Management believes that more importance should be placed on strengthening the existing system rather than merely adhering to a new system or structure per se. Based on this belief, while maintaining a Corporate Auditor System, in addition to mandatory organizations and governance systems, we are improving and strengthening our corporate governance in various ways. Actions include appointing outside directors, introducing the executive officer system and setting up advisory committees.

MC's Board of Directors has 20 members, 5 of whom are outside directors. As a rule, the Board convenes once a month and is responsible for making decisions concerning important management issues and overseeing business execution. In 2001, the adoption of an executive officer system clarified the separation of the roles and responsibilities of directors and executive officers. Furthermore, in 2004, the term for directors was reduced from two years to one year to provide greater flexibility in determining the composition of the Board of Directors. Moreover, at the General Meeting of Shareholders for fiscal 2006, a change was made to the Articles of Incorporation to allow the Board of Directors to approve resolutions in writing from the perspective of facilitating flexibility in how the Board operates. And, so as to encourage outside directors and outside corporate auditors to fulfill the role expected of them, MC has concluded agreements with these directors and corporate auditors that limit their liability for damages.

MC in 2001 established the Governance Committee and International Advisory Committee, which are made up of outside directors and other respected individuals as well as MC's chairman, president and other directors. These advisory bodies were established to offer various advice to the Board of Directors from a third-party perspective with regard to MC's corporate governance and important subjects concerned with operating in an international business environment. The Governance Committee at its April 2006 meeting discussed important issues relating to corporate governance in fiscal 2006, including MC's stance on hostile takeovers, a basic policy for the establishment of an internal control system, proposals for partial changes to the Articles of Incorporation and a review of the executive officer remuneration system. The valued opinions of the members of this committee were reflected in deliberations at Board of Directors meetings and in proposals to the Ordinary General Meeting of Shareholders in 2006.

Since the introduction of the executive officer system, MC has instituted a system that strengthens the link between directors' and corporate auditors' remuneration and business results. MC grants stock options as a medium to long-term incentive from the perspective of aligning the interests of directors and corporate auditors with those of shareholders.

The five corporate auditors, including three outside corporate auditors, utilize staff members of the Corporate Auditors' Office, which is under their direct control, in conducting their audits. At the same time, the corporate auditors attend meetings of the Board of Directors and other important meetings and hold discussions with internal departments, including important offices in Japan and overseas, as well as visit main subsidiaries that are important from the perspective of Group management to conduct audits. Regarding internal audits, the Internal Audit Dept. conducts audits of MC, regional subsidiaries and affiliated companies from a company-wide perspective. In addition, each business group has established its own internal audit organization, under which audits are carried out on a consolidated basis. The results of audits by the Internal Audit Dept. are reported regularly to the Board of Directors.