Mitsubishi Chemical Holdings

THE KAITEKI COMPANY

Corporate Governance Guidelines

Based on our Group philosophy, “Good Chemistry for Tomorrow—Creating better relationships among people, society, and our plant.”, Mitsubishi Chemical Holdings Corporation (MCHC) aims to contribute to the realization of KAITEKI through our corporate activities. KAITEKI means “a sustainable condition which is comfortable for people, society and the Earth, transcending time and generations.” It is an original concept of the MCHC Group that proposes a way forward in the sustainable development of society and the planet, in addition to serving as a guide for solving environmental and social issues.
To this end, MCHC has set a “Charter of Corporate Behavior” as a guide for each member of the Group to act with sound ethics and good common sense, and have now established these guidelines to establish an appropriate corporate governance framework.

Development of a framework that improves the soundness and efficiency of management

1. A holding company system and institutional design

(1) Holding company system

In order to improve corporate value through agile management based on the Group’s comprehensive strengths in the three business areas of performance products, industrial materials and healthcare, MCHC adopts a holding company system that separates the Group business management functions and individual business operation functions.

(2) Institutional design

MCHC adopts a company with a nominating committee, etc. in a bid to enhance management transparency and openness, strengthen management oversight functions and improve management agility by accelerating decision-making.

2. Board of Directors

(1) Roles

The Board of Directors determines basic management policies (group philosophy,medium-term management plans, annual budgets, etc.), and supervises the overall management. In principle, the Board of Directors delegates authority to corporate executive officers to make business execution decisions based on the basic management policies.

(2) Constitution

In order to establish the Group’s basic management policies and oversee management appropriately, directors who are well acquainted with the Group’s business areas and specialized fields such as corporate planning, finance, administration and personnel, and research and development are appointed from within the company. In addition, outside directors who possess an advanced level of knowledge and great insight in corporate management, social and economic situations, science technology, finance and accounting, compliance and other subjects are appointed in order to oversee the management from an independent and objective position and to reflect more diverse opinions in the management.
Furthermore, in a bid to enhance oversight functions, a majority of the Board of Directors shall consist of non-executive directors who do not execute business of MCHC or its operating companies (Mitsubishi Chemical, Mitsubishi Tanabe Pharma, Mitsubishi Plastics, Mitsubishi Rayon, Life Science Institute and Taiyo Nippon Sanso. The same shall apply hereafter.).

(3) Outside Director Liaison Committee

An Outside Director Liaison Committee that consists of outside directors, chairperson of the Board of Directors, the President and major corporate executive officers shall be established and held once a month as a place to provide important management information to outside directors as well as a place for a frank exchange of views on management issues.

(4) Evaluation of the Board’s effectiveness

The Board of Directors shall evaluate its effectiveness every year and disclose the outline of the results. The method and items of the evaluation shall be set appropriately based on the constitution, administration, etc. of the Board.

3. Committees

(1) Nominating Committee

ⅰ.Roles and constitution

The Nominating Committee nominates candidates for directors, corporate executive officers and operating company presidents (excluding listed subsidiaries). In consideration of transparency and fairness in the process of nominating candidates, an outside director serves as the head of the committee.

ⅱ.Succession planning for the President

MCHC shall appoint a person who is well acquainted with the Group’s diverse business activities as successor to the President. The Nominating Committee nominates candidates for corporate executive officers and operating company presidents (excluding listed subsidiaries) also from the perspective of fostering successors to the President.

(2) Audit Committee

The Audit Committee audits the execution of duties by corporate executive officers and directors, and reviews the Group’s internal control system, etc.
Full-time members are appointed in order to strengthen the audit system. Full-time members and the head of the audit committee are appointed from within the company to ensure the smooth collection of information from each division of MCHC, internal control, and to forge closer ties with audit divisions and the accounting auditor.

(3) Compensation Committee

The Compensation Committee determines the individual amount of compensation for each director, corporate executive officer and operating company president (excluding listed subsidiaries). In consideration of transparency and fairness in the process of determining compensation, an outside director serves as the head of the committee.

4. Support system for directors

(1) Training

MCHC shall explain to outside directors the Group’s business contents and organization on a continuing basis, and provide opportunities to visit domestic and overseas business sites as well as opportunities for dialogue with the management on a regular basis.
For internal directors, opportunities to develop qualities suitable for directors shall be provided through external seminars held by various organizations, in addition to trainings on compliance and internal control.

(2) Access to external specialists

Directors may use, as needed, external specialists such as lawyers and public accountants at the company’s cost.

5. Accounting auditor

With regard to ensuring the reliability of financial reports by the accounting auditor, MCHC shall make appropriate responses in order to establish an adequate supervisory system through the cooperation of the Audit Committee, internal control divisions and audit divisions.
The Audit Committee shall evaluate the effectiveness of audit by the accounting auditor every year and determine the adequacy of re-electing the accounting auditor.

6. Business execution system

(1) Corporate executive officer

Corporate executive officers, under the guidance of the President, carries out business management of the Group based on the segregation of duties. In addition, a Management Committee is established as an advisory body to the President and is in charge of discussing important matters.

(2) Operating company

Operating companies, under the Group business management by MCHC, shares the Group’s business principles and policies in operating business. Important matters are subject to discussion and decision by MCHC’s Management Committee. Listed subsidiaries report on important matters to the Management Committee beforehand.

(3) Development of an internal control system

ⅰ.Basic policies

The Board of Directors shall determine basic management policies concerning the establishment of an internal control system in a bid to ensure proper operations at the Group as a whole, and oversee the situations of establishment and administration of the system concerning matters such as compliance, ensuring adequacy in financial reports and risk management.

ⅱ.Whistleblowing contact centers

MCHC and operating companies shall establish compliance hotlines to receive reports and consultations regarding compliance issues, etc. In addition to within the company, hotline contact centers shall also be established at external law offices for the convenience of whistleblowers. The identity of whistleblowers shall be hidden, and treatments that would cause disadvantage to the whistleblowers shall be prohibited. The operation of the hotline shall be reported to the Board of Directors as needed.

(4) Ensuring diversity

MCHC aims to become an organization with creativity and resilience to change by developing an environment where diverse personnel of different backgrounds such as gender, race and culture respect each other and can exercise their capabilities.

Enhancement of management transparency

1. Appropriate disclosure

MCHC seeks to enhance the understanding of stakeholders including shareholders and customers in MCHC’s corporate activities by actively disclosing financial information such as management strategies, financial conditions and operating results, as well as efforts toward the realization of KAITEKI.

2. Dialogue with stakeholders

(1) Basic stance

MCHC has an active and constructive dialogue with stakeholders such as shareholders and customers through various opportunities, and aims to cooperate for the realization of KAITEKI by sharing issues and goals.

(2) Dialogue with shareholders

MCHC sets its basic policies concerning the establishment of a system to promote constructive dialogue with shareholders as well as actions toward the establishment.

(3) Materiality assessment

MCHC shall identify important issues (materiality) that must be addressed by the Group while bearing in mind the stakeholders’ perspective, and prioritize important issues while taking into consideration the impact of corporate activities on stakeholders.

3. Policies concerning medium-term management plans, capital policies and cross-shareholdings

(1) Medium-term management plan

MCHC draws up medium-term management plans, sets financial goals to seek capital efficiency (MOE), goals concerning innovative creation of technologies (MOT) and goals concerning the enhancement of sustainability of people, the Earth and society (MOS), and discloses the outline of strategies to achieve each goal.
The Board of Directors receives reports on the progress of the medium-term management plan from corporate executive officers on a regular basis and provides appropriate oversight and recommendations to achieve the plans.

(2) Capital policy

Capital policies shall be described in the medium-term management plan, etc. When deciding a capital policy that would lead to a change in control or substantial dilution, MCHC shall disclose information appropriately.

(3) Policy on cross-shareholdings

MCHC and operating companies (excluding listed subsidiaries) shall acquire and hold shares of clients, etc. if the shareholding contributes to medium- to long-term improvement in corporate value. The Board of Directors shall review the adequacy of such cross-shareholdings on a regular basis.
The exercise of voting rights of the cross-shareholdings shall be determined from the perspective of medium- to long-term improvement in corporate value of clients, etc.

4. Policy on appointment of senior management

(Directors)

The Nominating Committee nominates persons who fulfill the following criteria as candidates for directors:

  • possesses deep insight as well as objective and fair judgment, which are necessary to fulfill the responsibilities of a director of Company with Nominating Committee, etc.
  • possesses high ethical standards and a law-abiding mind.
  • healthy enough to fulfill the responsibilities as a director.
  • For outside directors, fulfills independence standards that are separately stipulated, and be able to secure enough time to execute business. In addition, be able to secure diversity among outside direstors.

(Corporate executive officers)

The Nominating Committee nominates persons who fulfill the following criteria as candidates for corporate executive officers:

  • possesses abundant experience, deep expertise and insight in each responsible area, objective and fair judgment and a high level of business management capability.
  • possesses high ethical standards and a law-abiding mind.
  • healthy enough to fulfill responsibilities as a Corporate Executive Officer.

5. Policy on deciding compensation for senior management

The compensation system for directors, and that for corporate executive officers shall be different. Compensation is determined by the Compensation Committee based on the following concepts:

(Directors)

  • Compensation for directors shall consist only of basic compensation (fixed remuneration).
  • Basic compensation shall be based on title and classification such as full-time or part-time.
  • The amount of compensation shall be determined such that it would be at a level necessary for securing personnel suitable for carrying out the responsibilities of a director of Company with Nominating Committee, etc., while also taking into consideration the levels of other companies.

* When a director concurrently serves as a Corporate Executive Officer, compensation as a Corporate Executive Officer shall be applied.

(Corporate executive officers)

  • Compensation for Corporate Executive Officers shall consist of basic compensation (fixed remuneration) and performance compensation (variable remuneration).
  • Basic compensation shall be based on title and duties such as having the right of representation.
  • The amount of compensation shall be determined such that it would be at a level necessary for securing good management personnel and improving the Company’s competitiveness, while also taking into consideration the levels of other companies.
  • Performance compensation shall utilize Stock Options as stock-linked compensation (1-Yen Stock Options) in order to improve continuously medium- to long-term corporate value as well as create incentive for sharing shareholder value.

Established: November 5, 2015