March 28, 2018
To: AllCompany
Mitsubishi Materials Corporation
Representative Akira Takeuchi, President(Securities Code: 5711 on the First Section of theTokyo Stock Exchange)
Inquiries to:
Nobuyuki Suzuki, General
Manager, Corporate
Communications Dept., General
Affairs Dept.
(TEL: 03-5252-5206)

Formulation of the MMC Group Governance Framework Enhancement Measures
Mitsubishi Materials Corporation (“MMC”) sincerely apologizes for the difficulties that we havecaused to all concerned parties, including our customers and shareholders, in connection with Mitsubishi Cable
Industries, Ltd.’s (“MCI”), Mitsubishi Shindoh Co., Ltd.’s (“MSC”), Mitsubishi Aluminum Co., Ltd.’s(“MAC”), Tachibana Metal Mfg Co., Ltd.’s (“TKC”), and Diamet Corporation’s (“DM”) delivery of productsthat deviated from customer or internal specifications (“Non-Conforming Products”) due to misconduct,
including the rewriting of data.

MCI, MSC, MAC, TKC, and DM are consolidated subsidiaries of MMC.

We would like to announce the MMC Group governance framework enhancement measures as follows,which are formulated with respect to these issues at the Board of Directors meeting held today. We would also
like to announce the progress that has been made to date in addressing these issues.
1.

MMC Group Governance Framework Enhancement Measures
MMC instituted the Restructuring Measures of the Governance Framework for Quality Control in the

MMC Group as measures to address the current quality issues on December 28, 2017, and is currently
proceeding with specific initiatives based on such measures.
Meanwhile, in the course of the investigation into the current quality issues by the Special Investigation
Committee (the “Investigation”), it has been revealed that multiple MMC subsidiaries continued misconduct
over a long period of time and identified as the background and root causes the facts that there were issues
with awareness of quality and corporate culture, risk information was not grasped and reported in a timely andappropriate manner, and the issues were not discovered in the internal audit.
The MMC Group has always endeavored to develop the CSR and compliance framework, but fromthe perspective of preventing recurrence of the issues attributable to the same type of background and root
cause in the future, MMC believes it is necessary to implement drastic measures at the subsidiaries whichcaused the current quality issues and in addition further enhance corporate governance framework of the entire
MMC Group.

To this end, after repeated considerations of improvement measures in light of the issues that havebeen clarified at present, MMC formulated governance framework enhancement measures as set forth below,
and hereby announce as follows.

The Special Investigation Committee has also deliberated and is of theopinion that these enhancement initiatives are appropriate.
* The Interim Report released on December 28, 2017, the Interim Report (2) released on February 20,
2018 and the Final Report released today
1) Recognition of Group Governance Issues
The following have been recognized as the main issues with the MMC Group governance framework.
(i)Communication
The Investigation has pointed out the harmful effects of the vertically-segmentedorganizations and insufficient control over subsidiaries.
In order to address these issues, it is necessary to improve quality and quantity ofcommunication within each MMC Group company and between MMC Group companies.
In the existing communication in particular, the focus have been placed on results andmanagement strategies, but the MMC Group also needs to ensure information regarding
governance-related matters (meaning CSR, occupational safety & health, accident prevention andsecurity, environmental management, quality control, management audits, etc. Same hereinafter.)is shared and communicated.
The MMC Group also needs to work to further deepen communication and eliminate
walls between organizations by promoting personnel exchanges between various levels.

(ii) Compliance Framework and Awareness
The Investigation has pointed out the fact that in some of the subsidiaries complianceawareness is insufficient at each level, necessary knowledge has not been acquired, the awarenessof our responsibilities as an organization and business is shallow, and in addition the MMC Group
does not have sufficient capacity to discover misconducts, take initiatives to resolve issues, andmake timely reports.
The MMC Group has always endeavored to maintain a proper compliance frameworkand foster an awareness of compliance, but we need to promote awareness reform throughmeasures such as enhanced education.
(iii) Resource Allocation
The Investigation has indicated that some businesses do not have sufficient processcapabilities that are adequate for received orders or a sufficient inspection and quality assurance
framework.

The Investigation has also pointed out that the background leading up to suchsituation is that some subsidiaries gave priority to earnings and postponed necessary capital
investment, and this resulted in resources not being suitably allocated.

With regard to governance-related measures that are essential to soundly operate businesson a long-term basis, such as safety, quality and environment, the MMC Group needs to establish
a framework and a system to ensure that they are implemented regardless of the short-term profitand-loss status of the business.
2) Initiatives to Enhance MMC Group Governance
The MMC Group will undertake the following initiatives as measures in response to the issues discussed
above.
(i)

Enhancement of Framework for Discussion, Reporting and Follow-up of Governance-Related
Matters
The MMC Group will manage and promote the policies, annual plans, response status
and other efforts for governance-related matters in the entire group (including MMC’s businessestablishments and subsidiaries).

These policies, plans and other efforts will be made more

effective by discussing and sharing them in the Governance Deliberative Council, which is to be
newly established.
At the same time, the group’s internal reporting framework will be restructured withrespect to initiatives for governance-related matters, and reporting obligations (such as reports
from business establishments and subsidiaries to the responsible department at MMC, and reports
from the responsible departments at MMC to the Corporate Strategy Committee and Board of
Directors) for matters such as the progress status of annual plans will be clearly stipulated.

The

Corporate Strategy Committee will be tasked with monitoring the execution of business by
operating divisions and sharing information on material matters such as governance andcompliance.
Operating divisions will also aim to improve communication through efforts to, forinstance, ensure that meetings conducted at headquarters and business establishments of MMC
are actively engaged with and that reporting matters (all types of business reports and information
regarding accidents or misconducts, etc.) and discussion matters at meetings of the boards of
directors, etc. of subsidiaries are substantial.
The MMC Group will implement a framework for reducing risks and preventing problem
occurrences by adequately identifying, and gaining an understanding of, risks throughout theentire group, through these initiatives.
(ii) Improvement of Functions of Management Divisions and Its Collaboration with Operating
Divisions
In order to improve administrative division’s control and support functions forgovernance-related matters, MMC will reorganize its structure as of April 1, 2018 and launch theGovernance Division (comprising the CSR Dept., Safety & Environment Dept., Quality
Management Dept., and Internal Audit Dept.).

The Governance Division will require operating

divisions to provide necessary information regarding governance-related matters, and based onthe information provided, it will propose improvements and measures to that should be
implemented to operating divisions.
In addition, MMC will specify departments and persons responsible for the promotion of
governance-related matters in each department within operating divisions, each businessestablishment, and each subsidiary to act as a contact point for the Governance Division, with theaim of facilitating the communication of information and to enhance the promotion framework.
(iii) Improvement of Personnel Training and Encouragement of Active Interaction Between Personnel
In order to strongly promote governance-related matters at all levels of the MMC Group,
we will improve training using case studies and training courses for executives before they assume
office, including at subsidiaries, in order to expand education of the MMC Group’s management
regarding governance-related matters.

We will also carry out education about, and ensure

thorough knowledge of, risk management and the report system for risk information for all other
employees.
In addition to promoting interactions, and endeavoring to deepen communication,
between personnel from different divisions, between personnel at parent and subsidiarycompanies and within each subsidiary, MMC plans to provide personnel training throughout thegroup by developing the wide range of different knowledge and experience in various different
divisions.
(iv) Internal Audit Strengthening
With respect to MMC’s internal audit of business establishments and subsidiaries,
including occupational safety and health, accident prevention and security, environmental
management, and quality control, the frequency and content of audits will be enhanced throughcooperation with each department within the Governance Division discussed above.

As part ofthat initiative, MMC will strive to strengthen its various auditing capabilities with the use of
external resources as an option.

MMC will also strengthen cooperation such as by conducting

joint audits with MMC’s Audit & Supervisory Board Members.
(v) Studies with a Business Optimization Focus
When considering the MMC Group’s business optimization, whether the governanceframework can sufficiently function is also one of the important decision-making criteria.

Onthat basis, we will seek to achieve an appropriate business portfolio and management frameworkthat match the MMC Group’s governance capabilities.
We also announce that MMC’s Audit & Supervisory Board has reported to the Board of Directors that
it will work to supervise the implementation and operation status of MMC Group’s governance frameworkenhancement measures and implement the following measures for improving the effectiveness of audits by
Audit & Supervisory Board Members, and that MMC will make a necessary response to such efforts.
(i)

The personnel working in the Audit & Supervisory Board Member Assistance Dept. – whosupport the duties of MMC’s Audit & Supervisory Board Members – will serve concurrently as
part-time audit & supervisory board members at major subsidiaries with full-time audit &supervisory board members, whereby coordination between MMC’s Audit & Supervisory Board
Members and the standing audit & supervisory board members of subsidiaries will be improved.
(ii) The subsidiaries that only have part-time audit & supervisory board members will be requested
to submit monthly activity status reports by such part-time audit & supervisory board members,
and MMC’s Audit & Supervisory Board will work to obtain and act on information in a timely
manner.
(iii) MMC’s Standing Audit & Supervisory Board Members will newly establish a new consultation
contact method liaising directly with the Standing Audit & Supervisory Board Members, inaddition to the current whistleblower hotline.
(iv) Cooperation with the Internal Audit Dept. of the Governance Division, which conducts internal
audits, will be strengthened, including the expansion of the scope of joint audits.
2.

Safety Confirmation Status
Each of the relevant companies is proceeding with safety confirmation with the cooperation of theircustomers. The progress as of March 27, 2018 is as follows. The figures in parenthesis in the tables are thefigures as of February 8, 2018.
The categories, reflecting the status of the relevant company’s progress in evaluating the safety ofaffected products, are as follows:A.

The customer has completed its confirmation that there are no safety concerns.

B.

The customer has determined that there are no immediate safety concerns, but is conducting
further review.

C.

The relevant company (MCI, MSC, MAC, TKC or DM) has communicated to the customers
its opinion that, from a technical perspective, there is a high probability that the affected
products can be assumed to be safe.

D.

The relevant company has provided notification that Non-Conforming Products weredelivered to the customer.
1)

MCI
Product

Seal Products

NumberofCustomers
218

MEXCEL

5

A

B

C

D

110 (35)108 (92)

0 (91)

0 (0)

1 (1)

4 (4)

0 (0)

0 (0)

2) MSC
Product

Brass-Strip andNumberofCustomers
30

AB

21 (12)C

9 (18)

D

0 (0)

0 (0)

Copper-Strip
Products
3) MAC
MAC’s internal investigation, which commenced on February 8, 2018, discovered additional NonConforming Products, and the total number of affected customers increased by five (one customer for rolled
products and four customers for extruded products) as set forth below.
Number of
Product
Customers
A
B(120)
Rolled Products
8
7 (3)
1 (0)
Extruded114

35 (6)

67 (30)

C

D
0 (4)

0 (0)

12 (36)0 (35)

Products(Note)

There are 2 overlapping customers in the number of customers for rolled products and for
extruded products.

4) TKC
TKC’s internal investigation, which commenced on February 8, 2018, discovered additional NonConforming Products, and the total number of affected customers increased by 32.
Number of
Product
A
B
C
Customers
Extruded
339
85
165

D
89

0

Products
5) DM
DM’s internal investigation, which commenced on February 8, 2018, discovered an increased scopeof Non-Conforming Products shipped without some necessary inspections, and the total number of affectedcustomers increased by 40.
Product
Sintered
Machinery parts,
etc.

Number ofCustomers
113

A

B

C

D

0

26

61

26

3.

Recurrence Preventive Measures of MAC and DM
MAC released “Preventive Measures for the Misconduct at MAC” (Attachment 1) today and DM

released “Preventive Measures for the Misconduct at DM” (Attachment 2) today, respectively.
MMC will provide direction and supervision to MAC and DM to ensure their recurrence preventive
measures are promptly implemented.
4.

Extraordinary Quality Audit
In response to the occurrence of the current quality issues, since February 2018, the MMC Group has

been conducting an extraordinary quality audit of 119 manufacturing facilities of MMC and its Group
companies. The audit will cover the period between January 1, 2017 and December 31, 2017, and currently,
auditing of 91 locations has been completed.
The audit to date has identified some incidents of which quality control method was problematic, but
the remediation has already been completed.
5.

No incident with product quality issues has been identified.

Policy for Handling the Issues Going Forward
MMC plans to newly establish the Group Governance Enhancement and Promotion Division (General

Manager: Managing Executive Officer Shibata (General Manager, Governance Division) on April 1, 2018 asa cross-sectional organization to work to steadily carry out the MMC Group governance frameworkenhancement measures and confirm the progress of such measures.
The entire MMC Group will work as a whole with respect to the MMC Group governance frameworkenhancement measures together with its Restructuring Measures of the Governance Framework for Quality
Control.
Under the direction and supervision of MMC, the relevant subsidiaries will continue to swiftly move
forward with measures such as working with customers to confirm safety and implementing preventive
measures.
6.

Outlook on Financial Results
The impact of these issues on MMC’s consolidated results of operations for the current fiscal year has

already been incorporated, based on certain assumptions, into MMC’s forecast of consolidated results ofoperations for the fiscal year ending March 31, 2018 that was announced on February 13, 2018.

Going

forward we will make a separate announcement if it becomes necessary to revise the forecast again.
(Reference) Forecast of consolidated results of operations for the fiscal year ending March 31, 2018
(announced on February 13, 2018) and consolidated results of operations for the previous fiscal year (millionyen)Forecast of
consolidated
results ofoperations for thecurrent fiscal year
(fiscal year ending
March 31, 2018)
Consolidated
results ofoperations for theprevious fiscal
year (fiscal year
ended March 31,
2017)

Net Sales

Operating Profit

Ordinary Income

Net Income
Attributable to
Owners of Parent

1,580,000

70,00078,00035,0001,304,068

59,761

63,92528,352

END
Direct any questions to:
Corporate Communications Department, General Affairs Department, Mitsubishi Materials Corporation
TEL: 03-5252-5206
Corporate Administration & Personnel Section, Administrative Division, Mitsubishi Cable Industries, Ltd.
TEL: 03-3216-1551
Corporate Administration & Personnel Division, Mitsubishi Shindoh Co., Ltd.
TEL: 03-6629-5850
General Affairs Department, Mitsubishi Aluminum Co., Ltd. (also for inquiries relating to TKC)
TEL: 03-3769-0111
General Affairs Department, Administration Division, Diamet Corporation
TEL: 025-275-0111

Attachment 1

March 28, 2018
Mitsubishi Aluminum Co., Ltd.
Preventive Measures for the Misconduct at Mitsubishi Aluminum Co., Ltd.
(“MAC”)
We once again sincerely apologize for the difficulties we have caused to allconcerned parties, including our customers and business partners, with respect to the
misconduct at our company.
With respect to rewriting of data based on unofficial internal rules of MAC, which
was discovered in November 2016 in connection with a quality audit of MAC conductedby Mitsubishi Materials Corporation (“MMC”), MAC immediately abolished the internal
rules and had its all customers that had purchased the products subject to rewriting of data
confirm safety of such products.
However, a special quality audit conducted by MMC from December 25, 2017 toJanuary 28, 2018 led to the discovery of the fact that certain products that deviated from
customer specifications (“Non-Conforming Products”) were shipped due to misconduct.
This misconduct included rewriting of data entered in the Test Results Reports, inspection
using inappropriate measuring methods and omission to perform some inspections.
Moreover, special audits by MMC and MAC from January 15 to 22, 2018 also
discovered the fact that Tachibana Metal Mfg Co., Ltd. (“TKC”), a subsidiary of MAC,
shipped Non-Conforming Products due to similar misconduct. This report sets forth acompilation of recurrence preventive measures based on the investigation report ofoutside counsels submitted to the Special Investigation Committee of MMC(“Investigation Report”) and the results of the internal investigations conducted by MAC
and TKC.

Section 1 Root Causes of Misconduct at MAC
MAC had the members of its internal team formulating measures for quality
related issues (note) analyze the root causes of the misconduct based on the Investigation
Report and the results of the interviews with and questionnaires to MAC employees, andrecognizes that the root causes of misconduct are as follows.
(Note: MAC’s internal team formulating measures for quality related issues consists of
the President, executives for quality control, quality control divisions and relevant
division general managers.)
1/81) Root causes relating to quality control framework and awareness of quality① The awareness of compliance with contracts and specifications was reduced, and theemployees were not thoroughly familiarized with necessary knowledge.
② A quality control framework covering the entire MAC Group, including thesubsidiaries, was not yet established.
③ The human resources of the quality assurance divisions were insufficient.
④ There was a quality-related information system which allowed data to be enteredmanually in the Test Results Report.
2) Root causes relating to business operations① MAC accepted orders beyond its process, inspection and production capabilities, andhad the mindset of prioritizing to satisfy delivery dates.
② Interactions among divisions, such as sales, manufacturing, inspection, and products
research and development, were insufficient.
③ A manpower shortage led to work being dependent on individual skills, humanresources being fixed and information being personalized.
④ Visualization of work was insufficient.
⑤ There was a lack of confidence in effectiveness and confidentiality of awhistleblower hotline.
Section 2 Measures to Prevent Recurrence of Misconduct at MAC
In light of the abovementioned causes, MAC will implement the following
recurrence preventive measures at MAC and also expand it to the entire MAC Group
immediately.
1) Enhancement of front loading (corresponding to Section 1. 2) ① and ②)① Endeavors to enhance its operations based on the front loading methodology underwhich when a new or continual order is received, various internal meeting bodies,etc. that consist of the products research and development, manufacturing, quality
assurance and sales departments, comprehensively consider such factors as theprocess capability, inspection capability and production capability, and specifically
identify the quality assurance capability to the relevant product, and the order is
accepted only within such quality assurance capability.
② It is believed that the enhancement of the operations based on the front loading
methodology will have the effect of activating the exchange of opinions andinformation among the manufacturing, sales, and products research and development
departments through various internal meeting bodies, etc. at various operational
2/8

stages.
2) Enhancement of IT control (corresponding to Section 1. 1) ② and ④)① Automatic collection of measured data
Establish a system that does not allow rewriting of measured data entered in the Test
Results Reports② Improvement of the Test Results Report issuance system
Establish a system that automatically issues Test Results Reports based on measured
data and unify the items displayed in the Test Results Reports③ Development of a database of delivery specifications
Develop a database of customer specifications and establish a system that enables
the production-to-inspection system to always operate based on the latest customer
specifications
3) Promotion of sharing of quality risk related information (corresponding to
Section 1. 2) ②, ③ and ④)① Ensure transparency of information relating to quality control at MAC, endeavor toshare information, aim to ensure a high degree of freedom in information
communication from lower-ranking employees to higher-ranking employees in theorganization, and establish a rule on reporting serious quality risks② Establish a system to share information on Non-Conforming Products data withpeople up to managers level③ Establish the abovementioned framework that promote information sharing with
MAC’s Group companies as well4) Enhancement of the framework and authority of the quality control departments(corresponding to Section 1. 1) ①, ② and ③ and 2) ① and ③)① MAC newly established the Quality Supervisory Department that is responsible forthe following functions in July 2017, and the department will be further enhanced
going forward.
A) Formulate the plans on conducting quality audits in the MAC Group andconduct audits in collaboration with the Internal Audit Department
B) Improve quality audits through measures such as increasing the number of days
and personnel for quality auditsC) Planning and formulating measures, etc. to enhance the quality assurance
framework of the MAC Group② Enhance the collaboration with the departments responsible for quality in MMC and3/8

the MAC Group companies through information sharing in a closer manner③ Enhance the independence of the Quality Assurance Department as follows
A) End the concurrent serving of manufacturing departments and Quality Assurance
DepartmentB) Spin off the Quality Assurance Department from the Manufacturing Engineering
Division as from April 2018
C) Fully grant the shipment authority to the Quality Assurance Department toensure that no other departments may be involved in the judgment of whether
products may be shipped④ Increase the number of members of the quality control departments through measures
such as transfers from other department within the company
5) Clarification of the responsibilities of the on-site managers and necessary
knowledge that responsible personnel should have, and ensure that employees
are familiarized with such responsibilities and information (corresponding to
Section 1. 1) ③ and 2) ④)
Clarify the responsibilities born by on-site managers and the requirements forknowledge and skills that responsible personnel should have, and ensure that
employees are familiarized with such responsibilities and information
6) Promotion of personnel rotation (corresponding to Section 1. 2) ③)
Prevent the operations from becoming a black box through personnel exchanges
between departments, divisions and MAC Group companies and eliminate walls
between divisions
7) Reform of the whistleblower system (corresponding to Section 1. 2) ⑤)① Reform the whistleblower system through measures such as establishing MAC’s own
whistleblower hotline under the direct control of the President, separately from thewhistleblower system established in the MMC Group, and placing a third party suchas a law firm as a contact point② Once such whistleblower system is introduced, it will be informed to the MAC Group
companies.
8) Utilization of outside consultants (corresponding to Section 1. 1) ① and ③)
Retain an outside consultant to have it provide guidance and advice on thequality control, quality assurance and quality audit work
9) Reform of employees’ awareness and corporate culture (corresponding to
4/8

Section 1. 1) ①)
Compliance education will be provided as follows as measures to ensure that
quality is prioritized and the specifications and contracts are complied with in light ofthe misconduct at issue.
A) Provide compliance education regarding quality control in general that includes
the examples of how to respond to customers in connection with the misconductB) Endeavor to raise the employees’ awareness of quality by ensuring that suchcompliance education will give employees a realization that the securing ofsafety and trust and thorough compliance with contracts are essential
Section 3 Causes of Misconduct at TKC
Based on its internal investigation, the Investigation Report and the results of theinterviews with and questionnaires to its employees, TKC recognizes that the causes of
misconduct are as follows.
1) Root causes relating to quality control① The awareness of compliance with customer specifications was reduced.
② The employees were not thoroughly familiarized with necessary knowledge.
2) Root causes relating to quality assurance system① TKC was lagging behind in upgrading quality assurance related equipment.
② Personnel and human resources who can conduct testing were insufficient.
③ There was no department that specializes in production technologies.
3) Root causes relating to customer response① The process capability was not sufficiently considered when accepting orders.
② The product inspection flow was defective in that it allowed the products that had
not undergone inspection to be transferred to the shipping procedures.
4) Root causes relating to awarenessThe long-lasting misconduct led employees to be dependent on the existing
practices without careful consideration.
Section 4 Measures to Prevent Recurrence of Misconduct at TKC
In light of the abovementioned causes, TKC will implement the following
recurrence preventive measures with support of MAC.
1) Enhancement of front loading (corresponding to Section 3. 1) ① and 3) ①)
5/8

① Prepare standard specifications per product (criteria of whether to accept the order)
based on TKC’s process capability (particularly inspection process capability)② Design a process of determining whether to accept the order at the time of deviationfrom the standard specifications③ Clarify the framework of relevant departments (e.g. sales, manufacturing,
technology and quality assurance) as to the consideration of whether to accept theorder④ Clarify the decision-making authority in the process of determining whether toaccept the order, and secure decision-making trails⑤ Ensure that delivery specifications are executed and specifications and drawings aremaintained and managed2) Improvement of quality and technology and sharing of necessary knowledge(corresponding to Section 3. 1) ②)
Endeavor to enhance collaboration with MAC, improve the level of quality andtechnology and share necessary information
3) Enhancement of Human Resources Development Strategy (corresponding to
Section 3. 2)② and ③)
Endeavors to enhance the personnel and human resources of the Quality Control
Division and the Manufacturing Engineering Division with support of MAC
4) Development of work procedures and familiarization of employees therewith(corresponding to Section 3. 1) ① and ② and 4))
Familiarize employees with on-site work procedures and ensure they strictly
follow such work procedures
5) Restructuring of the quality control framework (corresponding to Section 3. 2)① and ③ and 3) ②)① Spin off the quality assurance division from the current Quality Engineering
Department of the Yoro Plant to enhance its authority② Clarify the framework, roles, responsibilities, and authorities pertaining to quality
control③ Optimize the product inspection flow
④ Fully grant the shipment authority to the quality assurance division to ensure that noother departments may be involved in the judgment of whether products may be
shipped
⑤ Familiarize employees with the revisions to specifications and standards, clarify the
6/8

⑥
⑦
⑧
⑨
⑩

responsibilities for implementing the revised manuals and revised specifications in
the course of on-site work, and enhance the supervision over the implementation
statusFormulate and implement an investment plan for necessary upgrading of equipment
to maintain quality
Enhance collaboration with the departments responsible for quality in MAC and the
MAC Group companies through information sharing in a closer manner
Retain an outside consultant to have it provide guidance and advice on the quality
control, quality assurance and quality audit work
Consider a system without human involvement by automating the Test Results
Report creation process to the extent possible
Consider centralized management of inspection data using a system

6) Enhancement of quality control education (corresponding to Section 3. 1) ①
and ②, 2) ② and 4))① Provide compliance training regarding quality control tailored to the roles,
responsibilities and authorities of each level of officers and employees② Conduct an awareness survey to confirm employees’ awareness of quality during thetraining③ Penetrate the importance of quality control, including compliance with specifications
and contracts7) Enhancement of quality risk management (corresponding to Section 3. 3) ①
and ② and 4))① Ensure transparency of information relating to quality control at TKC, endeavor toshare information, aim to ensure a high degree of freedom in information
communication from lower grade people to higher grade people in the organizationand establish a rule on reporting serious quality risks② Introduce MAC’s system to promote information sharing on Non-Conforming
Products data and have such information shared with people up to managers⑤ Promote the use of MAC’s whistleblower system
Section 5 Other
We take it very seriously that we have caused the difficulties to all concerned
parties, including our customers and business partners, in connection with our recent
misconduct, and have decided that the President will voluntarily relinquish 30% of hismonthly remuneration for one month in March 2018, and so will the three Managing
Director and Managing Executive Officers, for 20% of their respective monthly
7/8

remuneration, for one month in March 2018.
Similarly, TKC has decided that the President will voluntarily relinquish 30% of
his monthly remuneration in March 2018, and so will the Managing Director and Yoro
Plant General Manager, for 20% of their respective monthly remuneration, for one monthin March 2018.
The MAC Group as a whole will steadily implement the abovementioned
recurrence preventive measures going forward and strive to resolve the present matter at
an early date and restore the trust.
END

8/8

Attachment 2
March 28, 2018
Diamet Corporation
Preventive Measures for the Misconduct at DM
We once again sincerely apologize for the difficulties we have caused to all concerned
parties, including our customers and business partners, with respect to the misconduct at
Diamet Corporation (“DM”).
There was a notice to the whistleblower hotline of Mitsubishi Materials Corporation(“MMC”), our parent company, which led to the discovery of misconduct at DM during theperiod from February 2015 to March 2016, such as changes to production and delivery
process without obtaining approvals from customers and the shipping of products that did notconform to specifications agreed between DM and customers. All customers who had
purchased products affected by the misconduct have confirmed the safety of such products.
On January 24, 2018, however, another notice was made to MMC’s whistleblower
hotline, informing of the possibility of incorrect recording of inspection data at DM, andfactual investigations were commenced by the Special Investigation Committee of MMC. As
a result, it was confirmed that, with respect to sintered machinery parts for automobiles andothers, products that deviated from customer specifications (“Non-Conforming Products”)
were shipped due to misconduct, including rewriting of inspection data. In addition, we
discovered through subsequent special quality audits by MMC and our own internal
investigations that additional Non-Conforming Products had been shipped.
We would like to report that we have summarized preventive measures as set forth
below after reassessing the root causes, taking into account the investigation report of outside
counsel retained by the Special Investigation Committee of MMC (the “Investigation
Report”) and the results of our investigations.
1. Root Causes of the Incidents
We have taken into account the root cause analysis in the Investigation Report and ourinvestigations, and reassessed the root causes of the misconduct through interviews anddiscussions with our employees, and have classified and organized the root causes of the
misconduct into root causes relating to volumes and delivery dates, root causes relating toquality control, and root causes relating to management foundation and corporate culture.
(1) Root Causes Relating to Volumes and Delivery Dates(Please refer to the root causes (1), (2) and (5) in the Investigation Report)a. Acceptance of orders with specifications that were incommensurate with our
production capacity through a disrespect for the importance of process design,
including the lack of understanding of production capacity and inspection
capacity, at the time of order acceptanceb. A vicious cycle resulting from accepting orders in excess of capacity so as tocompensate for cost increases and deterioration in earnings brought on bydeteriorating yield caused by obsolescence of production facilities

c. Insufficiency of overall processes management due to the lack of personnel
responsible for process planning and management
d. R&D and manufacturing departments exerting pressure on inspection departments(2) Root Causes Relating to Quality Control(Please refer to the root cause analysis (1), (2), (3) and (4) in the Investigation Report)
a. Agreed with customers on specifications that were difficult to mass-produce dueto the lack of accumulation of technical information
b. Elaborations at trial production phase were insufficient (mass production of
products that were difficult to satisfy specifications)c. Quality improvement activities were insufficient due to the lack of technicalpersonnel
d. Insufficient defective product production-prevention mechanisms in each process,and insufficient in-process inspection mechanisms
e. Quality control departments were not functioning properly and had insufficientauthority
f. An institutionalization of conducting inspections that had to be conducted before
product shipment after product shipment due to the lack of inspection personnel
and equipment, and rooted in a culture of disrespect for quality assurance(3) Root Causes Relating to Management Foundation and Corporate Culture(Please refer to the root cause analysis (2), (5) and (6) in the Investigation Report)
a. Insufficient quality and frequency of communication-

Penetration of company policy was insufficient (including the preventive
measures regarding the first discovered incidents)-

The role, authority and responsibility of departments and positions were
obscure-Human resource mobility was low, and each organization was inward-looking
and did not collaborate with each other-

There were invisible barriers between levels and departmentsb. Corporate culture disrespecting quality assurancec. Lack of capital investment to improve production capacity and process capacity
2. Preventive Measures at DM
Since January 30, 2018, DM has taken the following provisional, emergency remedial
measures in order to avoid further shipments of the Non-Conforming Products:

o Change the process to have products be packed and shipped after conducting
delivery inspectiono Improve the computer system so that inspection certificates shall be issued only
for the products that are confirmed to have passed delivery inspection, and only
such products shall be regarded as eligible for shipping, in order to ensure thatpacking and shipping processes are conducted consistently after delivery
inspectiono Strengthen the inspection system (i.e. increase human resource and introduce a
two-shift system)
Based on the root cause analysis above, DM plans to implement the following
permanent preventive measures:
a. Change the process of receiving orders (thorough production elaborations forcustomers’ satisfaction)-

Enhance the front-loadingo Accumulate data through remediation of defects that occurs on site andconduct the visualization of the technology (the prerequisite condition
for the enhancement of the front-loading)o The internal meeting bodies that consists of those departments
responsible for R&D, production, quality control, and sales, willconsider the process capacity, inspection capacity, and production
capacity, etc. comprehensively, and orders will only be acceptedwithin the scope of quality assurance capacity after evaluating thequality assurance capacity for the products-

Enhance the devotion of resources into the trial production process, which is
the most important for the elaboration of the productsb. Improve the production capacity and process capacity-

Make necessary investment in plant and equipment-

Enhance the lineup of the production engineering departments by estimating
and grasping the proper numbers of personnel to improve the production
capacity and securing the numbers of personnel if necessary-

Utilize the inspection findings by the inspectors responsible for in-processinspections and final inspections, etc. for the improvement of the quality
o Prevent the release of defective products to the next process byenhancing in-process inspection in each processo Organize the framework for timely feedback from the inspection
departments to the production engineering departments

o Promote the improvement activities and enhance the framework
thereof by utilizing former employees (former technical personnel),etc.
c. Restructuring of the quality assurance framework-

Strengthen the authority and line-up of the Quality Assurance Division-

Review and stipulate the quality assurance framework-

Increase the number of inspection personnel and augment inspection capacityo Understand and secure the number of appropriate inspection personnelo Improve inspection capacity of inspection departments by augmenting
line-up of inspectors-

Establish the basic principles by regularly conducting company-wide internal
education regarding quality control-

Build a system where the measurement data in inspection reports cannot be
rewritteno Note that, before the completion of building such system, the rewritingof inspection reports is prevented by restricting server access andconverting the files of the inspection data to PDF, etc.

-

Monitor preventive measures by the Board of Directors
o Reviewing the implementation status of preventive measureso Verifying that implemented preventive measures are effective for
quality control

d. Penetration of a company-wide management policy, including an emphasis on
quality-

Redefine our approach to an emphasis on quality, which should be a corevalue of DM, and ensure that it permeates the company by thoroughlyfamiliarizing all employees with our values-

Clarify objectives by formulating a clear medium-term company management
policy while taking into account dialogue between our management andemployees-

Formulate and implement the execution strategy (including investment inplant and equipment) to realize the objectives

e. Clarify the locus of the role, authority and responsibility (clarification about thedecision-making)-Streamline the organizational structure to the extent possible at minimum level
required for manufacturing and promote the dissolution of holding several
posts concurrently-

Clarify the responsibility of the management staff on site and the requirementsof the knowledge and skills that each person in charge must acquire and makethem widely known

f. Promote communication, and incorporate outside perspectives-

Promote activities where opinions from the site are properly reflected in the
managements’ decision-makingo Take various concerns on site up through measures that the
management and executives stand close to the site, show up at the site
in person and speak to employees affirmativelyo Collect employees’ frank opinions by placing comment boxes andcontinuing employee surveys-

Continue and strengthen the effort in sending the messages to employees
continuously-

Actively adopt external views from quality consultants, etc.

g. Raise the level of human resources-

Ensure skilled higher-ranking workers pass on their skills to lower-ranking
workers through the visualization of each operation-

Prevent the black boxing of operations, and train employees to becomeversatile workers through personnel rotation (within departments, between
departments, and between our group companies)-

Promote the appointment of talented young personnel

3. Other
DM takes it very seriously that we have caused the difficulties to all concerned
parties, including our customers and business partners, in connection with our recent
misconduct, and has decided that that remuneration will be partially relinquished byexecutives as follows:
President: 30% of monthly remuneration for 1 month;
Former President: 50% of monthly remuneration for 3 months; andThree other Full-time Directors: 20% of monthly remuneration for 3 months.
Moreover, as the Former President and the three full-time directors at the time of theannouncement of this matter will be resigning as of March 31, 2018, under the new directors’system from this April, DM is determined to work together to resolve the present matter at an
early date and implement the recurrence preventive measures so as to restore trust.
END