The Audit & Supervisory Board Activities

Ensuring a Sound Management Foundation Through Dialogue with people on-site (Genba)

Kao has adopted a company structure with an Audit & Supervisory Board in accordance with Japan’s Companies Act. The Audit & Supervisory Board Members are elected at the General Meeting of Shareholders and, from an independent position without concurrently serving as Directors, audit the execution of duties by Directors and Executive Officers. They conduct these audits by attending key management meetings and through site visits and interviews with each division and Kao Group company. Through these activities, the Audit & Supervisory Board works to strengthen governance that supports Kao’s sound and sustainable growth and uphold stakeholder trust.

Audit policy

To achieve Mid‑term Plan K27, Kao is advancing the Reform of Earning Power and aims to become a Global Sharp Top Company by strengthening Yoki‑Monozukuri and maximizing employee vitality. The Audit & Supervisory Board shares management’s sense of urgency and recognizes the need to accelerate global growth. Based on this shared understanding, the Audit & Supervisory Board conducts audit activities that remain attentive to expectations from stakeholders and society. These activities focus on confirming progress in the implementation of K27 and monitoring the company’s responses to risks in the management environment.

Matters of Particular Focus in Audit Activities

Proactive Contribution of Perspectives

Audit & Supervisory Board Members proactively contribute their perspectives on decision‑making processes and resolutions at key management meetings, including meetings of the Board of Directors and Management Board. They also hold regular exchanges of views with Directors and Executive Officers on the key audit items. These discussions help improve governance and reinforce the quality of management decision‑making.

Dialogue with the Genba

Audit & Supervisory Board Members place strong emphasis on understanding conditions at the Genba. Through site visits and interviews with each division and Kao Group company, they confirm how management strategies are being implemented, identify proactive initiatives, and understand issues faced at the Genba as well as requests to management. After completing these visits and interviews, Audit & Supervisory Board Members share their comments by classifying them as guidance items, requests, advice, or excellent initiatives. This feedback enables each organization to apply it to its own activities and strengthen operational improvement. At least one Outside Audit & Supervisory Board Member participated in approximately 70% of site visits and interviews.

On-site inspection and interviews at Molton Brown factory in the UK

Structure and Activity Framework of the Audit & Supervisory Board

The Audit & Supervisory Board consists of five Audit & Supervisory Board Members: two Full‑time Audit & Supervisory Board Members and three Outside Audit & Supervisory Board Members. The Full‑time Audit & Supervisory Board Members bring extensive in‑house executive experience and broad organizational knowledge. The Outside Audit & Supervisory Board Members contribute leadership experience, specialized expertise, and deep insight. Together, they share audit‑related information in a timely manner and deliberate from diverse perspectives. The Office of the Audit & Supervisory Board is established directly under the Audit & Supervisory Board. This office supports the duties of Audit & Supervisory Board Members, and its members also serve concurrently as auditors of subsidiaries.

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

Leadership: Audit & Supervisory Board Members

Deliberations of the Audit & Supervisory Board

Number of meetings held: 10
Attendance rate: all members marked 100%
Duration: Average of two hours and fifteen minutes
Main agenda of the Audit & Supervisory Board meetings
- Matters resolved: 18
  Audit policy, division of duties, key audit items, annual plan, audit report, Audit & Supervisory Board regulations, internal control matters, Accounting Auditor matters (including agreement on remuneration, and deliberation on reappointment), appointments of Audit & Supervisory Board Members, etc.
- Matters discussed: 16
  Audit findings, revision of the policy on selection of candidate Audit & Supervisory Board Members, revision of Audit & Supervisory Board regulations, key themes for exchange of opinions with Representative Directors and Outside Directors, semiannual reports on audit activities, enhancement of the effectiveness of overseas on-site inspections and interviews, confirmation of the effectiveness evaluation process, etc.

In addition to formal meetings, the Audit & Supervisory Board also engages in active discussions on themes such as the skills of Audit & Supervisory Board Members and Group Governance.

Key audit items, achievements and evaluation of effectiveness

Key audit items	Audit method and efforts	Activity results and evaluation of effectiveness
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	Full-time Audit & Supervisory Board Members attended all Management Board meetings, ESG Committee meetings, and Internal Control Committee meetings, confirmed the decision-making process, and expressed opinions on matters requiring deliberation
	Active exchange of views with Directors of Kao and major Kao Group companies regarding key audit items	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 status of execution of “K27” and awareness of issues related to area strategies With Outside Directors, had in-depth discussions on on-site issues and group governance issues identified through audits and interviews, and reported the results of such discussions to the Representative Directors
	On-site audits and interviews at worksites, divisions, domestic and overseas subsidiaries and affiliates (Also confirm key audit items such as internal control.)	101 times Confirmed numerous examples of effective use of ROIC and workplace improvement actions based on the employee engagement survey Confirmed that Audit & Supervisory Board Members’ comments contributed to improve the PDCA cycle
	Attend the Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members, and the Compensation Advisory Committee for Directors and Executive Officers	The responsible Outside Audit & Supervisory Board Members attended meetings (six times)
Effectiveness of Group governance	Systematize the Kao Group’s structure of Audit & Supervisory Board Improve the effectiveness of audit 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 At Group auditor opinion exchange meetings (three times), shared findings and issue awareness arising from audit activities and conducted training to enhance audit skills
	Exchange opinions between the Accounting Auditor, Audit & Supervisory Board Members and related departments Report on accounting audit results of the Accounting Auditor to the Board of Directors meetings	Exchanged opinions (nine times) and reported to the Board of Directors meetings (three times) Confirmed audit plan, accounting audit results, key audit items, non-assurance services management, audit quality, etc. Held meetings to exchange opinions on main audit issues with auditors for overseas subsidiaries
	Strengthen collaboration in the Three-way Audit (between the Audit & Supervisory Board Members, the Accounting Auditor, and the Department of Internal Audit)	Held the Three-way Audit meetings (three times) to share audit plans and key issues among each audit organization, thereby strengthening coordination and improving the effectiveness of audit activities
Development and operation of internal control	Hold interviews with the departments in charge of the second line of internal control Risk management and effectiveness of evaluations by the Internal Control Committee and major subordinate committees	Confirmed that the first defense line conducts self-assessments and that the second defense line monitors such assessments (quarterly or semi-annually) Confirmed that a global quality governance framework and related quality assurance regulations have been developed and implemented based on the Three Defense Lines Model
	Collaboration with the Department of Internal Audit	In addition to regular meetings (four times), requested the Head of the Department of Internal Audit to attend meetings of the Audit & Supervisory Board and shared findings and risk awareness
	Analysis of causes and evaluation of countermeasures for compliance incidents	While responses to significant compliance incidents were generally appropriate, advice was provided to further strengthen root-cause analysis and countermeasures by the second line
Proactive disclosure	Attendance at major meetings and confirmation of disclosure status during audits and interviews of related departments	Confirmed that IR, SR, and PR activities are coordinated, and that information is disclosed strategically

Major Initiatives in FY2025

For K27, the Audit & Supervisory Board confirmed that initiatives undertaken by each business to establish Global Sharp Top are progressing steadily. In the Cosmetics Business, which serves as a growth driver, the Audit & Supervisory Board verified how deeply growth strategies had implemented the Genba and assessed the effectiveness of structural reforms through site visits, interviews, and participation in key meetings. With respect to the Reform of Earning Power, ROIC has taken root not only in business divisions but also in functional divisions. The Audit & Supervisory Board confirmed numerous examples of its use and shared effective practices with the Board of Directors.
The Audit & Supervisory Board also reviewed the results of audits conducted over the past 15 years through the Three-way Audit^* covering 90 subsidiaries subject to audit. Based on this review, priority audit areas for the future were identified and shared with the Department of Internal Audit. Governance of overseas subsidiaries will continue to be monitored closely as an important theme supporting further global business expansion.

*Audit & Supervisory Board, Accounting Auditor, and the Department of Internal Audit

Evaluation of the Effectiveness of the Audit & Supervisory Board

The Audit & Supervisory Board conducts audits centered on key audit items and evaluates the effectiveness of its activities from multiple, objective perspectives. In addition to self-evaluations by each Audit & Supervisory Board Member, the Audit & Supervisory Board reviews opinions from Directors and other relevant parties. Based on these inputs, the Audit & Supervisory Board identifies positive aspects and expectations for the future and discusses them extensively. As a result of this evaluation, the Audit & Supervisory Board concluded that it is functioning effectively overall. Key themes identified through the evaluation will be reflected in the audit policy, key audit items, and activity plans for the following year to further strengthen the effectiveness of audit activities

For the Audit & Supervisory Board’s effectiveness evaluation, please see below:

Feedback from Board of Directors and Executive Officers

Logical opinions based on the independent perspectives and expertise of Outside Audit & Supervisory Board Members, together with observations grounded in the Gemba knowledge and historical context of Full‑time Audit & Supervisory Board Members, are highly valuable.
Insights gained through site visits and interviews provide a clear understanding of actual business conditions. Since the truth of any business lies at the Gemba, increasing opportunities for such sharing would be beneficial.
Hearings conducted by Audit & Supervisory Board Members function effectively in identifying real issues and formulating countermeasures. They also provide positive feedback, making them valuable opportunities that contribute to improving member motivation.

Corporate Culture and Strengths Identified through Audit Activities

Outside Audit & Supervisory Board Member
Junya Naito

The Board of Directors is composed of members with diverse experience and expertise aimed at achieving a Global Sharp Top. It operates in an open atmosphere where Corporate Auditors, as members of the Audit & Supervisory Board can speak freely and engage in active discussion. I value applying my expertise in external legal affairs and compliance while maintaining a global perspective. I seek to recognize objectively what is strong by global standards, while also offering perspectives that may at times challenge the views of the executive side.
The Audit & Supervisory Board is also pursuing proactive initiatives. Through repeated on‑site audits and interviews at operational sites, we identify risks and issues and encourage improvements. At the same time, we conduct our own effectiveness evaluations and work to ensure highly transparent governance. Through dialogue with operational sites, one impression stood out most strongly. Each employee takes pride in the company’s products and manufacturing, and the quality of our products is truly one of Kao’s greatest strengths. As expressed in the Kao Way, walking the right path and confronting challenges directly without turning away will support the Kao Group’s medium‑ to long‑term growth and the enhancement of corporate value.