Based on their careers and expertise, our independent directors shared their evaluations and recommendations for the Taiheiyo Cement Group's governance structure and efforts to enhance corporate value.
I will support the further strengthening of global governance and crisis management capabilities, including responses to bribery and corruption in overseas operations.
Improvement of Governance Including Overseas Group Companies
I believe that improving the governance of our group companies, both in Japan and overseas, is of utmost importance for the sustainable development of our group. We have several overseas group companies in the U.S. and Asia-Pacific region, mainly in the Pacific Rim, and making governance work in countries with different histories, cultures, and climates presents an extraordinary challenge. We must keep in mind that if a scandal occurs in an overseas group company, it will come back to the parent company. To build group governance, a relationship of trust between Headquarters and group companies is of the utmost importance, and two-way communication is extremely important for this purpose. It is essential for us to make steady effort, not just sending unilateral instructions from the headquarters, but to constantly visit the sites and listen to the voices of the people on the ground, and then correct course if there are any issues. We are a top company "aiming to be an outstanding leading company" and are always in the spotlight. As our overseas operations continue to expand we feel that it is time to return once again to the spirit of the "three actuals" principle of "the actual place, the actual thing and the actual situation," which are the foundations of a manufacturer.
Further Strengthening of Crisis Management Capabilities
The Group is currently restructuring its overseas business portfolio with a southward shift, strengthening its operations in the Philippines, Vietnam and Indonesia, and further investing and expanding its business in the United States. Such global expansion, on the other hand, exposes the company to threats on a global scale, such as geopolitical and supply chain risks. Therefore, thorough crisis management is required, as well as a thorough understanding of the risks in countries and regions around the world. Another important risk management activity is to work to tackle corruption. Attitudes towards bribery and customs vary from country to country and region to region. Foreign laws, including those related to bribery, are constantly being revised in each country, and there are limits to how much the Legal Department at the headquarters can continue to follow up on all of these changes. Therefore, we believe that it is necessary to establish a mechanism for the Legal Department and overseas offices to collaborate with each other by keeping close contact with each overseas office and building a network with local law firms to obtain the latest information at all times.
In my capacity as an international lawyer, I would also like to make recommendations on how to further strengthen risk management with an eye to overseas group companies, such as the establishment of anti-bribery rules.
Expectations of the Taiheiyo Cement Group
My impression of the company when I was appointed as an independent director in 2015 remains unchanged. As a leading company in the domestic cement industry with over 140 years of history, we are an exceptionally solid company. On the other hand, however, I feel that all things are completed only within a limited industry, there is little interaction with different industries, and we seem to be stuck in the traditional B to B mindset. I hope that by looking more closely at the outside world, we will be able to generate richer ideas and further enhance the sustainability of our group.
I will strive to make proactive recommendations on board member remuneration and succession planning, as well as deepen the discussion on the implementation of the strategy.
The Role of the Nomination and Compensation Advisory Committee
With respect to the role of the Nomination and Compensation Advisory Committee, I believe it is important to work to improve the objectivity, timeliness, and transparency of the procedures for determining director nominations and compensation.
The compensation of directors, excluding independent directors, currently consists of fixed compensation, performance-based compensation and share-based compensation, but eventually a compensation system that is also linked to mid- to long-term business performance is desirable. I would like to propose the ideal form of compensation for directors and corporate auditors, such as by explicitly incorporating incentives such as the degree of achievement of sustainability targets. On the other hand, regarding our succession plan, I believe it is most important to train management candidates with a long-term concrete plan. While managers are trained systematically according to their positions, it is important for top management to consider and implement their own training methods for selected senior management positions in terms of transfers and promotions. For example, I believe that systematic management experience at group companies, including overseas companies, is an effective way to develop the skills of employees, especially in companies that are facing difficult circumstances. I would like to use my experience in corporate management to vigorously advocate for the succession plan.
Evaluation of the 23 Medium-Term Management Plan
This fiscal year is the final year of the 23 Medium-Term Management Plan, which is the third step toward our "our future vision and direction for the mid-2020s." However, the business environment has changed significantly due to factors such as a decrease in domestic demand, which was a precondition, and rising coal prices, making it difficult to achieve management goals.
At the same time, however, it is precisely at times like this that we can clearly see how capable and how competitive we are, excluding external factors, and what issues we need to resolve in the future. Already, in our mainstay domestic cement business, we are placing the highest priority on our sales price policy, while in our resource and environmental businesses, we are focusing on developing high value-added core businesses that do not rely on limestone or cement. As a top manufacturer specializing in cement, we are expected to contribute to society while generating stable profits. I expect that there will be a thorough review of the 23 Medium-Term Management Plan, and that the next medium-term plan will be formulated with a focus on the identified issues.
Role as Independent Director
I believe that the role of independent directors is to supervise management and to express their frank opinions to management from a position free from internal ties. We also play an important role in creating an atmosphere in which employees can speak freely by speaking up on their behalf when they feel uncomfortable saying things to management. The Company is promoting workplace diversity and inclusion, including the advancement of women, and has developed a strategy that emphasizes diversity. I expect that innovation will be generated by flexibly absorbing various values and ways of thinking.
I will advocate for stronger engagement from a broad stakeholder perspective and do our best to build trust between the two sides.
Strengthening Engagement with Stakeholders
As a government official, I have been involved in designing systems such as the Stewardship Code and the Corporate Governance Code for constructive dialogue between investors and companies, so I recognize and I understand the importance of direct dialogue between investors and companies better than anyone else. I also believe that the effectiveness of the Board of Directors will be further enhanced by reflecting the perspectives gained through dialogue with investors in the Board's discussions, and therefore I believe that there should be even more opportunities for direct dialogue between investors and management. I myself would like to actively engage in dialogue with investors, if possible, to exchange frank opinions about our management policies and medium- to long-term growth strategies, and to contribute to the enhancement of our corporate value.
We must also always keep in mind that our cement business, which is the foundation of our company, is supported by various stakeholders, including the local communities where our plants and mines are located, and can only exist if we preserve the environment, including biodiversity and water resources. I believe that the source of our sustainability is to be a trusted and loved company that aims for co-existence and co-prosperity with local communities. To this end, I believe that we need to actively communicate with our stakeholders and make efforts to make them more aware of our business and our way of thinking. I believe it is the role of independent directors to encourage the company to strengthen the dissemination of such positive information, such as the effective use of waste and by-products in cement production as raw materials and fuel for cement, contributing to the circular economy, and advanced efforts to achieve carbon neutrality.
Promoting Diversity as a Business Strategy
Today, diversity is respected from the perspective of human capital, and I believe that diversity is also important in business strategy. The Group's business portfolio is very well balanced, with the domestic cement business, the overseas cement business, and the resource, environment, and construction materials business each accounting for 1/3 of the Group's total sales, and one of our strengths is that even if one of these businesses were to hit a problem, our overall losses would be minimized. Although we ended FY2023 with a severe net loss, mainly due to the deteriorating profitability of the domestic cement business, we were able to maintain a positive operating income, supported by the strong U.S. cement business. This is the result of our efforts to diversify our business portfolio, including overseas expansion, without relying solely on our mainstay domestic cement business, and this is highly evaluated.
Furthermore, in addition to diversity, I intend to make recommendations in the future with a view to diversifying our business as a hedge against risk. For example, the U.S. cement business, which is mainly focused on the West Coast, should also look to the central and southern regions to avoid risks such as political and demand fluctuations. I will contribute to the enhancement of corporate value, utilizing my perspective as independent director.