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Corporate Governance

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Basic Concept of Corporate Governance

MOL continually strives to ensure sustainable growth and maximize mid- and long-term group corporate value based on MOL Group Corporate Principles, and Long-Term Vision, as well as the management plan. To this end, MOL is making proactive, ongoing efforts to enhance its corporate governance, including (1) appointing several outside directors, (2) establishing the Nomination Advisory Committee and Remuneration Advisory Committee as discretionary advisory committees to the Board of Directors comprised of a majority of outside directors, and (3) formulating its own standards for determining independence in fiscal 2017 in addition to the criteria for independent directors/auditors stipulated by the Tokyo Stock Exchange.

The ocean shipping business environment and risk factors change rapidly. As we set our course, we must accurately grasp business environment, always confront risks appropriately, and effectively utilize our management resources in a careful balance of offense and defense. We believe that the essentials of corporate governance are fostering sustainable growth and increasing corporate value by making decisions swiftly and boldly, guided by appropriate risk management, while ensuring the transparency and fairness of management by carefully considering the viewpoints of our diverse stakeholders.

Approaches to Corporate Governance

For five years prior to 2002, MOL initiated substantial reforms of its management structure, such as appointment of outside directors and introduction of the executive officer system, laying the foundation for a corporate governance structure that was advanced and highly transparent for a Japanese company at that time. In 2015, we further enhanced the supervisory functions of the Board of Directors, and in 2017 we enhanced our evaluation of the effectiveness of the Board of Directors and formulated our own independence determination standards regarding our outside directors/Audit & Supervisory Board Member, among other efforts to further strengthen our corporate governance.

1997
  • Outside Audit & Supervisory Board Members increased from one to two out of a total of four auditors
1998
  • FY1998 Annual General Shareholders' Meeting was held in Tokyo
  • George Hayashi (former APL chairman) invited to join the Board of Directors.
1999
  • After the revision of the Japanese Ship Law, George Hayashi was appointed as Director and Deputy President
2000
  • Management organization reform
    • Introduced a system of executive officers
    • Abolished the Managing Directors Committee and established an Executive Committee (reduced the membership from 21 to 10)
    • Reformed the Board of Directors (redefined its duties as the highest-ranking decision-making body and the supervision of business activities) and reduced membership from 28 to 12
    • Elected two outside directors
    • Established the Corporate Visionary Meeting
  • Invited Takeo Shiina, (Senior Advisor at IBM Japan), and Toshihiko Fukui (former Deputy Governor of the Bank of Japan) as outside directors
  • Established the IR Office
  • Started holding the Annual General Shareholders' Meeting on a day relatively free of other shareholders' meetings
2001
  • Established the MOL Group Corporate Principles
  • Added one more outside director, increasing the number of outside directors to three
  • Established Compliance Policy and a Compliance Committee
2002
  • Second stage of management organization reforms
    Reforms reinforced roles of the Board of Directors concerning determination of basic strategies and monitoring risk management while providing for faster decision-making at the business execution level
    • Board of Directors was reorganized to carry out three important functions: (1) deliberation on issues requiring approval by the Directors; (2) receipt of reports on business operations; and (3) deliberation on corporate strategy and vision
    • Reviewed and consolidated issues submitted to the Board of Directors
    • Expanded jurisdiction of the Executive Committee regarding execution of business activities
  • Established the Internal Audit Office. (Improving accounting/business operation auditing of MOL Group companies as well as MOL itself)
2003
  • Invited Kunio Kojima, then-President of Japan Securities Finance Co., Ltd., (now Advisor) as outside director. (Toshihiko Fukui resigned due to his appointment as Governor of the Bank of Japan)
  • Invited Kensuke Hotta, Chairman of Morgan Stanley Japan Ltd., as outside Audit & Supervisory Board Member.
  • Opened the Compliance Advisory Service Desk, and revised Rules of Conduct
2004
  • Renamed the Environment Committee, which reports directly to the Executive Committee, as the CSR and Environment Committee (with an expanded scope of examination and deliberation on issues related to CSR in MOL Group companies), and established the CSR and Environment Office in the Corporate Planning Division as the secretariat of the CSR and Environment Committee
2005
  • Formulated Privacy Protection Policies
  • Executed a change in the Articles of Incorporation to abolish Directors' titles except "Chairman of the Board"; titles are allocated only to Executive Officers. (This clarifies the roles of Directors and Executive Officers)
2006
  • Invited Yoko Ishikura, Professor of the Graduate School of International Corporate Strategy, Hitotsubashi University as outside director. (Takeo Shiina resigned)
  • Invited Sumio Iijima, Attorney at Law, as outside Audit & Supervisory Board Member. (Kyoichi Sato resigned)
  • Decided basic policy on the establishment of internal control systems in response to enforcement of the new Japanese Companies Act
  • In response to the enforcement of the Financial Instruments and Exchange Act, the Internal Control Planning Office was established in the Corporate Planning Division
2008
  • Invited Takeshi Komura, Executive Advisor of Tokyo Marine & Nichido Fire Insurance Co.,Ltd. as out side director.(Yukiharu Kodama resigned.)
2010
  • Invited Sadayuki Sakakibara, Chairman of the Board and Chief Executive Officer, Toray Industries, Inc. as outside director. (Yoko Ishikura resigned)
2011
  • Invited Masayuki Matsushima, Senior Advisor, the Boston Consulting Group K.K., as outside director. (Kunio Kojima resigned)
  • Invited Hiroyuki Itami, Professor and Head, Specialist Graduate School of Management of Science and Technology, Tokyo University of Science, as outside Audit & Supervisory Board Member. (Kensuke Hotta resigned)
  • Revised the MOL's Compliance Policy and Rules of Conduct (opened the Compliance Advisory Desk)
  • Revised the basic policy on establishing a system to ensure the appropriateness of operations (internal control system)
    (Added periodic monitoring of the compliance system by the Compliance Committee)
2014
  • Invited Atsutoshi Nishida,Chairman of Toshiba Corporation, as outside director. (Sadayuki Sakakibara resigned)
  • Invited Hideki Yamashita, Attorney at Law, as outside Audit & Supervisory Board Member . (Sumio Iijima resigned)
  • Revised the Compliance Policy, establishing a Chief Compliance Officer (COO)
2015
  • Outside Director Atsutoshi Nishida resigned.
  • Reformed management organization (3rd phase)
    • Established the Nomination Advisory Committee and the Remuneration Advisory Committee
    • Further vitalized the Board of Directors (Reviewed and consolidated issues submitted to the Board of Directors and expanded jurisdiction of the Executive Committee regarding execution of business activities)
    • Reformed presidential selection process (A change to the Articles of Incorporation to allow appointment from Executive Officers who are not Directors was proposed to and resolved by the Annual General Shareholders’ Meeting in 2016)
    • Changed time to appoint management executives and restructure organizations to April 1, the first day of the business year
2016
  • Invited Hideto Fujii, Adviser to Sumitomo Corporation, and Etsuko Katsu, Professor, school of political science and economics, Meiji University as outside directors. (Takeshi Komura resigned)
2017
  • Conducted an evaluation of the effectiveness of the Board of Directors through a self-evaluation questionnaire and submission for discussion by the Board of Directors (evaluation items were significantly increased to enhance the evaluation)
  • Established independence determination standard for outside directors and Audit & Supervisory Board Members.

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MOL Corporate Governance Organizational Structure (as of June 27, 2017)

MOL considers the realization of legal, appropriate and efficient business execution to be a suitable functional design for the Company. We achieve this by ensuring that the Board of Directors has an effective supervision framework. In addition to the supervisory functions undertaken by the Audit & Supervisory Board, which is independent from the Board of Directors, the inside directors who execute business (Directors with concurrent executive officer positions) also provide mutual supervision and control, while the Board of Directors itself is comprised of inside directors who conduct business execution and outside directors who do not conduct business execution but fulfill a specialized supervision function. Based on this approach, the Company has adopted the “company with audit & supervisory board format” provided by the Companies Act.

The Board of Directors has formulated a basic policy on establishment of a system for ensuring appropriate business operations (internal control system) by its own resolution (revised on April 28, 2017). The Group’s executives, with the president acting as the Chief Executive Officer, execute business operations in line with the management policies decided by the Board of Directors and the abovementioned basic policy, while being supervised by the Board of Directors and audited by the Audit & Supervisory Board. (The business execution structure is explained below.)

We believe that the essence of corporate governance lies not in the structure or organizational construction described above, but in whether or not the relevant systems actually function correctly and efficiently in the form presented below.

Organization

Board of Directors

The Board of Directors, as the Company's highest-ranking decision-making body, discusses and decides on basic policies and the most important matters connected with MOL Group management.

The Board of Directors consists of six (6) inside directors and three (3) outside directors who have no stake in the Company. Outside directors confirm the appropriateness of management decisions and check the management of business operations from an independent position based on their individual experience and knowledge, while playing a major role in revitalizing the Board of Directors by expressing helpful insights regarding overall management. We also provide a system to support outside directors in such ways as providing them with preliminarily explanations of proposals before Board of Directors meetings and reports on important matters related to business operations on a case-by-case basis. In addition, we also hold the Deliberation on Corporate Strategy and Vision, in which we freely exchange opinions about management strategies, our long-term vision, and overall management, with both outside directors and outside Audit & Supervisory Board Members.

Nomination Advisory Committee and Remuneration Advisory Committee

MOL established the Nomination Advisory Committee and the Remuneration Advisory Committee as discretionary organizations under the Board of Directors. Both Committees are chaired by an outside director; consist of the Chairman of the Board, the President, and a majority of outside directors; and aim to enhance outside directors’ supervision of Directors responsible for business execution. The Committees conduct investigations from an objective standpoint emphasizing the perspective of shareholders, the Nomination Advisory Committee regarding the selection of Directors and Executive Officers and the Remuneration Advisory Committee regarding the status of remuneration of Directors, including incentives for long-term improvement of corporate value. The Board of Directors respects the content of reports from both Committees, and uses it in formulating necessary resolutions.

Evaluation of Effectiveness

Based on Japan’s Corporate Governance Code, the Board of Directors conducts evaluations and analyses each year regarding its effectiveness by means of discussion at the Board of Directors. Discussion is based on the results of a self-evaluation questionnaire. The results of evaluations and analyses are used to make subsequent improvements to the operation of the Board of Directors.

MOL revises items for evaluating effectiveness each fiscal year, applying items in accordance with the situation in that fiscal year and so forth in an effort to enhance the evaluation and make it more beneficial. In fiscal 2016, a significant number of evaluation items were added, and the content has been enhanced.

Business Operations

With regard to business operations, MOL introduced the Executive Officer system in 2000. The Executive Officers, selected by the Board of Directors and assigned to various fields of authority by the representative Directors, strive to accelerate management by implementing Company operations in line with management policies determined by the Board of Directors. The Executive Committee (chaired by the President), as the top decision-making authority for business operations, functions as the deliberative body for deciding on important issues related to basic management plans and conduct of business operations in accordance with basic policies determined by the Board of Directors. Under the Executive Committee, MOL established eight Committees. Executive Officers and division general managers concerned, in addition to Committee Members, attend each meeting and examine and deliberate on matters submitted for discussion.

Auditing System

The Audit & Supervisory Board consists of two (2) full-time Audit & Supervisory Board Members and two (2) outside Audit & Supervisory Board Members who hold no stake in MOL. The Audit & Supervisory Board Members regularly hold Audit & Supervisory Board meetings where they formulate audit plans and report and share audit results. Moreover, all Audit & Supervisory Board Members attend the Board of Directors meetings and the full-time Audit & Supervisory Board Members attend management meetings, including those of the Board of Directors and various Committees, to audit the processes of deliberation and decision-making. KPMG AZSA LLC, a limited liability audit corporation with which MOL has an audit contract, conducts accounting audits. In addition to the Audit & Supervisory Board Members and the Accounting Auditor, we formed the Internal Audit Office, which receives instructions only from the Executive Committee and is independent from all other divisions and offices. In this way, we audit the Company's business operations including those of Group companies, in collaboration with statutory audits conducted by the Audit & Supervisory Board Members and the Accounting Auditor.

Compliance System

The Company is aware of the crucial role that compliance plays in living up to its broad corporate social responsibilities, and that compliance with laws and regulations is at the core of this role.

We have established the Compliance Committee, which is headed by the Chief Compliance Officer, and formulated the Compliance Policy to assure strict adherence to rules and regulations. General managers of divisions and offices are appointed as Compliance Officers. In this role, they are responsible for enforcing compliance regulations and are also required to report to the Compliance Committee in the event of a compliance breach. The Internal Audit Office, a body that operates independently of the Company's divisions and offices, provides an Internal Compliance Advisory Desk. The Internal Audit Office undertakes investigations of breaches and reports the results to the Compliance Committee. In addition to the Internal Compliance Advisory Desk, we have established an External Compliance Advisory Desk, operation of which is entrusted to an outside attorney. The Desk provides anonymous consultation services.

In addition, we strive to maintain sound relationships with Accounting Auditor.

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Dialogue between Outside Directors

Outside Director Hideto Fujii Outside Director Etsuko Katsu

“We made our active and open exchange of opinions in the ‘Deliberation on Corporate Strategy and Vision’”

Theme: Impressions of MOL and evaluation of the “Deliberation on Corporate Strategy and Vision” initiative

Fujii:The impression I have of MOL’s Executive Committee and its discussions is that people seem to feel free to speak their mind. I also feel that MOL maintains great transparency in explaining matters to stakeholders. Furthermore, the Company seems to have been working sincerely on its corporate citizenship activities.
Katsu:My initial impression of MOL was that there are many upstanding individuals in the Company. As a global marine transport organization, their corporate culture is forward-thinking, open, and proactive. I also was impressed by their very flexible approach to strategic issues.
F:When I took part in MOL’s unique “Deliberation on Corporate Strategy and Vision” initiative, I felt that the greater the uncertainty in the business environment going forward, the more important it is for the Company to focus on its comprehensive strategies for each business. It is necessary for the Company to hold thorough discussions on fundamental issues such as which businesses to prioritize when it strives to differentiate itself from rivals, and what strategies should be adopted in divisions such as dry bulkers or tankers. I think the frank and open discussions that take place in the “Deliberation on Corporate Strategy and Vision” are ideal for this purpose.
K:I hold the new management plan, which adopts a rolling plan format, in very high regard. At a time of such global economic and political uncertainty, a company should not cling to plans which have been decided simply but should be flexible enough to respond as appropriate in its management plan. I think MOL’s creation of this kind of structure is highly commendable. In particular, after the critical decision to integrate its containership business with those of two other companies, it is now more important to decide which business to designate as the cornerstone of MOL operations in the medium to long term. By discussing these questions in the “Deliberation on Corporate Strategy and Vision,” all directors can share their vision on which businesses are most important.

“By offering a critical, third-party perspective, I focus on the process by which MOL maximizes its corporate value.”

Theme: Outside directors’ perspectives on the important issues deliberated during fiscal 2016

F:For me, the most important management issue was the adoption of a new format for management planning?the selection of a ten-year time axis on which to base long-term plans. Now the question is how to earn the trust of all stakeholders, and help them to understand that these plans are appropriate. It is also essential that MOL follow through and implement the plans successfully, and deliver results. I expressed my opinion on this issue in the discussions, and I think the other directors shared my views. The new management plan has a clear overall vision and includes strategies that need to be implemented.
K:Several important decisions were discussed in fiscal 2016, including not just the new management plan but also the integration of the containership business and large-scale investment decisions. As outside directors, I believe that our role is to critique such issues from an unbiased perspective. Of course, it is important to ensure that our corporate value is maximized in a way that is acceptable to shareholders, but we also focused on the Company’s process of creating corporate value in terms of environmental and social responsibilities. Outside directors also have to play an important supervisory role to ensure that the management process addresses issues of compliance, risk management and enhancement of its financial ground.

“We need swift decision-making in response to the changing situation.”
“It is essential that human resource development and employee commitments be brought into line with global standards.”

Theme: What we expect for MOL in the execution of its new management plan

F:In a time of global economic and political uncertainty, it is essential that MOL constantly collect and analyze information, not only to monitor its own position, but to respond flexibly and make adjustments whenever necessary. In order to achieve its overarching goal of boosting corporate value, I think the most important point is to adopt flexible means of decision-making to allow swift reaction to changes in conditions or methods.
K:For MOL to grow further in the future, I think that human resource development will be very important. MOL is planning to open a maritime academy in the Philippines, and while this kind of global personnel training is important for enhancing corporate value, it is also essential to bring employee commitments and human resource systems into line with global standards. In addition, the Company needs to enhance its financial ground and accumulate the capacity necessary to assume business risks going forward. MOL should continue to focus carefully on the allocation of resources, taking aggressive or defensive stances as conditions dictate, while maintaining an adequate capacity to take advantage of investment opportunities as they arise. This will become increasingly important going forward.

MOL’s“Deliberation on Corporate Strategy and Vision”

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