Outside Directors Roundtable Talk

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Haruko Hirose

Yasushi ManabeToru Suzuki

Outside Director

Outside Director

Outside Director

We work to connect the uniquestrength of the MGC Group withnew growth while enhancing its
corporate governance system.

Characteristics of the MGC Group and
Its Unique Challenges

In recent years corporate governance has been
an important focus for publicly listed companies,
and initiatives to enhance these systems
are drawing more attention than ever. In thisroundtable talk we asked our three outside
directors to discuss corporate governance atMGC. We asked about how they identify theCompany’s current leading issues, what theysuggest to address them, and how they thinkthey should be involved to help make the Boardof Directors more effective. They spoke in depthon these questions.

Manabe: Before joining MGC I was working for anelectronics manufacturer that prioritized technology
development. This is my first time on the management
team of a chemical manufacturer, but I see a common
thread between my previous employer and the MGC
Group in that it is also an R&D-oriented firm focused onhoning its proprietary technologies. Here people in chargeof technology development work with a relatively highdegree of freedom, and I see that MGC has a culture thatencourages this. It is also unique in that it built a chemicalmanufacturer using natural gas as the primary ingredient.
MGC is the only chemical maker pursuing an energy
resources business, such as geothermal power generation,
by applying technologies for natural gas extraction. I
think this positioning is a strength through which MGC
can contribute to urgent societal concern about carbon

MITSUBISHI GAS CHEMICAL COMPANY, INC.

MC: In your eyes as outside directors, what special
characteristics does the MGC Group seem to have?
What do you think are its highest management
priorities and unique challenges?

neutrality. MGC is a good corporation with strong technicalfoundations upstream to downstream, and it’s in goodfinancial health. This should be much better known.

Raising the Effectiveness of the Board ofDirectors with Years of Management andInternational Experience

Suzuki: I did business with MGC when I was working for a
trading house. From the viewpoint of a business partner, Iwas aware of MGC’s open culture. While it is a member ofa tightly knit corporate group, it does business with all sortsof companies, not confined to its group. My impression of
MGC from that time remains the same. I think this natureallows the kind of openness that allows all employees tospeak frankly with one another, without being hampered
by internal boundaries.
I was appointed as an MGC outside director in June
2020, just before the beginning of the three years mostimpacted by the pandemic. So I regret missing themany face-to-face meetings and direct talks that I could
otherwise have had with MGC employees. Ms. Hirose, youcame aboard about the same time as I did. Do you feel thesame way?

MC: In board meetings, when you offer advice andguidance as overseers of MGC management, what do
you think is particularly important?
Manabe: I keep an eye on how the R&D budget isdistributed. Under the current Medium-Term Management
Plan we envision society in around 2050 and create actionplans backcast from that future. To provide productsthat will be needed in the future we envision, we have tocontinuously allocate budget to basic research, along withthe technology development that extends our existing
business. That’s how we cultivate seedlings for the next
generation of growth. Circular carbon methanol is a casein point. Its commercial applications are in sight, and noother firm is touching it. It has strategic significance andhuge market potential. I hope to see more products likethis coming out of MGC.

Hirose: Yes, it was those three pandemic years.
Suzuki: In the fall of 2022 I finally had the opportunity
to visit our plants in person, then the research labs in
2023. On both occasions, I enjoyed talking frankly withthe employees. I’d like to zoom in on MGC to see it as it
is. From my perspective a unique issue for the Company
to address is that while its corporate culture encourages
taking on new challenges and supports efforts to overcome
them, it still isn’t easy enough to question and disagree
on what’s considered a challenge. To ensure that theorganization maintains a robust self-assessment function,
we have to encourage discussion involving multiple
viewpoints, including those opposing one another. To
that end we should never be a lion at home and a mouseoutside, instead remaining constantly aware of third-party
views outside the Company.
Hirose: I always think of MGC as a group of many
excellent, hardworking people, and a rock-solid company
that works seriously on the tasks in front of it. Thatsaid, we should all bear in mind our responsibility toencourage deep, forthright discussion, as extensively andfrequently as possible, till all involved feel it’s sufficient.
Some issues are taken into board meetings after going
through internal business-focused talks. Here at MGC,
however, I feel those cases are less common than inmost international organizations. I’d say this problem
is not unique to MGC, but common to all Japanesefirms. In international negotiations, thorough discussion,
suspending our personal “common sense” because it is
not necessarily shared with the other party, is the only
way to get anywhere. I understand the chemical industry
as an open world where we can discuss and collaborate
with engineers from anywhere on Earth, using science andtechnology as a common language. That’s why we have towork to sharpen our international competitiveness.

Suzuki: I’ve been talking about the importance of exit
strategies and personnel exchanges every chance I get. Ina board discussion about an unprofitable project, I asked
what the exit strategy for it would be. Trading houses
usually maintain clear exit strategies they can review quickly
and flexibly. For manufacturers, however, it takes moretime to get to the exit due to the production facilities andpeople working there. Following business portfolio reform
MGC is now making substantial progress in withdrawing
from or reorganizing unprofitable businesses, and getting
positive results. Going forward we have to direct these
efforts to energizing our people and business even further.
To identify the markets where a proprietary technology
can show its true worth and determine its best applications,it’s important to combine the scientific and humanities
viewpoints as a path to higher-quality conclusions. To
connect social needs with MGC’s technical seeds, I want tofocus on exchanges between sales personnel and technicalemployees, people with backgrounds in the humanities andthose in science, and will keep an eye on the progress.
When I saw the annual All-MGC Poster Presentation
for the first time, I was very impressed with its profitmindedness. This is an opportunity for technical employees
to present their R&D projects, progress and results.
They always provide explanations with profitability after
commercialization in mind. This came as a surprise to me,
in a good way.
Hirose: I want to help raise MGC’s corporate value
by giving objective management advice based on theknowledge and experience I’ve obtained abroad. There
are huge differences between Japan and any given foreigncountry in expressing opinions and the time they take tomake decisions. Japanese companies are in a crucial stage
now in learning about these differences and applying that
understanding to building and executing growth strategies.

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Outside Directors Roundtable Talk

I want to help raise MGC’s corporate
value by giving objective management
advice based on the knowledge andexperience I’ve obtained abroad.
—Haruko Hirose

MC: How do the proceedings of the board meetings
look to you?
Suzuki: I think it’s important to have board meetings go
beyond finding official consensus to creating opportunities
for deeper discussion, ensuring that nothing is missed inour decision-making processes and verifying the rationalityof the decisions.
Hirose: I think Japanese companies are in a transition
phase in terms of corporate governance reform, andbeginning to apply the knowledge and experience ofus outsiders to raise the effectiveness of the Board of
Directors is an example. I feel it’s very hard to quickly
respond to government recommendations for achieving
quantitative goals, but I think we can come at these issues
with a positive mindset.
Manabe: For sustainable growth it’s important to beaware of capital cost, profitability, share prices and otherquantitative metrics, but we must not neglect MGC’s
unique defining characteristics, which can't be expressedin numbers. From that perspective I’d like to help raiseawareness, in board meetings and on other occasions.

Specific Examples of Reflecting Outside
Directors’ Advice and Recommendations in
Making Decisions
MC: Tell us about the agenda items that led toparticularly active discussion in board meetingsin fiscal 2022.
Suzuki: There was a time when the opinions of board
members split over two projects MGC was working onabroad. One of them was at a production site that had
expanded a few years before. Due to low selling prices andother factors it hadn’t turned an enough profit for severalyears. We outside directors pointed to some overarching
management issues. After discussion our suggestions,
including increasing human resources investment, were69

MITSUBISHI GAS CHEMICAL COMPANY, INC.

accepted. The other was about a production subsidiaryfor basic chemicals that MGC established in Europe. After
broadly discussing the systems for executing an overseas
construction project, including the strength of overseas
contractors and what we should consider carefully about
them, the board decided to proceed with the projectas planned.
Hirose: MGC operates all over the world, with more
overseas sales than domestic sales. In practice, however,
we sometimes struggle to manage those operations. It’s
not easy to make clear distinctions between areas weshould entrust to local managers and those that should
be under strong oversight by Japanese headquarters. Asa result, we risk leaving management struggling with halfmeasures. This is not a problem unique to MGC; many
projects by Japanese companies abroad hit this wall. But
we should not fear failure. What's important is to closely
analyze the cause of failure and avoid repeating the same
mistakes.
MC: Let’s talk about the requirements andappointment of new executives and scenarios forcandidate training, which are important agenda items
for the Compensation and Nominating Committee.

It’s essential for the future of MGC
to increase diversity by actively
appointing women and non-Japanese,
as well as assisting in their careerdevelopment.
—Toru Suzuki

In particular, which points do you think will be more
important in the future?
Hirose: I always think we should train executive candidates
who are confident and comfortable doing business inmarkets worldwide. To do that we first have to give themtime to get away from their turf in Japan and take selftraining trips abroad. I don’t think that people who are
working comfortably, believing the Tokyo head office iswatching over them to help if something bad happens, will
ever truly meet our needs for executive candidates.
Suzuki: I totally agree. I want to add something, and that’s
to develop programs and systems to train locally hired
people as future executives for our foreign subsidiaries.
Speaking from my experience in a trading house, I
think it’s ideal to promote local employees to head local
subsidiaries, even if it may take more time. It’s essential
for the future of MGC to increase diversity by actively
appointing women and non-Japanese, as well as assistingin their career development.
Hirose: To help women employees in their careerdevelopment, eliminating unconscious bias and wrong
beliefs will be a major point.

While paying attention to thequantitative metrics, I hope MGC
will continue to cherish its uniquedefining characteristics, which can’t
be expressed in numbers.
—Yasushi Manabe

Manabe: Speaking from my experience, to selectexecutive candidates from among those in the corebusiness, we should ideally transfer them to subsidiaries
as presidents. That’s because the core business of thecompany usually enjoys favorable market environments
and good customers, which can make the people working
within it too laid-back. Even more ideally, we should findpeople who have led businesses in tough environments
and promote them as executives. They have gone
through hard times in unfavorable environments, so they
understand the difficulties of their employees while they’ve
built an acute sense of the risks ahead.

Integrate Ideas to Resolve Problems andPush the Company to Grow
MC: In concluding our talk, tell us about your hopes
and ambitions for MGC.
Suzuki: I think our employees are our most important
stakeholders. I think a company with happy employees
grows. I’d like MGC to take care of and train people
working in Japan and abroad for the Group, and also makea habit of thoroughly explaining its growth strategy and thelike to them.
Hirose: Let me reemphasize that there should be a systemthat assures tight governance of foreign subsidiaries by theJapanese head office. I’ll be happy to share my experience
with the promotion of diversity and inclusion and employee
development. I hope to see early incorporation of stateof-the-art technologies into products that can help build
a society focused on reducing waste and encouraging
recycling as a new growth field.
Manabe: I agree with you. The key to future growth, I
think, is in carbon neutrality and similar businesses. MGC
has great success potential, and I’m looking forward to ita lot. I’d like MGC to be a major presence in society as itincreases its capital efficiency while increasing the scaleof sales.

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