Message from the Chairpersons of the Nominating Committee, Audit Committee, and Compensation Committee
Mr. Akira Ichikawa promoted sustainability management at Sumitomo Forestry Co., Ltd., which utilizes forestry resources to operate various businesses such as those related to lumber and building materials, housing and construction, and successfully raised that company’s corporate value.After serving as President and Representative Director of Sumitomo Forestry,he now serves as its Chairman of the Board and Representative Director. He assumed the post of Outside Director of the Company in June 2021.
Selection process for the next President & CEO,
Representative Executive Officer
Since 2015, when the Corporate Governance Code was enacted, the Company has commenced initiatives geared towards a succession plan for its President & CEO, Representative Executive Officer. The function and role of the Nominating Committee in these initiatives is to receive a report on the selection of successor candidates, the formulation and implementation of a development plan, the verification and evaluation of progress and other relevant areas once every six months from the President and to provide supervision and advice regarding that succession plan. Since June 2021, when I assumed the post of Nominating Committee member, I mostly confirmed and verified questions pertaining to successor candidates such as whether they were armed with the qualities and sense of mission befitting top management, which must boldly confront harsh environments, and whether they possess a vision or approach for appropriately devising and executing our next medium-term business plan.
Through such a process, the Nominating Committee verified that new President Taiko is a calm, cool and collected individual who possesses rational thought as well as the poise to earnestly engage anything head-on and the firm will to follow things through to the very end, and that he is an ideal individual to entrust the management of the Company to given the persistent severity that surrounds it.
What we seek from our new management team centered on President Taiko is the adequate outlining of a future vision paired with the successful engineering of an early recovery in our business performance. Our expectation is that they will put a stop to our negative momentum of two consecutive years of operating losses, initiate our new medium-term business plan, and proceed to the next step.
Additionally, we hope that Executive Chairman Yamana will proceed to facilitate the further reinforcement of our executive framework by working together with President Taiko as his predecessor.
Changes in our governance structure for fiscal 2022
Over time, the Nominating Committee has continuously reviewed the ideal composition of the Board of Directors. Following the verification of our approach and direction regarding that composition in our fiscal 2021 review, our governance structure for fiscal 2022 has changed significantly.
One of those changes is the assumption of the post of Chairman of the Board by an Outside Director. While individuals who resigned from the post of President & CEO, Representative Executive Officer had continued to assume the role of Chairman up to that point, as stipulated in the Company’s Corporate Organization Basic Regulations, “the Chairman will be selected from Directors who do not concurrently serve as Executive Officers,” which does not preclude the assumption of the post of Chairman by an Outside Director. Director Hodo, who was recently selected as Chairman, can be expected to lead the operation of the Board of Directors of the Company, which seeks to improve its corporate value by promoting DX, based largely on his wealth of experience as an Outside Director at corporations that include companies with three committees and his deep understanding of governance at the Company.
There were also changes in the number makeup of the Board of Directors that should be noted. Last fiscal year, there were five Outside Directors and six Inside Directors. This year, that spread is five and four, representing the first time that Outside Directors constitute the majority.
Against this backdrop, I believe that the Board of Directors will proceed to form a highly transparent corporate governance framework that adopts a greater stakeholder perspective than before.
Additionally, we recently welcomed Chairperson and Representative Director of the Board Masumi Minegishi of Recruit Holdings Co., Ltd. as new Outside Director. Mr. Minegishi has a remarkable record at Recruit Holdings, which pursues a diverse array of businesses, and has a wealth of knowledge pertaining to business development, IT service operations and global management as a member of top management. Our expectation is that he will contribute in extensive ways at the Company, which seeks to dramatically change through a transformation of our business portfolio, starting with monitoring and advising efforts to bring our new businesses to profitability.
Our future operations policy
At the first meeting of the Nominating Committee in June 2022,the “Annual Policy of the Nominating Committee for Fiscal 2022”was approved. An outline of this policy is as follows.
- Examination and confirmation of ideal composition of Board of Directors and specialization and experience of candidates.Determination of Director candidates based on the foregoing.
- Supervision and advice on successor plan for President & CEO,Representative Executive Officer.
- Supervision and advice on Executive Officer/Corporate Vice President candidates and development thereof (including next-generation human capital).
- Addressing of issues for examination.
Initiatives pertaining to the plan for President Taiko’s successor are already underway. In the same manner as before, the Nominating Committee will receive reports on areas such as the content and progress of that plan from the President and proceed to provide supervision and advice.
Additionally, with regard to the implementation of 360-degree evaluations targeting the President and management team members, we will look into giving advice in the Committee’s supervisory capacity with a focus on discussion on the executive side.
Moreover, I believe that in addition to the fulfillment of its duties of “determining Director candidate proposals to submit at shareholders’ meetings” and “monitoring the successor plan for the President & CEO, Representative Executive Officer,” we should discuss the question of whether the organizational capability of the Company is accurately functioning. Over the course of the year after I assumed the post of Outside Director, I developed a genuine sense of the wonderful frontlines capability that the Company possesses. At the same time, that capability is not successfully tying into positive outcomes, and is not leading to a transformation in our business portfolio. Turning that frontlines capability into organizational and corporate capability and driving the forward development of the Company and the growth of its businesses is the role of the executive team. Yet, I get the impression that we are failing to sufficiently manifest that power. The Nominating Committee also needs to take heed of this and work towards reinforcing our management team as we move forward. To that end as well, I intend on increasing opportunities for dialogue not only with our current executive team but also with members envisioned to be our next Executive Officers/Corporate Vice Presidents.
Outline of initiatives for the succession plan for
the President & CEO, Representative Executive
Officer (FY2015 to FY2021)
1. Handling of Corporate Governance Code
1) The Nominating Committee commenced initiatives for the succession plan for the President & CEO, Representative Executive Officer in December 2015
2) The Company established its Basic Policy on Corporate Governance (September 2015) and revised its Corporate Organization Basic Regulations (October 2015) in line with the enactment of the Corporate Governance Code (June 2015)
2. Clarification of functions and division of roles
1) Board of Directors
The Board of Directors have the power to decide the President & CEO, Representative Executive Officer (“President”)
2) Nominating Committee
The Nominating Committee has the responsibility for overseeing the selection process for the next President
The President devises and implements the process and schedule for the succession plan for the President & CEO , Representative Executive Officer and reports the content and progress of said plan to the Nominating Committee
3. Status of initiatives
1) The President makes a report to the Nominating
Committee once every six months on initiatives such as the clarification of qualification requirements, the selection of succession candidate(s), the formulation and implementation of development plans that include the assignment of tough missions, and the verification and assessment of the status of development
2) The Nominating Committee, based on said report,provides guidance and advice on the succession plan for the President & CEO, Representative Executive Officer while simultaneously providing necessary information in Committee activity reports given at meetings of the Board of Directors as the occasion demands
1) Final verification of the selection of then-Senior Executive Vice President and Executive Officer Toshimitsu Taiko (“Mr. Taiko”) as the next candidate for President was carried out at the meeting of the Nominating Committee for February 2022
2) The selection of Mr. Taiko as the next President was approved and passed unanimously at the meeting of the Board of Directors for February 2022
Top executive candidate (Executive Officers,Corporate Vice Presidents, etc.) development plan
The development of top executive candidates such as Executive Officers and Corporate Vice Presidents is also being done in a systematic fashion. The Talent Committee selects candidates and formulates development plans and assignment plans.
The Committee conducts the following activities, the results of which are reported to the Nominating
Committee by the President (once a year).
- Conducting an in-house program for developing next-generation executives
- Coaching by the previous Chairman of the Board
- Individual meetings with the President
- Coaching by former Outside Directors
- Dispatching personnel to participate in external (Japan and overseas) executive development Programs
At Nippon Steel Corporation and Nippon Steel & Sumitomo Metal Corporation (currently Nippon Steel Corporation), Mr. Soichiro Sakuma was involved for many years in management in the manufacturing sector and was in charge of main head office functions, including general administration,human resources, environment, and IT, handling primarily legal, internal control, and auditing operations. He has extensive experience and a broad range of knowledge as a corporate executive. Mr. Sakuma was appointed Outside Director in June 2020.
Priority themes for FY2021 and audit policy for FY2022
The Audit Committee engaged in audits with the below three points as its priority themes for fiscal 2021. Firstly, we audited progress in the DX espoused under our “DX2022” medium-term business plan and the progress in improvements in earnings under new businesses and verified the state of coping with various risks that included impairment risk such as that caused by past acquisitions and the effects of COVID-19 on our businesses.
Secondly, we identified specific departments under our Industry Business, which constitutes one of the profit-generating drivers of the Group, and audited their business management framework and operational effectiveness. Thirdly, we performed audits on the status of initiatives for ESG geared towards improving corporate value vis-a-vis our five material issues.
Furthermore, in fiscal 2021, we ended up auditing our response to the explosion accidents that took place twice—once in July and again in August—at a toner plant belonging to Konica Minolta Supplies Manufacturing Co., Ltd. We verified that the actions taken by the executive team, including an investigation into the causes of the accidents, effects analysis and measures to prevent reoccurrence, were performed adequately, and that we properly fulfilled our responsibility as a corporation.
Fiscal 2022 is the final year of “DX2022.” The auditing of the status of attainment of the strategic targets under that mediumterm business plan will be our most important task of all. Naturally,in addition to examining items within that plan that were/were not attained, we intend to perform those audits from the standpoint of whether we are tackling those targets methodically,organizationally, and with a view to the future.
Operation of Audit Committee
All of the members of the Audit Committee have long been involved with corporate management, and have amassed a considerable record for themselves over time. What this means is that due to being outfitted with a wealth of experience and advanced insight with regard to management, those members are capable of digging deep into discussion to reach the very essence of any audit theme that they take up. This is a major defining characteristic of the Company’s Audit Committee.
For example, upon taking up a problem related to inventory control under a certain business, the Audit Committee went beyond simply performing an inspection of quantitative items to open up the discussion into one that suggested the heart of the matter might be fundamental issues faced by the subsidiary involved, such as those surrounding its corporate constitution or a lack of competitiveness. Additionally, in the audit of another business, the Committee focused on how the aspect of human capital constituted a significant management issue in addition to performing a careful review of that business’ management framework, and arrived at the recommendation that the generation of synergy through personnel exchange between acquired overseas subsidiaries should also be considered.
Such response is also extremely vital for the sake of realizing audits with higher levels of effectiveness. Going forward, the Audit Committee will continue to endeavor towards the dynamic operation of agenda so that it can conduct substantial discussion that leads to the resolution of management issues while ensuring that its viewpoints are tailored to each work situation.
In order to enhance our corporate value over the medium to long term
In addition to the protraction of COVID-19, there has been increasing uncertainty due to the geopolitical situation in Eastern Europe and sharply rising energy prices. These and other factors have caused the severity of the operating environment that surrounds the Company to increase rapidly and dramatically.
Given our position as a global enterprise whose primary markets include Europe, the US and Asia, we are at risk of encountering various effects from those factors in our management. In order to successfully improve our corporate value over the medium to long term, it is crucial that we analyze the kind of impact that events that have surfaced and matters with the potential to arise in the future will have on our company, and to take any necessary measures in a timely manner. Going forward, the Audit Committee will continue to assist in improving our corporate value through performing efficient and effective audits of the state of execution based on risk approach.
As of this April, we have a new President & CEO,Representative Executive Officer. Accordingly, our executive team will be tackling the sustained growth of the Company and the medium- to long-term improvement of its corporate value based on a new organization. I also intend on properly noting whether that direction conforms to our management vision of “Imaging to the People.”
Ms. Sakie Tachibana Fukushima served as Member of the Board of Korn Ferry International (Global Headquarters) and President and Chairperson of its Japanese subsidiary. She has also served as President and Representative Director of G&S Global Advisors Inc. and is the former Vice-Chairman of the Japan Association of Corporate Executives. In addition to her extensive experience as a member of management and a broad range of experience and knowledge about the management of human capital, she has an extensive range of knowledge about corporate governance. Ms. Fukushima was appointed Outside Director at Konica Minolta in June 2019.
Primary themes handled by the Compensation Committee
For the purpose of further elevating the awareness and motivation of each Executive Officer with respect to the sure implementation of strategy and attainment of targets upon the start of the “DX2022” medium-term business plan in April 2020, the Company revised its compensation determination policy and partially revised its officer compensation system. Additionally, the Compensation Committee commenced examination efforts with a view to an officer compensation system that would suit its officers following the completion of the transformation of the business portfolio currently being promoted by the Company. As part of that examination, in fiscal 2021, we conducted discussions centered on the following two themes.
The first of those themes is the revision of benchmark corporate groups for officer compensation systems. Every year, we perform benchmarking in order to verify the market competitiveness of our officer compensation system. Until now,the Company had used “electronic and precision equipment” as the category for benchmarking. However, as we promoted the transformation of our business portfolio, competition with different industries than before has increased. Given that,following our discussions, we modified the framework of our benchmarking target from “electronic and precision equipment”to “competing corporate groups.” We newly extracted appropriate competing corporations from various business categories and industries such as chemicals, IT and DX to complement preexisting industries and reconfigured our benchmark into a corporate group that suits the Company’s current situation.
The second theme, which is an issue that has been the subject of ongoing examination for some time, is the review of our officer compensation system into one that encourages the achievement of positive outcomes for the transformation of our business portfolio. As a result of this review, starting in fiscal 2020,we revised the evaluation indicators and payment rates under our “annual performance-based cash bonus” for Executive Officers as well as introduced a “long-term stock bonus” for Executive Officers and non-executive Inside Directors. While the resulting effects have yet to fully manifest themselves, this compensation system has approached a balanced one that rewards good work and penalizes bad work, making it generous to officers who perform well and strict to those who do not perform well enough.
We believe that it is indicative of the future direction of compensation governance at the Company. Going forward, we will continue to pursue an ideal officer compensation system from various angles, such as by revising the ratios of our base salary,performance-based bonuses and long-term incentive systems or adding new evaluation items, to give some examples.
Furthermore, starting from fiscal 2020, the year in which I assumed the post of Chairperson of the Compensation Committee, we began conducting evaluation meetings that also include the verification of key management issues for the next fiscal year with the President & CEO, Representative Executive Officer. Under this system, upon the determination of payment amounts for the “annual performance-based cash bonus,” with respect to evaluations for each individual Executive Officer, which constitute one evaluation element, the degree of attainment of key management issues is evaluated based on the self-evaluation of the President himself at meetings of the Compensation Committee. Those results are reported by the Chairperson to the President, and key management issues for the next fiscal year are verified. This fiscal year, as we have already verified those issues with the new President, we intend on holding interviews with him at the end of the fiscal year based on that verification.
Operations Policy for the Compensation Committee and Future Issues
The Company’s Compensation Committee is made up of three Outside Directors with management experience in industries different from those in which Konica Minolta is active and non-Executive Inside Directors who are highly familiar with the situation within the Group. Each Committee member also has a wealth of experience overseas and possesses a strong understanding of global compensation systems and the importance of the “market value” of human capital in incentives. I, too, have job experience in global human capital consulting in the U.S. and Japan, and believe that securing and developing human capital with high “market value” is imperative in order to elevate corporate value over the medium to long term. Furthermore, members of the Compensation Committee engage in vibrant, continual discussion based on their opinions founded on elements such as the difficulties in hiring capable local human capital at overseas Group companies and their experience in situations where the effects of compensation incentives upon that hiring differ from those in Japan. While leveraging those discussions, we intend on identifying the most effective officer compensation system for the Company by selectively adopting the best practices out of a number of successful examples from both within and outside Japan.
One of the issues that we will examine going forward is the introduction of compensation systems that more strongly incorporate the perspectives of ESG and SDGs as well as shareholder perspectives such as linkage with corporate value evaluations by external parties and Total Shareholder Return (TSR). Additionally, as overseas operations represent a high proportion of our business, and the multinationalization and global reassignment of our officers are also expected to increase going forward, I believe that we must act in haste to consider the establishment of a compensation framework that is competitive in human capital markets both in Japan and globally.