1 Mitsubishi Chemical Holdings 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 (Attachment 1) 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, healthcare and industrial materials, 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
2 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 (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.
4 (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 as per Attachment 2. (3) Materiality assessment MCHC shall identify important issues (materiality) that must be addressed by the Group while
5 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 (Attachment 3), and be able to secure enough time to execute business. In addition, be able to secure diversity among outside direstors.
6 (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
7 Attachment 1: Mitsubishi Chemical Holdings Group Charter of Corporate Behavior Based on our Group philosophy, Good Chemistry for Tomorrow Creating better relationships among people, society, and our planet., we shall contribute to the realization of KAITEKI through our corporate activities. The term KAITEKI signifies achieving true sustainability where we create comfort for people as well as for society and the Earth. To this end, we shall act based on the concept of MOS (Management of Sustainability) with sound ethics and good common sense in every aspect of our corporate activities as outlined below, to ensure sustained development as a corporate group that engenders society s trust. Awareness and Responsibility We shall contribute to the realization of KAITEKI through our business with a keen sense of corporate social responsibility, based on the fundamental understanding that the foundation of our corporate activities is society s trust and confidence in us. Accountability and Transparency We shall, recognizing the importance of accountability in corporate activities, preserve transparency in such activities, disclose information appropriately, and always maintain a stance of openness, both internally and externally. Legal Compliance and Fairness, Equitability, and Integrity We shall comply with laws and international standards and shall hold ourselves to the highest ethical conduct at all times. In addition, we shall always adopt an attitude of fairness, equitability, and integrity towards customers, business partners, shareholders, government agencies, local communities, and other stakeholders. This attitude shall also apply to our dealings with each other. Valuing Stakeholders We shall respect and communicate closely with all stakeholders including customers, suppliers, shareholders, business partners, government agencies, local communities, and employees, and consider the outcomes of such communication in our corporate activities. Respecting Human Rights We shall respect the dignity and rights of all people, and shall not discriminate against people unfairly on the basis of race, sex, religion or other protected status. We shall also expect our suppliers and other contractors to refrain from any infringement of human dignity and rights or discriminatory practices.
8 Employment and Labor We shall not engage in any form of forced, compulsory, or child labor, and shall require our suppliers and other contractors to adhere to the same standards. Mitsubishi Chemical Holdings Group managers at all levels shall respect human diversity and create working environments where employees can exercise their abilities to the utmost in safe and healthy settings, in order to make optimal use of human resources. Managers shall build sound relations with employees through close dialogue, and shall respect employees rights, including freedom of association and the right to collective bargaining. Environment and Safety We shall strive to reduce environmental impact and protect the environment and ecosystems in our operations, in addition to supplying environmentally friendly products and services. Recognizing that the health and safety of our employees and communities in which we do business form the foundation for the very existence of our company and that we have a corporate social responsibility to assure the health and safety of others, we shall continue to ensure safe business activities. Fair Business Practices We shall conduct business fairly and sincerely, adhering to ethical principles and refraining from unfair trade practices and any form of bribery or corruption, to contribute to sound social and economic development through fair competition in the market. We shall refuse to work with any group, organization or individual engaged in unlawful activities, and under no circumstances shall we have any relations with anti-social influences. Customer Satisfaction We shall constantly strive to satisfy our customers by keeping the promises made in contracts with them, doing our utmost to ensure the safety and quality of the products and services we supply, and engaging in dialogue and R&D. Information Management We shall, in the course of our corporate activities, maintain appropriate records and make reports as required by law and regulation. We shall manage information carefully to prevent leakage of confidential data relating to customers, business partners, or our own business. Science and Technology We shall advance R&D by bringing together outstanding researchers from Japan and overseas, and contribute to the realization of KAITEKI through innovation. We shall recognize the importance of our own and others intellectual property rights and respect such rights.
9 Community Involvement We shall contribute broadly to society through our businesses. In addition, we shall respond to the desires and expectations of local communities by enhancing our understanding of their cultures and customs and acting as a good corporate citizen. Shared Standards Mitsubishi Chemical Holdings Group managers shall recognize their responsibility to embody the spirit of this charter and shall ensure that employees are fully aware of its content. We shall expect our suppliers and other business partners to share all the standards set out in this charter, including but not limited to standards relating to human rights, employment, and labor <Appendix> 1. This charter shall apply to all members of the following companies: (1) Mitsubishi Chemical Holdings Corporation (2) Mitsubishi Chemical Holdings Corporation subsidiaries (the juridical person, the management of which is controlled, or, the majority of all votes in which are owned, directly or indirectly, by Mitsubishi Chemical Holdings Corporation) (3) Companies where Mitsubishi Chemical Holdings Corporation is otherwise deemed to directly or indirectly take a leadership role on the grounds of its shareholding ratio, involvement in personnel management, etc. 2. This charter shall be revised or repealed by resolution of the Mitsubishi Chemical Holdings Corporation board of directors. Note, however, that minor changes may be decided by the president of Mitsubishi Chemical Holdings Corporation.
10 Attachment 2: Policy on Dialogue with Shareholders MCHC will ensure appropriate disclosure so as to gain the trust of our shareholders and encourage long-term holding of MCHC s shares. MCHC also intends to engage in active dialogue with shareholders and reflect it in our corporate activities. Disclosure to and dialogue with shareholders shall be implemented by each relevant department, in cooperation with each other, under the supervision of the President, officer in charge of IR and officer in charge of administration. Opinions obtained through the dialogue will be reported to the Board of Directors, etc., and shared by the management. Insider information is managed in accordance with internal regulations such as our information security policy. Major activities concerning disclosure to and dialogue with shareholders are as follows: <KAITEKI Report> MCHC discloses our efforts in KAITEKI by issuing an integrated report as the KAITEKI Report, which includes information on governance, social contribution and sustainability, in addition to financial information. <General meeting of shareholders> MCHC views the general meeting of shareholders as a place for dialogue with shareholders, and strives to actively disclose information through notice of the general meeting of shareholders, etc., as well as offer detailed explanation to questions from our shareholders at the meeting. <Addressing institutional investors> In addition to business briefings that are attended by the President and officers in charge, MCHC carries out visits and presentations by the President, CFO, PR and IR Office, etc. to institutional investors in Japan and abroad, as well as responding to individual interviews. <Presentations for individual investors> The PR and IR Office participates in presentations for individual investors to explain MCHC s businesses and future business development, etc.
11 Attachment 3: Standards for Independence of Outside Directors The Company shall elect those as Outside Directors who do not fall under any of the following and are capable of overseeing the Company s management from a fair and neutral standpoint, free of a conflict of interest with general shareholders. 1. Related party of the Company (1) Person engaged in execution of operation of the MCHC Group (executive director, corporate executive officer, executive officer, manager, employee, partner, etc. The same shall apply hereafter.) (2) Person who was engaged in execution of operation of the MCHC Group over the last 10 years 2. Major shareholder A person who directly or indirectly holds 10% or more of MCHC s total voting rights or a person engaged in execution of operation of a company that directly or indirectly holds 10% or more of MCHC s total voting rights 3. Major business partner (1) A person engaged in execution of operation of a company *1 whose major business partner includes MCHC and Group Operating Companies (Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation, Mitsubishi Plastics, Inc., Mitsubishi Rayon Co., Ltd., Life Science Institute, Inc., and Taiyo Nippon Sanso Corporation. The same shall apply hereafter.) (2) A person engaged in execution of operation of a major business partner *2 of MCHC and Group Operating Companies 4. Accounting Auditor Accounting Auditor of the MCHC Group or an employee thereof 5. Transaction as an individual A person who receives money and other financial benefits of 10 million yen or more per year from any of MCHC and Group Operating Companies 6. Donation A person who receives a donation or financial assistance of 10 million yen or more per year from any of MCHC and Group Operating Companies or a person engaged in execution of operation of a company that receives a donation or financial assistance of 10 million yen or more per year from any of MCHC and Group Operating Companies
12 7. Reciprocal assumption of the position of Director A person engaged in execution of operation of a company that has elected any of the Directors and employees of the MCHC Group as its Director 8. Close relatives, etc. (1) Close relatives, etc. of a person engaged in execution of important operations of the MCHC Group (spouse, relatives within the second degree of relationship or any person who shares the same livelihood. The same shall apply hereafter.) (2) Close relatives, etc. of any person who meets the definition of items 3 through 7 above (3) A person who met the definition of items 3 through 7 above over the last three years *1 If the said business partner receives from MCHC and Group Operating Companies an amount equivalent to 2% or more of its annual consolidated net sales in the latest fiscal year, this company shall be considered as the one whose major business partner includes MCHC. *2 If MCHC and Group Operating Companies receives from the said business partner an amount equivalent to 2% or more of MCHC s annual consolidated net sales in the latest fiscal year or the said business partner loans to the MCHC Group an amount equivalent to 2% or more of MCHC s total consolidated assets, the said business partner shall be considered as a major business partner of MCHC.