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After the end of the first fiscal year of the KAYAKU Vision 2025（KV25） FY2022–2025 Medium-term Business Plan, our three outside directors engaged in an exchange of opinions on the current state of corporate governance of the Nippon Kayaku Group, reflections on the first fiscal year of KV25, and effective ways to engage in constructive dialogue in the future.
Partner of Nishimura ＆ Asahi (Gaikokuho Kyodo Jigyo)
Outside Audit & Supervisory Board, Ricoh Co., Ltd.
Director, Human Resources Development & Employment Organization
Outside Audit & Supervisory Board Member, Concordia Financial Group, Ltd.
Thank you for your time today. To begin with, I will ask you about what have been achieved through effectiveness evaluation of the Nippon Kayaku Group՚s corporate governance.
Looking back, our corporate governance reforms accelerated with the establishment (in June 2020) of the Nomination and Remuneration Advisory Committee, chaired by President Wakumoto, the representative director, and attended by three outside directors.
The chair of the Nomination and Remuneration Advisory Committee gave a very thorough explanation of the issues to be discussed, including their backgrounds. The explanation of internal information to us outside directors, which was given from the basics, deepened our understanding of the company and facilitated objective opinions from us outside directors, which also led to lively discussions and prompt reports to the Board of Directors.
I feel that the improvement of the governance system has progressed quite a bit faster than we had initially anticipated. During the review of the Director Remuneration System in 2021, the chair of the committee explained the calculation mechanism in detail as we proceeded with our discussions. This facilitated the smooth introduction of restricted stock compensation. I hope that Nomination and Remuneration Advisory Committee will be operated in a way that it can fulfill its mission to the fullest extent.
Traditionally, the Group has had a strong defensive governance structure, while being relatively cautious about offensive governance that proactively adopts trends. In recent years, however, governance reforms have progressed and the first female director was appointed in June 2023.
In order to comply with the revised Corporate Governance Code, progress was also made in disclosing information related to climate change, intellectual property, and human resources. I believe we now have the foundation in place to deepen internal discussions on rapidly changing social needs. I would therefore like to see the company promptly announce its initiatives on biodiversity, business and human rights, and other issues in the future, which would be even more favorable.
Please give us your opinions on the utilization of human resources, which was a focus for this report as well.
The appointment of the female director has increased the diversity of the Board of Directors, and we are gradually increasing the percentage of female managers toward our 2024 target of 10% or higher. I hope that generous support will be provided in the aspects of both human resource development and comfortable work environment, such as enhancement of systems to support women who are highly motivated to work and training programs for mid-career female human resources, to continue promoting active participation of women.
Japan՚s population is currently declining, and labor shortages are expected to become increasingly serious. In response to the growing importance of labor force from overseas, companies in Japan have been accepting foreign nationals as technical interns and other trainees. We believe that the time will come when we will go farther, actively promoting foreigners to important positions such as management executives and technical leaders. I think that the Group, which operates globally, should consider what systems to employ to accept foreigners, as soon as possible.
In terms of human resource utilization, training is not the only method. We can also recruit human resources. Promptly hiring human resources needed for our new system from external sources would be effective in some cases. Various methods are possible, such as acquiring an entire organization through M&A. We hope that the utilization of human resources for our long-term vision will be done reasonably and speedily.
Thank you for your informative opinions on how we work and how we promote diversity.
Next, please give us your impressions of the progress made and your advice for the future regarding the Medium-term Business Plan KV25, after the end of its first fiscal year.
Since the initial planning process, there have been significant changes in the global economy and market conditions for semiconductors and automobiles. Although our performance was solid in FY2022, we expect a significant impact on profits in FY2023. In light of this current situation, we now need to accelerate the creation of new business and products. To this end, in June 2023, there was a reorganization of business segments and a transition from the “Head-of-Business-Group” system to an “Officer-in-Charge” system.
This change is expected to create more synergies within business units. In addition, the Technology Unit, which is in charge of research, development, and production technology, has been established on the same level as the business units, and the system for creating new businesses and products by mobilizing all the company՚s capabilities has been clarified. With this new system, an action plan will take shape towards achievement of targets for the final fiscal year of KV25.
This is the first company-wide reform in a long time since the Safety Systems Group was established in 2007. We have so far been providing products by changing core technologies according to the needs. Hereafter, it will also be necessary to open up new areas for new products and new businesses. We believe that our system has become agile enough to implement such Initiatives.
What actions will be required from FY2023 onward?
Aggressive investment is still necessary for accelerating the creation of new businesses and products that will contribute to profit improvement. A certain level of risk will need to be considered, and it is important to understand this point correctly.
Semiconductor-related materials and other products in the Fine Chemicals Business Unit are areas that are attracting attention from institutional investors, so I feel that it would be good to go through trials and errors with bold investment decisions. To this end, it may be important to foster a culture that enables people to take on challenges without fear of failure.
The impression of our management, which we described on our own as “hitting the stone bridge and still avoiding crossing it” (exercising caution and ending up not taking any action) has begun to change. There was a time when I gave advice on the need for investment in growth, but now the top management themselves are encouraging proactive investment, and investment in production increase in growth areas of each business and investment in research and development on a large scale have begun to be implemented.
Even though the goal is to achieve a large return, it is unavoidable for the company and each one employee to be reluctant to accept risk. It would be good to have not only the mentality but also a system for accepting risk. We must also remember that having the leeway to accept risk and tolerate failure will help curb corporate scandals caused by falsehoods and cover-ups at work sites. It is important to demonstrate the company՚s willingness to make positive use of any results as long as they are based on hard work.
I also took many risks when I was working for a trading company, but I could also take on bold challenges to the extent that the company tolerated the investments by regarding them as risk money. I believe that by setting up a mechanism to use risk money separately from funds for business operations, and by ensuring that employees involved in development and investment are clearly aware of this, we can create a better environment in which each individual can actively engage in the creation of new businesses and products.
Thank you for your feedback, which is very helpful in disseminating information internally about fostering a culture that enables people to take on challenges.
Finally, please give us your opinions on the dialogue with shareholders, investors and other stakeholders.
Since FY2021, outside directors have also been involved in the dialogue with shareholders and investors, and I think that we will be able to cooperate to constructive dialogues. I recommend that you should focus your efforts on disseminating information to overseas investors in the future, so as to be understood by the capital market as a global company. I feel that the Group՚s niche product line, described as Global “sukima” ideas, is promising as a subject of interest for overseas value-growth investors.
The company where I served as an outside director about 20 years ago also started out on a compact scale with a niche business as its strength. The top management themselves visited overseas funds every year to attract investment, and as a result, this company grew into the world-leading company in the field. I think that efforts to have your company appeal to overseas investors as much as possible should be made on a regular basis as a corporate activity.
That՚s right. From a practical standpoint, it is also important to further enhance information published in English, respond to requests for disclosure and implementation of measures to improve P/B ratios, and present rational capital policies by sharing values with investors. I expect the company to disclose a value creation story, which will be of more interest to shareholders and investors, along with the creation of new businesses and products.
We learned a lot from the many informative opinions on management and information disclosure. Thank you all very much for joining us today.
I am pleased to see you for the first time. My name is Ikuko Akamatsu, and I was appointed as an outside director. I am a Certified Public Accountant and Certified Fraud Examiner by profession. After working for an auditing firm, I was engaged in research and consulting activities at a university (for ten years). Currently, I serve as a board member of the Japanese Institute of Certified Public Accountants (JICPA). Thus, I am working to improve the quality of certified public accountants as outside directors while serving as an outside director myself.
The mission of outside directors is to bring diversity to the organization. People instinctively seek homogeneity, but pursuit of diversity, especially in the Board of Directors as a company՚s decision-making body, increases the accuracy of decision-making and the risk sensitivity of the organization. I feel positively strained about the weight of my responsibility because decisions I will be involved in making will have a significant impact on the future of the company.
As a working woman and one of the first so-called “mom accountants,” I have had many experiences as a person in a minority. I hope to be useful for the company with what I can see because I am in a minority, that is, from a perspective that people in the majority cannot have.
I appreciate your support.
Member of the Board, Outside Director
Appointed as an outside director in June 2023, with extensive experience as a certified public accountant and an outside director