FUJIFILM Holdings

Outside Director Round Table Discussion

Leveraging diverse specialties and experience, we will increase the effectiveness of the Board of Directors and meet stakeholder expectations

The Board of Directors’ Role in Achieving Sustainable Growth and Strengthening Governance

In this new management structure where decision-making and supervision have clear delineation in business execution, how will the Fujifilm Group handle the rapidly changing business environment, and how will it continue to grow? We received multifaceted opinions from our outside directors, possessed of abundant experience in their respective fields.

FUJIFILM Holdings’ new management structure was launched after the Ordinary General Meeting of Shareholders held on June 29, 2021. As an outside director, what is your assessment of this new management structure?

Shimada: Over the past year, the Board of Directors has been discussing topics requiring major decisions, such as the medium-term management plan and business restructuring. In these discussions, something I have felt very strongly is the steadfast spirit of the various division managers. When Mr. Komori spoke at the Board of Directors’ meeting on his retirement, the background became clear to me. To quote his remarks, “Our corporate culture is about being honest, frank and cheerful, and about taking unified, committed action after thorough discussion and decision-making. This is evident in the Fujifilm character, and it is our greatest strength.” Though the Fujifilm Group has a reputation of growth on the back of its charismatic management and their decisions, this means the spirit held by the managers of each division, nurtured by this corporate character, is its real strength. Since Chairman Sukeno and President Goto embody this character, I have strong expectations for the Company’s management going forward.

Eda: Taking a governance perspective, the new structure’s clarity on the Board of Directors’ functions of decisionmaking and supervision as it pertains to business execution gives me high expectations. In order for a company to achieve long-term and sustainable growth in a rapidly changing world, management must take risks as appropriate, and strong governance is essential to that end. With a new governance structure offering a more clear definition between decision-making and supervision for execution, I believe that we as outside directors will also be able to conduct more effective external supervision processes. I have strong expectations that further constructive discussions built on top of this foundation will ensure even stronger governance, as well as lead to innovation and growth ahead.

What role did the Nomination and Remuneration Advisory Committee play in the CEO succession?

Kawada: Since its inception in 2018, the Nomination and Remuneration Advisory Committee has been in ongoing discussions and preparations regarding a list of CEO successor candidates, as well as confirming talent requirements for the CEO and management dismissal requirements. Finally, the new structure was launched after a committee meeting in February 2021 and a Board of Directors’ meeting in March. As chair of the committee, deliberations on Mr. Komori’s successor presented me with significant responsibility given his more than 20 years since taking the position of representative director, but I believe that I was able to successfully fulfill this important role in the succession process.

Mr. Tatsuo Kawada

Chairman and CEO of SEIREN CO., LTD.

Having served for many years as representative director of a general textile manufacturer, where he took the lead in the transformation of the company’s business model, creation of innovation and organizational reform, Mr. Kawada has ample experience and a wide range of knowledge. He serves as chairman of the Company’s Nomination and Remuneration Advisory Committee.

Kitamura: Our traditional focus has been in the important committee role of ensuring objectivity and transparency. While it is a difficult task to examine each candidate on a successor list in detail, this process eliminates arbitrariness in the selection process and ensures objectivity and transparency from our standpoint as outside directors. In that sense, I feel that our discussions leading up to a decision regarding the new CEO were very appropriate and thorough. The timing of the CEO change also seemed fortuitous in a period of decisions where the Company took dramatic steps forward, such as making Fuji Xerox (current FUJIFILM Business Innovation) a wholly owned subsidiary, making major investments in the bio CDMO business, and acquiring Hitachi’s diagnostic imaging business (current FUJIFILM Healthcare).

In April, the Company announced its new medium-term management plan VISION2023. What is your assessment of this plan from the perspective of medium- to long-term value enhancement?

Kawada: Like its predecessor, VISION2019, the new medium-term management plan also serves as a concrete action plan toward achievement of the CSR plan SVP2030. The days when it was enough for a company to put its focus on generating profits and other added economic value as its primary goal are long gone. Today, there are strong demands for management to take into account issues in the SDGs, like the environment and society. In its execution planning, the Fujifilm Group must not only incorporate profits but also ensure that actions to address these issues are included as well. I believe that the Company’s mediumterm management plan goes beyond simply incorporating these ideas; it sets very ambitious goals as well. The Board of Directors will play an even more important role here, including supervision for addressing these issues.

Eda: I believe that the Fujifilm Group is constantly creating value toward achievement of its long-term goals. Now that the Company has a medium-term action plan toward long-term goals in 2030, people are more easily able to understand its management plans. It has presented a clear picture of the issues relevant to its 14 businesses, divided into the areas of Environment, Health, Daily Life and Work Style. In addition, stakeholders can now more easily see how these issues are linked to 2030 long-term goals and what FUJIFILM Holdings is doing with respect to them. This ease of understanding is a very strong point of this medium-term management plan.

With the COVID-19 pandemic, I believe that the world will continue its dramatic changes. However, so long as the Company can maintain an unwavering long-term perspective, we can expect sustainable growth and value creation. Also, the more people share an understanding of the Company’s management plan, the more effective it will be. That is my positive assessment of how the Company has set up its new medium-term management plan.

What are the challenges faced in promoting the medium-term management plan?

Eda: Even though the Fujifilm name is well known, I think it has been difficult to fully grasp what the company really is because of its wide range of businesses. The organization of this medium-term management plan is easy to grasp as an outside director, and the content is easy to explain to others. I very much hope this thorough plan setup will carry forward. I believe that if the Company can distinctly explain exactly what the Fujifilm Group is, its management policy and growth strategy will be easier to understand for more stakeholders.

Ms. Makiko Eda

Chief Representative Officer, World Economic Forum Japan

Serving in management at a global corporation, Ms. Eda has created new markets and developed global human resources. In her current position, she has accumulated ample experience and a wide range of knowledge from working on improvements to regional and industrial issues on a global scale.

What advice would you give to ensure effective business portfolio management, one of VISION2023’s key measures?

Kitamura: The Fujifilm Group has been making progressive efforts with regard to its business portfolio in the sense that it has been dynamically shifting its business structure toward the Healthcare field. However, Japanese companies tend to lean toward new investments and acquisitions, and less often decide to withdraw from a business. This leads to shortages in competency and capital, stretching their supply lines thin. According to the results of one survey, corporate managers are more often conscious of profitability in individual businesses, including adding value to products and services, increasing market share and reducing costs. This contrasts with investor consciousness, focused on investment return and selection and concentration of businesses, leading to gaps between management and investor mindsets. Therefore, in business portfolio management, it is necessary to maintain a sense of and perspective on this issue, engaging in discussion from the shareholder and investor viewpoint.

It is also not easy to formulate rules that can be universally agreed-upon when assessing a business’ profitability, including how to set transaction rates between divisions or how to allocate expenses. In this sense, I think it is a challenging task for the Company and its diverse range of businesses to grasp the profitability of each business and discuss its portfolio. However, it is still important to take on this challenge as part of business portfolio management.

Shimada: Last year, the Ministry of Economy, Trade and Industry (METI) in Japan released Practical Guidelines for Business Transformations. My understanding is that these guidelines are designed to help Japanese companies overcome their strong biases toward maintaining the status quo and weaknesses in cross-organizational management functions, and to help them gain international competitiveness. The Fujifilm Group has been engaged in the most advanced form of business restructuring for 20 years now. These guidelines appear to have been published by the government for industries across Japan as a whole, with consideration to cases like Fujifilm’s.

It is important to note that the Company arranges its businesses along the dual axes of growth and profitability, but the premise behind these analyses can change in an instant in the face of rapid evolution in innovation or major changes on a global scale. To give an example, the United States introduced regulations a year ago in the area of pharmaceuticals, an area where the Fujifilm Group does business. These regulations were designed to reduce dependence on a certain country and create security in the supply chain. Two years ago, it is very unlikely that anyone could have predicted that pharmaceuticals would also face similar regulations like those seen in semiconductors and 5G. In such a rapidly changing environment, the Fujifilm Group must act with agility to review the assumptions made in analyzing its businesses and planning its cash flows.

Mr. Takashi Shimada

Former Vice-Minister of Economy, Trade and Industry

Mr. Shimada has served in important positions at METI, including Deputy Vice-Minister, Director-General of Trade Policy Bureau, and Vice-Minister of METI. He possesses ample experience and a wide range of knowledge from having promoted new industrial and trade policies to address changes in the global industrial structure.

What issues does the Fujifilm Group face?

Shimada: One of questions is, as innovation itself shifts rapidly from “product innovation” to “architectural innovation,” what kind of added value the Company will bring within the latter. I think this is a very big challenge.

The other is how the Company will be agile in reviewing its management plans and visions while identifying new opportunities and threats amid a variety of significant trends, such as the pandemic, cybersecurity and a U.S.– China technological hegemony. I hope that I can contribute to raising awareness of these issues.

Fujifilm introduced a new stock compensation plan in conjunction with its new medium-term management plan. What is your assessment of the introduction of this plan?

Kawada: After deliberation by the Nomination and Remuneration Advisory Committee, the Company implemented a restricted stock compensation plan and a medium-term performance-linked share-based remuneration plan (hereinafter, the “Performance Share Unit Plan”). In particular, I would give the Performance Share Unit Plan high marks in that it introduces a performance-based system over a medium-term time frame, with the announced medium-term management plan serving as context. Beyond that, it is important that performance and assessment are in proper alignment with each other, and produce convincing results. We would like to verify this plan in its operational processes, including performance evaluations, from the perspective of ensuring objectivity and transparency.

Kitamura: Although the previous stock option plan had performance-linked elements, the PSU plan is more advanced, especially in the sense that it is linked to achieving KPIs set in the medium-term management plan and provides stronger incentives toward medium-term growth and goal achievement. I believe this will further promote shared interest with shareholders and investors and contribute to sound risk-taking in management.

However, I think that compensation plans must be designed in a way that does not undermine a company’s corporate culture and strengths it has cultivated over time. While a performance-linked plan is in line with this concept, we also need to constantly monitor its operational status and tune the plan as necessary.

Some have said they expect officer remuneration system to reflect non-financial KPIs.

Kitamura: There is a lot of talk now about the “carbon neutral shock.” Some say that this may force changes in corporate accounting not seen since the Great Depression hit in 1929.

Though few companies took the stance of voluntary disclosure before the Great Depression, it would lead to the birth of a trend toward quantitative financial disclosure. Today, the trend is to disclose even non-financial information to the outside world. The objective here is to communicate what a company has been doing, and what its contributions have been, in non-financial aspects. Therefore, it is possible that expectations will grow even further toward reflecting non-financial KPIs in compensation plans. I think this is one of the challenges FUJIFILM Holdings faces as a company.

Mr. Kunitaro Kitamura

Special Advisor to Sumitomo Mitsui Trust Bank, Limited

Mr. Kitamura has served in management at major financial institutions for many years, demonstrating strong leadership. He has ample experience and a wide range of knowledge with respect to finance and capital markets. He serves as a member of the Company’s Nomination and Remuneration Advisory Committee.

How should companies work to ensure that diversity in the Board of Directors leads to increased corporate value?

Eda: Since joining FUJIFILM Holdings’ Board of Directors, I have come to realize that in addition to its corporate culture and its fundamental principle of being open, fair and clear, the Company also has a sense of speed. In addition, I believe that what is most important for a company’s officers is not only diversity in form―the number of women or foreigners, for example―but also diversity of experiences and backgrounds. Only when a company has this can it engage in meaningful discussions.

Shimada: While diversity of the Board of Directors is important, I think what is even more important is the diversity of the company. One company will be entirely different to another in areas like where it does business, what talent it has, and how much it has expanded globally. For a company that wants to generate new innovation through combining companies that are entirely different to each other, I think it is preferable to look at diversity in a way that is aligned with the company’s strategy and to approach it in a way that is unified with the company’s group management.

I also believe that there are best practices in governance as a global company, and that these will be constantly evolving. Each outside director will contribute to the Company’s growth and further strengthen its governance to the maximum extent possible from their respective experiences and positions.

* This interview held on August 13, 2021