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Maintenance and Improvement of Governance

Enhancement of Corporate Governance

Corporate Governance

Corporate Governance

Basic Approach

The basic approach to corporate governance of Mitsubishi Materials Corporation (“Company”) is described below.

  • We have, based on the Corporate Philosophy of the Group, Vision, Values, Code of Conduct, Mission and the Basic Policy on Corporate Governance* established by the Board of Directors, developed trust with all stakeholders related to the Company and its subsidiaries, such as shareholders and investors as well as employees, customers, client or supplier companies, creditors and local communities, and also develop our corporate governance.
  • Among the governance systems under the Companies Act, we have chosen to be a Company with a Nomination Committee, and by separating supervision and execution, will strengthen the Board of Directors’ management supervisory functions, improve the transparency and fairness of management and accelerate business execution and decision making.
  • We acknowledge the enhancement of corporate governance to be one of the most important management issues, and continuously make efforts to improve our corporate governance.

The MMC Group has set out “Our Commitment” of “For people, society and the earth, circulating resources for a sustainable future.” Toward the realization of its goal, we are introducing in-house company system to, flexibly and appropriately, expand our recycling system and supply high-performance materials and products.

  • We have prepared the “Basic Policy on Corporate Governance”, which is disclosed on the Company’s website, as a compilation of the basic approach to and framework of corporate governance.

Overview of Corporate Governance

Board of Directors

The functions and duties of the Board of Directors shall be as follows:

  • Upon delegation by shareholders, the Board of Directors shall indicate the direction of its management and make an effort to enhance the Group’s medium- to long-term corporate value by, for example, engaging in freewheeling and constructive discussion on management policies and management reforms.
  • The Board of Directors shall determine matters that may have a serious impact on management, such as management policies and management reforms, in accordance with the provisions of laws, the Articles of Incorporation and the Board of Directors Rules.
  • The Board of Directors shall accelerate decision-making in business execution by delegating the authority over business execution to an appropriate extent to Executive Officers in accordance with the provisions of the Board of Directors Rules, etc. so that Executive Officers may assume the responsibility and authority to make decisions and execute business in response to changes in the business environment.
  • The state of Group governance and the progress of the execution of duties, including the progress of the management strategy, shall be reported by Executive Officers to and supervised by the Board of Directors on a periodic basis.

Further, Outside Directors play a role in supervising the appropriateness of Directors and Executive Officers in the execution of their duties from an objective standpoint and in providing a diverse range of values regarding the management of the Company based on expert knowledge and through experience that differs from that of officers who advanced internally, so that the Board of Directors' management supervisory functions would be further strengthened. The Board of Directors is comprised of 11 Directors (including 7 Outside Directors), and the Chairperson of the Board of Directors is performed by the Akira Takeuchi (Chairman of the Company).

Overview of the Corporate Governance System (Chart as of July 1, 2023)

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Nomination Committee

The Nomination Committee determines the policy for the nomination of candidates for Director, the content of proposals, etc. concerning the election and dismissal of Directors to be submitted to General Meetings of Shareholders. In addition to this, the Nomination Committee reviews and responds to inquiries from the Board of Directors concerning the election and dismissal, etc. of Executive Officers. Furthermore, in order to develop human resources who will lead the next generation of management, the Nomination Committee deliberates on successor candidates for the Chief Executive Officer together with the development plans, and supervises to ensure the development of successor candidates is performed appropriately. Majority of the Nomination Committee members shall be Independent Outside Directors, and the Chairperson shall be performed by an Independent Outside Director. The Nomination Committee is comprised of 5 Directors (All are Outside Directors), and the Chairperson is Mariko Tokuno (Independent Outside Director).
The Chief Executive Officer had served as a Nomination Committee member in the past. In order to strengthen the independence and objectivity of the Committee, we revised the composition of the Committee so that all five members are Outside Directors. For the purpose of ensuring the effectiveness of the Committee, Executive Officers are required to attend Committee meetings where necessary to hear their explanations and opinions.

Audit Committee

The Audit Committee audits the legality and validity of duties performed by Directors and Executive Officers, via audits either using internal control systems or directly by the Audit Committee member selected by the Audit committee.
Majority of the Audit Committee members shall be Independent Outside Directors, and the Chairperson shall be performed by an Independent Outside Director. The Audit Committee also elects one (1) full time Member of the Audit Committee in order to improve the effectiveness of audits conducted by the Audit Committee. The Audit Committee is comprised of 5 Directors (including 4 Outside Directors), and the Chairperson is Kazuhiko Takeda (Independent Outside Director).

Remuneration Committee

The Remuneration Committee establishes policies for determining individual remuneration for Directors and Executive Officers, and determines the individual remuneration to be received by Directors and Executive Officers based on such policies.
Majority of the Remuneration Committee members shall be Independent Outside Directors, and the Chairperson shall be performed by an Independent Outside Director. The Remuneration Committee is comprised of 5 Directors (All are Outside Directors), and the Chairperson is Hikaru Sugi (Independent Outside Director).
In order to strengthen the independence and objectivity of the Committee, we revised the composition of the Committee so that all five members are Outside Directors. For the purpose of ensuring the effectiveness of the Committee, Executive Officers are required to attend Committee meetings where necessary to hear their explanations and opinions.

Sustainability Committee

The Sustainability Committee shall review policies on sustainability issues and others after being consulted by the Board of Directors, and submit the details to the Board. Majority of the Sustainability Committee members shall be Independent Outside Directors, and the Chairperson shall be performed by an Independent Outside Director. Currently, the Sustainability Committee is comprised of 5 Directors (including 4 Outside Directors), and the Chairperson is Koji Igarashi (Independent Outside Director).
The Sustainability Committee had eight members in the past. In order to further increase the level of discussions within the Committee, we revised the composition of the Committee so that the number of members are five, as with other Committees.

Executive Officer

Executive Officers execute business in accordance with the prescribed segregation of duties, based on the delegation of authority from the Board of Directors.
The Company has 9 Executive Officers, of which the Chief Executive Officer Naoki Ono, and Managing Executive Officer Makoto Shibata, are elected as Representative Executive Officers upon the decision of the Board of Directors.

Strategic Management Committee

Following the delegation of authority from the Board of Directors, the Strategic Management Committee reviews and determines important matters concerning the management of the entire Group. The Strategic Management Committee consists of the Chief Executive Officer and the Executive Officers in charge of each department of the Strategic Headquarters. The Chief Executive Officer serves as the chairperson of the committee.

Governance Review and Meeting for Sharing Governance Information

The Governance Review and Meeting for Sharing Governance Information is composed of members of the Strategic Management Committee and general managers of relevant departments. It handles governance matters such as compliance, safety/disaster prevention, hygiene, environmental management, quality control, communication and information security, and is responsible for reporting, deliberating and following up on plans and initiatives, disseminating information to each department.
From February to March each year, we discuss and disseminate policies and initiatives of the business and management divisions (including directly controlled business sites and subsidiaries) for the following fiscal year.
From August to September each year, we work to improve the effectiveness of initiatives related to governance throughout the Group by reporting the status of response and deliberating and disseminating information on review plans.

Nomination of Candidates for Director and the Election and Dismissal of Executive Officers

Policy for Nomination of Candidates for Director

Our basic approach to the structure of the Board of Directors, which fulfills the roles of determining the direction of management and exercising supervision over the progress of business execution, is to ensure that it comprises a diverse range of human resources with different expert knowledge, experience, and other qualities. In particular, the Nomination Committee will consider candidates for Outside Director to ensure that they comprise individuals who possess experience and knowledge in corporate management (business similar to or different from the Group’s business, etc.) and organizational management, and individuals who possess broad and advanced expert knowledge and extensive experience in relation to finance and accounting, legal affairs, production engineering, research and development, sales and marketing, or international relations, etc.
In light of the basic policy on the structure mentioned above, the Nomination Committee will nominate and select individuals who satisfy the following requirements as candidates for Director, regardless of individual attributes concerning gender, nationality and race, etc.:

  • An individual of exceptional insight and character;
  • An individual with a strong sense of ethics and a law-abiding spirit; and
  • An individual who can properly fulfill his or her duties concerning the exercise of supervision over the management of the Company and the determination of the direction of management.

Further, with respect to candidates for Independent Outside Director, the Nomination Committee will nominate and select individuals who satisfy the following requirement in addition to the above requirements:

  • An individual who has no material interest in the Group and who can remain independent.

The specific selection of personnel shall be decided after deliberation by the Nomination Committee. Provided that the Company considers that an Outside Director is not independent if he or she falls under any of the conditions listed below in addition to meeting the standards for independence established by Tokyo Stock Exchange, Inc

1. An individual who falls under or has fallen under any of items (1) or (2) below, either presently or in the past:

  1. An executive or non-executive Director of the Company; or
  2. An executive or non-executive Director of the Company’s subsidiary.

2.An individual who falls under any of items (1) through (5) below:

  1. An executive of a client or supplier company of the Company, whose value of transactions amounted to 2% or more of the consolidated net sales of the Company or the client or supplier company as of the end of the previous fiscal year;
  2. A person who received, as a professional or consultant, etc., consideration of not less than 10 million yen from the Company in the previous fiscal year, excluding his/her consideration as a Director;
  3. An executive of an organization that received a donation of not less than 10 million yen from the Company in the previous fiscal year;
  4. A shareholder who directly or indirectly holds at least 10% of the total number of voting rights of the Company or an executive of such shareholder; or
  5. The Company’s Accounting Auditor or its employee, etc.

3.An individual who has fallen under any of items (1) to (5) of 2 above at any time in the past three (3) years:

4.A close relative of any of the persons listed in item (1) or (2) of 1 above, items (1) to (5) of 2 above, or 3 above (excluding unimportant persons); or

5.A person who has served as the Company’s Outside Director for a period of more than eight (8) years.

Policy for Election and Dismissal of Executive Officers

In electing Executive Officers responsible for the execution of business tasks, the Nomination Committee will elect individuals who satisfy the following requirements, regardless of individual attributes concerning gender, nationality and race, etc.:

  • An individual of exceptional insight and character;
  • An individual with a strong sense of ethics and a law-abiding spirit; and
  • An individual well-versed in management and the business activities of the Group.

In relation to the election process, the Chief Executive Officer will first draft a proposal for the election of Executive Officers after consulting with relevant officers as necessary. The Chief Executive Officer will then submit a proposal for the election of Executive Officers to the Board of Directors based on the deliberations and responses to inquiries at a Nomination Committee meeting, and Executive Officers will be elected by resolution of the Board of Directors based on a comprehensive review of the candidates’ personal history, achievements, specialist knowledge, and other capabilities.
In addition, if any event occurs that makes an Executive Officer highly ineligible in light of these standards, the Executive Officer shall be dismissed by resolution of the Board of Directors following a review by the Nomination Committee.

Expertise and Experience of the Directors

The main expertise and experience owned by the Directors are shown in the Skill Matrix in Table 1. In addition, Table 2 shows from what perspectives the Directors contribute and provide knowledge on the Group-wide Policy the Company’s Medium-term Management Strategy from fiscal 2021 to fiscal 2023 and the development of the Medium-term Management Strategy fiscal 2031 based on their respective expertise and experience as indicated in the Skill Matrix.

[Table 1] Expertise and Experience of Directors (Skill Matrix)

Expertise and Experience of the Directors (Skill Matrix) 

  • ○ indicates expertise and experience owned (● indicates primary)
  • *: The above Skill Matrix does not cover all the expertise and experience owned by the Directors.

[Table 2] Contribution and Perspectives of the Directors on Key Themes

  • *1 The items are focused on those with high contribution by the Directors.
  • *2 As for Makoto Shibata, the contribution and perspectives provided as an Executive Officer are described.

Policy on Determining of Remuneration for Officers

With the aim of creating an attractive remuneration system for outstanding management personnel that will drive improvements in the Group’s corporate value from a medium- to long-term viewpoint and establishing remuneration governance that will enable the Company to fulfill its accountability to stakeholders, including shareholders, the Company shall establish a policy on determining the remuneration for Directors and Executive Officers (“Officers”) and a remuneration system as follows:

 Policy on Determining Remuneration for Officers
  1. A system shall be created that provides competitive standards for remuneration compared with companies of a business category and size similar to the Group.
  2. The performance of the functions and duties assumed by each Officer and contributions to the improvement of medium to long-term corporate value shall be evaluated in a fair and equitable manner, and the evaluation results shall be reflected in remuneration.
  3. In order to have remuneration function as a sound incentive to improve the Group’s medium- to long-term corporate value, remuneration shall consist of basic remuneration, an annual bonus based on performance evaluations in each fiscal year, etc. and stock-based compensation, which is a medium- to long-term incentive linked to medium- to long-term performance and corporate value. The remuneration composition ratio shall be determined appropriately in accordance with one’s job position. Provided, however, that for Directors (excluding those who concurrently hold the posts of Director and Executive Officer), only basic remuneration shall be paid in cash, in light of their function and role of supervising the performance of job duties by the Executive Officers.
  4. An annual bonus shall be determined with the emphasis on the performance in each fiscal year, while appropriately evaluating the relative results of Total Shareholder Return (TSR)* and the status of each Executive Officer’s implementation of medium- to long-term management strategies, etc.

TSR

  1. A medium- to long-term incentive shall be stock-based compensation that enables Officers to share awareness of profits with shareholders in order to enhance corporate value from a medium- to long-term viewpoint.
  2. The policies for determining remuneration and the amount of individual remuneration shall be deliberated and determined by the Remuneration Committee composed of a majority of Independent Outside Directors.
  3. Necessary information shall be disclosed actively so that stakeholders including shareholders can monitor the relationship between performance, etc. and remuneration.
Remuneration System for Officers
  1. Directors (excluding those who concurrently hold the posts of Director and Executive Officer)
    The remuneration system for Directors shall be determined so that only basic remuneration shall be paid in cash, taking into consideration an individual Director’s job position, whether he/she is a full-time/part-time Director, etc. and referring to the standards for remuneration of other companies based on the research of outside experts.
  2. Executive Officers
    The remuneration payable to Executive Officers shall consist of basic remuneration, which is fixed remuneration, and an annual bonus and stock-based compensation, which are performance-linked remuneration. The remuneration composition ratio shall be in line with "Basic remuneration/Annual bonus/Stock-based compensation = 1.0/0.6/0.4" (In the case where the annual bonus payment rate is 100%) as to the Chief Executive Officer, and for other Executive Officers, the ratio of performance-linked remuneration to basic remuneration shall be set lower than that for the Chief Executive Officer.
    Further, the standards for remuneration shall be determined by referring to the standards of peer companies (similar-sized companies determined by the Remuneration Committee) based on the research of outside experts.

<Basic Remuneration>

Basic remuneration shall be paid in cash as fixed remuneration in accordance with one's job position.

<Annual Bonus (Short-term Incentive Remuneration)>

The annual bonus shall be determined based on the consolidated operating profit, relative comparison of TSR, and status of achievement of the non-financial target set for each Executive Officer, on a single-year basis.

The specific evaluation items shall be as follows:

【Evaluation Items】
  1. Consolidated operating profit (or, in the case of an Executive Officer in charge of business activities, operating earnings from the relevant business sector), based on which the earning capacity of one's main job is evaluated; to be multiplied by an adjustment factor based on the consolidated operating profit growth rate compared with other companies to enhance consciousness on growth greater than market growth (relative comparison with six nonferrous metal companies and the companies chosen mainly among similar-sized manufacturing companies)
  2. Relative comparison of TSR (relative comparison with six nonferrous metal companies and the companies chosen mainly among similar-sized manufacturing companies)
    (Relative comparison among the Company and six nonferrous metal companies and, between the Company and companies chosen similar-sized manufacturing companies)
  3. Non-financial evaluation that evaluates the status of achievement of the targets set for each Executive Officer at the beginning of the term and other relevant factors with regard to efforts aimed at improving medium- to long-term corporate value, which is less likely to be represented in short-term performance, as well as efforts in line with the Sustainability Policy*

*Sustainability Policy Items

  1. Build a Work Environment that puts Safety and Health First
  2. Respect Human Rights
  3. Promote Diversity and Inclusion
  4. Cultivate Mutual Prosperity with Stakeholders
  5. Strengthen Corporate Governance and Risk Management
  6. Engage in Fair Business Transactions and Responsible Sourcing
  7. Ensure Stable Provision of Safe, Secure, and High Value Added Products
  8. Proactive Engagement for the Global Environment
【Calculation Formula】

By deeming the amount payable for achievement of the target (Base Annual Bonus) as 100%, the amount for each individual shall be calculated by using the following calculation formula:
Annual Bonus = Base Annual Bonus by Job Position × Payment Rate Based on Performance Evaluation*

  • Payment Rate Based on Performance Evaluation shall range from 0% to approx. 200% based on a performance.
【Evaluation Weight】

The annual bonus shall be determined based on the evaluations of each portion of 60%*, 20% and 20% of the base amount, which depends on one's job position, in terms of consolidated operating profit (or, in the case of an Executive Officer in charge of business activities, operating profit from the relevant business sector), relative TSR comparison and non-financial factors, respectively.

Evaluation Weight

【Target of performance evaluation indicator for annual bonus】

With regard to the target of performance evaluation indicators for annual bonuses, in principle, consolidated operating profit for the current period planned in the Medium-term Management Strategy shall be applied (For operating earnings of the business for which the Officer is responsible, planned consolidated operating earnings from the relevant business sector shall be used.).

<Stock-based compensation (Medium- to long-term incentive remuneration)*>

Stock-based compensation shall be a system that utilizes a trust for the purpose of achieving the sharing of a common profit awareness with shareholders. This shall be used as an incentive for improving the medium- to long-term corporate value of the Group and under which the Company's shares and cash equivalent to the proceeds from the realization of the Company's shares (hereinafter referred to as "the Company's Stock, etc.") shall be granted in accordance with one's job position, upon retirement from the post of Executive Officers. No performance conditions nor stock price conditions shall be set with respect to the shares to be delivered.
Please note that in the case of a non-resident staying in Japan, different treatment may be applied under laws or for any other relevant circumstances.

  • The Officers' remuneration system adopts a structure called BIP (Board Incentive Plan) and grants to the Executive Officers the shares of the Company's Stock, etc. It is an incentive plan to accumulate points to be given to Executive Officers in accordance with their positions for each three consecutive fiscal year (from Fiscal 2024 to Fiscal 2026), and to grant the shares of the Company's common stock equivalent to 70% of such accumulated points (shares less than one unit shall be disregarded) and cash equivalent to realized value of the shares of the Company's common stock equivalent to the remaining accumulated points as compensation to Executive Officers after their retirement.
    One point is deemed equal to one share of the Company's common stock, and if a stock split or reverse stock split occurs during the trust period, the number of the Company's shares per point shall be adjusted according to the stock split ratio or reverse stock split ratio of the Company's shares. The maximum number of points to be given to Executive Officers during the Applicable Period shall be 140,000 points in total.

Amount of Remuneration, etc. for Directors and Executive Officers (Fiscal 2023)

Classification of Officers Total
amount
of
remuneration,
etc.
(Million Yen)
Type of Remuneration, etc.
Monetary remuneration Nonmonetary remuneration
Basic remuneration Bonus (Performance-linked remuneration) Stock-based compensation
Total (Million Yen) Number of eligible recipients Total (Million Yen) Number of eligible recipients Total (Million Yen) Number of eligible recipients
Directors
(Other than Outside Director)
97 97 2
Executive Officer 740 354 10 273 10 112 10
Outside Director 122 122 8
  • *1 The total amount of remuneration, etc. paid to Director who concurrently serve as Executive Officers and applicable employees are shown in the total amount of remuneration for Executive Officers.
  • *2 The Company had 10 Directors and 10 Executive Officers as of the end of fiscal 2023. The applicable number of directors includes two directors (including one Outside Director) who resigned during fiscal 2023.
  • *3 The Company has introduced stock-based compensation based on a trust scheme, and the above amount of stock-based compensation represents the amount recorded as expenses for fiscal 2023.

Executives with Total Compensation of 100 Million Yen or More (FY 2023)

Name Classification of officers Total amount of remuneration, etc. (Million Yen) Type of remuneration, etc. (Million Yen)
Monetary remuneration Nonmonetary remuneration
Basic remuneration Bonus (Performance-linked remuneration) Stock-based compensation
Naoki Ono Executive Officer 143 63 55 25
  • *1 Naoki Ono currently serves as both a Director and an Executive Officer. However, since he is included in the classification “Executive Officer” in Amount of Remuneration, etc. for Directors and Executive Officers. above, he is also classified as an “Executive Officer” in this section.
  • *2 The Company has introduced stock-based on a trust scheme, and the above amount of stock-based compensation represents the amount recorded as expenses for 2023.

Meetings of Board of Directors that were Held, Attendance at the Meetings, and the Number of Years Served by Directors

The Board of Directors met 19 times in fiscal 2023. To ensure the effectiveness of the Board of Directors, the Company requires each Director to make every effort to attend all meetings, and the attendance rate was 100% in fiscal 2023. 100% attendance rates are also maintained by the Nomination Committee (which met 15 times), Audit Committee (16 times), Remuneration Committee (11 times), and Sustainability Committee (9 times).

Number of Board of Directors Meetings held and Attendance at the Meetings (Fiscal 2023)

  Board of Directors Nomination Committee Audit Committee   Remuneration Committee Sustainability Committee Total
Number of meetings held 19 15 16 11 9 59
Rate of attendance of all Directors (%)  100 100 100 100 100 100
Rate of attendance of External Directors (%) 100 100 100 100 100 100

The term of a Director in the Company is one year. As of July 2023, the average number of years served by active Directors was 5.0 years while the figure for Directors who have resigned in the past five years was 2.3 years.

Average Number of Years Served by Directors (As of July 2023)

Item Average term
Average number of years served by active Directors at present 5.0years
Average number of years served by Directors who resigned in the past five years 2.3years

Analysis and Evaluation of the Effectiveness of the Board of Directors

The Company analyzes and evaluates the effectiveness of the Board of Directors based on the evaluation by each Director on an annual basis. In fiscal 2022, the evaluation was conducted using a third-party organization for the first time (In the future, a third-party evaluation shall be conducted once every three years).
In fiscal 2023, the Company evaluated the effectiveness of the Board of Directors by way of a questionnaire-based self-evaluation.
The evaluation method and a summary of the results are outlined below.

Method of analysis/evaluation
  1. Evaluation process
    • October 2022 / At the Board, Directors discussed the evaluation implementation policy for the current fiscal year and following years in the future. As a result, the Board confirmed that a self-evaluation shall be conducted in fiscal 2023, and a third-party evaluation shall be conducted once every three years.
    • From December 2022 to January 2023 / Under the leadership of the Chairperson of the Board of Directors, a questionnaire was distributed to all ten Directors and responses were retrieved.
    • February 2023 / The Directors discussed the effectiveness of the Board of Directors based on an analysis of the questionnaire results.
    • March 2023 / Following the discussions in February, the Board of Directors passed a resolution on the effectiveness of the Board of Directors for fiscal 2023.
  2. Questionnaire items

    The questionnaire uses a five-grade evaluation for the questions below (1. Strongly agree, 2. Agree, 3. Neither agree nor disagree, 4. Disagree, 5. Totally disagree) and provides a free comment space where needed.

    • Scale and composition of the Board of Directors
    • Status of operations of the Board of Directors
    • Composition, roles and status of operations of each of the Nomination Committee, Audit Committee, Remuneration Committee, and Sustainability Committee
    • Support system for Outside Directors
    • Relationship with investors and shareholders
    • Other matters concerning the Board of Directors in general, etc.
Evaluation of the status of initiatives concerning the issues for Fiscal 2023 based on the Fiscal 2022 evaluation

There was an evaluation of initiatives concerning the following matters taken by the Board of Directors in fiscal 2023, based on the results of evaluating the effectiveness of the Board of Directors for fiscal 2022. It was confirmed that "certain measures were taken and improvements have been made" in general, though "measures were not taken sufficiently" on certain matters.

  1. Matters pertaining to the operation of the Nomination Committee, Audit Committee and Remuneration Committee
    • In the evaluation process, it was pointed that while the details of in-depth discussions by each committee need to be shared more with the Board of Directors as a whole, for matters discussed by the Nomination Committee and the Remuneration Committee in particular, the presence of stakeholders (mainly internal Directors) at meetings of the Board of Directors also needs to be taken into account. Accordingly, the frequency of Outside Directors' informal meetings, where discussions take place only among Outside Directors, was increased.
    • While certain measures have been taken as mentioned above, the evaluation regarding a question whether communication between the Nomination Committee Members and Directors who are not Committee Members is sufficient suggested that there was not enough communication. On the other hand, there was also an opinion, "Excessive requests for sufficient communication may step into a discussion at the Nomination Committee, which must be avoided from the perspective of independence of the Committee."
  2. Matters pertaining to supervision of growth strategies by the Board of Directors
    • When formulating the next Medium-term Management Strategy (fiscal 2031 Strategy), the details of measures including growth strategies, such as the next Medium-term Management Strategy, Group-wide strategy, individual business strategy, R&D and intellectual property strategy, business restructuring, and investment, were explained by the execution side at briefing for Directors, and discussed from a multilateral perspective.
    • There were opinions concerning operational issues of briefings for Directors stating, "Since materials are distributed right before the meeting, it is impossible to secure time to review them," and "I hope there is an opportunity for discussion, based on input from a briefing for Directors." However, the evaluation of the responses themselves was favorable in general.
  3. Matters pertaining to the establishment of the Sustainability Committee
    • The Sustainability Committee was established under the Board of Directors on June 28, 2022. The Committee considers monitoring methods and issues related to sustainability management and others as matters at the request of the Board of Directors for advice.
    • The evaluation of the Committee's role and the direction of discussion, etc. was favorable in general. However, the number and composition of the Committee was evaluated to be not necessarily appropriate, as seen in opinions stating, "The Committee should be downsized as a level of other Committees" and "The Committee seems to be slightly oversized." The composition of each Committee was determined by a resolution of the Board of Directors held on June 23, 2023, and the Sustainability Committee was downsized to the level of other Committees, thus this issue was resolved.
Summary of Fiscal 2023 evaluation results

As a result of deliberations by the Board of Directors, it was confirmed that the effectiveness of the Board of Directors was secured in fiscal 2023. The results of the questionnaire and a summary of Board of Directors' deliberations on the issues identified as challenges based of the result of the evaluation, are as follows.

  1. Matters pertaining to the medium- to long-term competitive advantage of the Company
    • According to the questionnaire respondents, discussion at the Board of Directors on "Developments of technology and innovation, and medium- to long-term competitive advantage" and "Establishment of competitive advantage with the use of data and digital technology" was evaluated to be not necessarily sufficient. The evaluation also suggested that the Company's long-term competitive advantage (e.g., in business strategies, qualification of management, and corporate governance system) is not fully conveyed to the capital market.
    • In the discussion by Directors, there were opinions stating, "Explanation by the executive side must be provided with an awareness of where the Company is positioned relative to where competitors are," and "What the executive side explains is too technical for us to understand what desired effects are and where the Company is headed."
  2. Matters pertaining to sharing of information between the Nomination Committee and other Directors
    • A summary of the questionnaire results is described in 2. (1) Matters pertaining to the operation of the Nomination Committee, Audit Committee and Remuneration Committee.
    • In the discussion by Directors, there was an opinion stating, "On the matters that require an approval by the Board of Directors finally, including an agenda for the election and responsibilities of Executive Officers, it is necessary to improve the sharing of information to other Directors, and deepen a discussion at the Nomination Committee."
  3. Matters pertaining to the supervision of human resources strategy by the Board of Directors
    • According to the questionnaire respondents, "Discussion at the Board of Directors on the promotion of internal diversity" and "Discussion at the Nomination Committee on the succession plan for Executive Offices" were evaluated to be insufficient.
    • In the discussion by Directors, there were opinions stating, "Development of global human resources must also be regarded as a matter to be addressed," and "It is difficult to see the progress of diversity promotion of individual business divisions, and the Corporate division seems to have no authority to manage and supervise it."
  4. Others
    • According to the questionnaire result, the evaluation of "Sufficient time and information to prepare for a discussion at the Board of Directors" was low. We have worked to improve this matter continuously and will keep making continuous efforts toward future.
    • According to the questionnaire results, many Outside Directors expressed hope for on-site visits. In light of the pandemic of COVID-19, we organized on-site visits mainly by newly appointed Outside Directors in fiscal 2023. In fiscal 2024, we plan to restart on-site visits by all Outside Directors.
Fiscal 2024 Initiatives to further improve effectiveness

The following are the Company's measures to improve effectiveness in fiscal 2024 based on the results of evaluating the effectiveness of the Board of Directors in fiscal 2023.

  1. Response to opinions on the medium- to long-term competitive advantage of the Company
    • Explanatory materials for Directors from the execution side need to be prepared in a simpler, easier-to-understand manner with clearer directions, keeping in mind "Focus on important management matters that Directors should know and discuss," "Items that are progressing as scheduled should be described as concisely as possible," and "Describe the background and history of changes in the external environment including trends of competitors, and the current situation surrounding the Group." At the same time, regarding the provision of information on the Company's business, which is a prerequisite for management decisions, an explanation needs to be provided in briefings for Directors in order to eliminate information asymmetry between the Company and Outside Directors.
    • Appeal to the capital market by communicating and disseminating the new Medium-term Management Strategy FY2031, which was formulated based on the Company's medium- to long-term advantages. Specifically, hold strategy briefings for each business to deepen investors' and analysts' understanding of Medium-term Management Strategy FY2031. In addition, in order to promote understanding of the Company's existing businesses and the initiatives of Medium-term Management Strategy FY2031, conduct tours for securities analysts and institutional investors in both domestic and overseas sites.
  2. Response to opinions on sharing of information between the Nomination Committee and other Directors
    • On the matters that require an approval by the Board of Directors (items to be reported from the Nomination Committee to the Board of Directors; they mainly cover information related to the election of Executive Officers, the selection of senior Executive Officers and the division of duties among Executive Officers), deepen discussions at the Nomination Committee and share information with Directors other than Committee members. Specifically, share and discuss the status of consideration regarding the election of Executive Officers more broadly in advance within the Nomination Committee, and share the specific process of considering the candidate selection method with Directors other than Committee members. In addition, regarding materials submitted to the Board of Directors in connection with the election of Executive Officers, enhance the description of reasons so that the background of the election, etc. can be better understood.
    • Furthermore, share information on other general matters discussed by the Nomination Committee (such as the process of nominating candidates for Directors) by enhancing reports at the Board of Directors meetings.
  3. Response to opinions on the supervision of human resource strategy by the Board of Directors
    • Regarding matters related to the promotion of diversity, explain the status of the promotion and issues in the Company at briefings for Directors.
    • Regarding the succession plan for Executive Officers, deepen discussions at the Nomination Committee as with "(2) Matters pertaining to sharing of information between the Nomination Committee and other Directors" above.

The Board of Directors will keep making efforts to improve the effectiveness toward future.

Status of Audits

Status of audits performed by the Audit Committee

In addition to attending meetings of the Strategic Management Committee and other important meetings, by making use of a method via the internet at the same time, members of the Audit Committee conduct interviews with Directors, Executive Officers, departments in charge of internal audits, and other departments in charge of internal control concerning progress on the execution of their duties, and view important approval documentation, etc. Selected members of the Audit Committee investigate the state of business and assets at the Company headquarters and important business sites according to the audit standards and audit plans, etc. of the Audit Committee as established by the Audit Committee. They also conduct onsite audits of subsidiaries, etc. as needed, while forming a framework for conducting audits on the state of the execution of duties by Directors and Executive Officers.
In addition, the Audit Committee holds regular meetings with major subsidiaries' Auditors as part of efforts to strengthen coordination in order to enhance the effectiveness of the Group's audit systems. The Audit Committee Office has been set up directly under the Audit Committee to assist the Committee's audit duties.

Status of internal audits

As of June 23, 2023, the Audit Dept. of the Strategic Headquarters and the Audit Dept. of in-house companies, which are departments in charge of internal audits, consist of 32 persons, including each General Manager of each Audit Dept. Each Audit Dept. is responsible for conducting internal audit work on the instructions of the responsible Executive Officers in cooperation with the Audit Committee to investigate the effectiveness and efficiency of company operations across the Group, the credibility of financial reports, the state of asset preservation and use, the risk management status, and the state of compliance with laws and regulations, and internal rules and standards, based on the internal audit plans approved by the responsible Executive Officers and the Audit Committee. They also share information with and work closely with the Accounting Auditor to conduct audits. The Audit Dept. of the Strategic Headquarters regularly reports the results of Group-wide audits to the responsible Executive Officer and the Audit Committee, and the responsible Executive Officer regularly reports the results of Group-wide audits to the Board of Directors.

Internal Control

Since the establishment of the Internal Control System Management Committee in January 2006, we have taken steps such as developing a set of basic principles for improving the Group’s internal control systems, and ensuring compliance with the requirements to introduce internal control evaluation and disclosure systems in relation to financial reporting, in an effort to ensure compliance with the Companies Act, the Financial Instruments and Exchange Act, and other relevant legislation, and to establish the optimal internal control systems for both Mitsubishi Materials and the Mitsubishi Materials Group companies.
Regarding evaluations conducted during fiscal 2023 on our internal control system for financial reporting, an Internal Control Report was submitted in June 2023 for which we received an unqualified opinion of the auditing firm that the content is appropriate.

Reduction of Strategic Share Holdings

The Company has a policy of not acquiring or holding shares (strategic share holdings) other than purely for investment purposes, except when it is required for the business strategy. With regard to the Shares in the Form of Strategic Share Holdings, the appropriateness of such holdings shall be specifically reviewed and examined at a meeting of the Board of Directors on an annual basis. As a result of such reviews and examinations, the Company will reduce any Shares in the Form of Strategic Share Holdings if it is not deemed to be necessary to hold such shares. The Company will make a continuous effort to reduce Strategic Share Holdings in accordance with the result of such reviews and examinations.

Reduction in fiscal 2023

In fiscal 2023, out of 12 Strategic Share Holdings, we sold all or a part of the shares issued by 8 issuing companies (excluding 18 shares transferred to Mitsubishi UBE Cement Corporation on April 1, 2022). The sales price was approximately 23.7 billion yen (at market value) in total.

Status of Strategic Share Holdings

Mar. 2020 Mar. 2021 Mar. 2022 Mar. 2023
Number of strategic share holdings Unlisted: 103 106 99 56
Other than unlisted: 53 43 30 6
Total amount: 156 149 129 62
Total price (billions of yen) Unlisted: 30 28 61 23
Other than unlisted: 1,140 1,167 647 149
Total amount: 1,171 1,195 709 173

Percentage of Strategic Share Holdings in Consolidated Net Assets

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Toward the Enhancement of Group Governance

Future Group Governance Enhancement Initiatives

The SCQ Promotion Office established within Mitsubishi Materials will oversee and promote the enhancement of the Group’s governance, including quality control. In addition, the Governance Deliberative Council will continue to meet and discuss the governance plans of business sites and inspect their progress, and each site will continue to implement initiatives to enhance governance formulated by the SCQ Promotion Office and others. Corporate divisions will continue to support the initiatives taken at each business site.
In this way, we will continue our initiatives to enhance the Group’s governance, including quality control, and report the status of the initiatives’ implementation to the Board of Directors.

The Target of Group Governance that the Mitsubishi Materials Group Aims to Achieve

Aim for governance under which efficient and autonomous communication can take place between the parent company and subsidiaries, between the head office and plants, and among subsidiaries.

figure

Case and Measures for Robertson’s Ready Mix, Ltd. (RRM)

It turned out that RRM and other companies (all of which were consolidated subsidiaries of the Company located in the U.S., hereinafter collectively referred to as “RRMs”) conducted transactions with companies in which some senior executives of RRM have jointly invested. Insufficient checks on senior executives (minimized involvement in RRMs to maintain a climate that supported RRM’s success up to that period), concentration of authorities in senior executives and the culture to follow the top (History of success by top-down management as an owner-managed company), etc. were the causes. In addition, we conduct investigations into the existence of similar cases in the Group to confirm that there are no other cases.

  • For details, please see the “Notice Regarding Submission of the Second Quarterly Securities Report for the Fiscal Year Ending March 31, 2021,” (issued on December 16, 2020).
  • On April 1, 2022, our company conducted a business transfer through an absorption-type split, with
    Mitsubishi UBE Cement Corporation assuming our cement business and its related operations. As a result, RRM became a consolidated subsidiary of Mitsubishi UBE Cement Corporation.

The Group-wide Internal Control Enhancement Measures

In response to the case of conflict-of-interest transactions by senior executives of RRMs, in addition to RRMs recurrence prevention measures, we take measures to further strengthen internal controls to prevent and detect fraud by senior executives throughout the Group at an early stage.

Themes Specific measures FY2023 Summary
1) Strengthening internal checks
  1. 1. Dispatch of multiple full-time officers from parent company
  • Establishment of guidelines on the dispatch of multiple full-time officers and manuals on part-time officers’ activities
  1. 2. Confirmation of concurrent businesses and related-party transactions and the establishment of rules
  2. 3. Confirmation made at the time of new transactions, confirmation of the statuses of existing business partners
  • Verification of regulations implementation in each company
  1. 4. Introduction of an overseas in-house reporting system
  • Verification of system operations
2) Raising the awareness of officers
  1. 1. Governance training for officers
  • Implementation of governance training for directors in Japan and overseas
  1. 2. Compliance training for managers of overseas subsidiaries
  • Conducting video distribution and interactive training
3) Enhancing communications between persons in the second line
  • Dialogues held on the themes of illegal trade, accounting fraud, and violations of the Antimonopoly Act
4) Expanding internal audits (Audit Dept.)
  • Implementation of bookkeeping audits

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Group Governance Framework Enhancement Measures

We have formulated and are executing measures for enhancing the Group governance framework in order to solve issues regarding Group-wide governance that were identified based on analyses of the backgrounds and causes of quality issues that have occurred in our Group since 2017. Monitoring by Outside Directors and outside experts ended on May 13, 2020, but we have continued to engage in autonomous governance enhancement activities.

Results of Employee Awareness Surveys (7th) Related to Compliance Awareness Surveys, etc. (conducted in September 22)

Points that were clarified by the 1st survey   Points that were clarified by the 7th survey
While compliance awareness has been growing, we need to continue efforts to create specific rules and procedures and keep employees fully informed of them. Initiatives for strengthening compliance, including measures taken by the management and compliance training, are also felt to be adequate.
While the importance of compliance-related reporting and provision of compliance-related information is understood, many employees feel anxious or hesitant. 
  • Almost all employees understand the importance of compliance-related reporting and the provision of compliance-related information.
  • On the other hand, there are still many employees who feel anxious or hesitant about reporting or providing such information.
While measures to strengthen compliance are being driven by employees in managerial positions further improvement is desired for workplace management and communication.
  • Most employees feel that their workplace has an atmosphere that allows them to feel free to seek advice and that they have sufficient communication.
  • In addition, while many employees feel that their superiors understand their duties, many employees still feel that there are duties which are understood only by specific people in their workplace, who are in charge of them. This perception has increased slightly since the 6th survey.
  • Further, compared to managerial staff, the ratio of negative answers has remained higher among layers of employees other than managerial staff.

[Subjects]
All officers and employees of Mitsubishi Materials and domestic Group companies (40 companies in total)
All officers and employees of overseas Group companies (54 companies in total)
 [Response rate] 89%

MMC