Governance

Basic Views on Corporate Governance

While emphasizing initiatives to achieve sustainable corporate growth and a medium-to long-term improvement in corporate value, MHC aspires to contribute to a more prosperous society by respecting the rights and interests of all of its stakeholders—shareholders, customers, local communities, and employees—and fulfilling their trust in the Company.
With the recognition that it is one of its social responsibilities to ensure transparent and sound management, MHC continues to work on initiatives to enhance corporate governance by boosting the activity of the Board of Directors, reinforcing the Audit & Supervisory Committee and the internal audit system, ensuring timely and appropriate disclosures of information, and actively engaging in investor relations (IR) and other activities.

Basic Policies

＜Fostering Sound Corporate Culture＞

In accordance with Our Vision, which guides all of MHC’s activities, and the Mitsubishi HC Capital Group Code of Ethics and Code of Conduct, which serves as the standard for the decisions and behaviors of all employees, MHC strives to understand the diversity of its various stakeholders including shareholders, customers, local communities, and employees and foster a corporate culture that respects their rights and perspectives and sound corporate ethics.

＜Ensuring Appropriate Information Disclosure and Transparency＞

MHC conducts proactive and continuous information disclosure in order to be trusted and properly evaluated by each of its stakeholders. It also establishes and appropriately operates internal systems to facilitate the swift and impartial disclosure of accurate information regarding its management policies, business strategies, business activities, financial condition, etc. In addition to the items it is required to disclose pursuant to laws and regulations, it actively and voluntarily discloses non-financial information deemed useful to its stakeholders.

＜Ensuring the Rights and Equal Treatment of Shareholders＞

MHC takes appropriate steps to ensure that the rights of shareholders are secured and can be exercised effectively and all shareholders including minority shareholders and foreign shareholders are treated equally.

＜Constructive Dialogue with Shareholders＞

Through events such as General Meeting of Shareholders, financial results briefings, and other domestic and overseas investor relations (IR) events, MHC pursues proactive and constructive dialogue with diverse shareholders. It thereby seeks to gain understanding from shareholders regarding matters such as its business strategies and further enhance corporate governance through dialogue.

＜Ensuring Effectiveness of the Board of Directors＞

All members of the Board of Directors, including Outside Directors, call upon their experience and insight as they engage in free and open discussions, contributing to active proceedings of the meetings of the Board of Directors and supporting appropriate risk-taking. In this manner, they adequately fulfill their duties and responsibilities to achieve the sustainable growth of MHC, medium-to long-term improvement of its corporate value, and enhancement of its capital efficiency.

Corporate Governance Framework

MHC is a company with an audit & supervisory committee, and has established a Board of Directors to be responsible for important decision-making and supervisory functions, and an Audit & Supervisory Committee to be responsible for audit and supervisory functions.
In order to further enhance its corporate governance, MHC has also established a Nomination Committee and a Compensation Committee to serve as advisory bodies to designate the President & CEO and determine the remuneration, etc. of Directors. Further, MHC has established a Governance Committee to serve as an advisory body to the Board of Directors regarding improving the Board’s effectiveness, etc.
Alongside adopting an executive officer system, MHC has established an Executive Committee to serve as a body for deliberation and decision-making on important management matters.

＜Matters concerning the Board of Directors＞

MHC implements a system to manage and operate business in line with the basic policy decided by the Board of Directors. Each Outside Director has qualities appropriate for their positions, giving the Board of Directors a set of diversified and sufficient skills.
In addition, for timely, appropriate, and smooth provision of information particularly to Outside Directors, the General Affairs Department serves as the secretariat for the Board of Directors, and the Audit & Supervisory Committee Office has been established to assist the duties of the Audit & Supervisory Committee.
Each year, all Directors conduct a review and evaluation of the Board of Directors over the previous year. In addition, informal meetings attended only by Independent Outside Directors are held regularly, and in the event that an issue, etc. is raised there, it will be appropriately responded to and improved.

＜Matters concerning the Governance Committee, Nomination Committee, and Compensation Committee＞

MHC has established the Governance Committee, which consists of the Outside Directors, Representative Directors, etc., and has exchanged a wide range of opinions on the improvement of the Board of Directors’ effectiveness and other matters regarding the Board of Directors, in order to work on the improvement of the soundness, transparency, and fairness of MHC’s management.
Additionally, MHC, based on the understanding that appropriate involvement of Independent Outside Directors is extremely important for resolutions related to nomination and remuneration, has established the Nomination Committee and Compensation Committee, of which Independent Outside Directors comprise the majority.
The Nomination Committee discusses the appointment of Directors, the succession plan for the Representative Director, President & CEO, knowledge, experience, skills, etc. that the Directors should have, and other matters.
The Compensation Committee regularly monitor the Directors’ remuneration system of MHC in comparison with the market standard by using an external specialized agency, and discusses policies concerning the systems, standards, etc. for Directors’ remuneration.

＜Matters concerning Business Execution＞

As a company with an audit & supervisory committee, MHC delegates the business execution decisions to the Executive Committee in an appropriate manner, a body which will deliberate and decide on important management matters, and expedites the decision-making process, with the aim of strengthening the supervisory functions of the Board of Directors. In addition, MHC has adopted an executive officer system, in order to further enhance and invigorate the functions of the Board of Directors by clarifying the responsibilities related to the execution of business.
The Executive Committee, a body which will deliberate and decide on important management matters, is composed of the President & CEO, Deputy President, and Executive Officers separately specified by the President & CEO. The Committee will hold deliberations and make decisions on important matters, including the business management of the Group, in addition to conducting preliminary considerations of matters that are to be submitted to the Board of Directors to facilitate decision-making by the Board of Directors.

＜Status of Audits＞

MHC has established the Internal Audit Department as a department in charge of internal audits.
The Internal Audit Department systematically implements internal audits based on an annual audit plan, and reports the audit results to the Representative Directors, the Board of Directors, and the Audit & Supervisory Committee.
With regard to findings that require improvement, for which guidance was provided to the divisions subject to audits (important findings), those divisions are to report the results of improvement to the General Manager of the Internal Audit Department, and the Internal Audit Department reports the important findings to Representative Directors, in order to ensure the effectiveness of the audit.
The Audit & Supervisory Committee comprises a total of four persons, including three Independent Outside Directors (part-time Audit & Supervisory Committee members) and one Internal Director (a full-time Audit & Supervisory Committee member).
Through activities from 1) Deliberations, etc. among the Audit & Supervisory Committee, 2) On-site observations of offices in Japan and overseas, and 3) Meetings with the management team, the Audit & Supervisory Committee works to conduct objective and effective audits from an independent position.
Accounting audits are implemented in collaboration with the Audit & Supervisory Committee, as well as the Internal Audit Department, based on the audit agreement concluded with Deloitte Touche Tohmatsu LLC, and in conjunction with matters such as the provision of relevant information by the internal control offices.

Appointment and Dismissal of Directors

The Board of Directors resolves the appointment of candidates to serve as Directors after the Nomination Committee, of which Independent Outside Directors comprise the majority, holds discussions in advance based on the selection standards described below. The Board of Directors also resolves the appointment of candidates to serve as Directors who are also Audit & Supervisory Committee Members after the Nomination Committee discusses it and the Audit & Supervisory Committee agrees to it.
In addition, if Directors are found to meet the dismissal standards described below, their dismissal is deliberated by the Nomination Committee in a timely manner and decided by the Board of Directors.

＜Selection Standards＞

1. Directors and Audit & Supervisory Committee Members should have the mental and physical soundness sufficient to execute business.
2. Directors and Audit & Supervisory Committee Members should be persons who are well respected, possess excellent integrity and hold themselves to high ethical standards.
3. Directors and Audit & Supervisory Committee Members should have a law-abiding mentality.
4. Directors and Audit & Supervisory Committee Members should be expected to make objective judgments regarding management and have excellent insight and perspicacity.
5. It is reasonable to consider that the candidates will help strengthen the functions of the Board of Directors in view of their knowledge, experience, capabilities, and similar factors.
6. In addition to 1. to 5. above, candidates for Outside Directors should (i) have experience, achievements and knowledge in their fields of specialization, (ii) be able to contribute to the implementation of appropriate decision making and management supervision of the Board of Directors, and (iii) be expected to secure the time necessary to fulfill their duties.
7. Candidates for reappointment should have performed roles expected of them during each of their previous assignments.

＜Dismissal Standards＞

1. The Director significantly damaged the value of MHC by neglecting their duties.
2. The Director violated laws, articles of incorporation, or other regulations/rules of MHC, or conducted an act against public order and/or morals, which caused serious damage to MHC or hindrance to the business of MHC as a result.
3. The Director is deemed to not meet the selection standards for Directors.

Structure of the Board of Directors and Areas of Expertise by Directors

MHC assumes that the Board of directors shall possess skills in “overall management,” “finance,” “financial accounting,” “legal affairs, compliance, and risk management,” “global business” and other areas, in view of the business lineup.
MHC recognizes that diversity of Directors is important for purposes of strengthening the function of the Board of Directors, and that gender, nationality, and race are factors which should be considered.
On the other hand, MHC believes that it is not necessarily desirable, for purposes of strengthening the functions of the Board of Directors, to elect a Director with a certain attribute merely to comply with formal and external diversity requirements even when they lack the qualities and abilities that are required for the role.
Therefore, MHC believes, as a desirable way of achieving diversity within MHC, that it is necessary to consider whether such Director is expected to perform the necessary skills and possesses the ability in light of the respective management environment as a top priority, and electing a desirable person without restrictions on gender, nationality, race, age, career, etc. Based on such a view, MHC will continue to determine the appropriate composition of the Board of Directors.

Currently, it assumes that MHC’s Board of Directors consists of Directors from a variety of business categories and industries, and has an appropriate number of members to ensure a balanced composition of appropriate skills and diversity.
MHC has currently elected two female Directors while no foreign Director has been elected. However MHC acknowledges that the Board of Directors has been performing a sufficient supervisory function, as it has elected several Directors who possess a wealth of international business experience, and has received valuable opinions on global business development.

＜Changes in the ratios of the Board of Directors＞

（Note）The number of Directors as of April 1, 2024, is 11, due to the retirement of Mr. Kanji Nishiura as Director as of January 4, 2024.

＜Areas of Particular Expertise held by MHC’s Board of Directors (Skill Matrix) and The members of each Organization＞

as of April 1, 2024

(Note) ◎：Chairman, ○：Member

Status of Activities of the Board of Directors, Audit & Supervisory Committee, and Other Committees

＜Board of Directors＞

The Board of Directors meetings are held every month, in principle. The meetings were held 15 times in fiscal 2023, where important management matters such as the Medium-term Management Plan, major investment projects, business strategies of each business division, and IR activities were deliberated and decided. In addition, the rationality of cross-shareholdings was verified. Furthermore, the status of audit is reported from the Audit & Supervisory Committee in a timely manner.
Aiming to further accelerate the management decision-making process and secure more time for the Board of Directors to deliberate important matters, MHC reviewed the standards for items to be submitted to and authorized by the Board of Directors and expanded the scope of matters delegated to the Executive Committee, etc. as of October 1, 2023, after having multiple discussions with Independent Outside Directors at the Governance Committee.
Attendance at the Board of Directors meetings by Directors and Audit & Supervisory Committee Members in fiscal 2023 was as follows:

＜Audit & Supervisory Committee＞

Audit & Supervisory Committee meetings are held every month, in principle. Audit & Supervisory Committee meetings were held 15 times in fiscal 2023, where these activities on 1) Formulation of audit policies, audit plans, and priority audit items for the year, 2) Reporting on business execution by business execution divisions, and 3) Matters related to business reporting, financial results documents, etc., were deliberated and also decided.
Attendance by Directors in fiscal 2023 was as follows:

＜Governance Committee＞

The committee meetings were held six times in fiscal 2023, and conducted PDCA for effectiveness assessment by deliberating the manner of effectiveness assessment for the Board of Directors and the analysis of the assessment results. In addition, deliberation was made on the review of the standards for items to be submitted to and authorized by the Board of Directors in order to secure more time for the Board of Directors to deliberate important matters, as well as the establishment of guidelines regarding the holding of MHC’s shares by Directors so that profits are appropriately shared between Directors and other stakeholders including shareholders.
Attendance by Directors in fiscal 2023 was as follows:

＜Nomination Committee＞

The committee meetings were held six times in fiscal 2023, which deliberated succession plans for the President & CEO and Representative Director candidates, skills that the Directors should have (skill matrix), etc.
Attendance by Directors in fiscal 2023 was as follows:

＜Compensation Committee＞

The committee meetings were held seven times in fiscal 2023, which deliberated the Directors’ remuneration scheme and standards, verified the amount paid as performance-based compensation, and deliberated the adoption of a performance-based stock compensation plan.
Attendance by Directors in fiscal 2023 was as follows:

Evaluation of the Effectiveness of the Board of Directors

MHC has continued efforts to further improve the effectiveness of the activities of the Board of Directors based on the review and assessment by all of the Directors on their activities throughout the year for the purpose of maintaining and enhancing the function of the Board of Directors.
An overview of the assessment of the effectiveness of the Board of Directors for fiscal 2022 is as follows:

＜Evaluation of the Effectiveness of the Board of Directors in Fiscal 2022＞

＜Major Initiatives in Fiscal 2023＞

Remuneration for officers

１．Basic Policy

1. MHC’s officers’ remuneration is determined by also taking into account officers’ incentives, with a view toward increasing corporate value through the execution of business strategies.
2. The level of remuneration is appropriate with respect to the roles and responsibilities of each officer, and is also based on market levels, from the viewpoints of increasing medium- to long-term corporate value and improving short-term business performance.

２．Remuneration System

1. In principle, Executive Directors and Executive Officers’ remuneration, etc., consists of base remuneration, short-term incentive compensation (performance-based monetary compensation), and medium-to long-term incentive compensation (performance-based stock compensation). As short-term incentive compensation, cash is paid as a bonus, while medium-to long-term incentive compensation is paid as provision of MHC’s shares, etc. in a trust framework.
2. With a view toward maintaining a sound performance-based ratio, the ratio of fixed remuneration (base remuneration) to floating compensation (bonus and stock compensation) is generally set at 1:0.6 (the ratio of base remuneration to bonus to stock compensation is generally set at 1:0.3:0.3).
3. Stock compensation is intended to further increase Directors' willingness to contribute to expanding MHC’s corporate value over the medium- to long-term, and to share the benefits and risks of stock price fluctuations with shareholders. This replaced the existing stock option system in fiscal 2023, and was introduced as a new compensation system for Directors (BIP trust) that is closely linked to the medium- to long-term performance of MHC and high in both transparency and objectivity.
4. Bonuses and stock compensation, which represent incentive compensation, are not paid to non-executive directors including Outside Directors (excluding persons who are Audit & Supervisory Committee Members) from the standpoint of ensuring the effectiveness of their supervisory functions, and to Directors who are Audit & Supervisory Committee members from the standpoint of ensuring the fairness of audits.
5. The amounts of remuneration for Directors who are Audit & Supervisory Committee Members shall be decided by a resolution of the General Meeting of Shareholders.

＜Composition of Remuneration＞

＜Remuneration System for Executive Officers＞

• Return On Asset
• Return On Equity
• Total Shareholder Return

＜Malus and Claw-back Clause for Stock Compensation and Shareholding Policy＞

As for stock compensation, the points or share conversion points that have already been granted can be confiscated, and money equivalent to MHC’s shares, etc. that have already been delivered reclaimed, in the case of a material violation of the office regulations or internal regulations, resignation for personal reasons during the term of office against the will of MHC, gaining employment at a competitor without MHC’s permission, etc.,
In principle, officers shall continue to hold MHC’s shares obtained during the term of their office until the time of their resignation, regardless of the number of shares held.

Policy for Constructive Dialogue with Shareholders

With the recognition that it is one of its social responsibilities to ensure transparent and sound management while emphasizing initiatives to achieve sustainable corporate growth and a medium-to long-term improvement in corporate value, MHC pursues proactive and constructive dialogue with shareholders.
With the Corporate Communications Department and the General Affairs Department serving as the primary point of contact, MHC has established a system for collaboration with the Corporate & Strategic Planning Department, Accounting Department, etc. to implement the following initiatives.

• Financial results briefings are held twice each year, after the announcement of full-year financial results and second quarter financial results, in which the President & CEO and management provide explanations and also answer any questions that are asked.
• MHC’s management, the Corporate Communications Department, and the General Affairs Department conduct individual interviews with domestic and foreign shareholders and institutional investors, and IR and SR activities, such as participation in briefings and various conferences.
• MHC provides a wide range of information such as the movies of financial results briefings and materials with scripts, and summaries of Q&A sessions on the corporate website to investors including individual investors. In conjunction with this, MHC participates in IR events and various briefings for individual investors which are organized by securities companies and stock exchanges.

Opinions and concerns expressed in the dialogue with shareholders are promptly reported to MHC’s management. In addition, those are regularly reported to the Board of Directors so that the information is shared with Independent Outside Directors as well. MHC appropriately and carefully manages insider information, in accordance with MHC’s internal rules, and also discloses such information in accordance with the information disclosure policy. Please refer to the following for the information disclosure policy:

• https://www.mitsubishi-hc-capital.com/english/sustainability/various_policies.html

Cross-shareholdings

１．Policies for Cross-shareholdings

Under the corporate policy for enhancing its corporate value, MHC holds listed shares for purposes other than pure investment (targeting gains primarily through fluctuations in the value of shares and the receipt of dividends), such as ① and ② below:

1. Developing stable and long-term relationships with business partners and promoting business
2. Strengthening such relationships based on capital/business alliances, and creating new business opportunities

In its cross-shareholding practice, MHC’s basic policy is to regularly examine if it is rational to hold each share and sell such strategic shares that are judged no longer rational to hold, after gaining sufficient understanding of its business partners while considering the impact of sales on businesses and markets.
Even when it is judged as rational to hold shares, MHC may sell such shares in consideration of the impact of the risk of mark-to-market valuation fluctuation of the shares on MHC’s finance, capital efficiency, etc.
The change in the number of listed stocks held since March 31, 2016 is as follows. The number decreased from 134 to 40 as of December 31, 2023.

＜Change in the Number of Listed Stocks (Companies)＞

• The numbers for March 2016 to March 2021 are the total of those from the former Mitsubishi UFJ Lease & Finance and Hitachi Capital.
  The numbers for March 2017 to March 2021 do not include the number of business partners' stocks held by both companies.

２．Method for verifying the Rationality of Cross-shareholdings

The Board of Directors verifies the rationality of cross-shareholdings mainly through (i) and (ii) below by adjusting the weight on each in accordance with the significance of holding each stock and the benefits expected therefrom. (See the figure below)

1. A quantitative evaluation based on factors including the size of business transactions/profit, dividends received, and capital costs;
2. A qualitative evaluation of the business activities to date and potential business opportunities in the future.

３．Verification of the Rationality by the Board of Directors

The Board of Directors examined the listed shares using the manner in 2. above at the Board of Directors meeting held in fiscal 2023.
As a result of verification, it was confirmed that shares that were judged no longer reasonable to hold would be sold.

４．Basis for Exercising Voting Rights

MHC exercises its voting rights for cross-shareholdings in light of the purposes described in 1. above.
Concerning the following agendas which MHC thinks may affect the enhancement of corporate value and the sustainable growth of MHC and its business partners over the medium-to long-term, MHC exercises its voting rights after carefully verifying their details and potential impact:

1. Agenda on the disposal of surplus
2. Agenda on the election of directors and auditors
3. Agenda on organizational restructuring
4. Agenda on anti-takeover measures, etc.

Corporate Governance Report

• Corporate Governance Report