Interview with Outside Director

What is the Ideal Board of Directors?

Outside Director
Fukoku Mutual Life Insurance Company

Tomofumi Akiyama

Corporate governance in Japan continues to develop. The Nisshinbo Group is part of that trend, implementing successive improvements to its corporate governance system in recent years. However, the Japanese government is calling on the business community to do even more. At Nisshinbo, the need for stronger corporate governance is growing as the Group’s operations become increasingly global. For this year’s integrated report, we discussed the role of the Board of Directors with Tomofumi Akiyama, who has been an outside director at Nisshinbo Holdings for 11 years.

The Nisshinbo Group has been accelerating the pace of corporate governance reforms.
The number of directors has been cut and more outside directors have been appointed. A RemunerationCommittee and a Nomination Committee have also been established ― a discretionary measure. Most recently, Nisshinbo abolished its internal system of advisors and consultants, posts that were filled by previous Company presidents and chairmen. What is your view on these changes?
Nisshinbo has a serious-minded corporate culture, so it tends to fully commit to reform when something needs to be changed. Improving corporate governance is a topic that all Japanese companies need to address, but the speed and effectiveness with which Nisshinbo has tackled the issue has impressed me.
Nisshinbo has put the necessary systems and structures in place, but our work to improve corporate governance has only really just begun. The effectiveness of those systems will now be tested. Nisshinbo needs to continuously enhance its corporate governance systems by identifying any issues and making improvements.
One area we need to look at is ensuring the right balance of inside and outside directors. As the number of outside directors increases, there is a risk that the Board of Directors could become too distant from the Group’s frontline operations. Outside directors tend to take a more objective standpoint in decision-making, but they also need to have the right information to make informed decisions. As a company, we need to ask ourselves how to achieve that. With outside directors taking a greater role in management in Japan, this is an important question for all Japanese companies, not just Nisshinbo.
Under the committee-based corporate governance system, outside directors who sit on committees approve or reject proposals made by senior management. When making their decisions, outside directors need to be more informed about the proposal in order to avoid simple Yes or No responses. External consultants can have a role in that process, but either way, outside directors have to be given room to discuss the thrust of management proposals more thoroughly.
I agree with the decision to abolish the internal advisor and consultant system, which allowed previous presidents and chairmen to stay on at the Company in an advisory role. That system is now out of place in today’s corporate governance environment, but the end of the system raises a new issue: is it good for major companies to lose top personnel who have valuable experience at the highest level of their organization? Given the knowledge those individuals have and their status in the business community, the answer probably lies in creating a separate external framework that continues to advise, support and communicate with the company. In the US and Europe, business leaders typically gain wider public recognition based on their track record, but it is hard for executives in Japan to exert influence and leverage their skills after leaving their companies.
I believe we can build an even stronger corporate governance system by putting the right systems in place to resolve these issues over time.
What role do you think directors should play in business management?
Fiduciary duty is the primary responsibility of directors. We have a duty to shareholders to protect the value of assets entrusted to the Company through their investments.
Senior managers have to take certain risks to increase corporate value. Sticking to the same business for many years may look like a stable approach, but before long, companies that follow that approach lose competitiveness and fall by the wayside. Companies have to take a hard look at their business portfolio and identify what makes them different to their peers, then take risks based on those strengths. That sits at the heart of corporate leadership. The Nisshinbo Group’s management team deserves high marks for taking that approach.
However, the phrase “corporate growth” should be used with care. The bigger a company becomes, the greater the risks. Companies must not put priority on growth to the detriment of shareholder value. Management should shun markets with high volatility and avoid targeting growth for growth’s sake and excessive risk taking.
From that standpoint, one of the roles of directors is to promote risk taking, while at the same time closely monitoring that risk. They have to envisage the outcome of decisions from two main angles ― what would happen if the company chose a certain route, and what would happen if it did not. In a worst-case scenario, directors have to be ready to fulfill their responsibility to shareholders by making decisions that protect shareholder value.
In those situations, directors have a vital role to play in advising the management team. Nisshinbo Holdings’ outside directors are all involved in highly specialist fields. Ideally, the management team should actively take on board their advice and use it to develop the Group’s next business strategy. At Nisshinbo, everybody is free to speak their mind during Board of Directors meetings, with outside directors taking an active part in those discussions. I believe it is important for the Company to try new ideas, from both a business perspective and an organizational perspective. If the first attempt does not work out, we need to analyze what went wrong and try again.
Nisshinbo sold its papers business in April 2017 and Japan Radio Co., Ltd. is set to become a wholly owned subsidiary in October 2017. What is your take on those decisions?

Both moves have been a major topic of discussion at the senior management level for several years amid the Group’s wider efforts to concentrate management resources on strategic areas. We have had careful in-depth discussions about the best route to follow on both issues.
The papers business has been sold at the best time, in my view. We have worked hard to increase the value of the business while taking into account the interests of all stakeholders. The decision now to exit the business follows careful consideration about our future strategy. I believe the deal offers significant merits for all three parties ― the papers business, the Nisshinbo Group and the buyer.
In the case of Japan Radio, we have taken a number of steps to reinforce the company, such as implementing a restructuring program to boost profitability and generating synergies by enhancing its automotive communications equipment business. However, the next challenge will be to integrate Japan Radio into the Nisshinbo Group’s corporate culture. We decided to make Japan Radio a wholly owned subsidiary now because the time is right to accelerate that cultural integration process.
As seen with the acquisitions of TMD Friction Group S.A. and Nanbu Plastics Co., Ltd., the Nisshinbo management team has a good track record of making the right steps at the right time with M&A deals. That is set to be a key strength for us going forward asM&A activity increases.

Nisshinbo is working towards its long-term goals of net sales of ¥1 trillion and ROE of at least 12% in the fiscal year ending March 2026. What is your view on these targets?
The goals are in line with Nisshinbo’s vision of becoming an Environment and Energy Company group. However, I do not want Nisshinbo to overemphasize the importance of those goals at the expense of its corporate vision or philosophy. Sustainable growth should be the focus.
Also, without a more detailed business plan, investors and other stakeholders will lack confidence in the goals. That is one issue we are currently discussing with senior management. The outside directors will obviously be involved in developing that business plan.
In contrast to recent years, the Group faces a great deal of uncertainty in the global operating environment caused by non-economic factors. However, the management team must not make knee-jerk reactions to unexpected events. In these uncertain times, I believe the Nisshinbo Group is on the right track. As a Group, we are looking forward to the future and making steady progress on a daily basis.
What is an effective Board of Directors?
An effective Board of Directors should be made up of people with a strong sense of fiduciary duty. Through free and open discussion at board meetings that is clearly reflected in the day-to-day management of the Company, the Board of Directors should contribute to sustained growth in corporate value and build win-win relationships with shareholders and all other stakeholders.
After many years working at the senior management level in the life insurance sector, I believe “coexistence” is the basis for the ideal relationship between a company and its investors. When only the rights of investors and shareholders are asserted, companies will become overly defensive. That’s why it is important to build a dialog based on a common approach that is beneficial for both investors and companies.
That thinking applies to other stakeholder groups as well. To achieve that, we need to make management more transparent and communicate closely with all stakeholders. The role of outside directors is to moderate the interests of the Company and its stakeholders, leading to a highly effective Board of Directors.