三菱ケミカルホールディングス（4188） – [Delayed]Corporate Governance Report 2022/05/11

Corporate Governance Report Last Update: May 11, 2022 Mitsubishi Chemical Holdings Corporation Chief Executive Officer Jean-Marc Gilson General Manager, Corporate Communications Division Contact: Osamu Shimizu Securities Code: 4188 https://www.mitsubishichem-hd.co.jp/english/ The corporate governance of Mitsubishi Chemical Holdings Corporation (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The Mitsubishi Chemical Holdings Corporation (MCHC) Group defines KAITEKI as “the sustainable well-being of people, society and our planet Earth”, and has “realizing KAITEKI” as its vison. The MCHC Group will not stop at providing solutions to environmental and social problems, but also aim to contribute to a sustainability in both through our corporate activities. For Realizing KAITEKI, in accordance with these guidelines, MCHC shall establish a system to enhance both the soundness and efficiency of business administration, improve the transparency of its business administration through suitable disclosure of information and dialogue with stakeholders, and endeavor to establish a better suitable corporate governance system. Please refer to our “Mitsubishi Chemical Holdings Corporate Governance Guidelines” on the Company’s website for basic policies concerning corporate governance such as the roles, constitution and appointment criteria of the Board of Directors. (https://www.mitsubishichem-hd.co.jp/english/group/governance/policy.html ) [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The contents are based on the Corporate Governance Code revised in June 2021. In addition, the contents for the prime market, which will be applied after April 4, 2022, are voluntarily described in advance. (Voluntary and measurable goals for ensuring diversity) With regard to the “voluntary and measurable goals” related to the promotion of women, foreign nationals and midcareer hires to middle managerial positions, the MCHC Group does not currently set the Group’s common numerical targets as each Group company conducts recruitment and promotion of managers based on its business strategy in accordance with the MCHC Group’s basic strategy and medium-term management plan. (Concept of ensuring diversity and policies for human resource development and internal environment development to ensure diversity) Under its medium- to long-term basic management strategy KAITEKI Vision 30, the MCHC Group is aiming to create flexible human resources systems that embrace the diversity, expertise and mobility of its people and has been promoting reforms that are founded on the five pillars. – 1 – [Five pillars that form the foundation for highly accommodating human resources systems] 1. Ensuring pay for job/performance 2. Human resources systems designed according to each type of operation/job 3. Strengthening functions to create skills and minds that can meet global needs 4. The right jobs for the right people globally by using a common platform of talent management 5. Cluster-type organizations that enable complex problem solving Based on the foregoing, we have identified diversity and inclusion as one of the material issues to be addressed by the MCHC Group as part of our current medium-term management plan, APTSIS 25. We have also set the diversity ratio of management as a numerical target for fiscal 2025 and have embarked on corporate culture reforms by initially promoting diversity in a top-down fashion. [Disclosure Based on the Principles of the Corporate Governance Code] As used in this report, the following terms shall have the following meanings: “senior management” means corporate executive officers. “officers” means directors and corporate executive officers. (Mitsubishi Chemical Holdings Corporate Governance Guidelines [Development of a framework that improves the soundness and efficiency of management]) The Company and major subsidiaries shall acquire and hold shares of clients, etc. if the shareholding contributes to medium- to long-term improvement in corporate value. The Board of Directors shall review the adequacy of such cross-shareholdings on a regular basis. Considering the effect on the market, we make effort to sell such cross-shareholdings as assessed insufficient in adequacy. On September 16, 2021, the Board of Directors reviewed the adequacy of all cross-shareholdings of Group as of the end of March, 2021, in light of economic rationale as measured by ROIC and necessity for business, etc. As a result of the review, we have found insufficiency in adequacy of a part of cross-shareholdings. Considering the effect on the market, we will proceed to sell such cross-shareholdings as assessed insufficient. The Company investigates the existence of related party transactions such as transactions involving members of the board or corporate executive officers and their close relatives through methods including seeking direct confirmation from members of the board. The Company sets competitive and conflict-of-interest transactions as a matter to be resolved by the Board of Directors, who confirm the adequacy of the transactions. The Company has no shareholder who holds 10% or more of the voting rights of all shareholders. In order for corporate pension funds to perform their roles as asset owner, Mitsubishi Chemical Corporation which is the core business company of the Company group has taken measures based upon the guidelines as published by Ministry of Health, Labor and Welfare. Specifically, Mitsubishi Chemical Corporation has set guidelines for management of pension assets, established committee for management of pension assets, determined proportion of composition of political assets and implemented the total assessment of asset management companies. In addition to the foregoing, in cooperation with consultants, Mitsubishi Chemical Corporation has performed measures for proper management of corporate pension funds. (What the company aims for) The Company Group aims to realize KAITEKI through our corporate activities. KAITEKI is the Company’s original concept that means “the sustainable well-being of people, society and our planet Earth.” To realize KAITEKI, the Company Group promotes KAITEKI Management with the objective of increasing corporate value based on our three core management policies of improving capital efficiency, creating innovative technologies, and enhancing sustainability for people, society and the Earth with an emphasis on time. – 2 – Please refer to KAITEKI Management on the Company’s website for details. (https://www.mitsubishichem-hd.co.jp/english/kaiteki_management/kaiteki/) (Management plan) In February 2021, the Company has formulated its new medium-term management plan APTSIS 25, Step 1, which will commence from fiscal 2021. With regard to the impact of the COVID-19 pandemic, the situation will likely remain uncertain. Based on this awareness, the five-year period of APTSIS 25 from fiscal 2021 has been divided into two phases: Step 1 (With COVID-19) and Step 2 (After COVID-19). The principal measures in Step 1 (fiscal 2021 to fiscal 2022) have been formulated. The plan for Step 2 (fiscal 2023 to fiscal 2025) will be formulated in fiscal 2022. Please refer to the Medium-Term Management Plan on the Company’s website for details. (https://www.mitsubishichem-hd.co.jp/english/ir/pdf/01033/01180.pdf) (New Management Policy) The Company has formulated a new management policy “Forging the future” and it is disclosed on December 1, 2021. Please refer to a new management policy on the Company’s website for details. (https://www.mitsubishichem-hd.co.jp/english/ir/01168.html) (https://www.mitsubishichem-hd.co.jp/english/ir/library/analysts_meeting.html) (The Company’s view on overall corporate governance) Please refer to our “Mitsubishi Chemical Holdings Corporate Governance Guidelines” on the Company’s website for our view on overall corporate governance. (https://www.mitsubishichem-hd.co.jp/english/group/governance/policy.html) (Policy and procedures for deciding compensations of senior management and directors) (Mitsubishi Chemical Holdings Corporate Governance Guidelines [Development of a framework that improves the soundness and efficiency of management]3(3), [Enhancement of management transparency]5) The Compensation Committee determines the individual amount of compensation for each director, corporate executive officer and major subsidiaries president (excluding listed subsidiaries). Policy on Determining Remuneration of senior management and directors is [Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods] (Policy and procedures in the appointment/dismissal of the senior management and the nomination of directors) (Mitsubishi Chemical Holdings Corporate Governance Guidelines [Development of a framework that improves the soundness and efficiency of management]3(1), [Enhancement of management transparency]4) The Nominating Committee nominates candidates for directors, corporate executive officers and the presidents of major subsidiaries that are non-listed companies (Mitsubishi Chemical Corporation. and Life Science Institute, Inc.). In consideration of transparency and fairness in the process of nominating candidates, an outside director serves as the head of the committee. Policy on appointment/dismissal of senior management and nomination of directors is described at [Policy on appointment/dismissal of senior management and nomination of directors]. (Reason for the Appointment of Officers) The reason for appointment of officers are described at the end of this report [Reason for appointment of the Director] and [Reason for appointment of the corporate executive officers]. The MCHC Group works to increase corporate value through KAITEKI Management by implementing the three axes of management of sustainability (MOS), management of technology (MOT) and management of economics (MOE) in an integrated manner. We work through our value creation cycle aimed at sustainable growth. We start with a focus on environmental and social issues as well as accelerating changes in social needs. We then identify growth business domains where the MCHC Group’s business portfolio can provide solutions, in line with our mission and value. In addition, the MCHC Group’s vision toward 2030 under KAITEKI Vision 30 is to solve social issues for a sustainable future through leadership as a global solutions provider, and the Group has formulated its medium-term management plan APTSIS 25 toward achieving such vision. Under APTSIS 25, we have – 3 – identified the material issues to be addressed by MCHC Group and set targets for the material issues identified, with MOS Indices also set to measure progress in order to proceed steadily with initiatives. With regard to the disclosure of the impact of climate change-related risks and earning opportunities on its business activities and profits, MCHC announced its support for the final TCFD recommendations in October 2018. Within the framework of enhanced climate change-related measures, the MCHC Group is working for improved solutions in GHG reduction and carbon cycle, which are among the growth businesses identified in KAITEKI Vision 30, as well as progressing with measures toward achieving the strategy’s target for GHG reduction. Progressive enhancement of information disclosure is another initiative which we are targeting to increase our corporate value. For details, please refer to “Sustainability” and “Report in Line with the Recommendations of the TCFD” on the Company’s website and the Company’s integrated report KAITEKI Report 2021. (https://www.mitsubishichem-hd.co.jp/english/sustainability/index.html) (https://www.mitsubishichem-hd.co.jp/english/ir/library/tcfd.html) (https://www.mitsubishichem-hd.co.jp/english/ir/library/kaiteki_report.html) The Company delegates authority to corporate executive officers to make all business execution decisions, with the exception of matters that must be legally resolved by the Board of Directors and important matters in terms of portfolio management. (Mitsubishi Chemical Holdings Corporate Governance Guidelines Attachment 2) Independence Standards for Independent Directors are described at [Matters relating to Independent Directors]. (Mitsubishi Chemical Holdings Corporate Governance Guidelines [Development of a framework that improves the soundness and efficiency of management]2(2)) In order to establish the Group’s basic management policies and oversee management appropriately, Directors who possess an advanced level of knowledge and deep insight in management experience, finance and accounting, science technology, IT and production, risk management, business strategy and marketing, laws and regulations, etc., and globalism and diversity are appointed. Furthermore, in a bid to enhance oversight functions, a majority of Directors of the Board will not concurrently take on the role of Corporate Executive Officer. Regarding the skills matrix described above, please refer to the Notice of the General Meeting of Shareholders. (https://www.mitsubishichem-hd.co.jp/english/ir/pdf/01079/01234.pdf) Regarding the Directors of the Board’s concurrent positions, please refer to the Notice of the General Meeting of Shareholders. (https://www.mitsubishichem-hd.co.jp/english/ir/pdf/01079/01234.pdf) – Implementation of the Board of Directors Effectiveness Evaluation In accordance with the Mitsubishi Chemical Holdings Corporate Governance Guidelines, the Board of Directors is evaluated for their effectiveness annually and a summary of the results are disclosed. – Evaluation methods and processes In FY 2020, the evaluation was conducted by an independent external review organization by inspection of the minutes of meetings of the Board of Directors, the Corporate Executive Officers Committee, the Nominating Committee, the Audit Committee, and the Compensation Committee, collecting responses from all directors including the chairperson through a questionnaire (answers using a 5-point scale and written comments), interviewing each director for about one hour, and providing an evaluation based on the reviewer’s professional knowledge. Based on such results, the Board of Directors discussed the issues that – 4 – should be addressed and future challenges. Based on these discussions, the Chairperson reported the issues that should be addressed and future challenges to the Board of Directors. – Outline of evaluation results The findings from the evaluation of the Board of Directors’ effectiveness conducted by the independent review organization are briefly described as follows. i) The effectiveness of the Board of Directors is secured in terms of a structural framework, as is shown in such fact that the scheme of a “company with a nominating committee, etc.” defined in Japan’s Companies Act is adopted. However, some critical issues are found in terms of the substance. ➢ Many directors have pointed out that the effectiveness as a holding company’s board of directors is not sufficiently secured, and they have advocated the necessity of clarifying the roles of the Board and redefining the agenda. ii) Efforts to address the issues identified in the previous year’s effectiveness evaluation brought improvements in some issues. However, some other issues have not been sufficiently addressed, as is clear from harsh comments given by some outside directors. Their comments pertain to discussions on roles as a holding company, prior distribution of board meeting materials, and other problems. iii) Since the mission of increasing corporate value of the Mitsubishi Chemical Holdings Corporation is to be entrusted to a new CEO recruited from outside, enhancing the effectiveness of the Board of Directors, as the supervisory body of the CEO, is an urgent critical issue. Therefore, the Company is expected to address the following four issues, among others. ➢ Redefining the roles of the Board of Directors and redesigning the agenda ➢ Encouraging directors’ leadership ➢ Revisiting the composition of the Board of Directors ➢ Reinforcing the function of director nomination Based on the evaluation findings described above and ensuing discussions by the Board of Directors, The Company is going to take action toward redefining the roles of the Board of Directors and the agenda, revisiting the composition of the Board of Directors and further reinforcing the function of director nomination. [Outline of results of the Evaluation on the Effectiveness of the Board of Directors in fiscal 2020] is described at the end of this report. (Mitsubishi Chemical Holdings Corporate Governance Guidelines [Development of a framework that improves the soundness and efficiency of management]4(1)) MCHC shall explain to outside directors the Group’s business contents and organization on a continuing basis, and provide opportunities to visit domestic and overseas business sites as well as opportunities for dialogue with the management on a regular basis. For internal directors, opportunities to develop qualities suitable for directors shall be provided through external seminars held by various organizations, in addition to trainings on compliance and internal control. (Mitsubishi Chemical Holdings Corporate Governance Guidelines Attachment 1) MCHC will ensure appropriate disclosure so as to gain the trust of our shareholders and encourage long-term holding of MCHC’s shares. MCHC also intends to engage in active dialogue with shareholders and reflect it in our corporate activities. (Policy on Dialogue with Shareholders) Disclosure to and dialogue with shareholders shall be implemented by each relevant department, in cooperation with each other, under the supervision of the President, officer in charge of IR and officer in charge of legal. Opinions obtained through the dialogue will be reported to the Board of Directors, etc., and shared by the management. Please refer to our “Mitsubishi Chemical Holdings Corporate Governance Guidelines” on the Company’s website for our Policy on Dialogue with Shareholders. (http://www.mitsubishichem-hd.co.jp/english/pdf/governance_guidelines.pdf) – 5 – 2. Capital Structure Percentage of Foreign Shareholders more than 20% [Status of Major Shareholders] Name / Company Name The Master Trust Bank of Japan, Ltd. (Trust account) Custody Bank of Japan, Ltd. (Trust account) Meiji Yasuda Life Insurance Company Nippon Life Insurance Company SSBTC CLIENT OMNIBUS ACCOUNT Custody Bank of Japan, Ltd. (Trust account 7) Custody Bank of Japan, Ltd. (Trust account 4) STATE STREET BANK WEST CLIENT – TREATY 505234 MUFG Bank, Ltd. JPMorgan Securities Japan Co., Ltd. Number of Shares Owned Percentage (%) 14.00 6.37 4.52 2.99 2.74 1.77 1.56 1.49 1.44 1.37 199,362,400 90,679,100 64,388,743 42,509,094 38,985,807 25,161,500 22,175,900 21,264,209 20,552,904 19,523,881 Controlling Shareholder (except for Parent Company) Parent Company None None Supplementary Explanation 3. Corporate Attributes (Updated) Listed Stock Market and Market Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Tokyo Stock Exchange Prime Market March Chemicals More than 1000 More than ¥1 trillion Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year More than 300 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder None – 6 – 5. Other Special Circumstances which may have Material Impact on Corporate Governance Based on our company philosophy of “We create innovative solutions globally based on our core values of Sustainability, Health and Comfort, striving for the well-being of people, society and our planet Earth.”, we have been promoting, in a smooth and efficient manner, our group’s portfolio management, financial strategy, corporate governance, the enhancement of group strength and branding management, demonstrating our group’s collective strengths, making efforts to maximize the corporate value of our group as a whole. Also, we are deeply aware of the fact that corporate activities are supported by the general public. When performing group management, we make every effort to enhance governance of our group as a whole so that the group companies will promote compliance, comply with social rules, faith fully meet the demands of society as a good corporate citizen, and perform corporate social responsibilities. Among our consolidated subsidiaries, Nippon Sanso Holdings Corporation(“NSHD”) is listed on the Tokyo Stock Exchange. NSHD is a listed subsidiary that supports the Industry Gases Segment, which is our Group’s main business. Under the four-pronged business system of Japan, the United States, Europe and Asia/Oceania, NSHD has been working to further expand its business scale and improve profitability by developing its gas utilization technologies globally. We believe that maintaining the listing of NSHD and conducting business independently will serve the interests of NSHD and us. We also believe that working closely with NSHD to achieve its objectives will lead to maximizing the corporate value of our Group. Pursuant to Master Agreement dated 13 May 2014 (the “Agreement”), NSHD and we have agreed to maintain the listing of NSHD shares. We have put in place a system to ensure the appropriateness of operations within our Group, and share compliance, risk management and other Group internal control policies with NSHD. Meanwhile, NSHD and we have agreed to respect the autonomy of NSHD management in the Agreement, and NSHD has established a voluntary Nomination and Compensation Advisory Committee, which advises the Board of Directors on the nomination of candidates for Directors and Statutory Auditors and the election and dismissal of CEOs and other executive officers. This committee consists of two inside directors and three independent outside directors, and is chaired by an independent outside director. This ensures NSHD’s independence from us regarding the selection of management team members. In addition, NSHD appoints three independent outside directors and two full-time independent outside statutory auditors to oversee conflicts of interest between us and other shareholders. II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Company with Three Committees (Nomination, Audit and Remuneration) 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 Other Director 20 1 12 – 7 – [Outside Directors] Number of Outside Directors Number of Independent Directors 5 5 Outside Directors’ Relationship with the Company (1) Name Attribute Takayuki Hashimoto From another company Chikatomo Hodo From another company Kiyomi Kikuchi Lawyer Tatsumi Yamada CPA Takako Masai From another company Relationship with the Company* a b c d e f G h i j k △ △ ○ △ * * * Categories for “Relationship with the Company” ”○” when the director presently falls or has recently fallen under the category; “△” when the director fell under the category in the past “●” when a close relative of the director presently falls or has recently fallen under the category; “▲” when a close relative of the director fell under 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 listed 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 besides compensation as a director/kansayaku g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) Name Takayauki Hashimoto Designation as Independent Director ○ of Supplementary Explanation Relationship For Mr. Hashimoto, Honorary Executive Advisor of IBM Japan, Ltd., with which our Group had a very small amount of business transactions in fiscal – 8 – the Reasons of Appointment Mr. Hashimoto has extensive experience in corporate management and profound insight into digital business, having served successively as a president and a chairperson of a Japanese subsidiary of a global corporation that provides products and services related to 2020, no more than 1% of its consolidated net sales or our consolidated net sales, we sees no issue with his independence. of he overall contributions risk management, of information system. During Board of provides Directors meetings, oversight corporate management from an independent and impartial standpoint, while making useful suggestions in relation to global management, business portfolio strategy, and etc. As the Nominating Chairperson Committee, he also fulfills a leading role in making fair and transparent decisions on succession plans for management and nomination of candidates for Directors, Corporate Executive Officers, etc. During the fiscal year under review, he put extra efforts into the nomination of the next Corporate Executive Officer, President and CEO. As he is expected to continue making to establishing basic management policies and ensuring proper oversight of management by the Board of Directors of MCHC through such initiatives, the Board of Directors elected Mr. Hashimoto as an outside director. In addition, Mr. Hashimoto satisfies our standards for director independence. We thereby designated Mr. Hashimoto as an independent director in accordance with the regulations stipulated by the Tokyo Stock Exchange. Mr. Hodo has extensive experience in corporate management and profound insight in digital business successively as a president and a chairperson of a a global Japanese subsidiary of corporation, provides management consulting and knowhow in company management. During Board of provides Directors meetings, oversight corporate management from an independent and impartial standpoint, while making useful suggestions in relation to matters such as global management, portfolio management, corporate value enhancement from a perspective of ESG. As Chairperson of the Compensation Committee, he also fulfills a leading role in making fair and transparent decisions implementation of on design and remuneration system for Directors and Corporate Executive Officers. As he is expected making to establishing basic contributions management policies and ensuring proper oversight of management by the continue overall which and he of to ○ For Mr. Hodo, Senior Corporate Advisor of Accenture Japan Ltd, with which our Group had a very small amount of business transactions in fiscal 2020, no more than 1% of its consolidated net sales or our consolidated net sales, we sees no issue with his independence. Chikatomo Hodo – 9 – ○ 〇 Kiyomi Kikuchi Tatsumi Yamada She to institutions also ensuring is expected contributions Board of Directors of MCHC through such initiatives, the Board of Directors elected Mr. Hodo as an outside director. In addition, Mr. Hodo satisfies our standards for director independence. We thereby designated Mr. Hodo as an independent director in accordance with the regulations stipulated by the Tokyo Stock Exchange. Ms. Kikuchi has abundant experience working at financial in addition to her profound insight as a lawyer specialized in corporate legal affairs. During Board of Directors meetings, she provides oversight of overall corporate management from an independent and impartial standpoint, while making useful suggestions in relation to matters such as the functions and responsibilities of the Board of Directors, risk assessments, and global makes governance. contributions the effectiveness of corporate governance of the Company as a member of the Nominating Committee and the Audit to Committee. As she continue making to establishing basic management policies and ensuring proper oversight of management by the Board of Directors of MCHC through such initiatives, the Board of Directors elected Ms. Kikuchi as an outside director. In addition, Ms. Kikuchi satisfies our standards for director independence. We thereby designated Ms. Kikuchi as an independent director in accordance with the regulations stipulated by the Tokyo Stock Exchange. Mr. Yamada has profound insight as an in international accounting expert, addition to abundant experience as a certified public accountant. During Board of Directors meetings, he provides oversight corporate management from an independent and impartial standpoint, while making useful suggestions in relation to matters such as finance and accounting, disclosures, and market valuation. He also makes contributions to ensuring the effectiveness of corporate governance of the Company as a member of the Audit the Compensation Committee and to is expected Committee. As he to contributions continue making overall of For Ms. Kikuchi, a lawyer with TMI Associates, with which our Group had a very small amount of business transactions in fiscal 2020, no more than 1% of the firm’s revenue or our consolidated net sales, we sees no issue with her independence. For Mr. Yamada, former Board Member of KPMG AZSA LLC, with which our Group had a very small amount of business transactions in fiscal 2020, no more than 1% of its consolidated net sales or our consolidated net sales, we sees no issue with his independence. – 10 – establishing basic management policies and ensuring proper oversight of management by the Board of Directors of MCHC through such initiatives, the Board of Directors elected Mr. Yamada as an outside director. In addition, Mr. Yamada satisfies our standards for director independence. We thereby designated Mr. Yamada as an independent director in accordance with the regulations stipulated by the Tokyo Stock Exchange. Ms. Masai has abundant experience and profound insight in the analysis of the economic and financial climate as well as in financial and monetary policy operations, with her career ranging from the departments of a manager of financial products and services and economic research at various banks including foreign financial institutions to a Member of the Policy Board of the Bank of Japan. With this experience and insight, her an independent Outside Director, primarily in terms of finance and market risk management, in are establishing basic management policies and ensuring proper oversight of management by the Board of Directors of the Company; thus, the Board of Directors newly elected as an outside director. In addition, Ms. Masai satisfies our standards for director independence. We thereby designated Ms. Masai as an independent director in accordance with the regulations stipulated by the Tokyo Stock Exchange. contributions expected as 4 3 3 Outside Director Outside Director Outside Director 〇 – Takako Masai All Committee Members Full-time Members Inside Directors Chairperson Outside Directors [Committees] (Updated) Committee’s Composition and Attributes of Chairperson Nomination Committee Remuneration Committee Audit Committee 5 4 5 0 0 2 [Executive Officers (Shikkoyaku)] (Updated) 1 1 2 – 11 – Number of Executive Officers (Shikkoyaku) 11 Status of Additional Duties Name Representative Authority Jean-Marc Gilson Nobuo Fukuda Yuko Nakahira Ken Fujiwara Johei Takimoto Hitoshi Sasaki Yoshihiro Ikegawa Hiroaki Ueno Larry Meixner Jin Iida Shigeki Habuka Yes Yes No No No No No No No No No Additional Duties as Director Nominating Committee Member No Compensation Committee Member No Additional Duties Employee as Yes No No Yes No No No No No No No No No Yes No No No No No No No No No No No No No No No No No No No No No No No No No No No No – 12 – [Auditing Structure] (Updated) Appointment of Directors and/or Staff to Support the Audit Committee Appointed Matters Related to the Independence of Such Directors and/or Staff from Executive Officers (Shikkoyaku) The Office of Audit Committee was established as an organization to assist the Audit Committee in its duties. This office supports the committee in its duties following the instructions provided by the Audit Committee. In addition, personnel (transfers, evaluations, etc.) decisions on employees in the Office of Audit Committee and the office budget must be approved by the Audit Committee. Cooperation among Audit Committee, Accounting Auditors and Audit Departments The Company has appointed Ernst & Young ShinNihon LLC as our accounting auditor. The Audit Committee exchanges information with the accounting auditor on audit plans and results regularly. In addition, the Audit Committee works with the audit department and an internal control department to efficiently implement audits. The audit department conducts audits of operations of the Company and its group company including Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation and Life Science Institute, Inc. in accordance with an annual audit plan, collaborates with the audit departments of Nippon Sanso Holdings Corporation, and improves and administers a system designed to ensure that internal audits of the Group are carried out appropriately. Moreover, the audit department proposes an annual audit plan after prior consultation with the Audit Committee, and then formulates the plan with approval from the President and the Audit Committee. In addition, the audit department reports to the Audit Committee on internal audit implementation status, and audit results. The audit department also cooperates with audits conducted by the Audit Committee, including reporting on the status of audits by the Audit Committee at meetings attended by the head of the audit department. In addition, we are working to strengthen our cooperation with our accounting auditor, including regular information exchanges on mutual audit policies and audit results. [Independent Directors] Number of Independent Directors 5 Matters relating to Independent Directors The Company shall elect those as Outside Directors who do not fall under any of the following and are capable of overseeing the Company’s management from a fair and neutral standpoint, free of a conflict of interest with general shareholders. [Standards for Independence of Outside Directors] 1.Related party of the Company (1) A Person engaged in execution of operation of the Company Group (executive director, corporate executive officer, executive officer, manager, employee, partner, etc. The same shall apply hereafter.) (2) A Person who has been engaged in execution of operation of the Company Group in the past 10 years 2.Major shareholder 3.Major business partner A person who directly or indirectly holds 10% or more of the Company’s total voting rights or a person engaged in execution of operation of a company that directly or indirectly holds 10% or more of the Company’s total voting rights (1) A person engaged in execution of operation of a company*1 whose major business partner includes the Company and Group Major Subsidiaries (Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation, Life Science Institute, Inc., and Nippon Sanso Holdings Corporation. The same shall apply hereafter.) – 13 – (2) A person engaged in execution of operation of a major business partner*2 of the Company and Group Major Subsidiaries 4.Accounting Auditor 5.Transaction as an individual 6.Donation Accounting Auditor of the MCHC Group or an employee thereof A person who receives money and other financial benefits of 10 million yen or more per year from any of MCHC and Group Major Subsidiaries A person who receives a donation or financial assistance of 10 million yen or more per year from any of MCHC and Group Major Subsidiaries or a person engaged in execution of operation of a company that receives a donation or financial assistance of 10 million yen or more per year from any of MCHC and Group Major Subsidiaries 7.Reciprocal assumption of the position of Director A person engaged in execution of operation of a company that has elected any of the Directors and employees of the MCHC Group as its Director 8.Close relatives, etc. (1) Close relatives, etc. of a person engaged in execution of important operations of the MCHC Group (spouse, relatives within the second degree of relationship or any person who shares the same livelihood. The same shall apply hereafter.) (2) Close relatives, etc. of any person who meets the definition of items 3 through 7 above *1 If the said business partner receives from MCHC and Group Major Subsidiaries an amount equivalent to 2% or more of its annual consolidated net sales in the latest fiscal year, this company shall be considered as the one whose major business partner includes MCHC. *2 If MCHC and Group Major Subsidiaries receives from the said business partner an amount equivalent to 2% or more of MCHC’s annual consolidated net sales in the latest fiscal year or the said business partner loans to the MCHC Group an amount equivalent to 2% or more of MCHC’s total consolidated assets, the said business partner shall be considered as a major business partner of MCHC. *3The party is deemed to fall under the items 3 to 7 when the relevant conditions were met any time in the past 3 years. [Incentives] Incentive Policies for Directors and/or Executive Officers (Shikkoyaku) Supplementary Explanation Stock Options, Performance-based Share Compensation Plan etc. Remuneration for corporate executive officers comprises base remuneration (fixed remuneration), annual bonus and Performance Share Unit (PSU) introduced in fiscal 2021 as performance-based remuneration, and restricted stock remuneration (RS). Remuneration levels and ratios are set at a competitive level with appropriate percentage of remuneration, after comparing the levels of remuneration and performance linkage, by title and responsibilities/duties, with other companies of similar size in domestic sales (for foreign national officers, however, sales in certain regions to be considered in order to acquire the talent, such as the place/country of birth or residence of an officer) and market capital. – 14 – Annual bonus The amount of individual bonus for Corporate Executive Officers is determined in proportion to the KAITEKI Value evaluation (on the achievement of annual targets under the three axes of the KAITEKI Management that the MCHC Group values) and individual appraisal (on the achievement of initiative targets set individually under the medium and long-term management plan, leadership status, etc.). Individual bonus amount = Base amount by title x KAITEKI Value evaluation (0-200%) x Individual appraisal (±20%) [KAITEKI Value evaluation] To make officers conscious of the KAITEKI Management toward the Company’s vision, “Realizing KAITEKI,” the Company directly applies management indicators for the three respective axes of the KAITEKI Management, MOS, MOT, and MOE, as indicators for evaluating bonuses. Specific evaluation indicators for the KAITEKI Value evaluation are selected every fiscal year, primarily from the following: KAITEKI Management axis MOS MOT MOE Management indicator for each axis = Bonus evaluation indicator Indicator determined as associated with reduction of environmental burden such as GHG, contributions to health/medical treatment and social issues, compliance, accident/fire prevention, etc. Indicator associated with R&D efficiency, and alignment with technological edge and social needs Indicator associated with core operating income, ROE, ROIC, operating cash flow, etc. % of evaluation 20% 10% 70% [Individual appraisal] For targets for the Corporate Executive Officer, President and CEO, those declared by the Corporate Executive Officer, President and CEO at the beginning of the fiscal year are reviewed and determined by the Compensation Committee and the Nominating Committee. As to their evaluation, they are reviewed and determined by the Compensation Committee and the Nominating Committee at the end of the fiscal year, based on self-assessment by the Corporate Executive Officer, President and CEO. For targets and evaluation for Corporate Executive Officers other than the Corporate Executive Officer, President and CEO, they are determined through an interview held between each Corporate Executive Officer and the Corporate Executive Officer, President and CEO, then reviewed and approved by the Compensation Committee. In cooperation with the Nominating Committee, the Compensation Committee verifies the fairness and reasonableness of the targets and evaluations for the respective Corporate Executive Officers. Performance share unit (PSU) – 15 – In the fiscal 2021, the Company has discontinued the stock remuneration plan using the BIP trust and introduced a new PSU. Under the Company’s PSU, which is intended to make officers conscious of sustainable improvement in corporate value and shareholder value, common stock of the Company is issued every year, in principle, in the number calculated in proportion to growth in the Company’s share price (TSR: total shareholder return) during a period of three years. The method of calculating the number of stocks to be issued individually under the Company’s PSU is as follows: Recipients of Stock Options Supplementary Explanation [Remuneration for Directors and Executive Officers (Shikkoyaku)] Disclosure of Individual Directors’ No Individual Disclosure Remuneration Disclosure of Individual Executive Officers’ Selected Executive Officers (Shikkoyaku) (Shikkoyaku) Remuneration Supplementary Explanation In FY 2020, we paid 11 members of the board of directors, for a total of 256 million yen. In fiscal 2020, we paid seven corporate executive officers and paid a total of 409 million yen. In addition, there is ¥11 million in remuneration, etc., from our subsidiary, in which our corporate executive officers concurrently hold positions as officers. The remuneration paid to corporate executive officers includes a performance fee of ¥33 million from the BIP Trust and ¥62 million of restricted stocks compensation. Also, the Company disclose the individual corporate executive officers’ remunerations whose are over 100 million yen on Annual securities report. Policy on Determining Remuneration Amounts and Calculation Methods Established – 16 – Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods The remuneration system for directors and corporate executive officers shall be separate and determined by the Compensation Committee based on the following principles. (Basic Policy on Decision on Directors’ Compensation) ・ In view of the role of supervising and auditing our management from an independent and objective standpoint, we have only established a basic remuneration (fixed remuneration). ・ In order to secure human resources suitable for fulfilling our responsibilities as a director, the level of remuneration will be determined by taking into account trends in other companies, expected roles, and functionals, etc. (Basic Policy on Decision on Corporate Executive Officer Remuneration) ・ We have established a remuneration system that is strongly aware of the three axes of KAITEKI management toward realizing our corporate vision of KAITEKI : Management of Sustainability (MOS), Innovation (Management of Technology), and Economic Efficiency (Management of Economics). ・ The remuneration system will function effectively as an incentive to promote short-term and medium-to long-term performance and the improvement of sustainable company and shareholder value. ・ We will establish competitive remuneration levels that will lead to the retention and acquisition of talented management personnel that will drive the Group’s sustainable growth. ・ We will operate with a fair and rational compensation decision process that enables us to fulfill our accountability to all stakeholders, including shareholders, customers, and employees. (Basic policy on deciding remuneration, etc., for officers recruited from outside) ・ Remuneration, etc., for officers recruited from outside shall be determined on a case-by-case basis, by considering the levels and customs of remuneration expected in the place/country of birth or residence of the officer recruited under the above basic policies. Based on the above basic policy, the Compensation Committee stipulates the compensation structure for corporate executive officers as follows. ・ Basic remuneration: Basic remuneration shall be paid by fixed cash for the execution of responsibilities/duties and defined by roles and the size of responsibilities (title, with or without representation, etc.) of each Corporate Executive Officer. ・ Annual bonus: Annual bonus (by cash) is the short-term and performance-based compensation which shall be paid by multiplying the standard amount for each position by KAITEKI value appraisal and individual evaluations (achievement of targets and demonstration of leadership in the medium-to long-term management plan, etc.) ・Performance Share Unit: Stocks are issued based on growth in the Company’s share price in a period of three years (TSR*) (*) In comparison to JPX-Nikkei 400 Index and peer group (domestic or foreign chemical/health care companies with global operational presence). ・ Restricted stock compensation: Shares with restriction of transfer worth the base value defined by title are issued every fiscal year and the restriction of transfer will be removed when an officer retires. We may take advantage of other extraordinary rewards and benefits, if necessary, after discussing them individually at the Compensation Committee. In addition, in the event of a material misconduct or violation of any act committed by a director or corporate executive officer, after deliberation by the Compensation Committee, we may demand that such director or corporate executive officer confiscate (malus) the beneficial interests of compensation of corporate executive officer or refund (claw-back) the remuneration Remuneration package for new Corporate Executive Officer, President and CEO – 17 – To assess the remuneration and benefit package for our new representative, Jean-Marc Gilson, Corporate Executive Officer, President and CEO, for the fiscal 2021, the Company considered his experience and actual achievement of global management and a headhunting market expected from his place/country of birth or residence, conducting research and study of globally competitive remuneration plans, levels, and benefits before finalizing the specific details of the package. Similarly to other Corporate Executive Officers, the Policy on Deciding Remuneration for Directors and Corporate Executive Officers of the Company applies to him, and the following should be noted among other remuneration, etc., that apply to him: a. Fringe benefit He is provided with a fringe benefit, such as a company residence (or a housing allowance) to stay in Japan and medical insurance policy. The Compensation Committee determined the details and levels of these benefits by reference to overseas standard practices. b. Severance pay (special pay provided for contract termination due to the company circumstances) If the Company terminates a contract of mandate then in effect, based on a decision by the Nominating Committee, the Company may provide severance pay in cash up to the “amount totaling annual basic remuneration and annual bonus (base).” Severance pay is intended to offer the minimum protection to a Corporate Executive Officer subject to termination so that one would not make any improper management decisions to protect one’s own position. Whether to provide severance pay and its amount are reviewed and determined on a case-by-case basis by the Compensation Committee, in cooperation with the Nominating Committee. c. Sign-on bonus (shares with restriction of transfer (RS) issued at the time of assuming the position) Separately from the regular remuneration package, he was issued with shares with restriction of transfer (RS) when he assumed the position. For these shares with restriction of transfer, a third of the restriction will be removed at the end of each fiscal year during a period of three years after he assumes the position. If he resigns before the removal of the restriction, the right to receive issuance for the relevant restricted portion will be lapsed. (The Company will acquire the portion for free.) [Supporting System for Outside Directors] Secretariats have been set up for the Board of Directors and each of the Company’s committees and provide support and assistance to outside directors. When the Board of Directors or one of the committees holds a meeting, the respective secretariat supplies the outside directors with materials and other pertinent information beforehand. In addition, individual explanations are provided to ensure that the outside directors can perform a full review in advance. That being said, the Office of Audit Committee, which was set up as a unit to assist the Audit Committee, has its own independent and exclusive staff. Furthermore, in addition to the Board of Directors and each committee meetings, a proper environment is being maintained, including the holding of regular meetings that are attended by the outside directors, to ensure the outside directors’ oversight functions work effectively. – 18 – [Status of persons retired from Representative Director and President, etc.] (Updated) Names, etc., of advisors (“sodanyaku,” “komon,” etc.) who have formerly served as Representative Director and President, etc. Working Arrangement / Conditions （Full-time / Date of Name Title / Position Activity Description Part-time, Retirement from Term President, etc. Compensation） Kanji Mitsubishi Outside activities, -Working Arrangement: October 3, 2007 1 Year Shouno Chemical etc. at industry Part-time (renewable) Corporation associations, etc. on -Compensation: No Senior behalf of the Executive company Consultant Senior behalf of the Executive company Consultant Senior behalf of the Executive company Consultant Senior behalf of the Executive company Consultant Masanao Mitsubishi Outside activities, -Working Arrangement: April 1, 2016 1 Year Kanbara Chemical etc. at industry Part-time (renewable) Corporation associations, etc. on -Compensation: No Hiroaki Mitsubishi Outside activities, -Working Arrangement: April 1, 2017 1 Year Ishiduka Chemical etc. at industry Part-time (renewable) Corporation associations, etc. on -Compensation: No Takumi Mitsubishi Outside activities, -Working Arrangement: April 1, 2017 1 Year Ubagai Chemical etc. at industry Part-time (renewable) Corporation associations, etc. on -Compensation: No Hitoshi The Company Outside activities, -Working Arrangement: June 24, 2021 1 Year Ochi Senior etc. at industry Part-time (renewable) Executive associations, etc. on -Compensation: No Consultant behalf of the company – 19 – Total number of advisors (“sodanyaku,” “komon,” etc.) who have formerly served as 5 persons President and Representative Director, etc. Other information -The table lists former presidents and chairpersons of the Company or Mitsubishi Chemical Corporation which is the core business company of the Company group. -Senior Executive Consultant does not participate in management. -The date of retirement as the representative director and chairman of the Company or Mitsubishi Chemical Corporation (including former company) is stated in ” Date of Retirement from President, etc.” in the table above. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) (1) Oversight A. Board of Directors (12 members (of which two members are female); five outside directors, chairman; inside director, term of directors; one year) The Board of Directors determines basic management policies, such as the Medium-Term Management Strategy and the Annual Budget. Decisions on business execution based on these basic policies are, in principle, delegated to Corporate Executive Officers, except for matters resolved by the Board of Directors as required by law, and mainly supervises the execution of duties by Corporate Executive Officers. In addition to directors from within the Group who have a broad knowledge of the Group’s three business fields of functional products, materials, and healthcare, we have appointed five outside directors with backgrounds such as corporate managers, experts in social and economic conditions, science and technology, certified public accountants, and lawyers. We reflect diverse opinions in management decisions and strengthen supervisory functions. The Company’s Articles of Incorporation stipulates that the number of directors shall not exceed 20. As of the date of submission of this report, the Company has 12 directors, including five outside directors (of which two are concurrently serving as corporate executive officers). In addition, the term of office for directors is set at one year in order to create a management system that can respond swiftly to changes in the business environment and to further clarify the management responsibilities and roles of directors. With a view to strengthen the independence of the Board of Directors and strengthening cooperation between executive officers and outside directors, the Company appoints the Leading Independent Outside Director. The Leading Independent Outside Director collects the opinions of outside directors and hold discussions with the chairman of the Board of Directors and the president of executive officers, and presides over a conference body consisting only of outside directors. In FY 2021, the Board of Directors met 9 times. The attendance of each director is as follows. Hitoshi Ochi and Hideko Kunii describe the attendance of the Board of Directors until their retirement in June 2021, and Jean-Marc Gilson describe the attendance of the Board of Directors after his assumption of office in June 2021 and Takako Masai describe the attendance of the Board of Directors after her assumption of office in July 2021. ・ Yoshimitsu Kobayashi: 9/9 (100%) ・ Hitoshi Ochi: 2/2 (100%) ・ Hidefumi Date: 9/9 (100%) ・ Ken Fujiwara: 9/9 (100%) ・ Glenn Fredrickson: 9/9 (100%) – 20 – ・ Shigeru Kobayashi: 9/9 (100%) ・ Hiroshi Katayama: 9/9 (100%) ・ Hideko Kunii: 2/2 (100%) ・ Takayuki Hashimoto: 9/9 (100%) ・ Chikatomo Hodo: 9/9 (100%) ・ Kiyomi Kikuchi: 9/9 (100%) ・ Tatsumi Yamada: 9/9 (100%) ・ Takako Masai: 6/6 (100%) ・ Yoshimitsu Kobayashi: 2/2 (100%) ・ Ken Fujiwara: 6/6 (100%) ・ Hideko Kunii: 2/2 (100%) ・ Chikatomo Hodo: 8/8 (100%) ・ Kiyomi Kikuchi: 8/8 (100%) ・ Takako Masai: 5/5 (100%) B. Nominating Committee (five members (of which two members are female); four outside directors; an outside director serves as chairman) The Nominating Committee nominates candidates for directors and corporate executive officers The Nominating Committee consists of five members, including four outside directors as of the date of submission of this report. To enhance the transparency and fairness of the nomination process, the committee is chaired by an outside director. In FY2021, the Nominating Committee met eight times. The attendance of each director is as follows. Yoshimitsu Kobayashi describe the attendance of the Nominating Committee until his retirement of the member of the Nominating Committee in June 2021 and Hideko Kunii describe the attendance of the Nominating Committee until her retirement of the director in June 2021. In addition, Ken Fujiwara describe the attendance of the Nominating Committee after his assumption of the member of Nominating Committee in June 2021 and Takako Masai describe the attendance of the Nominating Committee after her assumption of the director in June 2021. ・ Takayuki Hashimoto (Chairperson): 8/8 (100%) C. Audit Committee (five members (of which two members are female); three outside directors; an outside director serves as chairman) The Audit Committee audits the execution of duties by corporate executive officers and directors, and verifies the Group’s internal control system. In principle, the Audit Committee meets once a month. The Audit Committee consists of five members, including three outside directors, as of the date of submission of this report. In addition, the Audit Committee selects two full-time Audit Committee members and works closely with the Audit Committee, independent auditors, the audit department, which conducts internal audits, and the internal control department, which formulates and promotes policies for internal control systems. Through these and other means, the Audit Committee is working to enhance the auditing system. In consideration of transparency and fairness in the audit, the chairperson of the committee is the outside director. In FY 2021, the Audit Committee met 14 times. The attendance of each committee member is as follows. Hideko Kunii describe the attendance of the directors until her retirement in June 2021, and Takako Masai describe the attendance of the directors after her assumption in July 2021. ・ Shigeru Kobayashi (chairperson): 14/14 (100%) – 21 – ・ Hiroshi Katayama: 13/13 (100%)・ Hideko Kunii: 3/3 (100%) ・ Kiyomi Kikuchi: 14/14(100%) ・ Tatsumi Yamada: 14/14 (100%) ・ Takako Masai: 10/10 (100%) D. Compensation Committee (Four members; three outside directors; an outside director services as chairman) The Compensation Committee determines the amount of remuneration paid to individual directors and corporate executive officers. The Compensation Committee consists of four members, including three outside directors, as of the filing date of this report. To enhance the transparency and fairness of the decision-making process, the committee is chaired by an outside director. The Compensation Committee met seven times in FY 2021. The attendance of each committee member is as follows. In addition, Ken Fujiwara describes the attendance until his retirement of the Compensation Committee member in June 2021. ・ Chikatomo Hodo (Chairperson): 7/7 (100%) ・ Hidefumi Date: 7/7 (100%) ・ Ken Fujiwara: 2/2 (100%) ・ Takayuki Hashimoto: 7/7 (100%) ・ Tatsumi Yamada: 7/7 (100%) (2) Business execution A. Corporate Executive officers The corporate executive officers decide the execution based on basic management policies (medium term business strategies and annual budgets, etc.). Regarding important matters in the management of the Group, deliberations are made at the corporate executive officers, which is the council by the corporate executive officers. In addition to determining the division of duties of each corporate executive officer for other matters, we make it appropriate and efficient decision-making by clarifying the authority to decide the corporate executive officer in charge. B. Corporate Executive Officers Committee The Corporate Executive Officers Committee is composed of all corporate executive officers, deliberates and decides on important matters concerning the management of the Company and the Company group, and also monitors the Group’s business based on the medium-term management plan, annual budget etc. That being said, the Member of the Audit Committee can attend the Corporate Executive Officers Committee at any