Basic Corporate Governance Policy

While maintaining the flexibility of its operations and promoting management transparency, Mitsubishi Electric, as a Company with Three-committee System, works to strengthen the supervisory functions of management with the goal of realizing sustained growth. Our fundamental policy is to build and improve a corporate structure that is more able to meet the expectations of society, customers, shareholders, employees and all of its stakeholders while endeavoring to further increase corporate value.

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Corporate Management and Governance Structure

Corporate Management Structure

In June 2003, Mitsubishi Electric became a Company with Three-committee System. Key to this structure is the separation of supervisory and executive functions; the Board of Directors plays a supervisory decision-making role and Executive Officers handle the day-to-day running of the Company.

A salient characteristic of Mitsubishi Electric’s management structure is that the roles of Chairman of the Board, who heads the supervisory function, and the President & CEO, who is head of all Executive Officers, are clearly separated.

Additionally, neither is included among the members of the Nomination and Compensation Committees. The clear division of supervisory and executive functions allows the Company to ensure effective corporate governance.

The present Board of Directors is comprised of twelve members (five of whom are Outside Directors, one of whom is a woman), who objectively supervise and advise the Company’s management by executing their duties based on the objectives and authority of the Companies Act, as well as by delegating to Executive Officers the decision authority for executing all operations, except the matters listed in the items of paragraphs 1 and 4 of Article 416 of the Companies Act.

The Board of Directors has three internal bodies: the Nomination, Audit and Compensation Committees. Each body has five members, the majority of whom are Outside Directors, who are chosen by the Board of Directors taking into account the experience and specialties of each person. Each Committee undertakes its duties based on the objectives and authority of the Companies Act.

The bureaus have been established for the Board of Directors and each of the Committees to support directors. The Audit Committee is supported by dedicated independent staff.

Executive Officers make decisions about the execution of operations on matters delegated by the Board of Directors within the range of duties allocated to each Executive Officers based on the objectives and authority of the Companies Act, and then execute such operations. Important items among such matters delegated by the Board of Directors are deliberated and decided upon in Executive Officers’ meetings attended by all Executive Officers.

Internal Control System

(A).

For the execution of the duties of the Audit Committee, its independence is secured by assigning employees whose job is exclusively to assist the Audit Committee members. In addition, internal regulations regarding the processing of expenses and debts incurred in the execution of the duties of the Audit Committee members are established and such expenses and debts are properly processed.

A system for reporting to the Audit Committee is developed to report information about the Company and its subsidiaries to the Audit Committee via the divisions in charge of internal control, and an internal whistle-blower system is developed and its details are reported to the Audit Committee members.

Furthermore, the Audit Committee members attend important meetings including Executive Officer meetings and conduct investigations such as interviews with Executive Officer and the executives of the Company’s offices and subsidiaries, and undertake deliberations to determine audit policies, methods, implementation status, and results of the audit by regularly receiving reports from the Independent Auditor and Executive Officers in charge of audits.

(B).

Internal regulations and systems to ensure the properness of operations within the Mitsubishi Electric Group are established. Executive Officers take responsibility for constructing such systems within the areas over which they are appointed. Important matters are deliberated by convening Executive Officer meetings.

Executive Officers regularly monitor the status of management of the systems. The divisions in charge of internal control monitor the status of design and management of internal control system and regulations. Also an internal whistle-blower system is established and the matters reported thereto are informed to the Audit Committee members.

Furthermore, the status of management of the system is audited by internal auditors, and the audit results are reported regularly to the Audit Committee via Executive Officers in charge of audit.

Audit Committee

The Audit Committee is made up of five directors, three of whom are Outside Directors. In accordance with the policies and assignments agreed upon by the Committee, committee members- mainly those from the Audit Committee responsible for investigation- attend Executive Officers’ meetings and other such important conferences, and conduct hearings and surveys of Executive Officers and the executive staff of Mitsubishi Electric offices and affiliated companies.

Divisions in charge of internal control including the Corporate Auditing Division through a responsible Executive Officer, submit reports to the Audit Committee, which holds periodic report meetings to exchange information and discuss policies. In addition, the Audit Committee discusses policies and methods of auditing with accounting auditors, who furnish it with reports on the status and results of the audits of the Company that they themselves conduct.

Akihiro Matsuyama, Chairman of the Audit Committee, and Masahiko Sagawa, a member of the Audit Committee, have long years of experience in the accounting and financial operations of the Company. Kazunori Watanabe, a member of the Audit Committee, is a Certified Public Accountant and has a considerable degree of knowledge about finance and accounting.

Status of Internal Audit

Internal audit is intended to contribute to the sound management and strengthened management structure of Mitsubishi Electric and its affiliated companies in Japan and overseas by improving management efficiency, strengthening risk management, thoroughly observing the code of corporate ethics and ensuring compliance, and enhancing internal control.

With approximately 40 members acting independently, Mitsubishi Electric’s Corporate Auditing Division conducts internal audits of the Company from a fair and impartial standpoint. In addition, the division’s activities are supported by auditors with extensive knowledge of their particular fields, assigned from relevant business units. Through an Executive Officer in charge of auditing, the Corporate Auditing Division regularly reports the results of such audits to the Audit Committee.

Providing Directors with Appropriate Information at the Appropriate Time, and Conducting Reviews of the Board with Analyses and Evaluations

To strengthen the Board's capacity to supervise the Company's management, the bureaus of the Board of Directors and each committee provide the directors with the information necessary for supervising management, in a timely and appropriate manner. And, to further improve the Board of Directors' capacity to supervise management, venues have been established for supplying information to and exchanging views with Outside Directors, and the Company is working to further enhance the provision of management-related information to the Board of Directors itself.

Additionally, in order to further enhance the functioning of the Board of Directors, the Board meetings are reviewed on an annual basis, and analyses and evaluations are conducted in the following areas.

• Frequency, scheduling, and time spent on the meetings
• The information supplied in relation to discussions at the meetings (quality and quantity) and the method of its provision
• Materials, details and methods of explanation, question-and-answer guidelines, time apportioned for each proposal on the meetings
• Other mechanisms for improving the functioning of the Board of Directors
• Points for improvement of policies based on previous reviews of the Board of Directors
• Opinions about and points for improvement in the method for reviewing the Board of Directors, etc.

As a result of the Board of Directors review, the Board of Directors was evaluated as making ongoing and effective improvements in response to the results of annual reviews, and achieving even better results every time with respect to sharing timely and appropriate management information with Executive Officers, which is essential for the Board to properly fulfill its business supervisory function.

This evaluation in effect endorses the performance of the Board of Directors, but going forward further efforts will be made to improve the performance of the Board of Directors by enhancing the opportunities for exchanging opinions between the supervisory side and executive side and improving the management of the Board of Directors review through conducting individual interviews regarding review results and expanding time for opinion exchange.

Policies Regarding Decisions on Compensation, etc.

1. Basic policy

1. (1)　As a Company with a Three-committee System, the Company has separate functions for the supervision and execution of business, with the Board of Directors undertaking the business supervisory function, and Executive Officers, the business execution function. Accordingly, Directors and Executive Officers have separate compensation schemes according to the content and responsibilities of their duties.
2. (2)　Directors give advice to and supervise the Company’s management from an objective point of view, and therefore, the compensation scheme for Directors is the payment of fixed-amount compensation and the payment of a retirement benefit upon resignation.
3. (3)　The compensation scheme for the Executive Officers focuses on incentives for the realization of management policies and the improvement of business performance, and performance-based compensation will be paid in addition to the payment of fixed-amount compensation and a retirement benefit upon resignation. The basic policies of such performance-based compensation are as follows:
   1. 1)　Compensation for the improvement of business performance over the mid- to long-term, and that increases awareness regarding contributing to increased corporate value
   2. 2)　Compensation that is closely linked to the Company’s performance and highly transparent and objective
   3. 3)　Compensation focused on sharing profits with shareholders and increasing awareness of management that gives weight to shareholder benefits
4. (4)　In order to introduce an objective perspective from outside the Company and expert knowledge about the Directors’ and Executive Officers’ compensation scheme, the Company will hire an external remuneration consultant, and with the support of the consultant it will consider the compensation levels and compensation schemes by taking into account external data on the compensation of major companies in Japan operating globally, domestic economic environment, industry trends, and the Company’s conditions, etc.

2. Compensation scheme for Directors and Executive Officers and policies regarding decisions on compensation, etc.

1. (1)　Compensation scheme for Directors
   1. 1)　Directors will receive their compensation as a fixed amount, and the compensation to be paid will be set at a level considered reasonable, while taking into account the contents of the Directors’ duties and the Company’s conditions, etc.
   2. 2)　Directors will receive the retirement benefit upon resignation, and the retire-ment benefit to be paid will be set at a level decided on the basis of the monthly amount of compensation and the number of service years, etc.
2. (2)　Compensation scheme for Executive Officers
   1. 1)　Fixed-amount compensation will be set at a level considered reasonable taking into account the contents of the Executive Officers’ duties and the Company's conditions, etc.
   2. 2)　Performance-based compensation will be as follows:
      • The Mitsubishi Electric Group has been pursuing sustainable growth by maintaining Balanced Corporate Management based on three perspectives: growth, profitability and efficiency, and soundness. In line with its efforts to further increase corporate value, the Group has set its growth targets for fiscal 2021 as consolidated net sales of ¥5.0 trillion or more, and an operating income ratio of 8% or more. The payment base amount for performance-based compensation will be determined based on the consolidated business performance (Net profit attributable to Mitsubishi Electric Corp. stockholders) while taking into account the Group’s management policy and targets.
      • The payment amount of each Executive Officer will be determined within the range of ±20% of the payment base amount while taking into account the performance of the business to which the respective Executive Officer is assigned, etc.
      • With the purposes of meshing the interests of shareholders with the Executive Officers and further raising management awareness that places importance on the interest of shareholders, and increasing the incentives for the improvement of business performance from the mid- and long-term perspectives, 50% of performance-based compensation will be paid in the form of shares.
        The Company sets a rule that, for the compensation paid in the form of shares, the Company shares will be issued after a three-year waiting period. In addition, the shares are required to continue holding the shares until 1 year has passed from resignation.
   3. 3)　The amount of the retirement benefit will be decided on the basis of the monthly amount of compensation and the number of service years, etc.
3. (3)　Decision-making process, etc.
   Policies regarding decisions on compensation, etc. of Directors and Executive Officers and individual compensation details based on the policies will be made through resolutions by the Compensation Committee, which the majority of the members are Outside Directors. The details of activities of the Compensation Committee will be reported to the Board of Directors each time an activity is performed.

• Annual securities report

(Only in Japanese)

Outside Directors

Outside Directors

The Company has five Outside Directors, each of whom has no special interest with the Company. Although companies in which each of the Outside Directors holds office in or has been a director or officer of include those with trading relationships with the Company, no such relationships have an impact on the independence of each relevant Outside Directors based on the scale or nature of such trading, and thus they possess no risk of giving rise to any conflict of interest with the general shareholders of the Company.

Outside Directors are expected to supervise management from a high-level perspective based on their abundant experience. Those who are comprehensively judged to possess the character, acumen, and business and professional experience suited to fulfill that role, and who satisfy the requirements of independent executives specified by the Tokyo Stock Exchange and the requirements specified in Mitsubishi Electric’s Guidelines on the Independence of Outside Directors (see note at below) and thus possess no risk of giving rise to any conflict of interest with the general shareholders of the Company, are selected as Outside Director candidates by the Nomination Committee.

In addition, Outside Directors enhance the checking function of management by receiving reports about the activity status of internal auditors, the Audit Committee, accounting auditors, and divisions in charge of internal control via the Board of Directors, and providing valuable comments regarding Mitsubishi Electric’s management from an objective perspective. By doing this, they bring greater transparency to the management framework and strengthen the Board's function of supervising management.

Outside Directors (as of June 27, 2019)