A More Effective Board for Sustainable Creation of Corporate ValueThe revision of the Japan Exchange Group’s Corporate Governance Code meant 2021 was a year of new questions about sustained effectiveness of governance. We asked two of our directors, Nobuyuki Isagawa and Tatsuro Ono, about the director’s role and the importance of diversity.

　At a company like ours, which already has an Audit and Supervisory Committee, what functions do voluntary advisory committees perform for the Board of Directors?

Isagawa　We have three advisory committees: the Nominating Committee, the Successor Nominating Committee, and the Compensation Committee. All of them are chaired by independent outside directors, and all of them have a majority of outside directors as members, meaning they are highly independent. Their deliberations on matters are substantial and carry weight in keeping with their independence and objectivity. The Nominating Committee’s role is to evaluate candidates for director positions (including obtaining third-party opinion) to ensure they have the skills and attributes needed to be a director. The Compensation Committee makes proposals regarding executives’ compensation based on the group’s Compensation Regulations and the previous year’s business results, while taking into account factors such as providing incentive to help achieve long-term growth in corporate value. The Nominating Committee met five times in 2021, and the Compensation Committee three times. If you count pre-meeting consultations, there were actually more meetings than that. The committees’ findings are reported to the Board of Directors, where they are analyzed and debated. Naturally, the representative directors and internal directors respect the committees’ findings. In this way, the advisory committees and the Board of Directors function as a single entity.

Ono　The Funai Soken Consulting Group adopted a system in 2021 that upholds the objectivity and fairness of the advisory committees by requiring a majority of members be outside directors. As for specific activities, one comes to mind: the further clarification of the candidate selection process by the Nominating Committee. The establishment of a set of seven attributes as a quantitative means of judging new directorship candidates, and the requirement for group director candidates to make presentations to the Nominating Committee so as to judge their character, views, and capabilities, have made the process more objective.The Compensation Committee has also sought to make the objectivity of the compensation decision process and the acceptability of compensation packages among executives clearer. Specific initiatives include use of KPIs and KGIs for assessments, and a report-debate-feedback cycle where group company presidents report their compensation amounts to the committee, which then debates and responds. Moreover, in light of the shift in recent years toward focus on improving corporate value, there is a new emphasis on compensation (stock-based) linked to mid-to-long-term business performance. We are also considering increasing evaluations from once a year to twice a year.

　With the diversity of boards of directors now a clear focus of the JPX Corporate Governance Code, what discussions have their been about diversifying the group’s board while ensuring the right skill mix, and what action can we expect?

Isagawa　We need a diverse Board of Directors if we are to achieve our vision for the future and apply our business strategies. There has been an increased environmental and social focus in recent years from a sustainability standpoint, and companies are now required to consider the ecological and social impact of their businesses—and those of their clients and business partners. This trend will only become more pronounced, and I think we will need directors with experience and insights relevant to these areas, or who can acquire the necessary knowledge and skills. It’s no accident that our skill matrix for executives now includes ESG. Japan is now learning that harnessing the power of its female workforce drives the creation of new value. The Funai Soken Consulting Group benefits greatly from Funai Soken Holdings’s female outside director and the multiple women appointed to the boards of its operating companies, and each one of them earned her appointment fair and square through an objective, transparent selection process. Our executives are chosen for their expertise and experience in light of the mix of skills we need for the transition to the Tokyo Stock Exchange’s new Prime Market and for our own business strategies. Naturally, we need the dynamic capabilities to stay abreast of the ever-changing business climate, and with clear criteria for evaluating skills we seek to maintain a board composition that ensures each skill is covered by multiple directors.

Ono　Right now, digitalization is an area of major focus for our group, and we are working to acquire people with the skills to boost our skill base in that field. As far as diversity is concerned, we will continue with our policy of appointing female directors who are a match for our business strategy and help improve corporate value. It is vital that we harness the strengths of our female workforce if we are to improve productivity as part of our quest to achieve sustained growth in corporate value. Women in the boardroom are motivational role models for our whole workforce and help us show clear career paths for women.

　What are you looking forward to tackling next?

Isagawa　I am determined to add momentum to the development of our digital consulting business, and I look forward to managing, supervising, and providing advice to help overcome the challenges surrounding sustainability. In this way, I hope to meet the expectations of our clients, employees, and other stakeholders by contributing to growth in corporate value. To that end, I will uphold the transparency and objectivity of the advisory committees while speaking frankly to the board as a part of constructive debate.

Ono　Information disclosure will become more important than ever. The Nominating Committee and the Compensation Committee must discuss individual matters such as the disclosure of management decision-making processes and the disclosure of human capital, with greater transparency foremost in mind. We will strive for transparent, objective information while remaining open to various opinions.