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Dialogue 4 Discussion between an Outside Director and a Responsible Officer

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Mitsui Chemicals’ Ideal for a Fully Functioning Board of Directors. Yoshio Suzuki Outside Director and Masaharu Kubo Senior Managing Executive Officer

Cultivating Governance through Dialogue

Society’s interest in corporate governance continues to grow with the introduction of a Corporate Governance Code in Japan. In the dialogue that follows we explore Mitsui Chemicals’ ideal for a fully functioning Board of Directors.
The role of Board of Directors is to supervise the process that determines the overall direction the Company will take to increase corporate value and to monitor the execution of associated measures.
Mitsui Chemicals adopted the executive officer system in 2003. By providing officers with a certain level of authority to carry out day-to-day operations, the Company has increased the speed and flexibility of decision making. To ensure the integrity of the decision making process, executive directors and responsible executive officers report to the Board of Directors on important matters relating to business execution.
The following is a conversation I had with Yoshio Suzuki, an outside director and member of Mitsui Chemicals’ Board of Directors, in which we discuss his impressions of the Company’s governance.
Mitsui Chemicals’ system of corporate governance entails that the progress made by each executive director in achieving agreed upon reform objectives related to organizational structure, human resources, systems, and corporate culture in his or her area of functional responsibility is considered and evaluated along economic, environmental, and social axes.
Striking features of Mitsui Chemicals’ governance system include the considerable weight placed on ensuring that outside directors and outside corporate auditors vigorously and freely ask questions and offer opinions during meetings of the Board of Directors and the promotion of dialogue with all levels of management to ensure that the Company’s objective-oriented mechanisms function properly.
Mitsui Chemicals’ outside directors and outside corporate auditors come from a variety of backgrounds and are well-versed in a number of fields, including corporate management, finance, the law, education, and consumer affairs. As representatives of the Company’s many stakeholders, their comments help to stimulate executive directors and are of enormous significance.
Mitsui Chemicals is at a critical turning point. The Company is working to expand in growth fields and restructure its bulk and commodity product businesses in order to transform its business portfolio. At this important juncture, determining strategies during Board of Directors’ meetings and monitoring the execution of those strategies are becoming increasingly important. In its first year under the Mid-Term Business Plan, the Company was successful in quickly securing positive results toward business growth and the restructuring of its businesses. I believe that this is a clear indication that the Board of Directors and our executive officer system are functioning more than adequately.

Working toward a Board of Directors with Increased Depth That is Capable of Promoting Lively Discussion

Mitsui Chemicals has long recognized the important role that outside directors play in overseeing management. As a forward-looking initiative, the Company first appointed an outside director to its Board some 20 years ago. In order to heighten the level of independence, steps were taken to appoint multiple outside directors from 2006. When selecting potential candidates, the focus is on expertise and what each individual can bring to the MITSUI CHEMICALS Annual Report 2015 49 table irrespective of gender. With the aim of stimulating vigorous debate, Mitsui Chemicals regularly conducts explanatory meetings to promote a deeper understanding of the Company’s business. Complementing this initiative, Mitsui Chemicals promotes a variety of activities, including tours of its works as well as subsidiaries and affiliates. What are your thoughts on these endeavors?
In my case, responsible officers presented detailed explanations of the Company’s operations upon my initial appointment. These presentations encompassed everything from the meaning of technical chemistry terms to details of the Company’s business segments and operations.
In addition to works and research and development center in Japan, I recently visited Group bases in China. At each location, there was ample opportunity for detailed discussions with local staff. Such opportunities for first-hand experience are extremely important to getting a proper feel for the Group’s worksites.
Thanks to the combination of a genuine understanding of the Company’s business, the experience of direct contact with the frontline, and the practical knowledge that each outside director brings to the table, we are able to ask meaningful questions and engage in constant vigorous discussion.
Quite clearly, visiting works and getting a first-hand feel for the Company’s operations goes a long way to increasing understanding.
As I toured various works, I was so surprised by how much equipment and piping there was. My visits to these worksites also brought home to me the extraordinary amount of effort that goes into not only maintaining such facilities but preventing accidents and disasters.
As the Company moves further along its current recovery track, I would like to again to remind each and every employee of the Group that Mitsui Chemicals is nothing without safety.
The number of internal directors has been reduced in an effort to increase the depth of the Board of Directors’ functions and capabilities and to speed up the decision-making process. Currently, the Company has seven internal directors. This is around half the previous number.
Mitsui Chemicals has taken steps to concentrate its responsibilities and authority. Energies have also been directed toward promoting lively discussion. Moreover, the number of outside directors has been increased without raising the overall number of directors. Thus, every effort is being made to nurture a more objective and independent Board. It would seem that this is another benefit accruing to the adoption of an executive officer system.
What are your thoughts on how the Board of Directors operates?
In the lead-up to each Board of Directors’ meeting, the members take care to peruse the minutes of Management Committee meetings. Moreover, the responsible executive officer provides a full explanation in advance based on detailed materials. This is followed by a thoroughgoing Q&A session. Over the course of this process, the focus of discussion at Board of Directors’ meetings can shift from a negative position that favors defensive action to a more positive stance and openness to new ideas on business improvement. I see this as a defining feature of Mitsui Chemicals’ Board of Directors.
Is there any particular Board of Directors’ meeting or issue that has stood out since you joined the Board as an outside director?
I would say the proper management of inventory. In working to transform the business portfolio, Mitsui Chemicals has a tendency to focus on M&A as a vital tool. Given this, cash flow will become an increasingly important issue. However, in the time since my appointment as outside director, I’ve seen that inventories have tended to exert downward pressure on cash flow.
Drawing on comments from the frontline, the Board of Directors has therefore taken steps to confirm the adequacy of monthly inventories not only in terms of monetary amount, but also on a volume basis.
While we need to take additional steps if we are to reach optimal inventory levels, our efforts to date will generate cash flows that can then be used to fund further growth.

Mitsui Chemicals’ Unique Approach to Corporate Governance

Mitsui Chemicals is a company that has adopted a corporate auditor system. Composed of outside auditors, the Executive Compensation Advisory Committee was established as a discretionary organization to deliberate on executive compensation. The results of these deliberations are then discussed by the Board of Directors. Along with these discretionary mechanisms, we draw on the opinions of outside officers to upgrade and expand governance.
As I see it, Mitsui Chemicals’ systems are highly efficient. While maintaining its unique identity, the Company continues to consider ways of further enhancing the efficacy of its governance system. I would like to see it succeed in this endeavor.
With an eye to incorporating increasingly diverse perspectives in its management, the Company is looking to appoint a female director in the not so distant future. We are therefore undertaking the important task of identifying candidates and are providing the guidance, tutoring, and experience required for those taking on higher management positions.
Thank you. Moving forward, I would like the Company to continue to focus on maintaining its identity while determining the optimal organizational design and how best to employ its discretionary advisory committee to ensure a corporate governance system that leads to sustainable growth and improved corporate value.

Yoshio Suzuki
Outside director of Mitsui Chemicals, Attorney at Ichibancho Sogo Law Office, Professor at the Chuo Law School and Outside Corporate Auditor of Samantha Thavasa Japan Limited