Roundtable Discussion with Outside Directors
Building highly transparent governance systems to help realize medium- to long-term enhancement in corporate value
Marubeni Group is executing new strategies and undertaking reforms to enhance corporate value further amid transformational change in society and the business environment. The following is a roundtable discussion among three of our outside directors that is focused on three themes: “Management of the Marubeni Group during the pandemic,” “Enhancing the effectiveness and transparency of the Board of Directors,” and “Sustainability initiatives.”
Management of the Marubeni Group during the pandemic
At Marubeni, we realized at an extremely early stage that the spread of COVID-19 would have a huge impact on our business activities. Using our global presence as a Sogo Shosha, we gathered information from all around the world to help us formulate worst-case scenarios and related countermeasures. The Board of Directors debated these issues frequently.
While we were discussing how to contend with the impacts of the pandemic, we also had a duty to explain to investors how we planned to rebuild Marubeni following the major impairment losses that we had just posted. As a result, we announced that, while the direction of the Medium-Term Management Strategy had not changed, we were pivoting to place the emphasis on cash flow management so we could rebuild and strengthen our financial foundation. In the end, we managed to improve our results through the collective efforts of all Marubeni Group employees. I think the way that President Kakinoki explained to every employee in his own words what policies Marubeni would pursue to respond to the pandemic in the short term and revisions to the Medium-Term Management Strategy motivated everybody to overcome all the difficulties presented by COVID-19. The internal Opinion Box system enabled President Kakinoki and employees to directly exchange points of view, and the numerous responses from employees made me feel that people had a good understanding of what President Kakinoki wanted to communicate. In this way, we acted quickly to respond to the pandemic, employees understood what management was saying and what we had to do, and we managed to keep morale high across the front lines of our businesses. I believe management did a great job to engineer the recovery we saw in the fiscal year ended March 31, 2021.
While the substantial impairment losses in the fiscal year ended March 31, 2020 had a profound impact within the Marubeni Group, each of its businesses also had to gauge whether and to what extent it would be affected by the emerging COVID-19 pandemic, and respond appropriately. The Group’s financial performance in the fiscal year ended March 31, 2021 was extremely impressive. As Mr. Takahashi noted, I think this was due to the consistent messaging from management, and it also reflected how executives and employees worked hard together to limit the spread of COVID-19 while still carrying out business operations. I think these factors explain how we overcame the crisis better than anticipated.
While everyone was affected by the spread of COVID-19, the pandemic has allowed us to get used to new work styles such as working from home or the use of hot desk arrangements at our new Head Office. Times of crisis actually provide a great opportunity to rethink established practices and move in different directions. I believe we have made real progress in positive work style reform, which is a major ongoing theme.
The core mission of an enterprise is to continuously develop a business that is needed by society. What has impressed me over the course of the pandemic is the way Marubeni has reaffirmed the importance of its business operations to society under the leadership of President Kakinoki and the senior management team. Marubeni’s operations across areas such as food, agriculture, and infrastructure provide essential products and services that people need in their daily lives. It is essential that these businesses continue to operate, even under varied and challenging conditions. Marubeni has fulfilled the role that society demands of it, even during the COVID-19 pandemic, through its proactive development of businesses based on the analysis of business conditions and the discussion of new ideas. Through a good understanding of President Kakinoki’s messages and strong communications, Marubeni employees have collectively remained calm and kept on working. I want to commend all Marubeni Group employees for focusing on their core mission, which has both contributed to society and helped Marubeni to improve the financial performance.
Enhancing the effectiveness and transparency of the Board of Directors
Every year the Governance and Remuneration Committee evaluates the effectiveness of the Board of Directors, and reports its findings to the Board. The fiscal year ended March 31, 2021 marked the fifth time that the committee has executed this function. In addition to the questionnaires we have used in past years, we also conducted interviews with every director and Audit & Supervisory Board member to afford them an opportunity to express their views freely. Multiple respondents to our surveys expressed the view that Marubeni should institute a forum for directors and other executives to hold discussions about the direction and strategy of the Marubeni Group over the medium and long term, and related external business conditions.
Separate to evaluating the effectiveness of the Board of Directors, others expressed a view that, while there were opportunities for the CEO, Chairperson, and the outside directors to get together for less formal discussions, it was still necessary to review Board composition from the perspective of optimizing the mix of skills and experience and of boosting diversity. This is less about the format of the Board of Directors, and more about the company’s overall direction, which should be accordingly reflected in the composition of the Board. This is an issue for ongoing discussion.
My feeling is that this repeated cycle of evaluation is helping to improve Board effectiveness year by year.
We have also been involved in the efforts to strengthen investment discipline and to revise the executive remuneration system from the standpoint of enhancing corporate value over the medium and long term. In terms of enforcing investment discipline, a report on the factors underlying the asset write-downs and related circumstances was discussed by the Board of Directors, after which we instituted a rigorous process for re-establishing investment discipline and making investment decisions. We expect to review and revise the process as the global situation evolves and conditions change. I think the fact we had an open debate about the factors underlying the asset impairment losses and measures to address this issue, without shrinking from the problem, is a sign that the Board operates with a high degree of transparency. The changes to executive remuneration have revised the system to create fair and proper incentives for executives, building on the concept of aligning their viewpoint with the interests of shareholders. I think the new system is more transparent and easier to understand as well. However, it will probably require periodic review moving forward because the world changes so quickly.
In last year’s roundtable discussion, we talked about increasing the opportunities for direct dialogue with shareholders and investors. Compared with last year, we have more contact with the CEO, CFO and IR managers who provide us with detailed feedback directly from investors. The Board of Directors also receives reports on the needs and responses of investors. I hope we can continue to have more opportunities to hear opinions from a variety of channels.
It is important to have an improvement process based on PDCA cycles in evaluating the effectiveness of the Board. Prior to making important decisions, the Board Chairperson ensures the views of each Board member are heard, and I think this is done in an excellent fashion. From the perspective of sustainability and other longer-term considerations, though, we need to put more emphasis on the monitoring function of the Board. ESG is not simply about ‘E’ for the environment, but also about ‘S’ for society, including diversity and other related matters. I think the Board needs to spend more time discussing sustainability.
Also, as Mr. Takahashi mentioned, there should be more discussion of the composition of the Board so that members collectively have an optimal mix of skills, experience, and diversity. President Kakinoki has talked about this topic, but it is also important for us to recognize the importance of promoting diversity across the Marubeni Group, and not just within the parent company. The corporate buzzwords of late have been “flexibility,” “toughness,” and “resilience.” But if we are to address the issues and be a source of innovation, it is vital that we have access to varied views from a range of people of different backgrounds. In the future, as we work to enhance corporate value and address societal issues, I believe the management teams involved in making the decisions need to be diverse, not just in terms of gender but also in terms of age and skills.
In an era characterized by uncertainty, I think it is critical that we be able to appropriately respond to any changes in the business environment. Marubeni’s Board of Directors showcased its transparency again in the meetings after we announced impairment losses for the fiscal year ended March 31, 2020, which featured extensive discussions of the causative factors and what measures were to be taken. There was a frank discussion about historical data when we considered how best to enforce investment discipline. However, there are still issues that need to be discussed in this area. For example, given the need to consider both financial and non-financial aspects in the drive for greater sustainability, a major issue becomes how to develop the required human resources to manage the process. Succession planning will become a more important part of this too, I think. Having served on the Nomination Committee since 2020, I began chairing it in 2021. President Kakinoki is one of the members of the committee, and I will be seeking a discussion with him on the issue of how to develop Marubeni’s management resources over the long term.
I agree with Ms. Okina that one of the key points going forward will be HR development to foster the next generation of management. As a major general trading company, Marubeni develops various businesses on a global scale, from infrastructure and transportation machinery to food businesses. The operational scale and variety of the company’s business activities provide a great platform to develop people who can understand the characteristics, potential, and diversity of each business. In this environment, the challenge is to give people opportunities to work hard and acquire the experience to provide visionary leadership in the future.
For example, Marubeni has introduced the 15% Rule. This grants employees time at work to dedicate to self-development or to collaborate with another part of Marubeni. The system helps employees to grow. The role of senior management is to challenge employees to engage with global concepts and strategies. I hope employees will take the opportunity to work hard and grow so Marubeni can find and optimize solutions to thrive in a highly competitive business environment.
The core prerequisites for Marubeni’s next generation of leaders are to actively gain a range of experience across global markets; learn how to navigate the difficult times in management, including understanding the expectations and pressures of shareholders and investors; and to display leadership so the Group is guided in the right direction. In addition, managers need the vision and expertise to manage across multiple fields of business, not just one area. They must be able to ensure businesses with different characteristics can all generate reliable profits. Finally, we need people who are fully committed to supporting both a sustainable future for the whole world and the core concept of taking on challenges.
Marubeni has a strong track record in this area. We were one of the first firms to commit to a policy of halving coal-fired power generation, and we are also engaged in various other sustainability initiatives. To guide us in the longer-term challenge of contributing to climate change action, we have formulated the Marubeni Long-Term Vision on Climate Change. Sustainability is an issue that affects the whole of society. The Marubeni executive team realizes this issue is closely tied to enhancing corporate value, and we are discussing it from varied angles in the Sustainability Management Committee. As an early adopter, Marubeni has taken big strides in moving towards more sustainable operations, and I hope that we will continue to do so in the future. I think there also needs to be some discussion of how the Board of Directors is involved with sustainability initiatives.
Having defined “human capital with high social value” as one aspect of fundamental materiality, I expect Marubeni to be the kind of company that provides employees with opportunities to grow through lifelong learning or on-the-job training programs. Believing the job supports personal growth can be a strong motivator for the employee. Rather than just providing training opportunities, it is critical to approach HR development in a visionary way. In an age where open innovation is the way forward, the people we develop will need to collaborate with employees joining Marubeni mid-career as well as with people outside the company. In addition, if we are to benefit from having more women in the workforce, we will need systems to support men in balancing work life with domestic duties. I expect to see Marubeni address these issues going forward.
The topics discussed by the Sustainability Management Committee have included the Marubeni Long-Term Vision on Climate Change, which I mentioned earlier, and the TCFD*. Going forward, I hope the scope of discussions widens to include questions such as how we empower women at work and promote diversity.
The Taskforce on Climate-related Financial Disclosures (TCFD) was set up by the Financial Stability Board (FSB).
As an outside director of Marubeni, I value two-way communications with employees. We have the forums and internal culture to support good communication on the issues that we mutually recognize.
Our discussions within the Sustainability Management Committee about examples that would showcase the Company Creed of “Fairness, Innovation, and Harmony” helped us to appreciate the importance of human capital in promoting sustainability, and so we defined it as one aspect of materiality. The Committee’s discussions on coal-fired power generation, which is more closely ESG-linked from a business perspective, were serious, leading to the decision for Marubeni to exit the sector. The move was significant in that it was an ESG initiative based on the motivation and ideas of the people on the front line and members of the Sustainability Management Committee.
Another of the company’s sustainability initiatives involves management of forests in Indonesia and Australia, covering an area of about 130,000 hectares in total. I expect Marubeni to examine how it contributes to the environment through forest-related activities and new business initiatives.
We still have work to do to develop unique ways for the Marubeni Group to promote sustainability. I hope there will be a range of related discussions, notably with those working in overseas bases and with our business partners. I expect this process to help us develop distinctive sustainability concepts and ideas for the Marubeni Group.