Special Feature: Discussion with the Board Advisory Committee Chairpersons

Akiyama: It is extremely important to have essential dialogue and transparency to build trust between the executive board members and monitoring board members and ensure the effectiveness of the Board of the Directors. I think that one of MC’s strengths is that both in-house and independent directors are always aware of this point. With this in mind, I believe that we have been able to engage in continuous and thorough discussions via the Board of Directors and the Governance, Nomination and Compensation Committee to determine what the most appropriate corporate structure is for MC. What are your thoughts, Mr. Kakiuchi?

Kakiuchi: I agree. To build an appropriate governance structure, the most important thing is to establish mutual trust between the executive and supervisory sides. Therefore, I believe it is important to create an environment in which the executive side effectively shares necessary information with the supervisory side, including the independent directors, so that they have the full picture of MC’s situation, and can quickly make decisions. As Chairperson of the Board of Directors, I am the bridge between the supervisory and executive sides, so I am strongly aware of this. In preparation for this corporate transition, we have had continuous discussion regarding what would be the most suitable corporate design and structure to enable such an environment.

Akiyama: In the Governance, Nomination and Compensation Committee, we had multiple debates about this transition’s targets, considering the history of MC’s governance.

Kakiuchi: Up to this point, MC had been a company with an Audit & Supervisory Board, which is a typical example of a management board that places importance on the Board of Directors’ decision-making function. However, even under that structure, we had strengthened our corporate governance by advocating for the separation of oversight and execution. Specifically, we raised the thresholds for Board review of investment and financing proposals, expedited decision-making, and reviewed the role of the Board of Directors, as well as the items to be discussed and the methods of deliberation, thereby increasing the time available to closely discuss the overall direction of the Company. These efforts have helped the Board of Directors evolve into their so-called monitoring role, or, in other words, the new structure emphasizes the monitoring function of the Board of Directors.
As we have discussed many times at both the Board and committee levels, the external environment surrounding the Company has changed in a complex and surprisingly fast manner, especially in recent years. It has become increasingly important to stay ahead of these changes and flexibly and decisively respond to them.
Now as a company with an Audit & Supervisory Committee, the authority to execute important operational decisions can be transferred to the executives. As a result, the speed of executive decision-making has increased, and at the same time, the Board of Directors can place greater focus on its monitoring function. I believe that this is a governance structure that can rapidly respond to changes in the business environment.

Akiyama: Listening to Mr. Kakiuchi just now brought back clearer memories of the discussions from that time. As he says, the monitoring function of the Board of Directors as a company with an Audit & Supervisory Board had matured, and based on that, the decision was made to transition to a new corporate structure after many years of discussions to further evolve the effectiveness of the Board of Directors, which I think is highly commendable.

Kakiuchi: I believe the ideal corporate governance structure is always changing. In other words, because the in-house and external environments are changing every day, it is necessary to constantly seek out the ideal structure based on those changes.

Akiyama: That is why, although MC previously had a single committee structure consisting of a single Governance, Nomination and Compensation Committee, we ultimately decided that it would be appropriate to split the committee into two to allow for deeper discussions of each of these subjects.

Kakiuchi: Exactly. I am sure Ms. Akiyama remembers that we spent many hours discussing how to split the original committee. Ultimately, we determined that discussions involving “nomination,” meaning the selection of directors and successors to the President and CEO, and all facets of corporate governance, such as corporate structure, size, and composition of the Board of Directors, and Board operations, including evaluation of the Board’s effectiveness, should be deliberated by one body. We also determined that both nomination and governance should continue to be covered by one committee.

Akiyama: I think this way of splitting the committee is unique to MC. Generally, it is nomination and compensation that are linked, not governance and nomination. What is important is pursuing the ideal structure to allow us to effectively deliberate on corporate value enhancement. The in-house and independent directors very carefully discussed this point over and over and agreed to go with a twocommittee framework, based on MC's needs. I have been involved in MC's management for many years and feel that combining governance and nomination into one committee is very effective.

Akiyama: As Mr. Kakiuchi mentioned earlier, we spent considerable time exploring the committee framework, and at the same time discussed the attributes of the committee chairpersons. A typical point in question for a nomination committee is whether the framework ensures the effectiveness of the process for dismissing the President and CEO. However, the process at MC was for full deliberations to be held by the nomination committee, the advisory body, before being sent up to the Board of Directors, the organization that makes the final decision, so we were aware in advance that this would function without issue, regardless of the attributes of the chairperson.
So, on top of that, we explored what kind of committee chairperson was needed for MC. Since MC engages in business across a wide range of industries, we believe it is necessary to have the Chairperson of the Board, who has experience on the executive side as the President and CEO, serve as the committee chairperson to hold in-depth discussions based on their deep understanding of MC’s business without deviating from the point in question. Mr. Kakiuchi has served as Chairperson of the Board. You also served as Chairperson of the Governance, Nomination and Compensation Committee. I noticed that your style involves listening to all opinions before providing the points in question from a bird’s-eye view, which is the starting point for deeper management discussions. This helps the attendees be satisfied in accepting the conclusions of these discussions and ensures that the opinions of independent directors are appropriately reflected in organizational management. From that perspective, I agree with the opinion that it is appropriate for MC’s governance to continue having the Chairperson of the Board as the committee chairperson.

Kakiuchi: I also appreciate this point. In addition, we discussed the composition of each committee, specifically, that all independent directors should become members of the Corporate Governance and Nomination Committee. As I mentioned before, because we are in a time of tumultuous and rapid change, where big transformations can occur, I have always strongly felt that I would like to have the all independent directors join discussions about basic policy and corporate governance measures. I told everyone that I wanted to deepen discussions by always having the directors on the same page, including through frank exchanges of opinions.

Akiyama: As an independent director of the committee, I strongly agreed with Mr. Kakiuchi’s thinking. As he and President and CEO Nakanishi are always advocating, in order to ensure the effectiveness of the Board of Directors, all the necessary information must be shared with the independent directors of the committee. In addition, creating consensus among the independent directors is necessary to hold substantive discussions. At MC, we carefully proceed with our deliberations and place importance on arriving at trustworthy solutions, so from that perspective, it is natural to have all of the independent directors become members of the Corporate Governance and Nomination Committee, and I believe that this is the ideal composition at this time.

Kakiuchi: Yes. We currently have this framework, but it is necessary to constantly and continuously review the most suitable committee composition, and I would like to do this with members of the committee, based on the external environment and operational status of the Board of Directors.

Akiyama: Agreed. We will continue to review the structure so that it can be passed on to future generations.

Akiyama: It is the Board of Directors’ role to design a management compensation structure that functions as an effective incentive for sustainable growth, and to achieve this, we need thorough deliberation at the Board Advisory Committee. Going forward, as we expand the agenda items relating to compensation, such as the evaluation of nonfinancial performance indicators, the Board Advisory Committee and the Board of Directors have agreed to enhance the Compensation Committee’s scope by making it independent of the Governance, Nomination and Compensation Committee, and also to make the independent director chairs of the Compensation Committee to ensure objectivity in monitoring.

Kakiuchi: Based on these discussions, we decided to appoint Ms. Akiyama as the chairperson of the Compensation Committee.

Akiyama: I feel that the Compensation Committee plays an important functional role in supporting the executive side's initiatives to enhance corporate value from a compensation perspective.

Kakiuchi: Also, to further deepen discussions, the number of Compensation Committee members is limited, unlike the Corporate Governance and Nomination Committee. However, we have decided that all independent directors are required to attend and discuss the sustainability evaluation of executive compensation and the evaluation of the President and CEO’s performance.

Akiyama: With regards to this operating structure, there was a consensus across the Board Advisory Committee and the Board of Directors that this structure can be expected to deepen our deliberations.

Kakiuchi: We recognize that it is important to not only discuss within the Compensation Committee, but also to share the content of those discussions with the Corporate Governance and Nomination Committee in a timely and appropriate manner, so that we can carefully proceed without losing sight of the big picture.

Akiyama: Yes, exactly. This fiscal year we are planning to have many discussions about compensation. As the chairperson of the Compensation Committee, I intend to tackle this issue sincerely, keeping in mind information sharing between the two committees and the expansion of information availability for investors.

Kakiuchi: FY2024 is a critical year where we will review the current midterm corporate strategy, and also be involved in formulating the new Midterm Corporate Strategy. We want to support the formulation and execution of better strategies by combining the expertise of our in-house directors, who have a companywide management perspective, with that of the independent directors to have many discussions regarding the Company’s strategic direction. To that end, we are not only discussing individual items, but also sharing MC’s overall approach to investment trends and policies with the independent directors on a regular basis, and we would like to continue doing so in the future.

Akiyama: After MC transitioned to a Company with an Audit & Supervisory Committee, I feel that there is more time to share off-topic reports on projects related to MC Shared Value with the Board. I am very grateful for that and feel it is very important.

Kakiuchi: The expertise and perspective of all independent directors is increasingly important for furthering MC’s development, and I will be very grateful for their continued support.