Discussion with Independent Outside Directors
The directors and the
executive team are working
together to achieve the
new Medium-term
Business Plan
Soichiro Sakuma
Independent Outside Director
Mr. Sakuma was involved in the management of the manufacturing industry for many years at Nippon Steel Corporation and Nippon Steel & Sumitomo Metal Corporation (currently Nippon Steel Corporation) and has extensive experience and knowledge as a corporate manager.
He became an Outside Director of the Company in June 2020 and Chairperson of the Corporate Governance Committee in June 2023.
Chikatomo Kenneth Hodo
Independent Outside Director
Mr. Hodo has been involved in the management of Accenture Japan Ltd, which provides management consulting and IT services, for many years, and has extensive experience as a corporate manager and extensive knowledge of digital business.
He became an Outside Director of the Company in June 2018 and the Chairperson of the Board of Directors in June 2022.
Evaluation of the Previous Medium-term Business Plan
── How do you evaluate the results of the previous
Medium-term Business Plan "DX2022"?
- Hodo
- In order to evaluate the results of "DX2022," it is necessary to consider not only the three-year planning period, but also a long span going back to the previous plan. From such a big picture perspective, the big milestone for our company was "TRANSFORM 2016," which started in fiscal 2014. Since then, for a total of nine years, through "SHINKA 2019" and "DX2022," we have been working to shift away from a business portfolio that relied on the MFP business.
- Sakuma
- That's right, we have consistently sought to transform our portfolio and establish the following pillars from new business areas.
- Hodo
- Under "DX2022," it was the time to harvest concrete results in the precision medicine business, the imaging-IoT solution business, and the DW-DX business including the Workplace Hub as a completion of the portfolio transformation. However, we were exposed to headwinds such as the US-China trade friction and the spread of the COVID-19 pandemic, and we were unable to achieve the results we expected. In addition, there were internal factors such as the accident at the toner factory. As a result of these effects, we recorded a continued deficit.
- Sakuma
- Under "DX2022," although we set an operating profit target of 55 billion yen for the final fiscal year, we finally posted an operating loss of 95.1 billion yen. Results are the most important thing for management, and this fiscal year we are in a situation where we absolutely cannot accept any result other than a positive operating profit. However, looking at the performance of the final fiscal year of 2022, the business contribution profit has improved significantly from the previous fiscal year, and it has turned a profit. In this way, while we are in a tight situation, I think we have shown in the final year of the plan that the earning power of the business is definitely improving and performance can be reversed in the future.
- Hodo
- Looking back, the US-China conflict intensified since around October 2018, and since then, the gap between planned values and actual results has begun to widen. Our response to the change in the situation ultimately caused us to miss the opportunity and affected the trust from the market and the confidence of employees. I feel that from the fiscal year 2022, when President Taiko took office, we have been able to achieve the committed measures and target figures.
- Sakuma
- President Taiko himself said, "We will strive to increase our ability to execute and to receive positive evaluations from stakeholders for our challenging and achievable management," but I think it should be appreciated that the divergence between budget and performance has narrowed despite the impact of environmental changes.
Konica Minolta's Strengths
── What do you think are the Company's strengths for
improving the competitiveness of the business in the future?
- Sakuma
- I think that it is in our "quality of manufacturing" backed by advanced and diverse technical skills. Even if you look around the world, it is very rare for a company to have advanced technology in both mechanical and chemical aspects. I am also from a manufacturing background, so I have met with various suppliers and peers, but I can't think of many other companies with these qualities. This strength has led to the development of digital products such as a mobile X-ray system featuring a wireless dynamic digital radiography function, as well as label printers and textile printers.
- Hodo
- The company I run also uses Konica Minolta MFPs, and I feel that it is a product that really combines various technologies such as mechanical, optical, electronics, network, chemical, and nanotechnology. In addition, when developing new materials, Konica Minolta is boldly challenging the cutting-edge fields of the era, such as using material informatics.
- Sakuma
- In addition, we have built a global sales and service network, mainly in Europe and the United States, and have contacts with customers in various industries around the world, which is a major strength that no other company has.
- Hodo
- As you said, it is also our strength that we can develop markets from a technological starting point and expand them globally. I think that one of our points of differentiation is that we can provide functions that meet the needs of the market in a timely manner by taking advantage of our software engineers stationed in various regions of the world, in addition to our sales and customer service staff.
Probability of the New Medium-term Business Plan
── What kind of discussions did the Board of Directors have
when formulating the Medium-term Business Plan (Fiscal 2023-2025)?
- Hodo
- Under the traditional planning process, the executive side developed the content to a near-final state before presenting it to the Board of Directors, but this time the Outside Directors also joined the discussion from the draft stage and considered the contents. Discussions began around the end of the summer of 2022 and ultimately took until May 2023. The economic environment and the competitive environment changed along the way, and there were ups and downs, but I think that as a result, we were able to have a more profound and enriching discussion from a multifaceted perspective.
- Sakuma
- In the new Medium-term Business Plan, we will review the positioning of each business and first promote business selection and concentration in the two years of fiscal 2023 and fiscal 2024. In particular, I think it was a big decision to change some of the businesses that have previously been positioned as strategic new businesses to "non-focused businesses" and "direction-changing businesses." As a result of this review, it has become very clear what each business is aiming for.
- Hodo
- Although this Medium-term Business Plan has no title, we will make a new start after summarizing the nine years of efforts from "TRANSFORM 2016" to "DX2022," and with the message of "making the most of past reflections and learning in management," we have taken "break with the past" as a keyword.
- Sakuma
- I know it well because I have worked in companies for a long time, but "break with the past" is an extremely strong statement for business people. I think it was very courageous to use this phrase in the announcement materials of the Medium-term Business Plan. This phrase was incorporated in a way that encouraged us to make this decision.
- Hodo
- Looking back on our history so far, we have a track record of transforming our business portfolio even after withdrawing from our original camera and film business, and in fact, we are a company that is not too afraid of change. We believe that the next three years are a stage of preparation for a new journey to increase corporate value in the medium and long term.
── What is your opinion on the setting of the
management goals?
- Sakuma
- In the current Medium-term Business Plan, restoring trust from stakeholders and restoring employee confidence are of paramount importance, and these are also the basis for setting the management goals. Although it may seem like a somewhat conservative goal setting from the market's perspective, I think it is an appropriate goal given the current situation of our company.
- Hodo
- After a decline in performance, everyone hopes to have a V-shaped recovery, but even if you can turn a profit in 1-2 years, it takes time to become a leader in the industry. Therefore, I think that this Medium-term Business Plan is the first step to make a big jump in the future. I believe that the direction and goal setting of the plan have a good probability, but we must work with a sense of speed in their implementation.
- Sakuma
- Among our financial targets for fiscal 2025, scaling up the sales of the strengthening businesses to 500 billion yen and maintaining high profitability in these businesses is by no means an easy goal – it is very challenging. ROE of 5% or more will also be a great improvement, but it is true that some people still say that this is still not enough. Therefore, in order to regain the trust of stakeholders, we must do everything possible to achieve it, and by doing this, we should be able to restore the confidence of employees.
── Please tell us what your intention was to incorporate
the non-financial targets of "CO2 emission reduction rate"
and "employee engagement score" into the evaluation
criteria for executive compensation in the current plan.
- Sakuma
- Compared to the financial targets, for the non-financial targets the direct correlation between "management efforts" and "goal achievement" is weak, so various opinions were also expressed in the Compensation Committee. For example, although we are working to contribute to environmental issues through our business, our own CO2 emissions will decrease if sales and production fall, even if management does not make efforts. However, this does not mean that you have really achieved your goal.
- Hodo
- If you achieve your non-financial goals well, but do not achieve your financial goals, in the end, it will not lead to an increase in corporate value.
- Sakuma
- So, this requires a decoupling perspective regarding CO2 emissions. You must decouple your energy consumption from increased sales and production and have the Compensation Committee monitor whether the Company is achieving its goals through proactive management efforts.
- Hodo
- I am focusing on the "employee engagement score" in particular. I think this will be key for us to continue to achieve our financial goals in the future. This is because there is a big difference in final performance between a company that has highly motivated human capital and one that does not, given the same employee abilities. Thoroughly assessing each employee's abilities while increasing engagement and bringing everyone's strengths together to point in the same direction can lead to stronger executive power. In other words, the realization of human capital transformation is a major issue for the future, and the Board of Directors will continue to monitor the progress of this aspect thoroughly.
Evolution of Corporate Governance
── Since fiscal 2022, an Outside Director has become the
Chairperson of the Board of Directors. How has the Board of
Directors changed in the past year?
- Sakuma
- Since Outside Director Hodo assumed the Chairperson, I feel that the awareness on the executive side of "Let's discuss from the perspective of the Outside Directors" has become even stronger. As a result, I think we can have lively discussions from an even standpoint.
- Hodo
- As Mr. Sakuma said, in the past, there were many cases where Outside Directors asked questions and executives answered them, but recently, this has changed to a place where we can have more in-depth discussions beyond internal and external positions. As a result, I think that the style of formulating measures together with the executive side and the directors has become clear.
- Sakuma
- Isn’t it because the answer to the question "What does the President want from the Board of Directors discussions" has changed? Traditionally, the executive side finalized the policy and then the Board of Directors verified and approved it, but since last year, we have adopted a style where the executive side presents multiple options and we discuss them and determine the policy at the Board of Directors.
- Hodo
- In addition, since last year, we have held meetings only for Outside Directors once a month. If an Outside Director wants to ask "what about this point?" there may be a lack of information and accurate questions and opinions may not be possible on the spot. That's why we share everyone's questions and opinions at this meeting, and feed them back to the next board meeting to make the discussions even more lively.
- Sakuma
- Moreover, the decisive difference from two years ago is that the Board of Directors is now composed of a majority of Outside Directors. In other words, if the opinions of internal and Outside Directors diverge, the outside opinions win. For the executive side, there is a sense of tension that agenda items that can convince the Outside Directors must be drafted and fully explained. Of course, the responsibilities of Outside Directors have become even heavier and we must be aware of this and face these responsibilities with a higher level of tension.
── Why did you establish a new Corporate
Governance Committee?
- Sakuma
- Konica Minolta was one of the first companies in Japan to become a Company with Three Committees, and since last fiscal year, Outside Directors, including the Chairperson, have occupied a majority of the Board of Directors, which is an example of the way we have built an advanced and exemplary corporate governance system. However, currently this has not been accompanied by performance, and the problem awareness of what should be done to fill this gap was the starting point for the establishment of the committee. In addition, one of the reasons was that we had not discussed the form of governance itself for a while.
- Hodo
- Since the Company transitioned to the current institutional design in 2003, the Nominating, Audit, and Compensation Committees have continued their own rules of not appointing the President to the committee from the viewpoint of increasing independence. This fiscal year, there are no members who have the experience of being President of Konica Minolta, and agenda items related to nomination and compensation are discussed by a majority of Outside Directors. Even for important proposals such as the approval of the Medium-term Business Plan, since last fiscal year, decisions have been made by a Board of Directors that consists of a majority of Outside Directors. It is no exaggeration to say that this is the frontier of corporate governance in Japan. However, as long as there is no example to follow, you need to verify for yourself whether this mechanism is really working. For example, there may be a variety of options regarding the balance of management and monitoring on the Board of Directors, and the skill set of the directors, but we must find out what is best for our company to achieve proper results.
- Sakuma
- Even in the OECD's Principles of Corporate Governance revised this year, only the broad concept is shown, and each company has to create a system that suits itself with regard to specific mechanisms. In short, there is no such thing as a definite "silver bullet" in corporate governance, so we must think about the system ourselves. I believe that it is the mission of the Committee to consider what kind of governance is best based on the situation we are in and our vision for the future.
- Hodo
- Of course, it is not written in the Japanese corporate governance code, so I would like us to become a company that can embody pioneering best practices.
- Sakuma
- In addition, the President is not a member in the Nominating, Audit, or Compensation Committees, but he does participate in the Corporate Governance Committee as a member. I think this is a very good mechanism. The committee also plays a role in filling certain gaps, such as discussing various themes that are difficult to discuss at the Board of Directors and other committees, so it is a good opportunity to deepen our understanding of the President's true feelings and execution side opinions on various topics that cannot be discussed elsewhere.
── How do you plan to work as an Outside Director to
achieve the new Medium-term Business Plan?
- Sakuma
- The fiscal 2023 results are overwhelmingly important. Based on the fact that performance in the past two years was at a critical level, we must achieve an operating profit of 18 billion yen in fiscal 2023.
- Hodo
- We will monitor various KPIs set to achieve that goal, but the external environment and competitive environment will change rapidly during the planning period, so it is important to handle the situation flexibly. When there is a risk that the plan will be delayed due to environmental changes, it is necessary to take additional measures quickly and adjust the goals accordingly.
- Sakuma
- There will always be environmental changes in the future. Since you can't control the environmental change itself, it is important to thoroughly implement measures that can be done by your own efforts, such as cost management. To that end, I believe that we must clarify our responsibility for cost management and put in place a management system to execute this more efficiently as soon as possible.
- Hodo
- In order to get out of the current crisis mode, it is important that we securely expand the strengthening businesses. Regarding the Industry Business in particular, the basic policy and action items have been clarified, and we will enter a stage where we will incorporate specific measures such as how to develop and strengthen the business in the future. We will also closely monitor the formulation and implementation of these measures.
- Sakuma
- Although we did not achieve "DX2022", we believe that the Industry Business has the potential to grow into a pillar of our Company in the future. We would like to work together so that we can exceed our targets in these strengthening business areas and accumulate as much as possible regarding the final goals of the Medium-term Business Plan.
- Hodo
- To achieve this, it is important to strengthen the execution ability of the entire company. In addition to optimizing the allocation of human capital, we must firmly establish the associated internal investment allocation and circulation mechanism, and constantly revitalize the business organization. In order to grasp such an execution situation in detail, this fiscal year I would like to visit various business sites and reduce the sense of distance between Directors and the executive team. After correctly understanding the actual situation, I would like to thoroughly discuss the mechanism of corporate governance that directly leads to improving performance and measures to strengthen executive ability at the Board of Directors and each committee, and contribute to the achievement of the Medium-term Business Plan.