Mitsubishi Materials : ６. Governance (94-117page) (746KB)

Governance

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 eforts 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 efort 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 Ofcers in accordance with the provisions of the Board of Directors Rules, etc. so that Executive Ofcers 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 Ofcers to and supervised by the Board of Directors on a periodic basis. The Board of Directors is comprised of 10 Directors (including 6 Outside Directors), and the Chairman of the Board of Directors is performed by the Chairman of the Company.

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• Overview of the Corporate Governance System (Chart as of June 24, 2021)

(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 Ofcers. The Nomination Committee is comprised of 5 Directors (including 3 Outside Directors), and the Chairman of the Nomination Committee is performed by an Outside Director.

(Audit Committee)

The Audit Committee audits the legality and validity of duties performed by Directors and Executive Ofcers, via audits either using internal control systems or directly by the Audit Committee member selected by the Audit committee. The Audit Committee is comprised of 5 Directors (including 3 Outside Directors), and the Chairman of the Audit Committee is performed by an Outside Director. The Audit Committee also elects 2 full time Member of the Audit Committee in order to improve the efectiveness of audits conducted by the Audit Committee.

(Remuneration Committee)

The Remuneration Committee establishes policies for determining individual remuneration for Directors and Executive Ofcers, and determines the individual remuneration to be received by Directors and Executive Ofcers based on such policies. The Remuneration Committee is comprised of 5 Directors (including 3 Outside Directors), and the Chairman of the Remuneration Committee is performed by an Outside Director.

(Executive Ofcer)

Executive Ofcers 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 Ofcers, of which the Chief Executive Ofcer Naoki Ono, and the Executive Vice President and Executive Ofcer Yasunobu Suzuki, are elected as Representative Executive Ofcers upon the decision of the Board of Directors.

(Executive Ofcers' Meeting)

Following the delegation of authority from the Board of Directors, Executive Ofcers' Meetings review and determine important matters concerning the management of the entire Group. Executive Ofcer's Meeting is attended by all 10 Executive Ofcers, and the Chairman of the Executive Ofcer's Meeting is performed by the Chief Executive Ofcer

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

1. Policy for Nomination of Candidates for Director
   Our basic approach to the structure of the Board of Directors, which fulflls 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 diferent 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 diferent from the Group's business, etc.) and organizational management, and individuals who possess broad and advanced expert knowledge and extensive experience in relation to fnance and accounting, legal afairs, 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 fulfll 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 specifc 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
2. 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.
   1. 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 fscal 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 fscal 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 fscal 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.
   1. An individual who has fallen under any of items (1) to (5) of 2 above at any time in the past three (3) years:
   2. 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
   3. A person who has served as the Company's Outside Director for a period of more than eight (8) years.
3. Policy for Election and Dismissal of Executive Ofcers
   In electing Executive Ofcers 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.:

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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 Ofcer will frst draft a proposal for the election of Executive Ofcers after consulting with relevant ofcers as necessary. The Chief Executive Ofcer will then submit a proposal for the election of Executive Ofcers to the Board of Directors based on the deliberations and responses to inquiries at a Nomination Committee meeting, and Executive Ofcers 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 Ofcer highly ineligible in light of these standards, the Executive Ofcer shall be dismissed by resolution of the Board of Directors following a review by the Nomination Committee.

• Expertise and Experience of Candidates for Directors (Skill Matrix)

Policy on Determining of Remuneration for Ofcers

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 fulfll its accountability to stakeholders, including shareholders, the Company shall establish a policy on determining the remuneration for Directors and Executive Ofcers (hereinafter, "Ofcers") and a remuneration system as follows:

1. Policy on Determining Remuneration for Ofcers

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.

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1. The performance of the functions and duties assumed by each Ofcer 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 refected in remuneration.
2. 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 fscal year, etc. and stock-based compensation, which is a medium- to longterm 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 Ofcer), 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 Ofcers.
3. An annual bonus shall be determined based on an appropriate evaluation of the performance in each fscal year as well as the status of the implementation of medium- to long-term management strategies, etc., and refected in remuneration.
4. A medium- to long-term incentive shall be stock-based compensation that enables Ofcers to share awareness of profts with shareholders in order to enhance corporate value from a medium- to long-term viewpoint.
5. 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.
6. Necessary information shall be disclosed actively so that stakeholders including shareholders can monitor the relationship between performance, etc. and remuneration.

2. Remuneration System for Ofcers

1. Directors (excluding those who concurrently hold the posts of Director and Executive Ofcer) 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/parttime Director, etc. and referring to the standards for remuneration of other companies based on the research of outside experts.
2. Executive Ofcers The remuneration payable to Executive Ofcers shall consist of basic remuneration, which is fxed 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 Ofcer, and for other Executive Ofcers, the ratio of performance-linked remuneration to basic remuneration shall be set lower than that for the Chief Executive Ofcer.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 fxed remuneration in accordance with one's job position.

＜Annual Bonus (Short-term Incentive Remuneration＞

The annual bonus shall be determined based on the evaluation of consolidated operating proft growth rate compared with other companies, as well as a performance evaluation and nonfnancial evaluation, on a single-year basis. The specifc evaluation items shall be as follows:

【Evaluation Items】

1. Current net proft attributable to owners of parent, which is the fnal result of management and by which common proft awareness is shared with shareholders
2. Consolidated operating proft (or, in the case of an Executive Ofcer 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
3. Non-fnancialevaluation that evaluates the value of eforts aimed at the improvement of medium- to long-term corporate value, which is less likely to be represented in a short-term performance
4. Consolidated operating proft growth rate compared with other companies, as a fnal adjustment factor to give an impression of growth greater than market growth (comparison with 6 non-ferrous metal companies and similar- sized manufacturing companies)

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