Roundtable Discussion Between Independent Directors

Q. In 2024, Sojitz embarked on a massive undertaking to transform its corporate governance systems, which included the appointment of a new president and a change to the Company’s organizational structure. What was the background for these decisions and what are your thoughts regarding the future evolution of Sojitz’s corporate governance systems?

Saiki
Sojitz’s procedure for appointing a president involves an extended selection process with a final decision made only after observing candidates through different job rotations and training programs. The Nomination Committee did not decide the timing for the change in president ahead of time, but the members had been engaged in an ongoing series of discussions through which they looked at several candidates. During this process, the candidates underwent a number of job rotations to arm them with a wider range of experience and test them with heavier responsibilities. The Company also arranges intensive discussion sessions. The Independent Directors take part in these retreats, at which we have sought to assess the skills and personalities of the candidates. Division reports by business division COOs are also used as opportunities to more thoroughly assess candidates. In this manner, the president is not chosen through a one-time evaluation but, rather, through an ongoing assessment process. Moreover, unofficial forums are also arranged for us to talk with candidates and get a better idea of what type of person they are. In the end, the decision was made to appoint a new president after the conclusion of Medium-Term Management Plan 2023, which translated to April 2024. In conjunction with this decision, the final range of candidates was narrowed down, and the candidates were submitted to a series of interviews by members of the Nomination Committee. In October 2023, Kosuke Uemura was nominated from among the candidates, and the decision was reported to and approved by the Board of Directors.
Qualities that were cited as expected of the president included high moral standards, foresight, decisiveness, good health, resilience to stress, and a capacity for action and change. The discussions related to the next president were shaped by these qualities. Of course, it goes without saying that a president must also exhibit strong leadership, charisma, and individuality.
In his new position as president, Mr. Uemura is expected to be able to guide Sojitz toward its next stage even amidst the rapid and substantial changes seen both inside and outside of the Company. I am confident in the strength of Mr. Uemura’s foresight and capacity for change. However, no matter how important it is to be able to transform an organization, this pales in comparison to the importance of being able to transform oneself. I therefore want to see Mr. Uemura act as the new president by transforming Sojitz while also continuing to grow and transform himself in the process.

Kameoka
One year has passed since I was invited to be an Independent Director at Sojitz. Today, I recognize that Sojitz is making steady progress in enhancing its corporate governance systems. The Company has always utilized the results of evaluations of the effectiveness of the Board of Directors, and the ongoing improvements implemented each year based on these results have led to the progress I speak of. As a recent example, the evaluation conducted in the year ended March 31, 2023, led to the organization of individual meetings with the secretariat of the Board of Directors, sparking further discussion regarding potential areas for improvement.

• Transparency is one of the most important factors behind the ability of Independent Directors to monitor management. Sojitz has taken a number of steps to make sure that the Board is able to effectively exercise its monitoring functions. These steps include the provision of opportunities to gain a more in-depth understanding of important management issues. For example, Sojitz holds meetings of the Finance & Investment Deliberation Council and intensive discussion sessions for the Executive Officers, which Independent Directors attend as observers. The Company also organizes Divisions’ Report Meetings at which business division COOs explain the initiatives of their respective divisions, a session for sharing information between the president and Independent Directors, and briefings held in advance of Board meetings.
  I participated in Board meetings as an Independent Director throughout the year ended March 31, 2024, and have felt that these meetings have been highly meaningful given the lively discussions that take place at the meetings as well as the briefings held prior. Furthermore, in the year ending March 31, 2025, Sojitz transitioned to the Company with Audit and Supervisory Committee structure as described in the Companies Act of Japan. This move allowed for greater delegation of important operational decision-making authority to Executive Directors, which is anticipated to contribute to increased speed and flexibility in decision-making. Amidst the rapid developments and changes seen around the world, this new structure will clearly benefit Sojitz, given that the Company develops operations across the globe. However, as this will be the Company’s first fiscal year operating under this new structure, it will be important for effective communication to be practiced among the Board of Directors in order to continue to increase the structure’s efficacy.

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Shu
One aspect of the transition to the Company with Audit and Supervisory Committee structure that I paid particular attention to was how to avoid discussions at Board meetings becoming overly routine given the expanded Board membership due to Audit and Supervisory Committee members also acting as Directors. At the same time, we must prevent a situation in which, in order to limit the increase in the number of Directors, the size of the Audit and Supervisory Committee is kept at a minimum, consequently weakening its auditing function. For this reason, the decision was made to limit the number of internal Audit and Supervisory Committee members to one, who will serve as the committee’s full-time chairperson, and to appoint three Independent Audit and Supervisory Committee members in order to ensure the committee has the objective perspectives it needs. Meanwhile, the position of Senior Auditor was established to coordinate with and support the Audit and Supervisory Committee and thereby contribute to a more robust auditing function. I am impressed with this unique and creative solution to the issue of expanding board membership that is commonly associated with the Company with Audit and Supervisory Committee structure.

Saiki
The goal of the transition to the Company with Audit and Supervisory Committee structure was to bolster the oversight function of the Board of Directors while expediting management decision-making. And, while this is more of my personal opinion, I feel that this move had significance in how it served as a reminder, to both internal and external stakeholders, of how Sojitz is a company that continuously evolves and changes. Sojitz is not a company that maintains the status quo just because there are no issues that are readily apparent. Rather, it is a company that constantly changes in pursuit of higher levels of greatness. One of the advantages of the Company with Audit and Supervisory Committee structure is generally stated to be how it is easier for overseas companies and investors to understand. I think it would be quite beneficial if this change allowed Sojitz to secure a greater amount of investments from overseas. Sojitz has also made its own adjustments to the structure through the establishment of new positions to support the Audit and Supervisory Committee in its duties. Coordination with the relevant organizations will be imperative to ensuring the effectiveness of this structure, and I want to actively engage in this process while maintaining a perspective centered on frontline operations.

Shu
Sojitz also recently revised a part of its executive remuneration systems. One thing that shaped these revisions was the belief that, among major environmental, social, and governance (ESG) concerns, decarbonization and human resources are factors with a particularly large influence on improvements to corporate value. It was thus decided to give these factors additional weight and to link remuneration to the accomplishment of emissions reduction targets set for each Scope as well as for the success of promoting diversity, equity, and inclusion and to heightening engagement among all employees. I believe that this was a good revision in that it made the remuneration systems more concrete and objective. Sojitz has already fulfilled a number of the formal requirements for governance systems, and governance reforms were therefore removed from the list of ESG evaluation criteria. However, this does not change the importance of ongoing improvements to governance systems. The Company therefore also chose to increase the weight placed on total shareholder return (TSR) among the key performance indicators used in its executive remuneration systems. The decision was in part based on the judgment that governance reforms would ultimately lead to improvements in Sojitz’s share price. Another focus of these revisions to executive remuneration systems was to align the interests of management with those of shareholders. Therefore, it was decided to reduce the portion of total remuneration accounted for by basic remuneration while increasing the portion represented by medium- to long-term performance-linked remuneration. Moreover, the weight of absolute profit figures, which are heavily influenced by market factors, was lowered in relation to medium- to long-term performance indicators, while the weight of TSR was increased. These were some of the major elements of the revision to executive remuneration systems. Just like its corporate governance systems, Sojitz’s executive remuneration systems are undergoing changes. It will therefore be important to continue to pursue improvements while implementing a PDCA cycle.

Kameoka
Lastly, I would like to state that Independent Directors are tasked with overseeing management on behalf of stakeholders, and we are thus expected to engage with shareholders and other investors and help them understand how they perceive a company from their independent standpoint. Sojitz is very proactive in conducting investor relations activities, and members of senior management thus have a lot of opportunities to speak with shareholders and other investors from Japan and overseas. Looking ahead, I think it will be important to supplement these activities by also making a concerted effort to address stakeholders’ requests with regard to information disclosure.