Governance

Basic Views of Corporate Governance

The Company recognizes that it is one of our 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. Respecting the rights and interests of all of our stakeholders—shareholders, customers, local communities, and employees—we work to fulfill the trust they place in us, and aspire to contribute to a more prosperous society. To fulfill these social responsibilities, we engage in continuous initiatives to enhance corporate governance by boosting the activity of the Board of Directors, reinforcing the Audit and Supervisory Committee and the internal audit system, ensuring timely and appropriate disclosures of information, improving investor relations (IR), and related activities.

Basic Policies

Appropriate collaboration with all stakeholders

In accordance with the Company's "Vision," which guides all of the Company'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, the Company strives to ensure appropriate collaboration with its various stakeholders, including shareholders, customers, local communities, and employees. In addition, the Company strives to foster a corporate culture that encourages respect for the diversity of our stakeholders, their rights and perspectives, and sound corporate ethics.

Appropriate information disclosure and securing of transparency

The Company strives for proactive and continuous information disclosure in order to gain trust and allow appropriate evaluations from stakeholders. The Company also develops and properly manages internal structures to accurately, promptly, and fairly disclose information regarding its management policy, business strategies, business activities, financial status, and other matters. In addition, the Company voluntarily and proactively discloses non-financial information which is useful for stakeholders, not just information for which disclosure is required in laws and regulations.

Ensuring the rights and equality of shareholders

The Company takes appropriate steps to ensure that the rights of shareholders are secured and can be exercised effectively, including furnishing the necessary environment for the exercise of such rights, and gives consideration to the fair treatment of all shareholders, including minority shareholders and foreign shareholders.

Dialogue with shareholders

Through events such as financial results briefings and other domestic and overseas investor relations (IR) events, the Company pursues proactive and constructive dialogue with shareholders.
We thereby seek to gain understanding from shareholders regarding matters such as the Company's business strategies, while responding to the shareholders in an appropriate manner based on an understanding of their perspectives.

Responsibilities 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. In this manner, they adequately fulfill their duties and responsibilities to achieve the sustainable growth of the Company, medium- to long-term improvement of its corporate value, and enhancement of its earnings capacity and capital efficiency in an environment that supports appropriate risk-taking.

Corporate Governance Structure

Overview of Corporate Governance Systems

The Company conducted a business integration through the merger with Hitachi Capital Corporation as of April 1, 2021 (the "Business Integration"). In conjunction therewith, the Company transitioned into a company with an audit and supervisory committee in order to enhance the fairness and transparency of management, strengthen the supervisory functions of the Board of Directors, and enhance corporate governance.

Matters concerning the Board of Directors

The Company 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.

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

The company has established the Governance Committee as an advisory body to the Board of Directors. The committee 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 the Company's management.
The Company, 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 and skills that Directors should have, and other matters.
Meanwhile, the Compensation Committee regularly monitors the Directors' remuneration system of the Company in comparison with the market standard by using an external specialized agency, and discusses policies concerning the systems, standards, etc. for Directors' remuneration.
The members and the chairperson of each committee shall be selected by the Board of Directors, and items discussed in the committees shall be resolved by a majority of committee members in attendance. It is stipulated in internal rules that the Board of Directors shall make decisions in deference to decisions made by the committees.

Matters concerning business execution

As a company with an audit and supervisory committee, the Company delegates many business execution decisions to the Executive Committee, 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, the Company 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 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.

Matters concerning auditing

The Company has established the Audit and Supervisory Committee Office, which assists activities of the Audit and Supervisory Committee, and cooperates with the internal audit offices to achieve effective auditing.
The Company has established the Internal Audit Department as a department in charge of internal audits. In order to ensure independence and objectiveness, the Internal Audit Department adopts a structure under which its members do not concurrently perform the operations of the executive division. 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 and Supervisory Committee.

Status of activities of the Board of Directors and each committee

Board of Directors

The Board of Directors meetings are held every month, in principle. The meetings were held 14 times in FY 2022, where important management matters such as the next Medium-term Management Plan, HR strategies, major investment projects, business strategies of each business division, and IR activities were deliberated and decided. In addition, the significance of strategic shareholdings was verified, and details of deliberations in the advisory bodies to the Executive Committee, such as risk management, compliance, sustainability, and digitalization Committee were regularly reported to the Board of Directors. Then, the Board of Directors deliberated the important policies for each area. Furthermore, the status of audit is reported from the Audit & Supervisory Committee in every meeting.
Attendance at the Board of Directors meetings by Directors and Audit & Supervisory Committee Members in FY2022 was as follows:

• Regarding Taiju Hisai, Takuya Kuga, Akira Hamamoto, and Masayuki Saito, attendance at the Board of Directors meetings held later than June 28, 2022 is provided as they were newly appointed as Directors in the General Meeting of Shareholders held on June 28, 2022.

Governance Committee

The committee meetings were held 3 times in FY2022, 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.
Attendance by Directors was as follows:

Nomination Committee

The committee meetings were held 5 times in FY2022, which deliberated the selection of Director candidates, skills that the Directors should have (skill matrix), selection/dismissal standards and independence standards for Directors. Furthermore, the committee discussed the expertise, quality, etc. required for the Company's President & CEO as a part of the succession plan for the President & CEO, and deliberated on the next President & CEO based on the candidates list.
Attendance by Directors was as follows:

Compensation Committee

The committee meetings were held 8 times in FY2022, 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 option plan.
Attendance by Directors was as follows:

• Regarding Takuya Kuga, Akira Hamamoto, and Masayuki Saito, attendance at the committee meetings held later than June 28, 2022, is provided as they have been members since June 28, 2022.

Selection 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 and Supervisory Committee Members after the Nomination Committee discusses it and the Audit and 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 and Supervisory Committee Members should have the mental and physical soundness sufficient to execute business.
2. Directors and Audit and Supervisory Committee Members should be persons who are well respected, possess excellent integrity and hold themselves to high ethical standards.
3. Directors and Audit and Supervisory Committee Members should have a law-abiding mentality.
4. Directors and Audit and 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 had roles expected of them during each of their previous assignments.

[Dismissal Standards]

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

Remuneration of Officers

The overview of remuneration for the Directors' of the Company is as follows.
The amount of remuneration is determined based on prescribed standards resolved by the Board of Directors after discussion in advance by the Compensation Committee, of which Independent Outside Directors comprise the majority. Decisions relating to the amount of remuneration for each individual have been entrusted entirely to the Representative Director, President & CEO, and the fairness of such decisions is guaranteed by an ex-post verification of the specific amount to be paid by the Compensation Committee.

Executive Officers

Non-Executive Officers (Director (Audit and Supervisory Committee Member), Outside Director, Other Internal Directors who do not concurrently serve as Executive Officers)

Evaluation of the Effectiveness of the Board of Directors

1. Policies for effectiveness assessment of the Board of Directors
   The Company 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 improving the function of the Board of Directors.
2. Assessment method for FY2022
   Having confirmed the validity of self-assessment method used for FY2022, we decided to conduct a survey of all the Directors for FY2023 as well.
   In the survey for FY2022, questions on the topics to be entrusted to business execution departments and the standards for items to be submitted to the Board of Directors, in addition to the questions on themes that should be discussed by the Board of Directors, in order to further stimulate discussions at the Board of Directors. We also added questions on the effectiveness of the Governance Committee, Nomination Committee, and the Compensation Committee, in addition to the Board of Directors.
   Based on the results of the survey, the Board of Directors held in May 2023 assessed the effectiveness of the Board of Directors, etc., taking into account the discussion at the Governance Committee held in April 2023.
3. Results of effectiveness assessment
   Major results of the assessment above are as follows.
   1. It was determined that the Board of Directors, etc. of the Company are sufficiently performing their roles.
      • Because sufficient prior explanations of important agenda items mainly focusing on key topics such as the medium-to long-term management direction and the new Medium-term Management Plan had been provided to Directors, understanding of the agenda items was deepened and the efficiency of the Board of Directors improved. In addition, measures to solve the issues recognized in the previous effectiveness assessment have been steadily implemented and the operation of the Board of Directors has been improved. For instance, communication and mutual understanding among the Directors has significantly improved.
      • Each Committee meeting was carried out in a timely and appropriate manner, and had highly-transparent and fair discussions on the changeover of the President & CEO and the remuneration of the Directors.
   2. Meanwhile, issues that should be addressed in order to further enhance the effectiveness of the Board of Directors, etc. have been recognized.
      • It is necessary to allocate time for deliberation according to the significance of the agenda items and to further improve prior explanations on key agenda items in order to secure enough time for deliberation.
      • There is a need for efforts to further promote Outside Directors' understanding of the overall global business of the Company.
4. Initiatives for FY2023
   We will strive to further enhance corporate governance and improve the effectiveness of the Board of Directors, etc. by implementing measures to solve each issue specified above.

Composition of the Board of Directors and expertise of each Director

The Company assumes that the Board of directors shall possess skills in "general corporate management," "financing," "financial accounting," "legal, compliance and risk management," "international business" and other areas, in view of the business lineup.
The Company 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, the Company 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, the Company believes, as a desirable way of achieving diversity within the Company, 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, the Company will continue to determine the appropriate composition of the Board of Directors.
Currently, we assume that the Company'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.
The Company has currently elected two female Directors while no foreign Director has been elected. However, the Company 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.

as of June 27, 2023

Policies for constructive dialogue with shareholders

The Company strives to engage in proactive dialogue with shareholders, with the recognition that conducting transparent and sound management is one of its social responsibilities, while focusing on sustainable growth and enhancement of its medium- to long-term corporate value.
The Corporate Communications Department and the General Affairs Department serve as the primary point of contact, implementing a system for coordination with the Corporate & Strategic Planning Department, Accounting Department, etc.
The Company takes 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 Company's management provides explanations and also answers any questions that are asked.
• The Company's management (including Outside Directors), the Corporate Communications Department and the General Affairs Department conduct individual interviews with domestic and foreign institutional investors, IR and SR activities, such as participation in briefings and various conferences.
• The Company 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, the Company 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 the Company'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.
The Company appropriately and prudently manages insider information, in accordance with the Company's internal rules, and also discloses such information in accordance with the information disclosure policy.
The Information Disclosure Policy is available on the Various Policies page of the Company website:

Strategic Shareholdings

1. Policy for strategic shareholdings
   Under the corporate policy for enhancing its corporate value, the Company holds listed shares (strategic shareholdings) for purposes other than pure investment (targeting gains primarily through fluctuations in the value of shares and the receipt of dividends), with a view toward developing stable and long-term relationships with business partners and promoting business, along with strengthening such relationships based on capital/business alliances, and creation of new business opportunities.
   In its strategic shareholding practice, the Company'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. Even when it is judged rational to hold shares, the Company may sell such shares in consideration of the impact of the risk of mark-to-market valuation fluctuation of the shares on the Company's finance, capital efficiency, etc.
2. Manner for verifying the rationality of strategic shareholdings
   (i) A quantitative evaluation based on factors including the size of business transactions/profit, dividends received, and capital costs;
   (ii) A qualitative evaluation of the business activities to date; and,
   (iii) Potential business opportunities in the future.
   The Board of Directors verifies the rationality of strategic shareholdings effectively by adjusting the focus on each of the items above for each investee in accordance with the significance of holding each share and the benefits expected therefrom.
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 for the fiscal year ending March 31, 2023.
   It was confirmed that shares subject to this examination and that were judged no longer reasonable to hold would be sold.
4. Basis for exercising of voting rights
   The Company is dealing with the exercise of the voting rights of strategically held shares, in light of the aforementioned purposes of strategic shareholding (such as the development of stable and long-term relationships with business partners, as well as the promotion of business).
   The Company is dealing with the exercise of voting rights that may affect the enhancement of our corporate value over the medium- to long- term, the corporate value of our business partners, or shareholder interests, after verifying the circumstances and the potential impact with particular care. The Company believes that the exercise of voting rights would have a potential impact on the corporate value and the shareholders' interests in the Company, as well as its business partners, insofar as such an exercise of voting rights concerns the following agendas:
   • Agenda on the disposal of surplus
   • Agenda on the election of directors and auditors
   • Agenda on organizational restructuring, etc.

Corporate Governance Report

• Corporate Governance Report