisions and group companies actively incorporate into their future initiatives. In FY2024, at least one Outside ASB member participated in approximately 80% of the 113 interviews conducted, including those at 20 overseas affiliates

On-site audits and interviews at Kao Chemical Plant, Penang, Malaysia

Composition and Execution of Duties of the ASB

The ASB consists of five members. The two full-time members bring extensive internal execution experience and broad organizational knowledge, while the three outside members offer leadership experience and deep professional expertise. Together, they share audit-related information in a timely manner and engage in deliberations from diverse perspectives. To support their activities, the Office of the ASB was established under the direct authority of the Board. Its members assist ASB members in fulfilling their duties and also serve concurrently as auditors for subsidiaries.

Please find the link below for Audit & Supervisory Board Members.

Leadership: Audit & Supervisory Board Members

Deliberations by the ASB

Number of meetings held: 10
Attendance rate: all members marked 100%
Duration: (Average hours) 2.0
Main agenda of the Audit & Supervisory Board meetings
- 24 resolutions:
  Audit policy, division of duties, critical auditing items, annual plan, audit report, policy on selection of candidate Audit & Supervisory Board Members, internal control matters, Accounting Auditor matters (including agreement on compensation, and deliberation on reappointment), appointment and compensation of Audit & Supervisory Board Members, etc.
- 14 matters considered:
  Audit findings, revision of the policy on selection of candidate Audit & Supervisory Board Members, a process of auditing internal control system, exchange of opinions with Representative Directors and Outside Directors, confirmation of the effectiveness evaluation process, etc.

Besides agenda items discussed at ASB meetings, the members freely exchange opinions regarding the skills of ASB members, management and other areas of concern as needed.

Critical auditing items, achievements and evaluation of effectiveness

Critical auditing items	Audit method and efforts	Activity results and evaluation of effectiveness	Division of audit
Critical auditing items	Audit method and efforts	Activity results and evaluation of effectiveness	Full-time	Outside
Status of execution of duties by Directors and Executive Officers	Attend meetings of the Board of Directors to confirm the status of deliberations and resolutions, and express opinions if necessary	All Audit & Supervisory Board Members attended all meetings. All of them actively expressed their opinions.	✓	✓
	Attend important meetings such as the Management Board to confirm decision-making process, request explanations as necessary, and expressed opinions in a timely manner	Attendance rate was 100%, reviewed decision-making process and commented on matters to be considered.	✓	N/A
	Meetings to exchange opinions with management	Kao: Representative Directors (three times). Outside Directors (two times), Executive Officers with titles (four times) Important subsidiaries: Representative Directors (two times) With Representative Directors, exchanged opinions mainly on the implementation status of the K27 Strategic Framework and the progress of structural reforms. With Outside Directors, had in-depth discussions on critical issues and reported the results of such discussions to Representative Directors.	✓	✓
	On-site audits and interviews at worksites, divisions, domestic and overseas subsidiaries and affiliates (During on-site audits and interviews, we also confirm critical audit items such as internal control.)	113 cases Confirmed the degree of awareness about ROIC activities and the progress of structural reforms in each business Reported the risks and concerns identified in the process of auditing and the feedback, such as worries and opinions, from worksites to management	✓	At any time
	Attend the Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members and Compensation Advisory Committee for Directors and Executive Officers	6 times	N/A	✓
Effectiveness of the Group governance	Systematized the Kao Group’s structure of Audit & Supervisory Board (the Company, affiliates, and subsidiaries) Improve the effectiveness of auditing activities tailored to each company’s characteristics, under the unified management of the Group	Maintained a structure in which members of the Office of the Audit & Supervisory Board concurrently serve as auditors of subsidiaries Held meetings to exchange opinions among all auditors of subsidiaries and affiliates (three times) Conducted effectiveness evaluation of auditors at important subsidiaries and shared issues and risks identified with the directors of these subsidiaries	✓	At any time
	Exchange opinions between the Accounting Auditor, Audit & Supervisory Board Members Report accounting audit results of the Accounting Auditor to the Board of Directors meetings	Exchanged opinions (12 times), and reported to the Board of Directors meetings (two times) Audit plan, accounting audit results, key audit matters, disclosure of non-financial information, non-assurance services management, audit quality, etc. Held global meetings to exchange opinions with domestic and overseas auditors and shared issues of each company	✓	✓
	Strengthen collaboration in Three Types of Audits (between the Audit & Supervisory Board Members, the Accounting Auditor, and the Department of Internal Audit)	Held meetings (three times) to share audit plans and critical audit issues Exchanged opinions on the disclosure of non-financial information, a medium- to long-term issue	✓	N/A
Development and operation of internal control	Hold interviews with the departments in charge of the second line of internal control Attend the meetings or check the minutes of Internal Control Committee and major subordinate committees Check the response status of the Compliance Hotline	Every quarter or semi-annually Confirmed that voluntary inspection and monitoring were firmly in place and issues had been improved Confirmed that the regulations for the Compliance Hotline were established and put in place. Expressed opinions on matters reported to the hotline and how these matters were handled	✓	At any time
	Collaboration with the Department of Internal Audit which is the division responsible for internal auditing	Held regular meetings (four times) to share audit plans and issues Vice President of the Department of Internal Audit attended the Audit & Supervisory Board meetings and the meetings to exchange opinions among auditors of the Group, as needed to share audit findings and the awareness of risks	✓	At any time
	Evaluation of the construction and operation status of the internal control system using a checklist	Generally valid	✓	N/A
Proactive disclosure	Investigate requests of society and stakeholders for information disclosure of the Company and confirmed its disclosure status and external evaluations	Looked into how the division mainly responsible for the disclosure of non-financial information had responded to such requests. Promoted the disclosure of activities of the Audit & Supervisory Board Members	✓	At any time

Evaluation of the Effectiveness of the Audit & Supervisory Board

Each year, the Board sets evaluation items, focusing on critical auditing matters, and reviews the Board’s effectiveness from a multifaceted and objective perspective. For FY2024, based on comprehensive and open discussions at ASB meetings, self‐evaluations by ASB members, and feedback from Representative Directors, Outside Directors, and other relevant parties, it was concluded that the Board’s overall system was functioning effectively.

Feedback from Board of Directors and Executive Officers

Regarding the management issues which are thoroughly examined through dialogue at Genba, it’s excellent that I was able to compare my views at Board of Directors.
Through audits and interviews, I have received valuable findings and advice, which allow me to view my department more objectively.
With the growing importance of global governance, I expect to see the audit function continue to improve sustainably.

Regarding the penetration of ROIC by business, which was identified as an issue in FY2023, we confirmed progress in ROIC utilization by each department in FY2024. To strengthen cooperation among ASB, Accounting Auditor, and Internal Audit, we began holding “Three Types of Audits* Meetings” to share audit plans and key issues with each other. We also exchanged opinions on disclosure of non-financial information recognizing it as a mid- to long-term issue. Furthermore, we confirmed the initiatives aimed at improving capital efficiency and profitability and identified the specific outcomes through Genba audits. In terms of group governance in Japan, audit effectiveness has improved through a system where members of the Office of the ASB concurrently serve as auditors for group companies. Additionally, regular meetings involving auditors from all Kao Group companies have promoted knowledge-sharing across the organization. The key issues identified through our effectiveness evaluation include the progress of the Global Sharp Top business-particularly growth strategies for the Cosmetics Business-and the need to strengthen cross-functional overseas governance led by headquarters.

* Three Types of Audits = Audit & Supervisory Board, Accounting Auditor, and the Department of Internal Audit

For a summary of the Audit & Supervisory Board’s effectiveness evaluation, please see the following website:

Summary of Evaluation of the FY2024 effectiveness of the Audit & Supervisory Board

Messages from Outside Audit & Supervisory Board Member

Enhancing Governance Systems to Support Global Growth

Outside Audit & Supervisory Board Member
Saeko Arai

Board of Directors meetings foster an open, inclusive environment where ASB members can speak freely, enabling lively and constructive discussion. In this setting, we contribute to improving management quality by offering clear, informed perspectives—similar to the role played by the ASB. Drawing on my experience in startups, I bring agile decision-making expertise that supports Kao’s growth, particularly as we engage with a broad range of partners. Kao’s ASB adopts a notably progressive approach. In addition to thorough on-site interviews, the ASB conducts effectiveness evaluations and discloses detailed activity results to ensure highly transparent governance. Innovative steps have been taken, such as the Compensation Advisory Committee of ASB. A core value of The Kao Way is a culture of “Integrity as the only choice,” which underpins Kao’s strong governance foundation. It is vital to stay mindful of this culture, ensure it is consistently embraced across the group, and remain aware of the challenges we face. As a member of the ASB, I support Kao in upholding its corporate philosophy while promoting a deeper understanding of ROIC. I will continue to monitor Kao’s global growth plans and progress to ensure that key discussions take place and decisions are properly executed. We aim to help build stronger global governance in collaboration with the Three Types of Audits framework* , especially by strengthening the internal audit function, including for overseas operations.