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Corporate Governance

Corporate Governance

Basic Approach

The basic approach to corporate governance of Mitsubishi Materials Corporation (the “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 (hereinafter, the “Group”), 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.

As the Group is an integrated business entity supplying basic materials and elements indispensable to the world, and is involved in recycling business and renewable energy business, we adopted an in-house company system so as to facilitate and appropriately execute business operations.

  • (*) 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 10 Directors (including 7 Outside Directors), and the Chairman of the Board of Directors is performed by the Chairman of the Company.

Overview of the Corporate Governance System (Chart as of June 28, 2022)

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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. Moreover, in order to develop human resources for the next generation responsible for management, the Nomination Committee deliberates on candidates for successor to the CEO and their development plans, and it supervises the appropriate development of successor candidates.
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 (including 4 Outside Directors), and the Chairperson is Mariko Tokuno (Independent Outside Director).

(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 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 Tatsuo Wakabayashi (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 (including 4 Outside Directors), and the Chairperson is Hikaru Sugi (Independent Outside Director).

(Sustainability Committee)

The Sustainability Committee shall review policies on sustainability issues and others after being consulted by the Board of Directors, and report 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 8 Directors (including 7 Outside Directors), and the Chairperson is Koji Igarashi (Independent Outside Director).

(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 10 Executive Officers, of which the Chief Executive Officer Naoki Ono, and the Executive Vice President and Executive Officer Yasunobu Suzuki, 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 Deliberative Council)

The Governance Deliberative Council enhances the deliberation, reporting, and follow-up system for governance-related matters (CSR, safety and health, plant safety, environmental management, quality management, auditing, etc.). It is composed of members of the Strategic Management Committee and general managers of related departments. The Governance Deliberative Council deliberates in February of each year on policies and annual plans for the next fiscal year for business divisions (including business sites and subsidiaries) involved in governance-related matters. And in September of each year, it reports on the status of actions and deliberates on review plans, thereby improving the effectiveness of group-wide initiatives.

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 addition, the table 2 shows from what perspectives the Directors contribute and provide knowledge on the corporate policies in the Company's Medium-term Management Strategy and the reforms the Company is undertaking to carry out those based on their respective expertise and experience as indicated in the Skill Matrix (For the new Directors, the expected roles are listed).

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

Expertise and Experience of the Directors (Skill Matrix) 

  • ○ indicates expertise and experience owned (● indicates primary)
  • Note: 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

  • Note 1: The items are narrowed down to those with high contribution (3-4 items) by the Directors.
  • Note 2: Mr. Kazuhiko Takeda and Ms. Rikako Beppu are new Directors and their expected roles 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 (hereinafter, “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.
    Furthermore, 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 (choose companies for comparison mainly from among six nonferrous metal companies and similar-sized manufacturing companies)
  2. Relative comparison of TSR (relative comparison with six nonferrous metal companies and the companies chosen mainly among similarsized 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 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.

  • To be adjusted using consolidated operating profit growth rate compared with other companies.

Evaluation Weight

【Target of performance evaluation indicators for annual bonus】

With regard to the target of performance evaluation indicators for annual bonuses, in principle, the consolidated performance forecast for the next fiscal year at the time of the announcement of financial results at the end of the current fiscal year shall be applied (For operating income of the business for which the Officer is responsible, the figures on which the consolidated performance forecast was based 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 shall be delivered and paid 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. 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 common 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 (initially from Fiscal 2021 to Fiscal 2023) (the “Applicable Period”), 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 initial Applicable Period shall be 350,000 points in total.

Amount of Remuneration, etc. for Directors and Executive Officers (FY2022)

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*4
Total amount (Million yen) Number of eligible recipients (persons) Total amount (Million Yen) Number of eligible recipients (persons) Total amount (Million Yen) Number of eligible recipients (persons)
Director
(Other than Outside Director)
124 124 2
Executive Officer 466 354 10 112 10
Outside Director 111 111 6
  • (*1)The total amount of remuneration, etc. paid to Directors who concurrently serve as Executive Officers 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 FY2022.
  • (*3)The Remuneration Committee has deliberated and decided not to pay bonuses to Executive Officers based on performance in FY2021.
  • (*4)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 FY2022.
  • (*5) In June 2022, based on the performance evaluation and non-financial evaluation for FY2022, bonuses (performance-linked remuneration) were paid to Executive Officers in the total amount of 347 million yen (number of eligible persons: 10 persons).

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

The Board of Directors met 19 times in fiscal 2022. 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 2022. High attendance rates are also maintained by the Nomination Committee (which met 14 times), Audit Committee (17 times), and Remuneration Committee (9 times).

Number of Board of Directors Meetings held in FY2022 and Attendance at Them

  Board of Directors Nomination Committee Audit Committee   Remuneration Committee Total
Number of meetings held 19 14 17 9 59
Rate of attendance of all Directors (%)  100 100 100 100 100
Rate of attendance of External Directors (%) 100 100 100 100 100

The term of a Director is one year pursuant to the articles of incorporation. As of July 2022, the average number of years served by active Directors was 4.2 years while the figure for Directors who have resigned in the past five years was 4.7 years.

Average Number of Years Served by Directors (As of July 2022)

Item Unit  
Average number of years served by active Directors at present           years 4.2
Average number of years served by Directors who resigned in the past five years years 4.7

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 FY2022, the effectiveness of the Board of Directors was evaluated using a third-party organization. The evaluation method and a summary of the results are outlined below.

Method of Analysis/Evaluation
  1. Evaluation process
    • September 2021 The materials and minutes of the Board of Directors meetings were disclosed to the third-party organization.
    • October 2021 The third-party organization conducted a preliminary interview with the Chairman of the Board of Directors and the Chief Executive Officer regarding the current status of the Board of Directors.
    • November 2021 A questionnaire prepared in consultation with the third-party organization was distributed to all 10 Directors and anonymous responses were retrieved.
    • December 2021 Based on the results of the questionnaire, the third-party organization conducted individual interviews with all 10 Directors on important matters concerning the Board of Directors.
    • February and March 2022 Given the report from the third-party organization on the results of the questionnaire and interviews compiled and analyzed, the Directors discussed the effectiveness of the Board of Directors based on that report.
    • March 2022 Following the discussions in February and March, the Board of Directors passed a resolution on the effectiveness of the Board of Directors for FY2022.
  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.

    • Roles and functions of the Board of Directors
    • 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 and Remuneration Committee
    • Support system for Outside Directors
    • Relationship with investors and shareholders
    • Overall effectiveness of the Company’s governance system and the Board of Directors
  3. Interview items

    Based on the responses to the questionnaire, the third-party organization conducted interviews on the following important matters concerning the effectiveness of Board of Directors.

    • Views on business and management
      Optimization of business portfolio
      Promotion of CX (efforts for management innovation) and organizational reform
      Status of corporate culture and human resources
      Status of group governance and internal control
    • Views on the Board of Directors
      Supervisory function by the Board of Directors
      Status of discussions at the Board of Directors
      Comments by Outside Directors
      Quality of discussions at the Board of Directors and future responses
      Discussions on sustainability issues
      Setting of agenda
      Materials and presentations
      Views on the leading Independent Outside Directors
      Succession plan for the Chief Executive Officer
      Views on the Chairman and its succession plan
      Composition of Outside Directors and their succession plan
      Sharing of information on discussions at the Nomination Committee with the Board of Directors
      Status of activities of the Audit Committee
Issues Based on the FY2021 Evaluation and Evaluation of Responses to Those Issues

As a result of the questionnaire and interviews conducted by the third-party organization regarding the initiatives concerning the following matters taken by the Company in FY2022 based on the results of the evaluation of the effectiveness of the Board of Directors for FY2021, it was confirmed that "certain measures were taken and improvements have been made" and "sufficient discussions were conducted by the Board of Directors" in general.

  1. Matters pertaining to enhancement of management supervisory functions (the manner of supervision, including supervision of the measures taken based on the Medium-term Management Strategy, the appropriate content and number of proposals to the Board of Directors, the content and volume of materials for the Board of Directors, and time for prior consideration)
    • Distribution of materials for the Board of Directors should be made at an early timing with particularly important sections in materials highlighted.
    • Emphasis should be made on explaining new matters, and causes and countermeasures, etc. of matters that are progressing unfavorably in reports made by Executive Officers at the Board of Directors meetings.
    • In regard to matters deliberated by the Board of Directors, reporting of business results, budget, financial results, etc. should be made in the first half so that Directors may judge the appropriateness of each measure based on the general situation of business performance, etc.
    • Business briefings should be held regularly for Outside Directors in order to deepen their understanding of our business and major projects, overseas sites/business expansion, and overview and background, etc. of measures taken under the Medium-term Management Strategy.
  2. Matters pertaining to understanding of capital cost and setting of indicators
    • In line with the partial review of the Medium-term Management Strategy, financial plans, including ROIC, were reviewed after consultation by the regular Board of Directors meetings held in March and April 2021.
    • Appropriate calculation and operation methods, etc. of management indicators, including ROIC, should be further discussed by the Board of Directors to develop a monitoring structure based on appropriate management indicators applicable for the next Medium-term Management Strategy.
  3. Matters pertaining to supervision of the policy for reduction of the Strategic Share Holdings
    • Strategic Share Holdings should be examined based on business alliances, business relationships, and investment effects to systematically reduce shares if it is deemed unnecessary to hold them.
  4. Matters pertaining to supervision of Group governance, etc.
    • Initiatives should be taken on the Group-wide measures to activate communication and enhance internal control.
    • Previously implemented reports on safety, quality, compliance, etc. by the Sustainable Management Office to the Board of Directors should be continued as provision of necessary information for monitoring.
Results of Analysis of the Questionnaire and Interviews by the Third-party Organization

The key results of analysis of the questionnaire and interviews compiled by the third-party organizations are as follows.

  1. Effectiveness, etc. of the Board of Directors
    • The supervisory function of the Board of Directors is appropriately exercised, and its effectiveness is considered to be high.
    • In the self-evaluation of Directors, it was confirmed that each individual contributed to activating discussions at the Board of Directors meetings and to exercising the supervisory function.
  2. Supervisory function of the Board of Directors
    • The management team is currently working on business and organizational reforms, but there are still many issues recognized. The role, composition, and discussions of the Board of Directors are expected to change in response to such business and management stages. As for their role, it is considered that "the support and supervision of execution will be important in the success of reforms and the creation of growth areas" and "discussions are needed to enhance the supervision function to monitor the efforts to address issues."
    • The Board of Directors has a common understanding that supervision of management and execution is an important role. The way in which a supervisory function is exercised is considered to differ depending on the experience and perspective of each Director. Specific measures included "support execution and lead to change," "examine from both quantitative and qualitative aspects, focusing on major policies related to the whole," and "strictly monitor progress and achievements in response to commitments." There is an opinion stating that it is better for the Board of Directors to take a more leading role in matters related to the way the Company ought to be, such as sustainability issues.
  3. Sustainability
    • On sustainability issues, many directors believe it is better for the Board of Directors to demonstrate stronger leadership and set a direction from the Board's point of view. In order to conduct effective discussions, it is considered necessary to “clarify the definition of sustainability,” “organize how Outside Directors can contribute,” “establish a sustainability committee to hold discussions outside the Board of Directors,” and “enhance the secretariat structure” among others.
Summary of FY2022 Evaluation Results

As a result of deliberations by the Board of Directors in consideration of the results of the thirdparty analysis, it was confirmed that the effectiveness of the Board of Directors of the Company was secured in FY2022. Matters recognized as issues in the questionnaire and interviews and a summary of deliberations of the Board of Directors regarding those issues are as follows.

  1. Matters pertaining to the operation of the Nomination Committee, Audit Committee and Remuneration Committee
    • There was an opinion that "the Nomination Committee has not sufficiently shared information with the Board of Directors regarding the status of consideration of the succession plan for the internal Directors." Regarding this, there was an opinion indicating that “this evaluation result may be due to a lack of sharing of discussions had by the Nomination Committee with the entire Board  of Directors or to inadequate sharing of relevant information from Directors who also serve as Executive Officers. This can also be said of discussions at the Remuneration Committee, etc., and from a broad perspective, it may be a question of whether each committee shares the content of deeper discussions.”
    • On the other hand, there was a comment stating that "in some cases, the content of discussions at each committee includes information that is not necessarily appropriate to be shared with the Board of Directors as a whole because of the presence of relevant persons within the Board." Regarding this, an opinion was given that "opportunities for discussion among Outside Directors only should be increased, taking into account cases where it is not appropriate to share information with internal relevant parties."
  2. Matters pertaining to supervision of growth strategies by the Board of Directors
    • Regarding the optimization of the business portfolio, there was an opinion stating, “Since a certain degree of business reforms, including restructuring and withdrawal, is expected to be completed, discussions on growth strategies, such as strengthening existing businesses and fostering new businesses, should be deepened from a multifaceted perspective."
    • In addition, while there was an opinion stating, "It is necessary to enhance explanations and information provision from Executive Officers in order for the Board of Directors to accurately monitor the current situation,” there was also an opinion stating, "This is covered by the business briefing, etc. for Directors currently held."
  3. Matters pertaining to the establishment of a sustainability committee
    • Through this evaluation process, it was found that on sustainability, many Directors believe “it is better for the Board of Directors to demonstrate stronger leadership and set a direction from the Board's point of view.”
FY2023 initiatives toward further enhancement of effectiveness

The Company’s FY2023 measures to enhance effectiveness based on evaluation results of the effectiveness of the Board of Directors in FY2022 are as follows.

  1. Responding to opinions on the operation of the Nomination Committee, Audit Committee and Remuneration Committee
    • In the evaluation process, a point was made 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’ opinion exchange meetings, where discussions take place only among Outside Directors, will be increased.
  2. Responding to opinions on the supervision of growth strategies by the Board of Directors
    • When formulating the next Medium-term Management Strategy planned to be announced in 2023, the details of measures, including matters related to growth strategies, will be explained by the execution side and discussed from a multilateral perspective by making use of settings such as briefings for Directors (please refer to the following paragraph). In addition, the rolling after the formulation of the next Medium-term Management Strategy will also be discussed from a multilateral perspective.
    • Business briefings for Outside Directors, which were previously held as a platform where Executive Officers provided explanations and information so that the Board of Directors accurately monitors the current situation, will be reorganized into briefings for Directors targeting all Non-executive Directors and will be held continually. The briefings will cover matters such as the next Medium-term Management Strategy, business portfolio, Group-wide strategy, individual business strategy, R&D and intellectual property strategy, business restructuring, investment, progress on each MMDX theme, and rolling review of the Medium-term Management Strategy.
  3. Responding to opinions on the establishment of the Sustainability Committee
    • The Sustainability Committee was established under the Board of Directors on June 28, 2022.
    • The Committee will consider monitoring methods and issues related to sustainability management and others as matters at request of the Board of Directors for advice.

Looking ahead, the Board of Directors will keep making continuous efforts toward further effectiveness improvements.

Status of Audits

Status of Audits Performed by the Audit Committee

A framework for conducting audits of the state of the execution of duties by Directors and Executive Officers has been established (1) by, utilizing methods via the Internet, attending important meetings such as the meetings of the Strategic Management Committee, conducting 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 examining important approval documentation, etc. by members of the Audit Committee, and (2) by investigating the state of business and assets at the Company headquarters and significant business sites and conducting onsite audits of subsidiaries, etc. as needed by select members of the Audit Committee according to the audit standards and audit plans, etc. of the Audit Committee as established by the Audit Committee. Additionally, the Audit Committee holds regular meetings with Corporate Auditors at major Group companies as part of efforts to enhance coordination of audit systems in line with Group management measures in place. An organization has been set up directly under the Audit Committee to assist the Committee in its duties concerning such audits performed by members of the Audit Committee.

Status of Internal Audits

As of June 28, 2022, the Audit Department of the Strategic Headquarters and the Audit Department of in-house companies, which are departments in charge of internal audits, consist of 31 persons, including the General Managers of each Audit Department. They are responsible for conducting internal audits based on the instructions of the responsible Executive Officer in cooperation with the Audit Committee to evaluate whether internal control systems are developed and applied in an appropriate manner. They also audit the effectiveness and efficiency of company operations across the Group, the reliability of financial reports, the state of safeguards for assets and their effective utilization, the risk management status, and the state of compliance with laws and regulations and internal rules and standards, based on internal audit plans approved by the responsible Executive Officer and the Audit Committee.
Furthermore, the Audit Department of the Strategic Headquarters works on their audits in close liaison with the Audit Committee by regularly reporting the results of Group-wide audits performed and sharing information.
Additionally, the Audit Committee regularly receives reports from Accounting Auditors on audit results, shares this information, and engages in audits in close cooperation with said Accounting Auditors after discussing audit plans for both with Accounting Auditors.

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 2022 on our internal control system for financial reporting, an Internal Control Report was submitted in June 2022 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 holdings) other than purely for investment purposes, except when it is required for their 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 the Strategic Share Holdings in accordance with the result of such reviews and examinations.

Strategic Shareholding Reduction in Fiscal 2022

In fiscal 2022, out of all of the Strategic Share Holdings (shares in 43 issuing companies held by the Company at the end of March 2021), we sold all or a part of the shares issued by 22 issuing companies. The sales price was approximately 56.6 billion yen (at market value) in total.

Changes in Number of listed Strategic Holdingsgraph

Percentage of Strategic Holdings in consolidated net assets graph

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Toward the Enhancement of Group Governance

Future Group Governance Enhancement Initiatives

The Sustainable Management 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 sites and inspect their progress, and each site will continue to implement initiatives to enhance governance formulated by the Sustainable Management Office and others. Corporate divisions will continue to support the initiatives taken at each 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.

  • *For details of our corporate governance system, refer to the above Corporate Governance System Outline (as of June 28, 2022).

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).)

Group-wide Measures to Prevent Recurrence of RRM and Similar Incidents

Issues Measure
Enhancement of compliance system

Establish a management team and have it conduct an advance review of material matters
→The team was established in December 2020 (being implemented)

Assign Compliance Officer and necessary Staff
→Assigned in March 2021

Establish external contact window for reporting with attorneys-at-law, etc. being the contact window →Established in April 2021
Renovation and enhancement of management system at RRMs by appointing senior executives dispatched from shareholders April 2021: President and CEO* of MCC Development Corporation and others dispatched from shareholders
  • Concurrently serving as CEO of Mitsubishi Cement Corporation (U.S.)
Enhancement of board of directors’ effectiveness and enhancement of conversations with executives at subsidiaries, etc. Increase the frequency of board of directors meetings and dialogs with the parent company (being implemented)

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 FY2022 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 a manuals on part-time officers’ activities
  • Implementation of surveys on the status of use of the 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
  • Creation of basic policies on rules and methods of confirmations made at the time of new transactions and confirmation of the statuses of existing business partners, implementation of preliminary surveys
  • Establishment of Rules for Management of Concurrent Businesses and Related-Party Transactions, etc. (Came into effect in April 2022)
  1. 4. Introduction of an overseas in-house reporting system
  • Implementation of fact-finding surveys on the status of reporting to each company’s individual reporting system
  • Completion of introduction of the MMC Group Global Hotline to all target companies of overseas group companies by the end of the fiscal year
2) Raising the awareness of officers
  1. 1. Governance training for officers
  • Implementation of governance training for new officers in Japan and governance training for overseas officers
  1. 2. Compliance training for managers of overseas subsidiaries
  • Distribution of compliance training videos to overseas subsidiaries
  • Implementation of bidirectional, interactive training given by external local instructors
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 (Internal Audit Dept.)
  • Approximately half of fiscal 2022 comprehensive audit target sites were selected as priority bookkeeping audit targets
  • Conduct of RRM Group bookkeeping audits
  • Conduct of bookkeeping audits at 18 domestic sites

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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 (6th) Related to Compliance Awareness Surveys, etc. (conducted in August 2021)

Points that were clarified by the 1st survey   Points that were clarified by the 6th 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 CSR 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.
  • Further, compared to managerial staff, the ratio of negative answers has remained higher among layers of employees other than managerial staff. Therefore, it is believed that the idea has yet to be instilled fully in employees other than managerial staff.

[Subjects]
All officers and employees of Mitsubishi Materials and domestic group companies (64 companies in total)
All officers and employees of overseas group companies (66 companies in total)
 [Response rate] 91%

MMC