Passing on our corporate culture
Sukeno: The role of the Board of Directors is to set the desired direction of management and monitor whether business execution is properly aligned with that direction. Making appropriate adjustments as necessary is also a role of the Board. The most important thing is to engage in rigorous discussions from multiple perspectives on what the Fujifilm Group should do to continue earning the trust of society in the future. I consider this to be the foundation of governance.
Sugawara: It was a valuable opportunity for me to be directly involved in the formulation of the Group Purpose as an outside director and to participate in live discussions. The Fujifilm Group is one of the few Japanese entities that has transformed its business structure while responding swiftly to changing external conditions. I feel it is very significant that Fujifilm has formulated its Group Purpose to foster a sense of unity among the various people and organizations that make up the Group, both domestically and internationally.
Sukeno: As you mentioned, the Fujifilm Group has significantly transformed its business, which happened around the 2000s. I believe our ability to adapt to change lies in the DNA we inherited from our predecessors, particularly our spirit of challenge. We developed the Group Purpose to unite our organization, consisting of individuals embodying a spirit of challenge, toward a common goal. I believe the process itself was equally important. It took over a year and involved a project team predominantly made up of employees who gathered and consolidated ideas from within the Group.
Sugawara: Looking at our current situation, approximately one-third of our revenue comes from the domestic market. In our growth businesses, such as Bio CDMO and Semiconductor Materials, we have a significantly large number of overseas employees. We also have many employees who recently joined the Group through M&As. In this context, it will take more than half-hearted efforts to pass on the Fujifilm Group’s long-held DNA to new employees.
While I think the new Group Purpose and its formulation process are commendable, what is crucial for entrenching this Purpose among our new employees is to have ongoing dialogue between Chairman Sukeno, CEO Goto, the executive team and employees. Rather than being the end of the process, the Group Purpose is just the starting point. It is important to foster a sense of unity throughout the entire Group, allowing each employee to feel pride in contributing to society. We, as outside directors, would like to appeal to employees and external stakeholders and actively participate in this process.
Strengthening our governance structure
Sukeno: I believe the most important role of the Chairperson of the Board of Directors is to facilitate open discussions within the Board. The key to achieving this to provide sufficient information to each director and create an atmosphere that encourages active discussion.
There is a lot of public discussion today that outside directors should constitute the majority of the Board, but that is not the essence of the matter. What is important is to gather individuals with expertise who can engage in deep discussions aimed at improving the company and to enhance the quality of those discussions. Substance is what truly matters.
Sugawara: Regarding the composition of the Board of Directors, many companies focus on ensuring formal independence and diversity. In our case, however, I feel we are appointing individuals who can contribute substantively to the future of the Company as directors. Because Board members are selected based on character, not gender or nationality, we are able to hold substantive discussions to enhance corporate value. Under your leadership, Chairman Sukeno, I feel that the Board remains highly effective. With the appointment of a new director, Ms. Takako Suzuki, who has a wealth of management experience and accomplishments, I look forward to more substantive discussions at future Board meetings.
Agenda setting and discussions at Board meetings
Sukeno: For matters where an operating subsidiary has already had extensive discussions and determined a direction, I believe that proper governance involves the Board receiving reports and monitoring the situation, instead of reevaluating and making new resolutions. To properly select agenda items to be discussed by the Board of Directors, we have raised the threshold amount in this amendment and made it a policy to allow sufficient time for the Board to discuss matters that have a significant impact on overall Group management. Topics to be discussed at Board meetings should include medium- to long-term management strategies, human capital, economic security and sustainability. These are overarching issues aimed at making the Fujifilm Group a better organization that continues earning the trust of society. I want to focus on in-depth discussions on such topics.
Sugawara: Until now, the Board of Directors has devoted a significant portion of its time to approving individual projects, such as investments by operating companies and M&As.
Of course, it is important to better understand and discuss these issues, but it is even more important to discuss how to strategically respond to changes in the Company’s environment. As outside directors, we are not experts in the Company’s individual businesses. I believe that engaging in discussions that determine the overall direction of the Company is where we can make our most meaningful contribution.
To make this work, however, both the executive team and the outside directors must be prepared and committed. For a start, we would like the executive team to share information on individual issues outside of Board meetings as well as at Board meetings so that discussions on strategy do not end up as empty rhetoric. As outside directors, we also need to thoroughly absorb the information provided to ensure we have a proper understanding of the Company’s business and can assess whether it’s heading in the right direction. We need to attend Board meetings after careful preparation, rather than expressing opinions haphazardly, so the meetings can become a forum for serious strategic discussions.
For example, topics related to the Bio CDMO business, which has received particularly strong market attention, frequently come up in Board meetings, but we have not had the opportunity to hear directly from the overseas leaders responsible for the core of that business. Therefore, we asked Chairman Sukeno to invite Mr. Lars Petersen, CEO of FUJIFILM Diosynth Biotechnologies (a subsidiary engaged in the Bio CDMO business), to a Board meeting, allowing us to hear directly about his thoughts on the business and the specific activities taking place on the ground. I felt it was a valuable opportunity. Inspired by Mr. Petersen’s remarks, I wanted to visit a Bio CDMO site myself, so I went to North Carolina and visited the construction site of our new plant. By visiting the site in person, I was able to gain a deeper understanding of why a new plant is being built and the passion with which the team is currently approaching that project. Having access to firsthand information at Board meetings enables us to engage in deeper discussions and take more effective actions.
Sukeno: I believe that hearing various opinions from the outside directors at our Board meeting provided a valuable opportunity for Mr. Petersen to reassess the direction of the business and gain new insights. We plan to actively pursue similar opportunities in the future.
Sugawara: By fostering effective information sharing both inside and outside Board meetings while encouraging open exchanges of ideas with the Chairman and CEO, we are able to engage in candid and meaningful discussions. I believe that the Board of Directors Office has been effective in creating this favorable environment. The discussions at our Board meetings are both challenging and exciting, and I am thrilled to participate every time.
Share-based remuneration plan
Sukeno: Although the share-based plan has been in place for some time, we were unable to grant shares to overseas-based officers due to tax constraints. There was a shared concern within the Company regarding the fairness of applying different remuneration systems for the same officers based on their location, whether domestic or overseas. Under the new system, tax-related issues have been resolved, allowing us to grant share-based remuneration to overseas-based officers and foreign national employees.
Until now, moreover, remuneration for outside directors consisted solely of fixed remuneration, and no shares were granted. In the past, many shareholders and investors were opposed to outside directors holding shares, with the prevailing view that outside directors should maintain a neutral position. Recently, however, more and more people have suggested that outside directors should consider matters from the same perspective as shareholders. At other companies’ general meetings, people have asked why outside directors do not hold shares. Considering these social trends, the Nomination and Remuneration Advisory Committee thoroughly debated the matter, leading to the decision to change the system.
Sugawara: I feel that the introduction of this share-based remuneration system is a progressive initiative among Japanese companies, but there are two other points that are also commendable.
First, we added employee engagement scores to medium-term performance-linked share-based remuneration as a non-financial evaluation indicator, in addition to the CO2 emission reduction target.
This demonstrates both internally and externally that we place great importance on human capital, not only in addressing environmental issues but also in realizing our business plan.
Second, we set up a new share delivery trust for employees, allowing us to grant shares more widely than before to key employees. This will enable us to attract the best talent and motivate employees.
I am confident that the Company will continue leading the industry in promoting aggressive and bold initiatives.
Medium-term management plan and risk management
Sukeno: In the new Medium-Term Management Plan “VISION2030,” I asked the executive team to first reflect on the previous plan, VISION2023. In VISION2023, we achieved our performance targets, including for operating income, a year ahead of schedule. However, it is essential to not only analyze this achievement but also thoroughly assess the various goals set during the planning phase. This involves identifying what was accomplished and what was not as part of the new plan’s formulation process. In particular, the causes of what was not accomplished should be thoroughly analyzed and utilized in the formulation of the new plan. Failure to do such a retrospective review might cause us to repeat the same mistakes. This means going back to the Fujifilm Group’s unique management cycle of See-Think-Plan-Do (STPD). VISION2030 takes this into account and is based on a reflection of VISION2023, making it a more grounded and realistic plan.
Sugawara: In VISION2030, we have set targets for fiscal 2024, as well as for six years later in fiscal 2030, with detailed targets specified for fiscal 2026. Medium-term plans usually focus all of their efforts on three-year time frames, but the speed of change in the current environment is completely different from that of the past three years. While setting long-term goals, therefore, establishing a system that allows us to flexibly reassess immediate three-year targets is the correct approach.
I believe this is a highly effective and realistic method for swiftly addressing trends in economic security and advancements in technology, including AI.
Our ability to make such flexible and agile responses demonstrates that we have a clear understanding of changing risks, which makes our Company stand out. Risk analysis also is discussed at Board meetings, where members compare the latest risk map with the previous year’s risk map to clarify what has changed. Understanding risks that have changed, risks that have become more important and risks that have become less important enables us to address all risks correctly.
Sukeno: This year, we engaged in in-depth discussions at Board meetings based on the updated risk map and found that information security and healthcare quality are challenges that require particular attention. Such challenges are critical points for risk management that are essential for maintaining the trust of society, so we need to effectively communicate our efforts in these areas as the Company.
In information security, we must spare no expense when investing in defenses and securing and training talented IT personnel. This is because hackers’ techniques are evolving at an ever-increasing pace. Recently, a significant global issue related to some operating systems arose, and I observed our IT team’s swift response. This reinforced my understanding of the importance of securing and developing IT personnel.
Sugawara: In risk management, I pay close attention to two main points. The first is cybersecurity. It is extremely difficult to prevent ransomware and other cyberattacks. Particularly since we are a global entity, we cannot deny the possibility that vulnerabilities might remain somewhere within our systems.
With this in mind, I asked at the Board meeting whether there is a command-and-control system at the head office for real-time intrusion detection and response. I was relieved to hear that the head office is developing a system to responsibly manage cyber risks in real time.
The second is the use of AI. While AI is used in many situations, there are concerns about personal information leaks and potential harm caused by misinformation. At a Board meeting, we confirmed the Company is taking measures to address the risk of using generative AI without obtaining the necessary usage permissions. Thanks to the security software installed in devices accessing our network, access to websites that the head office has prohibited is restricted. This means that access to unauthorized external generative AI is blocked, confirming that appropriate measures are in place to mitigate this risk.
However, cybersecurity and the use of AI will become increasingly complex in the future. As these issues are fundamental to our business, I hope to continue receiving reports at Board meetings to closely monitor them.
Sukeno: For many years, the Company has provided photographic film to the world. When I joined the Company, a senior colleague asked me, “What does Fujifilm sell?” The answer given was “trust,” which has left a strong impression on me to this day. Photographs capture important moments that can never be recaptured, and because the results cannot be confirmed when the picture is taken, customers purchase our film because they trust us. When defects are found at a production site or elsewhere, therefore, we have always responded according to strict standards, such as immediately escalating and suspending shipments. Our keen sensitivity to risk and willingness to escalate rapidly are truly hallmarks of our Company.
This corporate culture is a crucial foundation for establishing a competitive advantage over other companies, and we must continue passing on our DNA to future generations. This DNA of “trust” is a key strength of our risk management and the source of our ability to deliver sustainable growth for the future.