Roundtable Discussion with Independent Directors
—Governance That Anticipates Change and Drives Innovation
Global society faces major challenges and changes, including its response to COVID-19, the economic realignment toward the realization of a decarbonized society, and the rising chorus of voices calling for diversity and equality. Amid this, Fujitsu is working to create value through its strategy focused on the “For Growth” and “For Stability” business domains.
After the shareholders’ meeting held on June 28, 2021, we asked the just-reappointed independent directors about how Fujitsu perceives the changes in society and how they are linked to Fujitsu’s own transformation.
——Mr. Callon, it has been one year since you were appointed as a director. Have there been any discoveries or surprises that you did not anticipate when you were looking at Fujitsu as an investor?
Callon: Actually, there have been no major surprises. As an investor, I was impressed with Fujitsu’s deep commitment to generating social value, as evidenced by the establishment of Fujitsu’s new Purpose and reformulation of the Fujitsu Way. However, as an investor, I had to base my evaluations only on surface-level results that were visible to external investors, such as Fujitsu’s business strategy and execution and operating results. As a director, I am able to see not only our results but also the processes that underpin these results, including the roles that independent directors play in corporate governance and our discussions on strategy and execution. This has bolstered my confidence in Fujitsu as an excellent company.
Abe: Scott has contacts with numerous companies both as an investor and as a business executive, and he has a very broad perspective. As a member of the capital markets, Scott’s opinions are very persuasive, and the executive team pays close attention to them when discussing the expectations and concerns of the capital markets and investors regarding Fujitsu. Scott’s recommendations have also come into play in the capital allocation policy announced in April 2021, which represents a step forward from that announced last year.
Callon: A common challenge for Japanese companies is that even when they seek to provide robust disclosure, the disclosed information may not be conveyed fully and clearly to those outside the company. Thus, for Fujitsu’s own disclosure, it is better to make our policies and goals more explicit. I have suggested this to Mr. Tokita (CEO) and Mr. Isobe (CFO), and we have discussed it with Mr. Abe.
As a director, I am able to see not only our results but also the processes that underpin these results, including the roles that independent directors play in corporate governance and our discussions on strategy and execution. This has bolstered my confidence in Fujitsu as an excellent company.
——There is growing demand for Board oversight of climate change and other sustainability initiatives. How is Fujitsu’s Board of Directors responding to this new demand?
Callon: As can be seen in all of Fujitsu’s business activities being linked to Our Purpose, Fujitsu’s corporate values have always been that it should contribute to society and benefit all stakeholders. Japan historically has had a philosophy of “working for mutual benefit,” so there is no need to newly articulate the concept of “stakeholder capitalism” here.
Mukai: In the fields of medicine, aerospace development, and education, in which I specialize, we are always thinking about our roles and significance in society, so I think it’s natural for us to respond to social issues and the needs of the people in the community. The heart of DX lies in providing solutions to social issues, and I think our Group is exactly the same. Without being sensitive to the sustainability of society, our Group itself will not be sustainable.
Kojo: In the international community, there is a shared understanding that climate change has a negative impact on many issues, including poverty, infectious diseases, and biodiversity. The Fujitsu Group has a high level of awareness within its executive team, as illustrated by the reformulation of the Fujitsu Way with Our Purpose as its pillar. We are proactive in addressing climate change issues, and we have set non-financial indicators to disclose our own initiatives to external stakeholders.
Mukai: In terms of integrating sustainability and business, progress on non-financial indicators has already been incorporated into the performance evaluations of senior management, and the Compensation Committee, of which Dr. Kojo and I are members, has begun considering the incorporation of reflecting the achievement of non-financial indicators in the remuneration of executive directors. However, the specific methods need to be discussed more. For example, it will take some time to come to a conclusion on how to take into account the difference between the time horizon of sustainability and the time horizon of business; how to ensure objectivity and fairness in evaluations; and how to measure results that are not easily quantifiable.
Considering that the heart of DX is to provide solutions to social issues, our Group’s own sustainability is not possible without being sensitive to the sustainability of society.
——Mr. Abe, you said here a year ago that Fujitsu was preparing to further change the way Board meetings were managed in light of the 2020 Evaluation of the Effectiveness of the Board of Directors. Specifically, what changes have been made?
Abe: We have been promoting closer communication between the Board of Directors and the executive team. This is because open communication is essential for drawing rational conclusions.
The independent directors’ meetings have long functioned as a forum for sharing information and fostering understanding of our business. Since 2020, we have also held more than a dozen “business overview briefings” a year. These are study sessions where we receive explanations of individual businesses from the executive team. We also hold “private sessions” by independent directors and independent Audit & Supervisory Board members to enhance communication and share their concerns and opinions. We are also increasing opportunities for direct communication, for example, by holding one-on-one sessions between the president and independent outside directors. Mr. Kenichiro Sasae was elected as an independent director at the shareholders’ meeting held today. Even before his appointment we recognized the need to have a system to shed light on what was not understood clearly for all of us, not just newly appointed Board members.
Mukai: The increase in communication between the Board of Directors and the executive team, and the ability to share the concerns of both parties, are really thanks to the contribution of Mr. Abe, the chairman of the Board of Directors, who acts as a link in the communication with the senior executive team.
Kojo: We now have much better communication channels to convey to the executive team what information we need and to receive feedback from the team. This is very important in terms of not leaving opinions expressed unacted on and deepening discussions at Board meetings. The management of the Board of Directors has changed more and more over the past year as a result of the COVID-19 pandemic, and I feel that each time it has done so, its functions have been strengthened.
Abe: As was the case with the COVID-19 pandemic, unexpected situations occur in corporate management. What is particularly important for the executive team to take agile action in such situations is to have a common understanding of the extent to which the Board of Directors should be involved in decision making and the extent to which the executive team should involve the Board of Directors. I believe that the foundation for such common understanding is regular communication.
What is important for the executive team to take flexible measures is to have a common understanding of the extent to which the Board of Directors will be involved in decision making and the extent to which the executive team will involve the Board of Directors. I believe that the foundation for such common understanding is regular communication.
——What will be required in the future to further improve the effectiveness of governance, especially in terms of the diversity of the Board?
Callon: One thing I think we need is independent directors who are able to discuss technology and competition in the IT services industry on an equal footing with the management team. I started my career in computers, so I have a little bit of a background; Dr. Mukai is a scientist; and Mr. Abe has a strong understanding of the IT industry. However, the IT services industry is changing dramatically, and the range of technologies that we need to understand in order to generate insights into Fujitsu’s future is also very broad. Even with study, it is difficult to generate a level of understanding that supports in-depth discussions.
Kojo: The level of knowledge of the independent directors has definitely deepened through learning at the “business overview briefings” and “private sessions” that Mr. Abe alluded to earlier. Even so, it is clear that there are many technical topics that cannot be understood immediately after listening to a single explanation. Moreover, our approximately 130,000 employees have wide-ranging understanding of technical topics across the Group’s broad business scope.
Mukai: As for my personal study, I have access to the materials of the management meetings on tablet computers provided to independent directors by the Company. In addition to reading a considerable amount of material, I ask questions to young employees who are members of the Independent Directors & Auditors Council Support Office when I don’t understand something, as well as doing my own research. That said, there is much more than one person can comprehend with their own range of knowledge and understanding. That’s why we need members with diverse expertise and experience.
Callon: A non-diverse board is like a soccer team consisting entirely of goalkeepers. For the Board to carry out its monitoring function and discuss and articulate Fujitsu’s long-term strategy, it needs access to a diversity of knowledge and skills. This should include perspectives and advice based on industry knowledge and insights generated from Fujitsu peer benchmarking.
Abe: It is difficult to say whether expertise in computer science or IT services qualifies a person to be a member of the Board of Directors, because it is not as simple as that. It is important for the Board of Directors to have both a big-picture view and expertise as a group, and it is meaningless to satisfy only the formal requirements. This issue is also related to the function of the Board of Directors: whether it should be a so-called “management-type” board that discusses the substance of the business, or a “monitoring-type” board that sets management policies and subsequently focuses on confirming progress.
Mukai: In terms of diversity, I think it would be excellent if we could include the voices of the younger generation, regardless of whether or not they directly participate in Board meetings. Looking further into the future than the medium to long term ultimately comes down to the question of how young people will change society and what they want to change.
The future of the COVID-19 situation remains uncertain, and there is no foreseeable end to the crises that threaten the sustainability of society in the future.
Under such circumstances, I would like to ask what kind of value our Group can provide to society.
——Finally, what are your opinions and expectations regarding the next steps for value creation at Fujitsu, and what are your own aspirations?
Kojo: The future of the COVID-19 situation remains uncertain, and there is no foreseeable end to the crises that threaten the sustainability of society in the future. Under such circumstances, I would like to ask what kind of value our Group can provide to society, and I hope to continue to enhance my skills in doing so.
Mukai: This is the third year since our Group turned its direction toward DX, so we need to be able to show tangible results from our efforts to our customers and other external stakeholders. Personally, I am looking forward to the expansion of business that utilizes the data within our Group of 130,000 employees, and I myself need to learn more in order to consider the possibilities.
Callon: In the past, hardware made up a large part of our business and required significant, ongoing capital investment.
Today, however, we need to make decisions—essentially for the first time ever—on how to allocate the cash from our large cash flow generation capability. Since this cash is hard-earned and valuable, we need to determine whether potential investments are businesses with high success probabilities and leverage Fujitsu’s unique strengths. I support Fujitsu’s Purpose-driven ambition to transform itself and strengthen its ability to solve important social problems, along with the dedication of all employees globally to grow long-term value for all stakeholders.
Abe: With regard to internal reforms, under the leadership of CEO Tokita, Fujitsu’s own DX promotion initiative, “Fujitra,” has changed mindsets in our Group and is bringing about real changes. In terms of business, we have taken the necessary steps, including the establishment of a new company. From now on, we will monitor the results of our efforts to strengthen our problem-solving capabilities and support the executive team in achieving our goals by urging them on.
As chairman of the Board of Directors, I will continue to focus on eliciting the opinions of each director and communicating with the executive team to reach conclusions through open discussion. I will conduct meetings with a sense of urgency, as if we are being monitored by a third party, to ensure that we are having rational discussions.