MESSAGE FROM AN OUTSIDE DIRECTOR

Taka Outside Director

Taka Outside Director

Management Emphasizing Governance

Over the years, the corporate governance system of the Mitsubishi Estate Group has continued to evolve at a pace that has always been a step ahead of social demands. The Company operated under the “Company with Board of Company Auditors” structure described in Japan’s Companies Act when I became a statutory auditor in 2015, but transitioned to the “Company with Nominating Committee, etc.,” structure described in the act in the following year. Mitsubishi Estate then went on to introduce new officer remuneration systems and frameworks for evaluating the effectiveness of the Board of Directors, to transition to an all-outside director membership for the Nominating Committee and the Remuneration Committee, and to appoint outside directors to chair these two committees as well as the Audit Committee. As an outside director, I have immense praise for the type of swift action the Company has taken over the past five years to reinforce its corporate governance system. Furthermore, these reforms were proposed by the executive team. The fact that these proposals came from inside the Company is indicative of the high degree of emphasis that Mitsubishi Estate places on governance in its management. The Audit Committee, of which I am a member, also places such degree of emphasis on governance. Chaired by Outside Director Tetsuo Narukawa, this committee is operated in a flexible, unbiased manner.
As a member of the Audit Committee, I try to be constantly mindful of both financial risk and operational risk as I oversee the Company’s management. In regard to financial risk, I take a cautious approach, always considering whether the explanations of the Company’s accounting auditor make sense and if the accounting treatments applied when extraordinary items arise are convincing. As for operational risk, I focus particularly on the risks at Group companies and in overseas businesses. I believe that Mitsubishi Estate is facilitating effective monitoring without sacrificing audit quality, even amid the COVID-19 pandemic, by providing swifter and more detailed explanations through full-time members of the Audit Committee and members of internal control departments.

Transformation of Hardships into Business Opportunities by Taking a Long-Term Management Perspective

Since announcing Long-Term Management Plan 2030, the Board of Directors has been engaging in discussions based on long-term perspectives. I believe that setting a long-term period of 10 years for the plan was the logical time frame in terms of promoting business from the perspective of overall optimization and in consideration of the Group’s business model. When you look back on Mitsubishi Estate’s history, you can see how the Company has continued to realize robust growth by overcoming various hardships. Such an achievement gives me great confidence that the Company is equipped to turn the hardships presented by the COVID-19 pandemic into significant business opportunities, and thereby secure an even more powerful growth driver, by evaluating it from a long-term management perspective. For this reason, it is important for the Group to act with resolve, plotting a clear course for the future and committing to this course as it proposes new ways of living and working in the post-COVID-19 era, rather than placing itself at the mercy of the tides of the times. I believe that the Group has such a resolve and I therefore look forward to seeing this resolve guide improvements to the business models of each of its businesses.

Sustainability as the Driving Force for Growth

The Mitsubishi Estate Group established its Sustainable Development Goals 2030 to function as a central pillar of its strategies for increasing social value in Long-Term Management Plan 2030. Initiatives for accomplishing these goals are being advanced based on the four key themes of “Environment,” “Diversity & Inclusion,” “Innovation,” and “Resilience.” Regarding the key theme of “Environment,” I commend the Group on its quick adoption of the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) in its disclosure activities and consequently in its high level of information disclosure. More recently, the Group has been engaging in a biomass power generation project that uses branches pruned from roadside trees, among other initiatives, raising my anticipation for its future endeavors.
A key theme I pay particular attention to is “Diversity & Inclusion.” Diversity creates substantial opportunities for transformation. By recruiting and training individuals who offer ways of thinking and core values that are completely new, the Group has the potential to breed “Innovation,” another key theme, for refining existing business models and cultivating new businesses.
Moreover, the Group develops its businesses in collaboration with a wide range of suppliers, and therefore respecting human rights is of utmost importance. For this reason, the Group established the Mitsubishi Estate Group Human Rights Policy, and substantial effort is dedicated to implementing frameworks to ensure compliance with this policy. For example, the Group takes precautions to ensure that it only uses wood designated as acceptable under the Sustainable Sourcing Code (Certified Wood and Domestically Produced Wood) in formwork concrete panels (plywood panels used to make the concrete formwork employed in the construction of buildings). This approach is taken to address human rights risks, such as those associated with land seizure and child labor in areas producing tropical forest wood, and to help preserve forests. In the past, I have served as the chairman of a subcommittee of the Tokyo Organizing Committee of the Olympic and Paralympic Games tasked with establishing a procurement code. I am proud to say that the Group’s initiatives inherit the spirit of the code I helped establish on this subcommittee and are taking it a step further.

Importance of Promoting Businesses That Offer Value for Consumers

I have experience heading up the Consumer Commission of Japan’s Cabinet Office, and I therefore understand how important consumer perspectives are when it comes to business. I believe that Long-Term Management Plan 2030 represents a strategy that places a strong emphasis on business-to-consumer and consumer perspectives, and this strategy thus has the potential to take the Group to a new stage in its evolution. A clear awareness of who the Group is ultimately providing value to will drive the creation of new businesses and subsequently the sustainable evolution of the Group.
The Group’s brand is highly trusted among consumers and customers. However, this trust also presents the risk of the Group becoming complacent and losing its edge. It is therefore crucial for the Group to develop frameworks that surpass those of the average company and to ensure their functioning, in order to secure even greater levels of trust. The reinforcement of corporate governance should be at the center of these efforts. Furthermore, it is important for the Group to make sure that its employees—who are responsible for developing the Group’s brand—are assigned work in appropriate quantities, are positioned in an optimal manner, and are provided with the training and tools to ensure that they can handle the work they are given in the time provided. Such initiatives are another imperative part of maintaining and strengthening the trust that the Group enjoys from its stakeholders.
I have accumulated a great deal of experience through my time with various government committees and other organizations outside the Company. If there is anything to be found in this experience that can benefit the Group, I hope to share it through discussions with the junior employees who will shape the future of the Group. Meanwhile, the Group is pressed to address a wide range of issues and new business domains, including those related to AI utilization and digital transformation. Going forward, I will strive to build upon my own capabilities so that I can effectively provide advice regarding such issues and domains in order to contribute to the continued growth of the Mitsubishi Estate Group.

August 2021

Ebihara Outside Director

Ebihara Outside Director

Enhancement of True Corporate Value through Two Reforms

Guided by its basic mission of “contributing to society through urban development,” Mitsubishi Estate Group seeks to enhance true corporate value through a sophisticated balance of growth as a conglomerate and coexistence with its various stakeholders. The development and implementation of corporate governance systems is a top management priority toward realizing this goal. In my capacity as a Director, I hope to help ensure that the Group continues to be a valuable entity a century from now. By “valuable,” I mean that the Group has significant meaning to all stakeholders, including shareholders, employees, and society as a whole. I believe that the Group will need to implement two reforms in order to accomplish this goal.
The first is corporate governance system reform. The Group is a comprehensive developer, which means that the scope of its operations, its mission, and its duty to society is constantly growing. Accordingly, the Group needs a corporate governance system with a variety of functions and capabilities in order to support its business activities. I became an Outside Director at the Company in 2015. Since then, I have seen the Company engage in various leading-edge governance reforms, including the transition to the “Company with Nominating Committee, etc.,” structure, the increase in the ratio of Outside Directors on the Board of Directors, and the appointment of Outside Directors as the chairpersons of each of its committees. I personally chair the Remuneration Committee. In this committee, we are working to create a remuneration system that helps officers better share value with shareholders and which promotes appropriate risk-taking. This system is based on the Company’s total shareholder return (TSR) ranking and entailed the introduction of a performance-based incentive plan. The evolution of the Group’s corporate governance and remuneration systems is proving to be a significant strength.
Business reform is the second needing implementation. Surviving in the volatile market will require that the Group reform its businesses and furnish flexible responses to change. Moreover, it is imperative for the Group to develop management strategies from a medium- to long-term perspective and further hone its strengths while diligently reforming its businesses in line with its strategies.

Growth Suited to the Group Achieved through Advancement of Long-Term Management Plan 2030

The management strategies based on a medium- to long-term perspective I just mentioned refer to the Medium-Term Management Plan, which concluded in FY2020, and its successor, Long-Term Management Plan 2030 (the “Long-Term Management Plan”). The Long-Term Management Plan was formulated based on the recognition that the three-year period of prior medium-term management plans was too short for effectively implementing the Group’s strategies. Accordingly, the Long-Term Management Plan covers 10 years. The period of a decade was chosen as it was deemed to be more ideal to the Mitsubishi Estate Group’s business model. This business model entails raising the value of facilities and areas from a long-term perspective not overly preoccupied with short-term targets. Such an approach has been taken to ensure that the Group can continue to achieve growth in a manner best suited to it by transforming the volatile changes in the social climate into opportunities and maintaining the support of customers, employees, and all other stakeholders. Moreover, the Long-Term Management Plan represents a declaration of the Group’s commitment to boldly seeking out growth in new fields, even as it advances numerous initiatives that require substantial amounts of time to reach successful conclusions.

Necessity of Enhancing ESG Initiatives to Improve Corporate Value

In the world of politics and diplomacy, it is important to branch out into new fields whenever possible while remaining rooted to one’s traditional foundations. The same could be said of the Group’s business strategies. The Group’s traditional business foundation is based in the Marunouchi area. It is therefore important for the Group to engage in new businesses after having evolved Marunouchi into a stronger and more unique business area. The Tokyo Tokiwabashi Project is one example of an undertaking that is congruent with this idea, whereas the Airport Business represents the Group’s aggressive expansion into new business fields.
Meanwhile, the Group is targeting the improvement of both shareholder and social value under its Long-Term Management Plan. This two-pronged goal is based on the recognition that growing while heightening corporate value in the coming social landscape will require the Group to enhance its environmental, social, and governance (ESG) initiatives, in order to remain a company that society deems as truly necessary. In terms of governance initiatives, the Group will need to facilitate the management decisions and supervisory functions necessary to improve corporate value from a longer-term, more social value-oriented perspective. In other words, Mitsubishi Estate must continue evolving to realize governance systems conducive to achieving growth from this long-term perspective.

Construction of Foundations for Ensuring Survival over the Next Century

The Long-Term Management Plan identifies the expansion of overseas businesses centered on Asia as one of its pillars of growth. This policy indicates the Group’s desire to contribute to urban development across the globe by leveraging the expertise it has accumulated through its various office building, residential housing, and commercial facility operations in the Marunouchi area and other parts of Japan. Advancing real estate development businesses overseas, however, will require the Group to find promising partners, achieve a deeper understanding of the countries and areas it seeks to explore, and create business models suited thereto. The Group already has experience engaging in joint business activities with local overseas partners. Accordingly, the Company will be looking to lead overseas projects while fully capitalizing on its accumulated expertise going forward.
In terms of governance, I think it can be said that the Group has made progress in developing a leading-edge system in Japan. However, as its business domains further globalize going forward, it will become increasingly important for the Group to evolve its corporate governance system to comply with global standards.
As a diplomat, I have wrestled with international issues for some 40 years, during which I have found myself living in the United States, Europe, and Asia. I hope to fully capitalize on the experience and insight I have gained abroad to contribute to the sustainable growth of the Group, so as to ensure that it can continue to survive over the next decade, nay, the next century.
My five years as an Outside Director at Mitsubishi Estate have shown me how spectacular a company it is. If I were to change anything, however, it would be to have the Company’s employees exercise the sense of ambition expressed in the saying “not enough is the beginning” as they aspire to grow the Company’s businesses.

September 2020

Egami Outside Director

Egami Outside Director

A Corporate Governance System with Improved Effectiveness

In the four years since I was appointed an Outside Director in June 2015, I believe that the Company’s corporate governance system has improved dramatically. Looking back to when I was appointed, discussions on how to address the wide-ranging demand of capital markets, such as those regarding the Corporate Governance Code, were often conducted from a passive stance. However, following the process for considering the transition to a “Company with Nominating Committee, etc.,” improvements in the efforts of management and the Board of Directors’ secretariat gradually began to appear, as the balance shifted to a proactive stance on the question of how best to create a leading-edge corporate governance system that contributes to enhancing corporate value.
Moreover, the bold promotion of the transfer of authority to Corporate Executive Officers on matters related to business execution and the introduction of a Restricted Stock Compensation System as well as of a new medium- to long-term performance-based incentive plan (the “Phantom Stock Plan”) for Corporate Executive Officers triggered a shift toward a more proactive stance regarding business execution by management.
At meetings of the Board of Directors, an atmosphere in which both Inside Directors and Outside Directors can freely voice opinions is consciously maintained, principally by the chairman. In addition, in order to ensure that the transfer of authority to Corporate Executive Officers does not create too large a distance between Outside Directors and Corporate Executive Officers, we are enhancing opportunities to make the status of business affairs more visible through measures such as holding explanatory meetings on business operations and carrying out local inspections. I believe that these measures are vital to heightening functions as a “Company with Nominating Committee, etc.,” and the effectiveness of the monitoring system.
On the other hand, the Company sometimes dwells on past internal circumstances and matters more than necessary while, unfortunately, inward-looking discussions that fail to take into account the views of society as a whole or of capital markets have not yet been completely eliminated. Management that always carefully considers the direction in which a company should proceed while carrying out open discussions on a companywide basis is central to being a sustainable corporate entity. As an Outside Director, I intend to contribute to the creation of a leading-edge corporate governance system that enhances corporate value and to the development of a corporate culture that such a governance system realizes.

Expansion of Non-Financial Information Is the Key to Enhancing Corporate Value

In May 2019, after several rounds of discussions, the Company decided not to renew its countermeasure program regarding possible hostile takeover attempts that was introduced in 2007. This decision was an expression of our determination to further reinforce our corporate governance system going forward as well as of our preparedness to meet the expectations of shareholders by sustainably enhancing corporate value. The Company, possessing assets in the Marunouchi area, the center of Japanese business, has a great responsibility to the corporations that rent offices there and to the Japanese economy as a whole. There is currently a growing movement in capital markets, centered mainly on government pension funds, to correct the previous trend of short-term investment and encourage long-term investment in corporations that are able to fulfill their social responsibilities while realizing sustainable growth. There are calls for corporations that embrace such responsibilities to share their visions with investors and carry out management with a focus on enhancing corporate value.
Today, as changes in investors’ evaluation criteria occur and the diversification of investors continues, a climate is developing in which investment decisions are made by researching a given corporation’s non-financial information. The Company has been actively disseminating information on its business operations in recent years; however, we recognize that it is necessary to further increase information disclosure, particularly of non-financial information, with investors in mind.

Expectations of Business Model Innovation

Amid the certain decline in the Japanese population, it will be essential to carry out operations going forward with a focus on not only existing businesses themselves but also services and other intangible aspects. The new businesses being launched by the Company possess the potential to spur next-generation business concepts and foster the enlargement of existing businesses while leveraging our outstanding assets, superior expertise, and technological prowess. For example, we took up the audacious challenge of innovating the quality and methodology of the Company’s organizational structure and business practices, as well as work styles, and workplace culture and communication with the design of our new headquarters. That being said, those new businesses themselves being developed might be the buds of next-generation business models.
Going forward, changes to work styles and lifestyles in urban areas will take place at a speed beyond our imagination. We are already proceeding with urban development that anticipates those changes. We also hope to take on challenges that look even further into the future, including research and development on advanced scientific services as well as technological development.

Sustainable Growth Comes from the Relationship Capital of Groupwide Human Resources

As a result of the Company’s business expansion, there are now 10 times more employees at Group companies than there are at headquarters. Under the management plan of headquarters, Group company employees play the biggest role in achieving business goals on the front lines. As we move forward, it will be more important than ever to design a personnel system that heightens the motivation, sense of achievement, and sense of growth of employees throughout the entire Group.
In recent years, as changes in society, among other factors, have led to problems based on the act of communication in various organizations, there is a need to remember the importance of empathy, in addition to enhancing knowledge, technologies, and capabilities. An open organizational culture that cultivates the ability to empathize will lead to the avoidance of unnecessary risks and stronger relationships. I believe that creating a strong organization by fostering the ability to empathize across the entire Group, with its shared commitment to urban development, is an important issue for management.
Throughout my career, I have been involved in the design of personnel systems with a mission to help women realize their full potential and promote their participation while promoting the societal awareness of such systems. Additionally, in my work as an editor of a business magazine, I have learned about various human resource strategies and management perspectives by interviewing numerous company presidents as well as taking charge of innovation projects in several industries. I leverage the wide-ranging experience I have cultivated during my career in carrying out my duties as an Outside Director and member of the Company’s Nominating Committee and Remuneration Committee. Going forward, I will strive to help the Company pursue ongoing growth and corporate value enhancement, including from the perspective of Groupwide business activities.

August 2019

Nagase Outside Director

Nagase Outside Director

Management of the Board of Directors Leveraging Diversity and Expertise

The Board of Directors plays a pivotal role in corporate governance. What composition a board takes depends on the characteristics of a company and on changes in the business environment in which it operates. At the moment, the Company’s Board of Directors consists of a total of 15 people, comprising eight Inside Directors (including the non-executive chairman of the Board) and seven Outside Directors. The outside directors all bring their own experiences and knowledge in specialized fields to the governance table. I think it is fair to say the Board is well balanced and is functioning smoothly. The diversity of the backgrounds of the seven outside directors is a great advantage in overseeing business execution. Broadly speaking, some Directors are oriented toward governance along the lines of Western ways of thinking, while others hold a position that can be considered as an extension of Japanese management approaches. I believe this diversity of viewpoints and areas of expertise enables the Group to hold unbiased discussions on the stance we should take from multiple perspectives.
At the meetings of the Board of Directors since I became an Outside Director, Outside Directors have actively been spoken out. Some proposals to which they objected were amended and others were entirely dropped. To further improve the effectiveness of the Board of Directors, I believe we must have Inside Directors, who possess a detailed understanding of the business environment and of the operations of the Group, and Outside Directors, with their wide-ranging knowledge, hold in-depth discussions between themselves about the direction the Group should take. I also recognize my responsibilities in this regard.

Actions for Specific Improvements Drawn from Effectiveness Evaluations

In FY 2017, all members of the Board of Directors participated in the Company’s first evaluation of the effectiveness of the Board. One of the findings of this process was that there was a need to increase the opportunities for reporting at Board of Directors meetings and to enhance the contents of such reports to further expand opportunities for discussing and sharing information to promote dialogues with shareholders and investors. In response, we have increased opportunities for reporting at Board of Directors meetings from the perspectives of both investor relations (IR) and shareholder relations (SR). The volume of information in the form of opinions and requests with regard to the Group has also greatly increased as we seek to ensure prompt reporting after meetings with shareholders and investors. I think we need to focus more on how to best use this information in our management processes.
Regarding the need to “further increase opportunities and time for discussions on the formulation of management plans,” which was cited as another issue, I believe we have been making progress in scrutinizing other agenda items and giving more time for discussions now than in the past. However, the “Results of Evaluation and Future Initiatives” for FY 2018 identified further room for improvement. I think we need to review themes that need to be discussed by the Board of Directors and also examine processes including debate on the Company’s vision from a long-term perspective.
I see certain efforts toward making specific improvements, which stem from this clarification of direction through evaluations of the effectiveness of the Board of Directors, as evidence that the PDCA (plan-do-check-act) cycle for strengthening governance is functioning as it should.

Audit Committee: Activities Emphasizing Information from the Front Lines

The Audit Committee, of which I am a member, is responsible for conducting audits on the execution of duties by Directors and Corporate Executive Officers. To enhance its effectiveness, the presence of Inside Directors as committee members is in my view essential. Inside Directors with appropriate backgrounds and personalities for auditing work are appointed as full-time members of the Audit Committee and work together with the Internal Audit Office and Outside Director members in order to gather information. This includes visit-based audits. It is important for the Audit Committee to be familiar with the situation on the front lines and to take whatever action may be needed. Under its current structure, the Audit Committee is led by a chairperson who is a full-time committee member and has spent their career within the Company. A majority of its members are Outside Directors who participate in discussions with their objective perspectives. I think this structure works well in terms of sound governance and effective oversight.

Proactive Approach to Risk Management

Although the Group has prime assets, the majority of which are located in Tokyo’s Marunouchi area, the external environment is constantly changing and no one can prevent the occurrence of natural disasters such as large-scale earthquakes. Against this backdrop, we need to take the time to discuss how to develop the Group's business, including approaches to asset allocation, and further heighten sensitivity toward risk management. I myself can bring to bear my experience at an airline company when I talk about the responsibility of the management team for managing risks at all the different work environments. I intend to be actively engaged in creating a system necessary for taking prompt action on the basis of understanding what the Group needs to prioritize in times of emergency.

Business Model Innovation: Belief and Conviction

It is easy enough to talk about “business model innovation” as set out in our Medium-Term Management Plan. However, actually building the pillars of the Group's growth by tackling new initiatives requires a huge effort. The management team must have the conviction to concentrate on investing in management capital–especially human resources–from a long-term perspective. Otherwise, business model innovation will not penetrate through to the employees on the ground. Take the example from the Airport Operation Business, an area on which the Group is focusing. The management of airports has a large impact on regional communities and economies as they are essential social infrastructure with a high public profile. Considering the significance of the Airport Operation Business, the management team must show its resolve to build the business into a pillar of future growth by demonstrating the power of the Group by gaining the understanding of all stakeholders, including shareholders and investors.
Helping raise the Group’s presence as an Outside Director is rewarding and worth doing for myself. I intend to make full use of my knowledge and experience to support this effort and seek to play a part in achieving medium-to-long-term and sustainable growth and enhancing corporate value.

August 2018

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