Promoting further governance reforms to improve corporate value
How has the Company’s governance evolved under the new management structure, which separates the roles of Board Chairman and CEO and clarifies their respective functions? In this section, we ask independent outside directors to speak about their roles, including the role that the Board of Directors should play in enhancing corporate value.
Evolution of governance
One year has passed under the new management structure. Have there been any changes in the operation or deliberations of the Board of Directors?
Kitamura: Last year, we separated the roles of CEO and Chairman of the Board. The CEO is in effect the chief operating officer, and separating the CEO role from that of the Chairman, who has a supervisory function, reflects the direction of governance evolution. However, it is meaningless if the separation is in name only. I feel that that the content of Board deliberations has been enhanced thanks to Chairman Sukeno’s Board operation guidelines, which call for more active discussions to strengthen governance. Our Board meetings now devote more time to topics related to medium- and long-term direction, such as decarbonization initiatives and DX strategies. Major M&A deals are also reported to the Board of Directors from the early stages of consideration. Details of internal discussions on each proposal are also shared before being submitted to the Board of Directors, allowing for more in-depth, substantive discussions at Board meetings.
Eda: For M&A deals, the Board also receives reports on post-merger integration (PMI) status and analyses of deviations from pre-investment forecasts. In addition, reports on the progress of ongoing projects and other matters are provided even if they do not involve a clear conclusion. This kind of reporting helps strengthen the supervisory function, as it provides a context for internal discussions and allows decisions to be made based on that context. I feel that requests of outside directors are reflected in the operation of the Board of Directors, leading to positive outcomes.
Kitamura: The Secretariat of the Board of Directors has become more supportive by providing business briefings, arranging site visits and sharing analyst reports related to our business. For example, we have resumed business site visits, which were restricted last year due to COVID-19, and in April 2022 we visited the Omiya site, the base of our Imaging business. The purpose of our Imaging business is to provide “joy” to customers, and I felt a sense of “joy” from the people working there. I was impressed by the good atmosphere at the site where products and services are created. Due to COVID-19, we only visited the Omiya site during the past year, but I would definitely like to continue these tours. Hearing directly from people on the ground gives us a real sense of the Group’s potential.
Eda: Business briefings are held more frequently, giving participants a deeper understanding of the issues and long-term strategies of each business by hearing directly from Corporate Vice Presidents and division heads. This allows for very real and active discussion of business-related proposals at Board meetings. I also enjoyed the tour of the Omiya site, where I noticed the passion of the people in charge of the various products. Site visits give us an opportunity to see how much of a gap there is between the tone we normally perceive from Board members we interact with and the way people on the ground feel. It is difficult to expect executives and front-line employees to share the same awareness of our business, but I believe that both parties are very close in this respect. Since we have many career hires and new people coming in through M&As, the challenge will be to update our business to reflect the times while respecting our excellent DNA.
Please tell us about deliberations of the Nomination and Remuneration Advisory Committee.
Kitamura: After deliberations by the Nomination and Remuneration Advisory Committee, the Board of Directors passed a resolution in March 2022 to reflect “the rate of achievement against CO2 emission reduction targets” as an ESG indicator in executive compensation. When that committee began its deliberations, there were few examples of companies introducing ESG-related non-financial indicators in Japan. Among the Nikkei 500 constituents, only 66 companies had adopted ESG-related indicators and only 11 were using indicators related to CO2 emissions. So one issue for discussion was whether it was appropriate for us to take the lead in introducing such indicators. There is growing recognition both internally and externally that ESG is an important management issue for improving corporate value over the medium to long term. Accordingly, we concluded that it is still important to link the results of our decarbonization targets to executive compensation to ensure the objectivity and transparency of our efforts. It was also a significant way to demonstrate the Company’s sensitivity to social issues.
Special Advisor, Sumitomo Mitsui Trust Bank, Limited
Outside Director, ASAGAMI Corporation
Effectiveness of the Board of Directors
How do you view the state of the Group’s governance?
Nagano: Japanese companies are now required to manage their businesses in consideration of all stakeholders and face various external pressures, such as Japan’s Corporate Governance Code and voices from the capital markets. In other words, management freedom is becoming more restricted than in the past, and the environment is becoming less conducive to bold corporate management. Despite this situation, we have achieved self-transformation by overhauling our business structure on the strength of our culture of autonomy and self-discipline. This was the result of management that harnessed the strengths of each and every employee with the support of our own culture. It was not accomplished simply because we had an external governance structure in place. I believe that the starting point for improving governance is how the chairman and CEO want to run the Board of Directors and how they want to apply governance to the management of the Company. Chairman Sukeno once told me, “An important job of the chairman is to stimulate free discussion as much as possible at Board meetings. Even within the Company, I tell people to read the agenda, not the air, when it comes to meetings.” He added, “With the help and wisdom of outside directors, I hope to confirm whether Fujifilm’s version of common sense deviates from that of the rest of the world. I want to incorporate diversity into our management.” Here, the chairman clearly communicates how he intends to run the Board.
Based on your experience, what recommendations do you have for improving the effectiveness of the Board of Directors?
Nagano: In my experience, outside and inside directors are like a mirror of each other and together produce nothing more than their respective strengths. Therefore, it is very important to share all kinds of information and to have people from outside the Company express their opinions. This process allows the executive side to incorporate perspectives that were not available within the Company, which is necessary to strengthen management, and to create an atmosphere in which this can be done. There are two roles required of outside directors to improve Board effectiveness. The first is to express opinions on individual topics from perspectives not available internally and reflect those opinions in management. The second is to discuss from various angles whether the Company is firmly in a cycle of sustainable growth. Based on our culture of values, corporate philosophy and purpose that permeate our organization, for example are employees acting enthusiastically according to the Company’s objectives, and is the Company growing through the support of its customers?
Sugawara: I understand that the new administration, which has taken over from the previous CEO, Mr. Komori, is now in the process of establishing a new way of thinking about the Company’s Board of Directors. In fact, all companies are looking for ways to improve the effectiveness of their Boards. In some cases, other companies are reviewing items to be discussed at Board meetings and utilizing advance explanations and written resolutions for individual matters as much as possible. This enables the Board to devote more time to larger-scale discussions about such matters as medium- to long-term technological trends, environmental issues and geopolitical risks. These are precisely the topics in which the experience, knowledge and networks of those outside the company can be utilized, and the significance of reflecting those assets in business execution is heightened.
It is also important to share with the employees in charge of the relevant matters what the outside directors have pointed out at the Board meetings and what has been discussed with the executives. There is not much point in having a rapport only between top executives and outside directors. It might be useful to use preliminary briefings and business presentations as opportunities to let employees at various levels involved in business execution know what perceptions and opinions people outside the Company have about their subject matter. Mr. Nagano mentioned earlier that all information should be shared, but it is not necessary to limit the source of information to executives. I think it will be more meaningful for both parties if we devise ways to share information from employees at various levels. The larger the organization, the more likely there is to be a discrepancy between the image of the actual situation as portrayed by upper management and the reality on the ground. If we sense a gap in awareness between management and the field that could indicate a weak point in management, we can share our concerns with the executive side, thereby triggering a new virtuous cycle. I hope to play such a role in the future.
Former Vice Minister of Economy, Trade and Industry
Outside Director, TOYOTA MOTOR CORPORATION
Outside Director, Hitachi, Ltd.
Progress of medium-term management plan
How do you see the progress of the medium-term management plan, VISION2023? What are the challenges that lie ahead?
Kitamura: In fiscal 2021, the first year of VISION2023, we got off to a very good start by achieving all of our major KPIs. From a business portfolio management perspective, we are on track in creating, nurturing and making our core businesses highly profitable, with Healthcare becoming our largest segment thanks to our aggressive growth investments in recent years. We also rejuvenated our portfolio through the sale of our radiopharmaceutical business.
Eda: Our medium-term management plan is progressing smoothly, and we have accomplished our business portfolio reorganization through courageous decision-making and a sense of speed, resulting in growth of the Company. Due to heightened geopolitical risks, however, the global business environment is also fraught with risks that could instantly lead to an uncertain outlook. Our challenge going forward will be how courageous and agile we can be in making decisions when the future is uncertain and we are forced to make unexpected changes.
Kitamura: Our focus on healthcare, which is directly related to people’s health and lives, is understandable and meaningful in light of our corporate philosophy and purpose. Because it is directly connected to people’s health and lives, however, a “just in case” approach is unacceptable. Our challenge is to continue pursuing absolute safety in the future. Another major strength we have is our employees, who are highly motivated to make autonomous and voluntary contributions. We believe we need to continue striving to maintain and improve engagement with employees in the future.
Nagano: In the current era of VUCA (volatility, uncertainty, complexity and ambiguity), it is no longer sufficient to focus on the economic aspects as in the past; our business decisions now must also consider geopolitical risks. Even in normal times, we must always keep in mind the worst-case scenario when a risk materializes and consider how to respond. Because our business is sufficiently global in scale, moreover, I feel we can achieve further growth if we globalize our management by integrating the strengths of individual employees at Group companies scattered around the world.
Sugawara: In evaluating the progress of our medium-term management plan, it is easy to focus discussion on the extent to which our initial goals and plans have been achieved. However, I place equal emphasis on the perspective of whether there are targets and plans that should have been set but were not recognized. Because we cannot turn back time, we face the risk of falling behind competitors or the world if we fail to take action, which could have a tremendous impact on the Company’s future. In light of the risk factors mentioned so far and the rapid spread of new technologies, it is difficult to realize from an internal perspective alone if we have missed the right time to invest or if there are any potentially beneficial R&D themes that we have not yet explored. I would like to keep this in mind as I help formulate a long-term vision and incorporate it into our next medium-term plan.
Chairman of the Board, Tokio Marine Holdings, Inc.
Outside Director, Seiko Holdings Corporation
Outside Director, Central Japan Railway Company
Further strengthening governance
What contributions would you like to make as an outside director?
Eda: Even in the four years that I have served as an outside director, we have made tangible progress in transforming our operations, and I feel that Fujifilm is a very good company. As my understanding of the Company has deepened to a certain extent, I plan to continue speaking up and contributing to corporate growth by sharing my own insights based on global trends and consumer perspectives.
Nagano: It is impressive that Fujifilm has steadily forged its own path and achieved self-transformation without bowing to external pressures. In this age of unpredictability, however, we have no choice but to embrace diversity. I want the Company to maintain its current strengths by utilizing the diverse opinions of its employees in addition to sound management decision-making. As an outside director with a different background, I would like to contribute by not being afraid to speak up, even if it appears unreasonable from an internal perspective. On the other hand, management will not become stronger unless the executive side is willing to cooperate, no matter how many people outside the Company raise their voices. Whether this Board will live up to its promise of incorporating diverse perspectives into management with any degree of sensitivity will be determined by the resolve of top management. Another thing is that management will fail to deliver results unless employees are also willing to cooperate. Based on my experience as a corporate manager, I would like to take a closer look at whether the cycle of sustainable management is working properly for employees as well.
Sugawara: We have earned a reputation in Japanese industry as a company that has successfully transformed itself. Each of our businesses earmarked as growth businesses is becoming a world leader in its respective field. Because we are at the forefront, however, we must confront unknown factors and risks earlier than other companies, and we will be forced to fight some tough battles at times. I would like to contribute by presenting the knowledge I can gain from my network about geopolitical, technological, political and other risks, as well as the risk of failing to act as I mentioned earlier, and by providing material for the Company to make flexible decisions. Looking ahead to sustainable growth, the mindset of today’s young and mid-career workers, who will support the Company 10 to 20 years from now, is also important. Therefore, I hope to play a role in bringing an external perspective to our next generation of leaders by embracing opportunities to exchange opinions.
Kitamura: An important role of an outside director is to look at things objectively, point out doubts when they arise, and maintain a close interest in our businesses that relate to people’s daily lives.
We also need to express opinions from the consumer’s perspective. As an outside director, I will continue contributing to the Company, confident that we can maintain our “NEVER STOP” spirit in resolving social issues through innovation.
Chief Representative Officer, World Economic Forum Japan
Outside Director, Tokyo Electron Ltd.
* This interview held on August 10, 2022