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Corporate Governance

Reinforcing Corporate Governance with a View to Sustainable Growth

In June 2005, MHI launched proactive corporate governance reforms to enhance soundness and transparency as well as effi ciency and maneuverability. We will introduce governance measures on an ongoing basis as appropriate to our aim, as a truly global company, of earning the trust of a wide range of stakeholders and continuing to grow while responding to changes in the operating environment.

Image:Recent Corporate Governance Reforms

Recent Corporate Governance Reforms

  • 2005

    Increased the number of outside directors from one to two and outside statutory auditors from two to three A Reduced the number of directors from 28 to 17 B Shortened the term of offi ce for directors from two years to one Introduced an executive offi cer system, splitting management oversight / decision making and business execution into two separate roles Established the Internal Audit Department and strengthened internal controls

  • 2006

    Abolished the system of director retirement allowances, switching to compensation tied to Company performance, including monthly salary, stock options, and bonuses

  • 2007

    Increased the number of outside directors from two to three A

  • 2011

    Transitioned to the Business Headquarters Structure, clarifying responsibilities and speeding up decision making through the integration of business operations Established the Management Audit Department by reorganizing and strengthening the Internal Audit Department, enhancing audits of management and product quality control processes of existing operational auditing functions and risk management functions

  • 2013

    Consolidated and restructured the nine Business Headquarters, transitioning to the Business Domain Structure C Reorganized the management audit, accounting, procurement, IT, and other functions at individual works, placing them under direct Head Offi ce control, thereby enhancing corporate functions and making them more effi cient

  • 2014

    Introduced the Chief Offi cer System D Reduced the number of representative directors to six B Decreased the number of directors to 12, raising the ratio of outside directors to 25% A

A

Enhancing the Management Decision-Making and Supervisory Functions Increasing the Ratio of Outside Directors (June 30, 2004→June 30, 2014)4% (One of 28)→25% (Three of 12)

Management risks have increased and grown more diverse as our business has become more global. In response, we enhanced the Board of Directors’ decision-making and supervisory functions capabilities, as well as bolstered management transparency, by leveraging the specialties and knowledge of outside directors.

B

Increasing the Flexibility and Transparency of Decision Making Slimming the Board of Directors(June 30, 2004→June 30, 2014)28→12 directors Reducing the Number of Representative Directors(June 30, 2004→June 30, 2014)11→6directors

We are reducing the number of directors with a view toward a highly effi cient and transparent management system. We have also revised our thinking on the granting of representative status. Accordingly, we have made the chairman of the Board of Directors a non-representative position, with the chairman focused on supervising business execution by chairing the Board, thereby reducing the total number of representative directors.

C

Utilizing Management Resources More Flexibly and Producing Synergies 9 Business Headquarters→4 Business Domains

In 2011, MHI went from a matrix structure of Business Headquarters and Works, integrating into the Business Headquarters Structure. From 2013 to 2014, we consolidated and restructured, transitioning to the Business Domain Structure based on such perspectives as customers and market characteristics, and creating individual domains capable of competing in global markets.

D

Separating Roles in and Clarifying Corporate Functions Image:Introduction of the Chief Offi cer System

By introducing the Chief Offi cer System, we aim to clarify authority and responsibilities, further reinforce governance, and strengthen and raise the effi ciency of business support for domains

Enhanced Soundness and Transparency, Effi ciency, and Maneuverability

A Truly Global Company

Interview with an Outside Director

Corporate Governance Framework

MHI is a company with a Board of Statutory Auditors. The Board of Directors makes important management decisions and oversees the execution of business operations. Statutory auditors oversee the execution of director duties by engaging in various activities such as attending meetings of the Board of Directors and other key meetings.

Additionally, MHI has established an Executive Committee to provide a forum for discussing important matters related to business execution. This allows for a more cohesive approach to discussion as part of the operational execution framework centered on the president and CEO, and consequently leads to more appropriate management decisions and business execution. In addition, MHI has established various committees to ensure thorough risk management and compliance.

Outside Directors and Outside Statutory Auditors

For the purpose of receiving advice and oversight of the Company’s management from an objective standpoint not biased by an internal company perspective and based on abundant experience and broad knowledge as a corporate manager, government official, or academic expert, three of the 12 directors elected and three of the five statutory auditors elected are from outside the Company (as of June 26, 2014).

The Company judges all of these outside directors and outside statutory auditors to be independent from its management team on the basis that there are no circumstances that compromise independence from the Company. Specifi cally, there are no personal relationships, capital relationships, trading relationships, or other special interests between the individuals and the Company. In addition, there are no circumstances that compromise the independence of these individuals from the Company as there are no personal relationships, capital relationships, or signifi cant trading relationships between companies to which these individuals currently belong or were employed with or belonged to. As a result, the Company has reported to the Tokyo Stock Exchange and other bourses that these individuals are independent directors/statutory auditors.

All the outside directors and outside statutory auditors are independent from management and supervise or audit management. In addition, at meetings of the Board of Directors, they receive reports of the status of establishment and operation of internal control systems, including compliance, risk management, and other activities, and the results of internal audits, and they state their opinions when appropriate. In particular, the outside statutory auditors shall regularly exchange opinions with directors while conducting effective auditing through collaboration with the full-time statutory auditors, the internal audit department, and the accounting auditor.

Dedicated personnel have been assigned to serve as a Board of Directors’ secretariat, supporting outside directors and outside statutory auditors. This team provides materials prior to Board of Directors’ meetings to ensure that outside officers are thoroughly briefed on important matters. A Statutory Auditors’ Officers Office has also been established and is staffed with dedicated personnel to support statutory auditors in their auditing tasks, thereby helping to ensure that these tasks are performed smoothly.

Image:Corporate Governance Structure and Roles (Including Internal Control Systems) (As of June 26, 2014)

The “Report Concerning Corporate Governance” (Japanese only) submitted by MHI to the Tokyo Stock Exchange is available for viewing on the MHI corporate website.
http://www.mhi.co.jp/finance/library/governance/pdf/report20140626.pdf

Outside Directors

Yorihiko KojimaChairman of the Board of Mitsubishi Corporation

Reason for Appointment : Mr. Kojima was nominated for the position of outside director since he can provide beneficial views and candid assessments on the management of MHI based on his extensive experience as a business manager; as such, he is expected to contribute to the improvement of sound and transparent decision-making processes at MHI.

Board of Directors’ Meetings in FY2013 Attended : 12 of 18

Christina AhmadjianProfessor of Hitotsubashi University Graduate School of Commerce and Management

Reason for Appointment : Ms. Ahmadjian was nominated for the position of outside director since she has extensive knowledge as a researcher in the field of corporate governance and management. Based on her background, she is expected to contribute to the improvement of sound and transparent decision-making processes at MHI by providing beneficial views and candid assessments from a global perspective on the management of MHI.

Board of Directors’ Meetings in FY2013 Attended : 18 of 18

Hiroki TsudaFormer Administrative Vice Minister of Finance

Reason for Appointment : Mr. Tsuda was appointed to the position of outside director because of the extensive knowledge of fiscal and financial policy he has acquired as a government administrator and researcher. Based on this, he is expected to contribute to the improvement of sound and transparent decision-making processes at MHI by providing helpful advice and objective criticism on the Company’s management.

Board of Directors’ Meetings in FY2013 Attended : 13 of 13*1

*1. The number of meetings attended by Hiroki Tsuda, director, differs from that of other directors as he assumed his position on June 26, 2013 (at the 88th Ordinary General Meeting of Shareholders).

Outside Statutory Auditors

Nobuo KuroyanagiSenior Advisor, The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Reason for Appointment : Mr. Kuroyanagi was appointed as an outside statutory auditor in light of his beneficial views and candid assessments on the management of MHI based on his extensive experience as a business manager and MHI’s desire that he contribute to ensuring the Company’s sound and appropriate management.

Board of Directors’ Meetings in FY2013 Attended : 14 of 18

Board of Auditors’ Meetings in FY2013 Attended : 14 of 15

Haruya UeharaSenior Advisor of Mitsubishi UFJ Trust and Banking Corporation

Reason for Appointment : Mr. Uehara was appointed as an outside statutory auditor in light of his beneficial views and candid assessments on the management of MHI based on his extensive experience as a business manager and MHI’s desire that he contribute to ensuring the Company’s sound and appropriate management.

Board of Directors’ Meetings in FY2013 Attended : 17 of 18

Board of Auditors’ Meetings in FY2013 Attended : 15 of 15

Shinichiro ItoPresident & Chief Executive Officer, ANA Holdings Inc.;
Chairman of the Board, All Nippon Airways Co., Ltd.

Reason for Appointment : Mr. Ito was appointed as an outside statutory auditor in light of his beneficial views and candid assessments on the management of MHI based on his extensive experience as a business manager and MHI’s desire that he contribute to ensuring the Company’s sound and appropriate management.

Board of Directors’ Meetings in FY2013 Attended11 of 13*2

Board of Auditors’ Meetings in FY2013 Attended10 of 10*2

*2. The number of meetings attended by Shinichiro Ito, statutory auditor, differs from that of other statutory auditors as he assumed his position on June 26, 2013 (at the 88th Ordinary General Meeting of Shareholders).

Director and Statutory Auditor Compensation

Position No. of Recipients Amount of Compensation by Category (Millions of yen) Total Amount of
Compensation
(Millions of yen)
Base Compensation Performance-Linked
Compensation
Stock Options
Directors (Excluding Outside Directors) 19 727 430 229 1,387
Statutory Auditors (Excluding Outside Statutory Auditors) 2 70 47 118
Outside Directors and Statutory Auditors 8 74 74

Notes:

1. The recipients in the table include six directors and one statutory auditor who retired during fiscal 2013. Five are stated under the classification “Directors (Excluding Outside Directors)” and two are stated under “Outside Officers.”

2. Amounts stated in performance-linked compensation include the difference between the amounts disclosed as estimated compensation in the previous fiscal year and the total amounts paid. During the year under review, this amount for directors, excluding outside directors, was ¥22 million. For statutory auditors, excluding outside auditors, this amount was ¥1 million.

3. Amounts stated as stock options include the cost associated with the accounting of stock acquisition rights issued in a so-called stock-linked compensation scheme.

4. The maximum permitted financial compensation amount for directors, including base and performance-linked compensation, is ¥1,200 million per fiscal year (resolution of the 81st Ordinary General Meeting of Shareholders, on June 28, 2006). The maximum amount of stock acquisition rights that may be issued per fiscal year for directors, excluding outside directors, is ¥300 million (resolution of the 82nd Ordinary General Meeting of Shareholders, on June 27, 2007).

5. The maximum permitted financial compensation amount for statutory auditors, including base and performance-linked compensation, is ¥160 million per fiscal year (resolution of the 81st Ordinary General Meeting of Shareholders, on June 28, 2006).

Auditing Certifi ed Public Accountant Compensation

Category Fiscal Year 2012 Fiscal Year 2013
Audit Attestation Duty-Based
Compensation
(Millions of yen)
Non-Audit-Based Compensation
(Millions of yen)
Audit Attestation Duty-Based
Compensation
(Millions of yen)
Non-Audit-Based Compensation
(Millions of yen)
MHI 185 63 187 24
Consolidated
Subsidiaries
120 170
Total 306 63 358 24

Notes:

1. In fiscal 2012, the Company’s overseas subsidiaries delegated audit attestation duties to the Ernst & Young Group, which belongs to the same network as the Company’s accounting auditor, paying ¥466 million for fiscal 2012 audit attestation duty-based compensation and non-audit-based compensation.

2. In fiscal 2013, the Company’s overseas subsidiaries delegated audit attestation duties to the Ernst & Young Group, which belongs to the same network as the Company’s accounting auditor, paying ¥786 million for fiscal 2013 audit attestation duty-based compensation and non-audit-based compensation.

Disclosure and IR Activities

MHI works to make management more transparent by disclosing information rapidly and accurately to shareholders and other external stakeholders.

For Shareholders

We distribute General Meeting of Shareholders’ convocation notices earlier than the statutory deadline (of two weeks prior to convocation). We also prepare English-language summaries of these notices, which we distribute and publish on our website. We have made the exercise of voting rights electronic, and institutional investors can make use of a platform for the electronic exercise of voting rights.

For Investors

MHI takes the initiative in creating opportunities to communicate directly with investors and promote an understanding of the Company. The chart below indicates activities we conducted in fi scal 2013.

We are augmenting website content and working to disclose information promptly. In the interest of fair disclosure, we provide videos of meetings, including the General Meeting of Shareholders, fi nancial results briefi ngs, and meetings on business operations, for the benefi t of institutional investors and analysts. We have received awards from research companies and IR services fi rms giving high marks to our Web-based IR activities.

Promoting Dialogue with Investors in Fiscal 2013
For individual investors
  • Participated in seminars sponsored by securities firms and conducted our own briefing sessions: 15 times, in total
For analysts and
institutional investors
  • Financial results briefi ngs: Four times each quarter (At year-end fi nancial results briefi ngs, the president explains the state of progress on the medium-term business plan.)
  • Small meetings: Once
  • Factory tours: Twice
For overseas
institutional investors
  • Generally visit Europe, the United States, and Asia semi-annually
  • Participated in conferences in Japan for foreign investors: Four times

Risk Management

During fi scal 2013, the General Manager of the Management Audit Department held discussions with the heads of business segments and administrative departments. Together, they identifi ed important risks and strengthened companywide risk control activities in response. They also introduced and operated a risk management system that combines controls centered on voluntary management and assessments by process owners* and monitoring by the Management Audit Department.

“Serious management risks” were identifi ed that need to be managed at a senior-management level because of their major impact on the management operation of the Company or an emergency response is required, and a corporate director was assigned to oversee their control.

In fi scal 2014, we will follow this same risk management cycle, but due to the fi scal 2014 transition to the Business Domain Structure and our adoption of the Chief Offi cer System, this process will take place under the direction of the chief administrative offi cer / chief risk offi cer (CAO/CRO). We will review the response to risks important to domains, strengthening management by making the chain of responsibility clearer.

* Organizations and/or persons responsible for establishing and executing risk management mechanisms for individual business functions

Compliance

The Management Audit Department centrally manages activities aimed at identifying, averting, and reducing risks before a crisis occurs. The Risk Management & Compliance Committee meets twice annually to draw up companywide compliance promotion plans, confirm progress, and engage in other activities. Individual departments have their own compliance committees, which is intended to strengthen compliance at the departmental level. A Compliance Liaison Conference is also in place for regularly exchanging compliance information with Group companies.

Image:Compliance Promotion System (As of April 1, 2014)

Recent Actions to Promote Compliance
FY2001
  • Established the Compliance Committee
  • Opened an internal whistleblower hotline
FY2003
  • Began compliance training (undertaken by 97% in FY2013)
FY2004
  • Began measurement of compliance awareness levels
FY2005
  • Established the Order Compliance Committee
FY2006
  • Established departmental compliance committees and a Compliance Liaison Conference
FY2007
  • Formulated “Compliance Promotion Regulation” in the Company rules
  • Distributed a “Compliance Guidelines” pamphlet to all employees
FY2011
  • Opened an external whistleblower hotline to further promote compliance with anti-trust laws
  • Formulated Company rules in response to more stringent anti-bribery regulations in the U.K.
FY2012
  • Set up a Compliance Group in the Management Audit Department (Compliance Section in the General Affairs Department was transferred)
  • Established the Risk Management & Compliance Committee as a companywide organization
FY2014
  • Established the Risk Solutions Department
  • Appointed a chief administrative officer / chief risk officer (CAO/CRO)
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