Outside Director MessageMessage from Outside Directors

Although I became an outside director of Mitsubishi Estate in June 2023, I had regarded it as a friendly company with a well-defined approach to dialogue prior to assuming my role. I am currently involved in the management of the Company as an outside director and have gained a renewed sense of its approach to dialogue through interactions with President Nakajima, other executives, and my fellow outside directors.

In particular, the outside directors all have an exceptionally high level of specialist expertise and proactively share valuable insights grounded in a diverse range of expertise and experience. Members engage in genuine dialogue, and the discussions that take place at meetings of the Board of Directors, the Nominating Committee, and the Remuneration Committee are open and quite lively, so much so in fact that they surprised me initially. As the outside directors have high expectations of Mitsubishi Estate, they are driven by a keen desire to ensure that each discussion genuinely helps enhance the Company’s corporate value, to make Mitsubishi Estate a better company, and to realize attractive urban development that is truly meaningful for stakeholders. This shared commitment fosters positive and constructive discussions, which are a key strength of Mitsubishi Estate.

It goes without saying that pursuing management and operating businesses as a team does not require each director to possess a complete set of skills. I believe that combining diverse human resources who possess a variety of different specialist expertise, skills, and experience strengthens management. For this reason, carefully considering the kind of skills matrix to create is vital.

If I had to designate a skill that is required for Mitsubishi Estate's future growth, I would include “well-being” in the skills matrix. In fact, some companies are already beginning to include well-being in their skill categories for the purpose of improving creativity and achieving higher productivity, but it remains difficult to determine the actual skills and experience that would correspond, or contribute, to the concept of well-being. I believe that it is important to widen the definition of well-being from the level of individual companies and cities to include the well-being of Japan as a whole, the world, and the planet, and define the term with an emphasis on the point of view of communities. It is also important to bring on board people with the skills to visualize well-being in this way.

Every year, the Nominating Committee discusses the skills necessary for the Board of Directors to exercise its management oversight and monitoring functions effectively to ensure that the Company realizes Long-Term Management Plan 2030 and prepares for the future that lies beyond the plan. Given the external environment, including future geopolitical risks, and changes in the Company’s business domains, the Nominating Committee will continue its discussions to identify the skills necessary to enhance management oversight and monitoring functions. At the same time, it will aim to nominate directors who can create value for the future.

Today, assessments of the impact of corporate activities require companies to develop a road map for improving corporate value as a story. I have long maintained that backcasting from an ideal future is a useful way to create a long-term narrative. Starting out with a vision for the ideal society of the future and incorporating into a road map an outline of the urban development and human resources that would be required to achieve that vision enhances the likelihood of success. An ideal urban area may be one where people attracted by such narratives assemble and where many stakeholders connect with each other through collective action and partnerships. The Company currently sets a variety of key performance indicators (KPIs), including financial indicators such as return on equity (ROE) and return on assets (ROA), as part of efforts to realize Long-Term Management Plan 2030 and Sustainability Vision 2050. As for non-financial indicators, I believe that “future financial indicators” would be a more appropriate term for them as creators of financial value in the future. For future financial indicators, creating a road map by backcasting from the vision of the future that the Company aspires to achieve will bring to light more specific barometers of impact. I am keen to establish specific future financial indicators while incorporating opinions and other insights from experts.

Needless to say, I understand that it is challenging to formulate strategies only by backcasting from an ideal future in today’s world, where change is dramatic and forecasting is difficult. I believe that such circumstances make it all the more necessary for Mitsubishi Estate to maintain multiple future scenarios simultaneously. It must also examine scenarios that anticipate the risk of a future that differs from its ideal while drawing on the scenarios of the Task Force on Climate-related Financial Disclosures and the Taskforce on Nature-related Financial Disclosures and create a narrative that allows Mitsubishi Estate to secure its presence, regardless of the scenario that transpires. Creating specific scenarios brings risks and fears to light, which in turn enables the preparation of solutions and precautionary measures in advance. While there are challenging aspects to realizing the ideal society of the future, I regard it as my mission to thoroughly ingrain the backcasting approach at Mitsubishi Estate.

An important duty of outside directors is to verify the progress of initiatives based on material issues while auditing the initiatives and offering advice. Currently, Mitsubishi Estate promotes four key sustainability themes identified from its material issues as its strategies for increasing social value. The Board of Directors discussed these themes during the selection process and I offered my opinions. I am convinced that the four themes selected on the back of these discussions are outstanding examples of “double” material issues that incorporate all of the matters that need to be addressed on a priority basis to ensure the sustainability of both the Mitsubishi Estate Group and of society. The first theme, “pursue tangible and intangible urban development for the next generation,” connects directly to the aforementioned urban development centered on well-being, and the second theme, “maintain commitment to reducing environmental impact,” steadily promotes efforts to preserve biodiversity and mitigate and adapt to climate change across the supply chain with the ultimate aim of ensuring that the Group contributes to society through its businesses by becoming climate positive. The third theme, “consider people, empathize with people, protect people,” includes key perspectives that are indispensable to Mitsubishi Estate’s business activities, such as those on Japan’s low birthrate and aging population as well as diversity and inclusion. Lastly, “create and circulate new value” encompasses material issues such as innovation and partnerships, which are closely related to the other three key themes. Indeed, a structure advancing and realizing initiatives related to the three themes that leverage this fourth theme may be easier to understand.

Diversity is essential for spurring innovation. Mitsubishi Estate has many employees who joined the Company as new graduates, a large number of whom exhibit qualities typical of Mitsubishi Estate's human resources. While this is not a bad thing, human resources who are change makers and who represent a departure from Mitsubishi Estate's traditional culture will become increasingly essential going forward. Although the Company currently focuses on innovation, I think that the recruitment of people with the spirit to change established frameworks, including rulemaking, through true transformation will become a crucial strategy.

Looking at my own career thus far, my area of expertise lies in staying ahead of the curve. I also enjoy imagining, in a positive way, how I can contribute to creating a hopeful future filled with joy; so I will share this approach with others while aiming to establish a corporate culture that empowers all stakeholders connected with Mitsubishi Estate to think and act positively. If the Mitsubishi Estate Group continues to make rapid progress toward its clear vision, I am certain that it can transform Japan's future. While my contribution may be modest, I am committed to accompanying the Group on its journey toward realizing a wonderful future.

Mitsubishi Estate has steadily reformed its corporate governance system by continuously taking a variety of steps in the right direction, including the transition to a company with nominating committee, etc., in 2016; changes to the composition of committees and the proportion of inside and outside directors who comprise their membership; revision of the remuneration system; and the adoption of flexible capital policies, such as share buybacks and cancellations of treasury stock. I believe that the Company's deeply rooted commitment to self-transformation has played a major part in driving these reforms.

The Board of Directors continues to be expected to bolster its monitoring functions and enhance its diversity and independence, and I am confident that the Company's current governance system is more than capable of addressing such demands. For example, in its monitoring of the long-term management plan, the Board of Directors receives detailed explanations continuously on individual strategies from those in charge of business execution, and these explanations form the basis for rigorous discussions at meetings of the Board of Directors. The diversity and independence of the Board's members are also of a level that is satisfactory.

With that said, the Company must not become complacent. Internal and external conditions will undoubtedly continue to change, and external demands will evolve in response to the changing conditions in the operating environment. Going forward, further efforts will be required to address these changes. However, as I have already stated, Mitsubishi Estate's strong commitment to self-transformation means that it will not hesitate to conduct reforms as necessary. Accordingly, the Company will take steps to further enhance its governance system.

The Company currently has three committees—namely, the Nominating, Audit, and Remuneration committees. Each contributes directly to management supervision and monitoring by comprehensively fulfilling its respective roles. In particular, the fact that the Nominating and Remuneration committees are both membered solely by outside independent directors ensures that they have a higher level of independence and a greater degree of objectivity in their discussions.

Meanwhile, the committees fulfill their own duties while reporting to the Board of Directors on matters including the details of committee meeting discussions. The contents of Board meeting discussions based on these reports are then shared with the committees. I believe that this loop strengthens the relationship between the Board of Directors and the committees, further enhancing the effectiveness of management supervision.

I serve as the chairperson of the Nominating Committee, which has the onerous duty of, and authority for, deciding on director nomination proposals. Matters decided by the Nominating Committee must therefore both receive approval at the General Meeting of Shareholders and satisfy all stakeholders. Assessing candidates from within the Company is no easy task and necessitates considerable effort from the Nominating Committee, which is composed solely of outside directors. Although they do not have the same amount of information available to them as inside directors, members of the Nominating Committee resolutely endeavor to collect the necessary information under such preconditions and make nominations while defining the most important qualities in directors from their objective and independent position as outside directors.

A skills matrix is a valuable indicator and highly useful for making these nominations. The Nominating Committee configures the Board of Directors with members who possess the skills necessary to enable the Board to exercise management supervision and monitoring functions properly. The committee engages in repeated discussions on this topic, examining candidates’ skills while ensuring consistency with the existing Appointment Standards for Candidates for Directors. Choosing the skills to include in the matrix is of great importance, and the committee must also remain conscious of diversity. Given that the participation of members with a variety of standpoints and approaches invigorates and deepens discussions at meetings of the Board of Directors and at those of the committees, the Nominating Committee will strive to study optimal solutions from many perspectives.

Today, the ability of companies to adapt to change is being tested as never before due to the monumental changes seen in global affairs in the last few years. Mitsubishi Estate must be prepared for rapid change to remain as a constant feature of its business environment and take action without delay, developing businesses with an eye on what lies ahead. The Board of Directors must also promote the longterm management plan from this perspective while conducting monitoring to ensure that the plan can be revised in a timely and appropriate manner.

In FY2023, Mitsubishi Estate thoroughly reviewed Long-Term Management Plan 2030, updating it to clarify the significance of the plan's contents and narrow down its themes without overhauling the mutually necessary strategies for increasing shareholder and social value. In strategies for increasing shareholder value, the review revised the road map toward achieving the plan's key performance indicators (KPIs) and other metrics, a portion of the strategies, and shareholder return policies pertaining to dividends and share buybacks. Meanwhile, in strategies for increasing social value, the review untangled the Group's businesses from a sustainability perspective and reorganized its material issues. In doing so, the review clarified that promoting both tangible and intangible businesses related to real estate, the Group's core business, helps increase the social value it provides. I believe that this is a very important and significant conclusion. Employees can therefore have confidence that promoting and accomplishing their own work contributes to sustainability. I will aim to help further update and achieve the goals of the long-term management plan through continued and repeated dialogue with the management team, employees, others within the Company, the Group at large, and external stakeholders.

As stated previously, the pace of change in the business environment is becoming ever faster. Since there are no exceptions to the rule of evolution that only those who can adapt to change will survive, questioning whether change can be navigated to proceed to the next step is vital.

Mitsubishi Estate has a solid business base underpinned by a long tradition in the Otemachi, Marunouchi, and Yurakucho areas. Rather than depending solely on this strength, the Company must leverage it to spearhead major transformation in the coming era. Doing so will require a broad perspective to anticipate and address changing trends in Japan and overseas. Nevertheless, I am convinced that the Company has the ability to develop measures to inspire new trends with this spirit. I believe that managing the risks that emerge in this process while building the optimal business portfolio is exactly the fundamental role that outside directors should aim to fulfill.

I have had numerous interactions with leaders at many companies through my long involvement in the management of an energy company with diverse operations in Japan and overseas as well as in my six years serving as an officer of Keidanren (Japan Business Federation). During these interactions, I have offered many opinions on the state of the economy and society in both Japan and globally. Needless to say, there is a limit to my knowledge of the real estate business. However, I can help enhance the Group's corporate value by leveraging the knowledge that I have gained from my extensive experience and the ways of thinking I have learned over the years. I believe that that is my role and duty.

The revision of the Companies Act in 2014 and the introduction of the Corporate Governance Code in 2015 significantly advanced corporate governance reform in Japan. I became an outside director of Mitsubishi Estate in 2018, so I have witnessed the development and strengthening of its governance advance in step with governance reform in Japan. The Company's wide-ranging governance reform has included its transition to a Company with Nominating Committee, etc., structure, promotion of the diversity of the Board of Directors, revision of the officer remuneration system to improve its linkage with Long-Term Management Plan 2030, and disclosure of a skills matrix for the Board of Directors. Particularly from my perspective as someone who has been involved with corporate management, I believe that reducing the number of inside directors by one to bring the number of both inside and outside directors to seven in June 2023 was a major step and an important decision.

While corporate governance reform in Japan is still in progress, I believe that best practices of globally accepted management structures must become more widespread if Japanese companies are to enhance their presence in global society and create new value. On this point, however, I am optimistic because I am convinced that such management structures will spread quickly once Japanese companies begin adopting them, in the same way that the governance systems of Japanese companies evolved rapidly to their present state following the revision of the Companies Act in 2014 and the introduction of the Corporate Governance Code in 2015. Since the recognition of companies as social entities that take the lead in creating value and addressing social issues from a long-term perspective is deeply rooted in Japan’s history, it could be said that the country has an environment that is conducive to the spread of systems for creating value.

Being responsible for overseeing various risks and issues, the scope of the duties covered by the Audit Committee is extensive. For this reason, one of my roles as chairperson of the committee is to set an order of priority for its duties to ensure that it focuses on discussing the most important and urgent issues first. For certain agenda items, I try to present my opinion at subsequent committee meetings after collecting and examining relevant information outside of the committee’s usual meeting times. I also strive to present the final opinion of the Audit Committee to the Board of Directors on reports of risks and issues after listening to the opinions of committee members, who possess wideranging expertise and experience, in order to confirm various matters, such as by verifying facts and properly determining the scale of the impact of a given matter, rather than making decisions based on presumptions. The help provided by the two internal full-time members of the Audit Committee from within the Company for advance preparations is essential for allowing me to make such decisions. Communicating with those tasked with business execution, management divisions, and frontline sales employees in advance, the full-time members of the Audit Committee collect and provide information on the Group as a whole as well as on specific issues and the progress of matters. Their reports and opinions, which are highly detailed, candid, and fair, enable appropriate decision making. Accordingly, with its highly sophisticated functions, I can confirm that the effectiveness of the Audit Committee's structure is most satisfactory.

The formulation of Long-Term Management Plan 2030 has been the single-most epoch-making event at the Mitsubishi Estate Group since I became an outside director. The strength that is the Group’s long-term view on urban development and forward-looking DNA enabled the plan’s formulation, which can be said to address demands for a long-term perspective from the market and from shareholders and investors. Discussions at meetings of the Board of Directors have focused on how the plan is progressing, the impact of changes in the operating environment on the plan, the need to make revisions, and large-scale projects in preparation for the future. In addition, given the significant changes in the Company's operating environment triggered by the COVID-19 pandemic and the crisis in Ukraine, I believe that it is vital to swiftly address various governance issues, such as ensuring that the Board of Directors performs its functions, maintaining diversity among the Company’s key human resources, and tackling sustainability issues. Mitsubishi Estate must offer easily understandable explanations on how results are reflected in remuneration, particularly with regard to remuneration systems developed according to a pay-for-performance approach,* which is of particular interest to overseas shareholders and investors. For example, I am of the opinion that monitoring using total shareholder returns (TSR), which the Company has adopted for a portion of executive remuneration, would be useful as a performance indicator. Since TSR is a management indicator that includes share price as well as performance, it has attracted increasing attention as a shareholder value indicator in Japan, and I believe that it will become an important indicator when determining the remuneration of directors.

I recognize that the sustainability initiatives in the strategies established by the Company for increasing social value in Long-Term Management Plan 2030 are producing excellent results, including those pertaining to the environment. However, I feel that the Company must better emphasize the merits of such results to its shareholders and investors. Continuously emphasizing the merits of specific key performance indicators formulated to be clear and easily understandable and of recognition from external entities will be crucial. Constructive engagement is essential for maintaining productive relationships over the long term with shareholders and investors and building co-creative relationships. At the same time, communicating information on targets that make sense to shareholders and investors is essential with regard to the results of environmental, governance, and social initiatives.

Note: * A method and pay structure determining remuneration according to the level of achievement of results

I have more than a decade's worth of experience working in the real estate development industry, prior to which I lived in Germany for over 15 years, during which I was involved in the development of office buildings, among other activities. Urban development in Germany adopts a unified and highly sustainable approach, focusing strongly on giving the utmost priority to people’s lifestyles, with both offices and housing developed in full consideration of the environment. Such urban development is advanced under a structure in which the national government decides policy and regional public bodies—which are tasked with development—determine a master plan, based on which real estate companies build offices, housing, and other amenities. In Japan’s case, on the other hand, the authorities determine only the regulations, within the parameters of which real estate companies undertake urban development. Accordingly, the sense of responsibility toward urban development is completely different for Japanese real estate companies. Ensuring that overseas shareholders and investors understand such special characteristics of the Company's business model is crucial.

I believe that I can contribute to Mitsubishi Estate by providing support for its initiatives, drawing on my career in real estate. Anticipating various changes and advancing initiatives ahead of such changes is important. I therefore aim to contribute in some small way to the Company's future growth by engaging deeply in the reform of its corporate governance, which serves as the foundation for such initiatives. To achieve this goal, I intend to share my experience by proactively communicating with not only members of the Board of Directors and other management personnel but also younger employees who will forge Mitsubishi Estate's future.

I became an outside director of Mitsubishi Estate in June 2016. Looking back at the Company's operating environment over the past almost 20 years, a variety of truly significant changes have taken place, such as increasing globalization, technological advancement, and the growth of geopolitical risks.

In the midst of such changes in the operating environment, I think that Mitsubishi Estate has worked proactively to evolve its governance framework. Mitsubishi Estate transitioned to become a Company with Nominating Committee, etc., in 2016, the year I became an outside director. Since then, I have been struck by how earnestly the Company has implemented revisions to its corporate governance in accordance with the needs of society, such as appointing outside directors as chairpersons of its three committees and ensuring that each committee is membered by a majority of outside directors.

The greatest obstacle preventing boards of directors and committees from reaching proper final decisions, particularly regarding complex and nuanced matters, is if their memberships are too homogenous or not broad enough in perspective. Consciously ensuring diversity is extremely important in order to minimize such a risk. The backgrounds of Mitsubishi Estate's outside directors are truly diverse, including those who have engaged in corporate management and those who are specialists in environmental, social, and governance (ESG)-related matters and compliance, while my own background is in macroeconomics and finance. In this way, the composition of the Board of Directors is suitable for facilitating a monitoring system for a company operating in the real estate business, which entails extensive touchpoints with society and long-term engagement.

With the aim of clarifying its stance of emphasizing the diversity of its Board of Directors, Mitsubishi Estate formulated and unveiled a skills matrix identifying the skills that its directors must possess to ensure that the Board of Directors properly fulfills its management oversight and monitoring functions going forward. Given that the Company has long been keenly aware of the importance of ensuring the diversity of the Board of Directors, I feel that the unveiling of the skills matrix was more a case of giving form to what the Company had already been emphasizing. While I think it is meaningful to give form to such matters, further enhancing diversity meaningfully and tangibly—including increasing female representation among management personnel—and fostering an organizational culture and atmosphere that enable discussions in a free and open-minded manner among all directors are of even greater significance. As an outside director, I hope to contribute to the achievement of this goal.

Mitsubishi Estate revised its officer remuneration system in April 2022. As chairperson of the Remuneration Committee, I was involved in this revision, which aims to further incentivize officers to achieve the goals of Long-Term Management Plan 2030, by strengthening the linkage between said system and said plan while further aligning shareholders' and officers' interests by raising the percentage of remuneration linked to the Company's shares and share price.

The global financial crisis between 2007 and 2009, symbolized by the collapse of Lehman Brothers, provides valuable lessons for reflecting on corporate management. For me, one of the causes of the global financial crisis was the short term bias of financial markets. Put simply, such markets pursued short-term profitability rather than sustainable profits over the medium to long term. I was long involved in monetary policy formulation and implementation at the Bank of Japan, during which I became greatly aware of the strengths and weaknesses of financial markets. Based on such experience, I would say that, while enhancing incentives for officers is the correct direction to take, it must not be forgotten that such incentives must serve to strengthen the linkage between remuneration and sustainable profit generation. There is a saying that “the devil is in the details.” In the process of revising the officer remuneration system this year, I participated in discussions based on my awareness of the need to ingrain ways of thinking and acting to facilitate the pursuit of sustainable profits and realize improvements in Mitsubishi Estate's share price over the medium to long term.

While I had several reasons to accept the position of outside director at Mitsubishi Estate, my interest in the real estate business had a major influence on my decision. This interest is rooted in my experience of working at a central bank over many years. As many fluctuations in the Japanese and overseas economies have been connected to fluctuations in the real estate market, I have long been interested in the real estate business.

Another reason is that I believe the true state of a country's economic competitiveness is greatly influenced by the competitiveness of its cities. It is for this reason that Mitsubishi Estate's brand slogan—“A Love for the People. A Love for the City”— appeals to me greatly. Since cities are where people gather to work and live, they are also where ideas converge and innovations are created. That, for me, is the function of cities. While improving the appeal of cities is a major mission of Mitsubishi Estate's, such improvement is integral to raising the competitiveness of the Japanese economy. With this in mind, I thought that being involved in the real estate business as a member of the Company's Board of Directors would be rewarding work.

Mitsubishi Estate is currently committed to achieving Long-Term Management Plan 2030. Ultimately, however, improvements in the Company's corporate value will be determined by the level of its success in meeting the true needs of society, which are tangible. Although financial strategies and capital policies are undeniably vital in terms of improving resilience to inevitable economic shocks, they do not in and of themselves raise corporate value.

Corporate performance is reflected in return on assets, return on equity, earnings per share, and other financial indicators. Accordingly, setting targets for such indicators, as emphasized in Long-Term Management Plan 2030, is crucial. Nevertheless, such targets will be meaningless unless they are sustainable and not ephemeral numerical values. For aspects of corporate performance that are difficult to express quantitatively, I believe that incorporating such aspects based on qualitative judgments—rather than excluding them because of such difficulty—and implementing management that integrates both quantitative and qualitative information will lead to an improvement in Mitsubishi Estate's corporate value.

People are the drivers of corporate growth. Accordingly, ensuring that those with whom Mitsubishi Estate's brand slogan resonates can tackle their work with motivation is crucial. It is also absolutely essential to be an organization capable of attracting human resources who can respond to increasing globalization and technological advancement. The Company must be an organization that facilitates high-quality decision-making to make it the first choice of such human resources with specialized expertise and skills. Achieving this goal is contingent upon developing a governance system that is appropriate for an organization capable of responding to change, and I sense that outside directors are expected to provide the expertise to realize this development. I believe people regard Mitsubishi Estate as a trustworthy company. As the real estate business entails working with a long-term perspective, such trust is of the utmost importance. Propagating the brand slogan—“A Love for the People. A Love for the City”—to ensure that Mitsubishi Estate can continue living up to the trust of society, I aim to fulfill my role as an outside director to help the Company contribute to society through its business activities.