三菱ＨＣキャピタル（8593） – Corporate Governance Report

Corporate Governance Report Last Update: April 18, 2022 Mitsubishi HC Capital Inc. President & CEO Takahiro Yanai Securities Code: 8593 https://www.mitsubishi-hc-capital.com/english/ The corporate governance of Mitsubishi HC Capital Inc. (the “Company”) is described below. I Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views For the Company’s basic views on corporate governance, please refer to Principle 3.1 (ii) “Disclosure Based on the Principles of the Corporate Governance Code.” [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company regards the appropriate development and operation of the corporate governance framework as one of the most important challenges of its management, and has fulfilled all the principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] Principle 1.4 Strategic shareholdings 1. Policy for strategic shareholdings Under the corporate policy for enhancing its corporate value, the Company holds listed shares (strategic shareholdings) for purposes other than pure investment (targeting gains primarily through fluctuations in the value of shares and the receipt of dividends), with a view toward developing stable and long-term relationships with business partners and promoting business, along with strengthening such relationships based on capital/business alliances, and creation of new business opportunities. In its strategic shareholding practice, the Company’s basic policy is to regularly examine if it is rational to hold each stock and sell such strategic shares that are judged no longer rational to hold. Even when it is judged rational to hold shares, the Company may sell 1 / 51 such shares in consideration of the impact of the risk of mark-to-market valuation fluctuation of the shares on the Company’s finance, capital efficiency, etc. 2. Method for verifying the rationality of strategic shareholdings (i) A quantitative evaluation based on factors including the size of business transactions/profit, dividends received, and capital costs; (ii) A qualitative evaluation of the business activities to date; and, (iii) Potential business opportunities in the future. The Board of Directors verifies the rationality of strategic shareholdings effectively by adjusting the focus on each of the items above for each investee in accordance with the significance of holding each stock and the benefits expected therefrom. 3. Verification of the rationality by the Board of Directors The Board of Directors examined the listed stocks using the method in 2. above at the Board of Directors meeting for the fiscal year ending March 31, 2022. It was confirmed that stocks subject to this examination and that were judged no longer reasonable to hold would be sold. 4. Basis for exercising of voting rights The Company is dealing appropriately with the exercise of the voting rights of strategically held shares, in light of the aforementioned purposes of strategic shareholding (such as the development of stable and long-term relationships with business partners, as well as the promotion of business). The Company is dealing appropriately with the exercise of voting rights that may affect the enhancement of our corporate value over the medium- to long- term, the corporate value of our business partners, or shareholder interests, after verifying the circumstances and the potential impact with particular care. The Company believes that the exercise of voting rights would have a potential impact on the corporate value and the shareholders’ interests in the Company, as well as its business partners, insofar as such an exercise of voting rights concerns the following agendas: – Agenda on the disposal of surplus – Agenda on the election of directors and auditors – Agenda on organizational restructuring, etc. Principle 1.7 Related party transactions When the Company engages in transactions with its own Directors or Audit and Supervisory Committee Members and with major shareholders (i.e., related party transactions), it establishes the following systems and procedures to ensure that such transactions do not harm the interests of the Company or the common interests of the shareholders: 2 / 51 – In the Compliance Manual, which compiles the basic policies for promoting compliance by the Group, clauses have been established that clearly prohibit certain transactions, such as those that constitute conflicts of interest, and to eliminate preferential transactions. – When a transaction takes place between the Company and its Directors or Audit and Supervisory Committee Members, the appropriateness of the terms of the transaction, as well as the method of determination thereof, are deliberated in advance at meetings of the Board of Directors which include Outside Directors before a decision is made. – In view of the importance of the Company offering credit to major shareholders and to the Company’s subsidiaries, when the amount of credit exceeds a certain percentage of total assets, based on the Company’s internal rules, the appropriateness of the amount of the credit offering, as well as the method of determination thereof, are deliberated in advance at meetings of the Board of Directors which include Outside Directors before a decision is made regarding such credit offering, as part of the supervision by the Board of Directors. – Funding from the Company’s major shareholders and its subsidiaries is determined and reported at the Board of Directors’ and other meetings, in accordance with the decision-making authority set forth in the Company’s internal rules. – Regarding deliberations of the Board of Directors concerning transactions between the Company and a company in which the Company’s Director concurrently serves as an officer, the fairness of the deliberations is guaranteed by requesting such Director to recuse from participating in such deliberations. – The Audit and Supervisory Committee Members and the Accounting Auditor audit the status of transactions between parties related to the Company. Supplementary Principle 2.4.1 Ensuring diversity in key personnel within the organization The Company has established the Diversity Promotion Office aiming to promote the participation of diverse talent, making use of individual attributes such as nationality, age, and gender, and is active in developing work environment where every employee can efficiently work with motivation and vigor as well as establishing systems to support a good balance between work and family. 1. Voluntary and measurable goals and disclosure The Company has actively promoted women’s empowerment, such as obtaining 2-Star Eruboshi certification (certification for business owners based on the formulation of an action plan as per the Act on Promotion of Women’s Participation and Advancement in the Workplace). In addition, per this Act, the Company formulated an action plan for general business owners with the target 3 / 51 period of the five years from April 1, 2021 to March 31, 2026, in which the numerical target of the percentage of women in managerial positions (Section Manager or above) is set at 20% as a minimum. The percentage of female managers is currently 13.1%. As female employees account for approximately 40% of the Company’s employees, the Company will continue to set a numerical target for the ratio of female managers and actively implement initiatives to achieve the target, as a priority issue in diversity promotion. 2. Policies for talent development and improvement of work environment In order for developing female employees in managerial positions, the Company has introduced training programs exclusively for female employees, external training programs with the purposes of exchange with female managers of other companies, training programs for developing and selecting managers, and others. The Company has also implemented career support measures including a system for career course changes according to capability, competence, and motivation for challenges, and various measures to support a good balance between work and child care such as a system to allow working from home and flexible working hours and a system to provide re-employment opportunities to employees who quit due to the overseas relocation of the spouse or childcare/elderly care. For the development of candidates for female managers in each office, the Human Resources Department interviews with the employee to exchange views on her career plan and establish a mindset. Interviews between the manager of the candidates and the Human Resources Management Department are also held for the regular monitoring of the status of talent development, career plan, status of job assignment, checks of work environment, etc. Thus, a solid talent development environment has been built by the head office and front offices working together. them. 1. Voluntary and measurable goals and disclosure The Company continues hiring activities not bound by nationality, and there are approximately 40 foreign employees, among which two are actively working as managers. The Company will continue efforts for increasing the number of foreign managers by actively hiring and developing Meanwhile, mid-career hires account for just over 30% in managerial positions of the Company. The Company will continue efforts for maintaining and raising the ratio of mid-career managers by actively developing mid-career hires. 2. Policies for talent development and improvement of work environment The Company has recruited and hired persons with necessary attributes and capabilities according to the business environment as appropriate, not bound by nationality or experience. After hiring 4 / 51 foreign nationals or mid-career persons, the Company provides an environment necessary for such employees to demonstrate their abilities, such as opportunities for education and promotion (job-level training, training for selected employees, e-learning, etc.) equivalent to those for Japanese employees or new-hires. The Company has developed internal environment which enables foreign employees to smoothly work, including from the perspective of language, such as the dispatch of Japanese employees to overseas group companies, active implementation of education programs to develop business-level English proficiency and global mindsets, and dispatch of important internal information translated into English simultaneously with the Japanese version. Regular performance evaluation interviews with managers and HR interviews (one-on-one interviews with the staff of the Human Resources Management Department to confirm the career planning of each employee) have been conducted to facilitate appropriate support by hearing career plans and job-related worries. The figures above are all current as of April 2021 (non-consolidated basis). Please refer to the Company website for details. https://www.mitsubishi-hc-capital.com/sustainability/social/employees_and_families.html Principle 2.6 Roles of corporate pension funds as asset owners Currently, the former Mitsubishi UFJ Lease & Finance Co., Ltd. and the former Hitachi Capital Corporation each operate a pension plan respectively, and have constructed the system below so that their corporate pension plans will enhance the investment profession and fulfill the functions expected of an asset owner. The corporate pension plan of the former Mitsubishi UFJ Lease & Finance Co., Ltd. defines a policy asset mix of pension assets in order to secure long-term returns, and such assets are managed through appropriately diversified asset allocation, with the aim of ensuring asset management that secures a stable source of benefits in the future. The former Mitsubishi UFJ Lease & Finance Co., Ltd. has established the “Basic Policy Concerning the Management of Pension Assets” to address the management of conflicts of interest between the beneficiaries of the corporate pension plan and the Company, with a view toward maximizing the interests of beneficiaries. In particular, in selecting an asset management institution, a rigorous screening is conducted based on evaluations by an evaluation body through “qualitative evaluation, primarily of business operations, reputation in society, and investment policies (stewardship code, policy on ESG initiatives, etc.)” and “quantitative evaluation, primarily of experience and track record in investment and management.” A decision is then made based on the opinions of the Asset Management Committee. The members of the Asset Management Committee are selected from among persons with experience in corporate pension 5 / 51 work. The selected members develop further knowledge by participating in training sessions and seminars conducted by asset management institutions and other organizations. The corporate pension plan of the former Hitachi Capital Corporation invests the pension assets through the Mitsubishi HC Capital Corporate Pension Fund (the “Fund”). Since the stable investment of the corporate pension reserves will affect the company’s own financial status, in addition to ensuring future asset building of the employees, (i) from a personnel perspective, a person who has professional ability and knowledge of the pension investment will be appointed as an investment exercise director, and (ii) from an operations perspective, measures such as reporting the investment situation to the Asset Management Council established within the Company and the management team will be conducted. Furthermore, the Board of Representatives, which is a decision-making body of the Fund, consisting of the members selected by the business owner and the members selected by a mutual vote of the other participating members, will operate under a system which ensures appropriate management of conflicts of interest between the Company and a participating member who is a beneficiary. The situation of the investment and other operations shall be reported to the participating members regularly. Principle 3.1(i) Business plan/business strategy following URLs: – Corporate Philosophy The Company has established its Corporate Philosophy, which has been disclosed online at the (https://www.mitsubishi-hc-capital.com/english/corporate/idea/index.html) – Medium-term Management Plan Former Mitsubishi UFJ Lease & Finance Company Limited (https://www.mitsubishi-hc-capital.com/english/mul/investors/managementplan/index.html) – Former Hitachi Capital Corporation (https://www.mitsubishi-hc-capital.com/english/hc/hcc/2021mtmp/index.html) Principle 3.1(ii) Basic Views on Corporate Governance The Company recognizes that it is one of our social responsibilities to ensure transparent and sound management, while emphasizing initiatives to achieve sustainable corporate growth and a medium- to long-term improvement in corporate value. Respecting the rights and interests of all of our stakeholders—shareholders, customers, local communities, and employees—the Company works to fulfill the trust they place in us, and aspire to contribute to a more prosperous society. To fulfill these social responsibilities, we engage in continuous initiatives to enhance corporate governance by boosting the activity of the Board of Directors, reinforcing the Audit and 6 / 51 Supervisory Committee and the internal audit system, ensuring timely and appropriate disclosures of information, improving investor relations (IR), and related activities. [Appropriate collaboration with all stakeholders] In accordance with the Company’s “Vision,” which guides all of the Company’s activities, and the “Mitsubishi HC Capital Group Code of Ethics and Code of Conduct,” which serves as the standard for the decisions and behaviors of all employees, the Company strives to ensure appropriate collaboration with its various stakeholders, including shareholders, customers, local communities, and employees. In addition, the Company strives to foster a corporate culture that encourages respect for the diversity of our stakeholders, their rights and perspectives, and sound corporate ethics. [Appropriate information disclosure and ensuring transparency] The Company strives to conduct proactive and continuous information disclosure in order to be trusted and properly evaluated by each of its stakeholders. We also establish and appropriately operate internal systems to facilitate the swift and impartial disclosure of accurate information regarding our management policies, business strategies, business activities, financial condition, etc. In addition to the items we are required to disclose pursuant to laws and regulations, we actively and voluntarily disclose non-financial information deemed useful to our stakeholders. [Ensuring the rights and equality of shareholders] The Company takes appropriate steps to ensure that the rights of shareholders are secured and can be exercised effectively, including furnishing the necessary environment for the exercise of such rights, and gives consideration to the fair treatment of all shareholders, including minority shareholders and foreign shareholders. [Dialogue with shareholders] Through events such as financial results briefings and other domestic and overseas investor relations (IR) events, the Company pursues proactive and constructive dialogue with shareholders. We thereby seek to gain understanding from shareholders regarding matters such as the Company’s business strategies, while responding to the shareholders in an appropriate manner based on an understanding of their perspectives. [Responsibilities of the Board of Directors] All members of the Board of Directors, including Outside Directors, call upon their experience and insight as they engage in free and open discussions, contributing to active proceedings of the meetings of the Board of Directors. In this manner, they adequately fulfill their duties and responsibilities to achieve the sustainable growth of the Company, medium- to long-term improvement of its corporate value, and enhancement of its earnings capacity and capital efficiency in an environment that supports appropriate risk-taking. Principle 3.1(iii) 7 / 51 Policies and Procedures to Determine Compensation of Directors A policy relating to the Board of Directors’ decisions concerning the amount of compensation, etc. of the Directors (except Directors who are Audit and Supervisory Committee Members) has been disclosed in documents such as this Report and Securities Report. The amount of compensation is determined based on prescribed standards resolved by the Board of Directors after discussion in advance by the Compensation Committee, of which Independent Outside Directors comprise the majority. Decisions relating to the amount of compensation for each individual have been entrusted entirely to the Representative Director, President & CEO, and the fairness of such decisions is guaranteed by an ex-post verification of the specific amount to be paid by the Compensation Committee. Principle 3.1(iv) Policies and Procedures for Selection and Dismissal of Directors The Board of Directors resolves the appointment of candidates to serve as Directors after the Nomination Committee, of which Independent Outside Directors comprise the majority, holds discussions in advance based on the selection standards described below. The Board of Directors also resolves the appointment of candidates to serve as Directors who are also Audit and Supervisory Committee Members after the Nomination Committee discusses it and the Audit and Supervisory Committee agrees to it. In addition, if Directors engage in misconduct or material violations of any laws and regulations in the course of execution of business, or if they are found not to meet the selection standards, the Board of Directors resolves their dismissal after the Nomination Committee discusses it in a timely manner. [Selection Standards] 1. Directors and Audit and Supervisory Committee Members should have the mental and physical soundness sufficient to execute business. 2. Directors and Audit and Supervisory Committee Members should be persons who are well respected, possess excellent integrity and hold themselves to high ethical standards. 3. Directors and Audit and Supervisory Committee Members should have a law-abiding mentality. 4. Directors and Audit and Supervisory Committee Members should have the ability to make objective judgments regarding management and have excellent insight and perspicacity. 5. In addition to 1. to 4. above, candidates for Outside Directors should (i) have experience, achievements and knowledge in their fields of specialization, and (ii) be able to contribute to the implementation of appropriate decision making and management supervision of the Board of Directors. Principle 3.1(v) Reasons for Selection, Dismissal and Nomination of Directors 8 / 51 The reasons for electing the candidates for Directors at the most recent Annual General Meeting of Shareholders are stated in the Notice of Convocation of the General Meeting of Shareholders. For details, please refer to the link below. During the most recent fiscal year under review, no Directors or Executive Officers have been dismissed. https://www.mitsubishi-hc-capital.com/english/mul/investors/index.html Supplementary Principle 3.1.3 Sustainability 1. Efforts on sustainability The Company believes that Efforts toward sustainability—among them, protecting the global environment, respecting human rights, and embracing diversity—are an essential responsibility to society that corporations should fulfill. To continue to survive, corporations must pursue long-term growth while gaining the trust of their stakeholders by engaging in business activities that seek to resolve environmental, social, and economic issues. With this fundamental understanding, and to lead and promote sustainability-based management, the Company established a Sustainability Committee in April 2021 to better contribute to the realization of a sustainable and prosperous future. The Sustainability Committee is positioned as an advisory body to the Executive Committee, and aims to lead and promote sustainability efforts in a way that is unified with the management strategies. The Sustainability Committee is chaired by the Head of the Engagement Division, and its members comprise Executive Officers in charge of business departments and the corporate center, including the President & CEO. The committee implements a wide range of activities—including checking the progress of activities and the level of achievement of targets in non-financial sectors, deliberating over new activities, and discussing non-financial indicators—and reports the results to the Executive Committee and the Board of Directors. forward. The Company has identified its material issues as the first step of sustainability management, with the understanding that they are key issues that the Company needs to address preferentially by devoting limited resources, in order for the Group to continue to grow. The Company will formulate medium- to long-term strategic goals in consideration of the material issues going (1) Advance toward a Carbon-free Society (2) Realize a Circular Economy (3) Build Resilient Social Infrastructure (4) Realize Healthy and Prosperous Lifestyles (5) Create Businesses Making Use of the Latest Technologies (6) Symbiosis with Each Region Worldwide Please refer to the Company’s website for details of the material issues and sustainability efforts. 9 / 51 https://www.mitsubishi-hc-capital.com/sustainability/index.html 2. Investment in human capital and intellectual property, etc. The Company’s vision includes fostering of an open, creative, and engaging corporate culture that shapes each and every employee’s motivation and pride. The Company established the Diversity Promotion Office with the aim to help diverse talent to play an active role by taking advantage of individual attributes such as nationality, age, and gender, as well as taking advantage of diverse values. The Company has actively worked on the development of work environment where every employee can efficiently work with motivation and vitality as well as the enhancement of the systems to support a good balance between work and family. Our diversity promotion includes the promotion of work-life balance and the support for the development of the next generation, including women empowerment. The Company has also developed and promoted a healthcare system comprising “self-care”, “care for the line by managers”, and “care by internal healthcare staff (HR)”, aiming to promote the health of The Company is also strategically making use of computerized information (software and database), innovative property (R&D and licenses), economic competencies (talent (human capital) and organization) and other intangible assets, regarding them as important for sustainable employees. growth. With the vision of the enhancement of corporate value by utilizing digital technology and data, the Company established the IT & Digital Transformation Committee, of which objective is to contribute to sound business management by discussing and reporting medium- to long-term digital strategies, policies for IT and digital transformation initiatives, and information systems development policy in the committee activities. At the same time, the Company is working to develop talent who are positive about digitalization by promoting self-development of employees, such as promoting the acquisition of related qualifications as a part of the education system. 3. Impact of climate change-related risks and revenue opportunities on the Company’s business activities, revenue, etc. The Company promotes its unique and advance business with consciousness of global environment to solve social issues. Especially, climate change exerts a grave impact on the global environment, including its ecosystems, as well as on people’s lives and business activities. We believe climate change constitutes a major risk confronting the Mitsubishi HC Capital Group, and simultaneously, may also bring new business opportunities. To clearly specify our policy, we are supporting recommendations by the Task Force on Climate-related Financial Disclosure (TCFD). Furthermore, recognizing the importance to disclose climate-related financial information, we also endeavor to play our part in the realization of international targets identified by the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement. To this end, we will act in collaboration with other Group companies as well as a broad range of stakeholders, including 10 / 51 government agencies, external business corporations, and industrial associations to realize society’s transition with decarbonization. We will expand disclosure regarding climate change information based on TCFD recommendations, and emphasize to urge the environmental conscious efforts through customers’ business and the efforts to reduce greenhouse gas emissions of the Group. We have established an Environmental Policy to facilitate business activities harmonizing with environment and society. Please refer to the following for our Environmental Policy. https://www.mitsubishi-hc-capital.com/sustainability/environment/ Supplementary Principle 4.1.1 Disclosure of the scope of delegation to management The Company establishes important matters that need to be resolved by the Board of Directors, in accordance with the Rules of the Board of Directors, and decisions regarding other matters are delegated to the Executive Directors and made at the Executive Committee. In order to ensure the proper implementation of the Rules of the Board of Directors, standards have been established for items to be submitted to the Board of Directors. Among those matters that need to be resolved by the Board of Directors, as provided in the Rules of the Board of Directors, specific standards requiring a resolution of the Board of Directors have been established for “the disposal of and acceptance of transfer of important assets” such as the buying and selling of receivables and assets, “borrowing of a significant amount” such as borrowings, and “the establishment, revision, or abolition of important internal rules.” If specific standards requiring a resolution of the Board of Directors are to be set by reference to monetary amounts, a standard amount is determined based on the amount of total assets. Principle 4.9 Independence standards for Outside Directors and selection of Outside Directors Please refer to II 1. “Independent Directors/Audit & Supervisory Board Members” in this report. Supplementary Principle 4-10-1 Establishment of independent Nomination Committee and Compensation Committee The Company has established the Nomination Committee and Compensation Committee as advisory bodies to the Board of Directors, in order to strengthen the independence, objectiveness, and accountability of the Board of Directors’ functions concerning the nomination, compensation, Independent Outside Directors comprise the majority of both the Nomination Committee and Compensation Committee, and their members and the chairperson are selected by the Board of etc. of Directors. Directors. 11 / 51 The Nomination Committee discusses the appointment of Directors, the succession plan for the Representative Director, President & CEO, knowledge, experience and skills that Directors should have, and other matters. Meanwhile, the Compensation Committee regularly monitors the Directors’ compensation system of the Company in comparison with the market standard by using an external specialized agency, and discusses policies concerning the systems, standards, etc. for Directors’ compensation. It is stipulated in internal rules that the decisions on particularly important matters such as nomination and compensation to be made by the Board of Directors shall respect the resolutions of each committee, based on the understanding that appropriate involvement of Independent outside Directors is extremely important. Supplementary Principle 4.11.1 Board of Directors as a whole Views on the appropriate balance of knowledge, experience and skills, diversity, and size of the The Company assumes that the Board of directors shall possess skills in “general corporate management,” “financing,” “financial accounting,” “legal, compliance and risk management,” “international business” and other areas. The Company recognizes that diversity of Directors is important for purposes of strengthening the function of the Board of Directors, and that gender, nationality, and race are factors which should be considered. On the other hand, the Company believes that it is not necessarily desirable, for purposes of strengthening the functions of the Board of Directors, to elect a Director with a certain attribute merely to comply with formal and external diversity requirements even when they lack the qualities and abilities that are required for the role. Therefore, the Company believes, as a desirable way of achieving diversity within the Company, that it is necessary to consider whether such Director is expected to perform the necessary skills and possesses the ability in light of the respective management environment as a top priority, and electing a desirable person without restrictions on gender, nationality, race, age, career, etc. Based on such a view, the Company will continue to determine the appropriate composition of the Board of Directors. Currently, we assume that the Company’s Board of Directors consists of Directors from a variety of business categories and industries, and has an appropriate number of members to ensure a balanced composition of appropriate skills and diversity. The Company has currently elected two female Directors while no foreign Director has been elected. However the Company acknowledges that the Board of Directors has been performing a sufficient supervisory function, as it has elected several Directors who possess a wealth of international business experience, and has received valuable opinions on global business development. Please refer to Principle 3.1 (iv) for the policies and procedures for selection and dismissal of directors. The skill matrix is published on our website. https://www.mitsubishi-hc-capital.com/sustainability/governance/index.html 12 / 51 Supplementary Principle 4.11.2 Information on Directors and Audit & Supervisory Board Members who have concurrent posts Regarding the nomination of Director candidates, the Company makes a decision after consideration of the situation surrounding the concurrent posts, and consideration of whether such candidate could sufficiently perform their expected duties as Company Director. The Company determines whether current Directors put sufficient time and effort into their work to fulfill their respective roles and responsibilities appropriately. Information on Directors and Audit and Supervisory Committee Members who have concurrent posts has been included in the Business Report posted in the Notice of Convocation of the General Meeting of Shareholders, which can be viewed at the link below: https://www.mitsubishi-hc-capital.com/english/investors/meeting/index.html (Only in Japanese) Supplementary Principle 4.11.3 Evaluation of the Board of Directors and disclosure of the results thereof The Company’s Board of Directors every term evaluates its effectiveness throughout a year based on the review and evaluation by all of the Directors on their activities, and implements the PDCA cycle for further improving the effectiveness. We have decided to conduct a survey of all the Directors for the evaluation of the Board of Directors’ effectiveness for FY2021, the first year of business integration, based on the discussion in the Governance Committee held in February 2022 involving Outside Directors. The Governance Committee and Board of Directors will discuss the evaluation for FY2021 and points to be improved for FY2022 and other matters based on the survey results, and a summary of the discussion will be disclosed immediately. In the Board of Directors’ evaluations of FY2020 (former Mitsubishi UFJ Lease & Finance), early provisions of materials for the Board of Directors meeting, several deliberations of important agenda items, several revisions of explanations of the agendas (explanations of internal discussion points, systematic explanations, clarification of the directions, etc.), in-depth explanations from the perspective of protecting minority shareholders’ profits, and prompt responses to remote meetings under the COVID-19 pandemic, were evaluated. There were requests and opinions relating to the future, such as increasing opportunities for communications with the Executive Officers in charge of business divisions and Outside Directors and strengthening efforts relating to innovative discussions. Supplementary Principle 4.14.2 Disclosure of the training policy for Directors and Audit & Supervisory Board Members – The Company provides management-related materials, such as the Annual Securities Report and the Business Report, to newly-appointed Outside Directors as part of the briefing provided upon their appointment to explain the business environment and other matters. – The Company provides information on training opportunities to Directors, for example, by introducing seminars held by external organizations. In addition, the Company has put in place 13 / 51 the Governance Committee, which serves as an advisory body for the Board of Directors. In these meetings, information is exchanged and shared, and cooperation is fostered through the provision of various opportunities for communication. – The Company bears the full cost related to the training of Directors. Supplementary Principle 5.1 Policies for constructive dialogue with shareholders The Company strives to engage in proactive dialogue with shareholders, with the recognition that conducting transparent and sound management is one of its social responsibilities, while focusing on sustainable growth and enhancement of its medium- to long-term corporate value. The Head of the Engagement Division is responsible for coordination, and the Corporate Communications Department and the Governance Control Department serve as the primary point of contact, implementing a system for coordination with the relevant internal departments, such as planning, accounting, and general administration. The Company takes the following initiatives: – Financial results briefings are held twice each year, once for second quarter financial results and once for full-year financial results, during which the Company’s management provide explanations and also answer any questions that are asked. – The Company’s management (including Outside Directors), the Corporate Communications Department, and the Governance Control Department conduct individual interviews with domestic and foreign institutional investors, and IR and SR activities, such as participation in briefings and various conferences. – The Company provides a wide range of information such as the movies of financial results briefings and materials with scripts, and summaries of Q&A sessions on the corporate website to investors including individual investors. In conjunction with this, the Company participates in IR events and various briefings for individual investors which are organized by securities companies and stock exchanges. Regarding opinions and concerns expressed in the dialogue with shareholders, the Corporate Communications Department and the Governance Control Department, which serve as the points of contact, promptly provide reports to the Company’s management, as necessary, to ensure the sharing of information. The Company appropriately and carefully manages insider information, in accordance with the Company’s internal rules, and also discloses such information in accordance with the information disclosure policy. The information disclosure policy is published on the Company website: https://www.mitsubishi-hc-capital.com/sustainability/various_policies.html 14 / 51 2. Capital Structure Percentage of Foreign Shareholders From 10% to less than 20% Number of Shares Owned (Shares) Percentage (%) [Status of Major Shareholders] Name / Company Name Mitsubishi Corporation Mitsubishi UFJ Financial Group, Inc. Hitachi, Ltd. (Trust account) The Master Trust Bank of Japan, Ltd. Custody Bank of Japan, Ltd. (Trust account) MUFG Bank, Ltd. Meiji Yasuda Life Insurance Company 264,044,396 208,345,981 167,678,580 114,134,900 55,176,500 50,348,620 31,100,390 Mitsubishi UFJ Trust and Banking Corporation 28,431,000 Tokio Marine & Nichido Fire Insurance Co., Ltd. 11,419,725 STATE STREET BANK WEST CLIENT‐TREATY 505234 11,330,363 18.00 14.20 11.43 7.78 3.76 3.43 2.12 1.93 0.77 0.77 Controlling Shareholder (Except for Parent Company) Parent Company Supplementary Explanation – – The following information for the end of the most recent fiscal year is stated based on the information of Mitsubishi UFJ Lease & Finance Company Limited, the surviving company of the absorption-type merger, as of the end of the fiscal year ended in March 2021. 15 / 51 3. Corporate Attributes Listed Stock Markets and Market Sections Fiscal-Year End Type of Business Tokyo Stock Exchange/Prime, Nagoya Stock Exchange/Premier March Other Financing Business Number of Employees (Consolidated) as of the End of the Previous Fiscal Year More than 1000 Sales (Consolidated) as of the End of the Previous Fiscal Year Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From ¥100 billion to less than ¥1 trillion From 100 to less than 300 4. Policy on Measures to Protect Minority Shareholders when Conducting Transactions 5. Other Special Circumstances which may have Material Impact on Corporate with Controlling Shareholder – Governance – 16 / 51 II Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Matters Concerning Organizational Composition and Operation Company with Audit and Supervisory Committee Organization Form [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Appointment of Outside Directors Number of Outside Directors Number of Outside Directors who are designated as Independent Directors 22 persons 1 year Chairman 15 persons Appointed 7 persons 5 persons Outside Directors’ Relationship with the Company (1) 17 / 51 Name Attribute Relationship with the Company (*) a b c d e f g h i j k Hiroyasu Nakata Scholar Yuri Sasaki Scholar Mitsumasa Icho From another company ○ ○ Go Watanabe From another company △ △ △ △ △ Teruyuki Minoura From another company Koichiro Hiraiwa From another company Hiroko Kaneko Scholar * Categories for “Relationship with the Company” * “○” when the Director presently falls within or has recently fallen into the category “△” when the Director fell within the category in the past * “●” when a close relative of the Director currently falls within or has recently fallen into the category “▲” when a close relative of the Director fell into the category in the past a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the Company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company in addition to compensation as a Director/Audit & Supervisory Board Member g. Major shareholder of the Company (or an executive of the major shareholder if the relevant h. Executive of a client or supplier of the Company (which does not correspond to any of d, e, or shareholder is a legal entity) f) (the Director himself/herself only) Supervisory Board (the Director himself/herself only) k. Other i. Executive of a company, between which and the Company’s Outside Directors/Audit & Members are mutually appointed (the Director himself/herself only) j. Executive of a company or organization that receives a donation from the Company 18 / 51 Outside Directors’ Relationship with the Company (2) Name Independent Director Supplementary Explanation of the Relationship — Hiroyasu Nakata ○ Reasons for Appointment Mr. Hiroyasu Nakata has academic expertise as a university professor and possesses deep knowledge of the law. Since he became an Auditor of the Company in 2018, he has utilized this background and contributed to ensuring the sound management of the Company by conducting audits from his neutral and objective perspective. Because he has contributed to appropriate decision-making and supervision of overall management by the Board of Directors as an Outside Director since he became a Director on April 1, 2021, we decided to ask him to continue to assume the Director position. We expect him to contribute to appropriate decision-making and supervision of overall management by the Board of Directors as an Outside Director based on his objective perspective, independent from the Company’s management team engaged in the execution of business, and also to contribute to the enhancement of the soundness, transparency, and fairness of management by giving advice to the Board of Directors as a member of the Governance Committee. (Reasons for designation as an Independent Director) We have determined that Mr. Hiroyasu Nakata fulfills the independence standards, and has no risk of conflicts of interest with general shareholders, after comprehensively taking into consideration his current status, past career, and other factors. We have therefore designated him as an Independent Director. 19 / 51 — Yuri Sasaki ○ Mitsumasa Icho Mr. Mitsumasa Icho is currently an Executive Vice President of Mitsubishi Corporation, a major shareholder of the Company. There is a transactional relationship, including lease contracts between 20 / 51 Ms. Yuri Sasaki has utilized her excellent knowledge and wealth of experience as an international finance researcher and a wealth of experience in supervision of the management at Hitachi Capital Corporation, as well as utilizing her academic expertise as a university professor, in the management of the Company. Because she has contributed to appropriate decision-making and supervision of overall management by the Board of Directors as an Outside Director since she became a Director on April 1, 2021, we decided to ask her to continue to assume the Director position. We expect her to contribute to appropriate decision-making and supervision of overall management by the Board of Directors by utilizing the above knowledge, and also to contribute to the enhancement of the soundness, transparency, and fairness of management by giving advice to the Board of Directors as a member of the Governance Committee. (Reasons for designation as an Independent Director) We have determined that Ms. Yuri Sasaki fulfills the independence standards, and has no risk of conflicts of interest with general shareholders, after comprehensively taking into consideration her current status, past career, and other factors. We have therefore designated her as an Independent Director. Mr. Mitsumasa Icho has a wealth of management experience at a major general trading company in Japan and deep knowledge about the financial business. Since he became a Director of the Company in 2019, he has utilized his background and contributed to appropriate decision-making and supervision of overall management by the Board of Directors based on his practical perspective, therefore we asked him to continue to assume the Director position. We expect him to contribute to appropriate decision-making and supervision of overall management by the Board of Directors by utilizing the above knowledge, and also to contribute to the enhancement of the soundness, transparency, and fairness of management by giving advice to the Board of Directors as a member of the Governance Committee. We newly appointed him to a Director position as we expect him to contribute to appropriate decision-making and supervision of overall management by the Board of Directors as an Outside Director based on his practical perspective, by utilizing a wealth of management experience at major financial institutions and manufacturers in Japan and deep knowledge about domestic and overseas financial business. We expect him to contribute to appropriate decision-making and supervision of overall management by the Board of Directors by utilizing the above knowledge, and also to contribute to the enhancement of the soundness, transparency, and fairness of management by giving advice to the Board of Directors as a member of the Governance Committee. Mitsubishi Corporation and the Company. Previously, Mr. Go Watanabe was a Managing Executive Officer of Mitsubishi UFJ Financial Group, Inc., which is the major shareholder of the Company. He was also a Managing Executive Officer of the Bank of Tokyo-Mitsubishi UFJ, Ltd. (currently MUFG Bank, Ltd.), with which the Company has funding and other financial transactions. He was also a First Senior Vice President of Nidec Corporation. There is a transactional relationship, including lease contracts between Nidec Corporation and the Company, but the amount is less than 1% of the consolidated net sales of Nidec Corporation and the Company for FY2020. Go Watanabe Teruyuki Minoura ○ Previously, Mr. Teruyuki Minoura was an executive of Toyota Boshoku Corporation. There is a transactional Mr. Teruyuki Minoura has a wealth of management experience and deep insight gained at major manufacturing companies in Japan. Since he became a Director of the Company in 2013, he has utilized this background and contributed to 21 / 51 relationship, including lease contracts between Toyota Boshoku Corporation and the Company; however, the amount is less than 1% of the consolidated net sales of Toyota Boshoku Corporation and the Company for FY2020. Previously, Mr. Koichiro Hiraiwa was an executive of THE KYOTO HOTEL, LTD. There is a transactional relationship, including lease contracts between THE KYOTO HOTEL, LTD. and the Company; however, the amount is less than 1% of the net sales of THE KYOTO HOTEL, LTD. and the consolidated net sales of the Company for FY2020. appropriate decision-making and oversight of overall management by the Board of Directors as an Outside Director based on his objective perspective, independent from the Company’s management team engaged in the execution of business. Since he became a Director on April 1, 2021, he has contributed to ensure the sound management of the Company as a Director who is an Audit and Supervisory Committee Member. (Reasons for designation as an Independent Director) We have determined that Mr. Teruyuki Minoura fulfills the independence standards, and has no risk of conflicts of interest with general shareholders, after comprehensively taking into consideration his current status, past career, and other factors. We have therefore designated him as an Independent Director. Mr. Koichiro Hiraiwa has a wealth of knowledge gained through experience at the Bank of Japan and a leading telecommunications company in Japan, and through management of a major hotel. Since he became a director of Hitachi Capital Corporation in 2015 (and the chairman of the board in June 2019), he has utilized this background and contributed to effective operations, appropriate decision-making, and supervision of overall management by the board of directors of Hitachi Capital Corporation based on his objective perspective, independent from Hitachi Capital Corporation’s management team engaged in the execution of business. In addition, because he served as the chair of the audit committee of Hitachi Capital Corporation, he has a wealth of experience and achievements in committee audits. Since he became a Director on April 1, 2021, he has contributed to ensure the sound Koichiro Hiraiwa ○ 22 / 51 management of the Company as a Director who is an Audit and Supervisory Committee Member. (Reasons for designation as an Independent Director) We have determined that Mr. Koichiro Hiraiwa fulfills the independence standards, and has no risk of conflicts of interest with general shareholders, after comprehensively taking into consideration his current status, past career, and other factors. We have therefore designated him as an Independent Director. Ms. Hiroko Kaneko has a wealth of experience which was gained as a Partner of a major audit corporation and from her time as a university professor. She also has extensive knowledge of accounting as a professional accountant. Since she became an Auditor of the Company in 2020, she has utilized her background and contributed to ensuring the sound management of the Company by conducting audits from her neutral and objective perspective. Since she became a Director on April 1, 2021, she has contributed to ensure the sound management of the Company as a Director who is an Audit and Supervisory Committee Member. (Reasons for designation as an Independent Director) We have determined that Ms. Hiroko Kaneko fulfills the independence standards, and has no risk of conflicts of interest with general shareholders, after comprehensively taking into consideration her current status, past career, and other factors. We have therefore designated her as an Independent Director. Hiroko Kaneko ○ [Audit and Supervisory Committee] Breakdown of members and attribution of Chairman 23 / 51 Audit and Supervisory Committee Committee Directors All members Full-time members Inside Directors Outside Directors 5 2 2 3 Chairman Inside Director Directors and employees who should support the duties of the Audit and Supervisory Appointed. Matters relating to the independence of the Directors and the employees from the Executive The Audit and Supervisory Committee was established as an organization with a command and order system that is independent from the executive department, and the appointed employees support the duties of the Audit and Supervisory Committee. To secure the effectiveness of instructions given by the Audit and Supervisory Committee to such employees, the prior consent of the Audit and Supervisory Committee is necessary for personnel transfers of such employees or disciplinary action against such employees. With respect to the decisions of personnel evaluations or compensation, etc. relating to such employees, it is necessary to obtain the prior consent of members of the Audit and Supervisory Committee elected by the Audit and Supervisory Committee. Cooperation between Audit and Supervisory Committee, Financial Auditors, and Internal Audit Department The Audit and Supervisory Committee cooperates closely with the Accounting Auditor, for example, by regularly holding meetings, receives explanations regarding audit plans and results of audits, and the situation surrounding the internal control audit for the financial report, etc., and proactively exchanges opinions and information. When the Audit and Supervisory Committee conducts research on the business activities and property of the Company, and performs other audit duties, and the Audit and Supervisory Committee cooperates closely with the internal audit department, for example, by regularly holding meetings, receives reports regarding audit plans and the circumstances and results of audits, and give instructions as necessary. The Audit and Supervisory Committee acknowledges that strong cooperation between the so-called three-pillars of effective audits, which consist of the Audit and Supervisory Committee’s audit, the Financial Auditor’s audit, and an internal audit by the internal audit department, is important, and it also conducts improvements and operations to develop a more effective and efficient auditing system. 24 / 51 [Voluntary Establishment of Committees] Voluntary Establishment of committee(s) equivalent to a nominating committee or compensation committee Established Status of establishment of voluntary committee(s) , composition of members, and attributes of Chairman Voluntary Establishment of committee(s) equivalent to a nominating committee Voluntary Establishment of committee(s) equivalent to a compensation committee Nomination Committee Compensation Committee Committee’s Name All members Full-time members Inside Directors Outside Directors Outside Experts Other 8 0 1 7 0 0 8 0 1 7 0 0 Chairman Inside Director Inside Director (Supplementary Explanation) The Company, based on the understanding that appropriate involvement of Independent Outside Directors is extremely important for resolutions related to nomination and compensation, separated such functions of the existing Governance Committee and newly established the Nomination Committee and Compensation Committee, of which Independent Outside Directors comprise the majority, on April 1, 2022. 25 / 51 The Nomination Committee discusses the appointment of Directors, the succession plan for the Representative Director, President & CEO, skills that the entire Board of Directors should have, and other matters. The Compensation Committee regularly monitor the Directors’ compensation system of the Company in comparison with the market standard by using an external specialized agency, and discusses policies concerning the systems, standards, etc. for Directors’ compensation. The majority of members in each committee shall be Independent Outside Directors. The members and the chairperson of each committee shall be selected by the Board of Directors, and items discussed in the committees shall be resolved by a majority of committee members in attendance. It is stipulated in internal rules that the Board of Directors shall make decisions in deference to decisions made by the committees. Nomination Committee (as of April 1, 2022) Chairperson: Inside Director Seiji Kawabe (Representative Director, Chairman) Members: Outside Directors Hiroyasu Nakata, Yuri Sasaki, Mitsumasa Icho, Go Watanabe, Teruyuki Minoura, Koichiro Hiraiwa, Hiroko Kaneko Compensation Committee (as of April 1, 2022) Chairperson: Inside Director Takahiro Yanai (Representative Director, President & CEO) Members: Outside Directors Hiroyasu Nakata, Yuri Sasaki, Mitsumasa Icho, Go Watanabe, Teruyuki Minoura, Koichiro Hiraiwa, Hiroko Kaneko [Independent Directors] Number of Independent Directors 5 persons The “Outside Directors’ independence decision criteria” prescribed by the Company are as Other matters relating to Independent Directors follows: “Outside Directors’ independence decision criteria” In addition to the requirements for Independent Directors/Auditors set forth by the Financial Instruments Exchanges of Japan, such as the Tokyo Stock Exchange, the Company shall judge independence through confirmation that the candidate has not qualified under any of the following 26 / 51 items (1) through (6) at any time in the past three fiscal years, and after consideration as to whether the individual is objectively and substantially independent: (1) A major shareholder (i.e., a shareholder holding 10% or more of the total voting rights) of the Company or an Executive thereof (Note 1); (2) An Executive of a lender of the Company that exceeds the Company’s standard (Note 2); (3) An Executive of a business partner of the Company that exceeds the Company’s standard (Note 3); (4) A consultant, attorney-at-law, certified public accountant, or other person who provides professional services, who receives more than 10 million yen per fiscal year in monetary or other assets from the Company, excluding officers’ compensation; (5) A representative partner or partner of the Company’s Accounting Auditor; (6) A person who belongs to an association which receives donations from the Company exceeding a certain amount (Note 4). Note 1 An Executive refers to an Executive Director, Executive Officer, or other employee. Note 2 A lender that exceeds the Company’s standard refers to a lender from whom the amount the Company has borrowed exceeds 2% of the consolidated total assets of the Company. Note 3 A business partner that exceeds the Company’s standard refers to a business partner whose dealings with the Company have a value equal to more than 2% of the consolidated net sales of the Company or of the relevant business partner; Note 4 Donations exceeding a certain amount refers to donations exceeding 10 million yen per fiscal year. Even if a candidate qualifies under any of items (1) through (6) above, if the relevant candidate is judged to be substantially independent and is registered as an Independent Director/Auditor with the Financial Instruments Exchanges of Japan, such as the Tokyo Stock Exchange, the reason for the candidate’s qualification(s) shall be explained and disclosed at the time of the candidate’s election as an Outside Director or Audit & Supervisory Board Member. [Incentives] Implementation of Incentive Policies for Directors Performance-based compensation plan / stock option plan Supplementary Explanation – The Company pays bonuses as single-year performance-based compensation. For details, please refer to II 1. “Disclosure of Policy on Determining Compensation Amounts and Calculation Methods” in “Compensation of Directors” of this report. – Also, in connection with to the Company’s transition into a company with an audit and supervisory committee on April 1, 2021, the Company resolved to grant compensation-type stock options to the Company’s directors who are not Audit and Supervisory Committee 27 / 51 Members (excluding outside directors and persons who will be subject to taxation outside Japan) at the extraordinary shareholders’ meeting held on February 26, 2021. Recipients of Stock Options Internal Directors, Other Supplementary Explanation The Company introduced the stock comp