Dialogue between Outside Directors and Investors
Konica Minolta is committed to dialogues with its stakeholders to both solve social issues and achieve corporate growth. As part of this effort, this time we have invited three institutional investors to have a frank exchange of opinions with our Outside Directors and the Executive Officer in charge of the Board of Directors Office regarding the Company's growth strategy, structural reforms, sustainability management, governance, and other issues.
Konica Minolta
Chikatomo Kenneth Hodo
Outside Director,
Chairperson of the Board of Directors
Soichiro Sakuma
Outside Director,
Chairperson of the Corporate Governance Committee
Akiko Murayama
（Facilitator）
Senior Vice President & Executive Officer,
Board of Directors Office,
Responsible for the Corporate Audit
Institutional Investors
Mr. Minoru Matsubara
Responsible Investment Department,
Resona Asset Management Co., Ltd.
Mr. Satoru Kubota
Research & Management Department,
Sumitomo Mitsui Trust Asset Management Co., Ltd.
Ms. Madoka Minagoshi
Responsible Investment
Research Department,
Nomura Asset Management Co., Ltd.
Toward Returning to a Growth Path
The first year of the Medium-term Business Plan achieved the planned targets
and marked an inflection point from the past 10 years
- Murayama
- One year has passed since we started our Medium-term Business Plan (2023-2025). To begin, how would you rate your first year as an Outside Director?
- Hodo
- The medium-term business plans of the past 10 years were called “TRANSFORM 2016,” “SHINKA 2019,” and “DX2022,” but the current plan has no title. This is because the starting point of the plan is a reflection on our failure to deliver the results of the previous medium-term business plans. The current plan, launched under the slogan, “Break from the past traditions,” is a place we can reach if we all work hard together, even without the best possible conditions and with absorbing some potential downside risks that may emerge during the term. In fiscal 2023, its first year, we were able to achieve our initial target and return to profitability. We had not achieved our targets in the past, but this achievement marks an inflection point for us compared to the past 10 years.
- Murayama
- What initiatives do you plan to focus on in fiscal 2024?
- Hodo
- We will continue to complete business selection and concentration, which is a major theme of the Medium-term Business Plan. It is also important to implement global structural reforms, an additional measure announced at the Medium-term Business Plan progress briefing in April. The Board of Directors will monitor these reforms to ensure that they achieve their targets. Furthermore, with the next Medium-term Business Plan in mind, we intend to conduct a full-fledged discussion on the elements necessary to make the company profitable from innovation, from the perspective of corporate culture and intangible assets.
- Kubota
- As the goals of the current Medium-term Business Plan seem to mark a transition point, I would like to hear more about the next plan along with the implementation of this current plan. So, my question is regarding the future growth strategy. How do the Outside Directors evaluate Konica Minolta's “genre-top strategy”?
- Sakuma
- Being a genre-top is very good in itself, but it is important to be profitable. Some of our genre-top products, even though they have the top market share, have room for further improvement in profitability. I have had my concerns about this point since I became a board member and have raised the issue at board meetings.
- Kubota
- From an outside perspective, I feel that the “genre-top strategy” may be similar to previous success stories. It may be difficult to change this strategy that has been at the core of Konica Minolta since its inception, but I hope that they will successfully update this.
Strengthening execution abilities and controlling the business from the perspective of overall optimization
- Kubota
- What issues do you think need to be addressed to ensure the implementation of the growth strategy?
- Sakuma
- I think we need to strengthen our execution abilities. We are one of the few companies in the world with superior technologies in both the mechanical and chemical fields. However, since we can do so many things with our technology, there is a danger that we end up -- as the saying goes, "Versatility never pays" -- with businesses that have problems in terms of profitability and future potential. Technological superiority is one thing, but whether it is profitable is quite another. Strong executive abilities are needed to control this in the right way.
- Hodo
- For the front line, I think this is an attractive company that can take on the challenge of new innovations, but I see that there is still some laxity in the decision-making process regarding whether or not to commercialize the business or to halt development.
- Sakuma
- One of the characteristics of our Company is that our business divisions are very strong, due in part to the fact that they were formed through the merger of companies with distinctive technologies and products, but another issue is that our corporate division is weak in its ability to control these divisions from the perspective of overall optimization through a horizontal skewering.
- Murayama
- Based on our recognition of these issues, in April 2024, we changed our executive structure to assign an Executive Officer to each of the three businesses of Business Technologies, Industry, and Imaging Solutions. Since each business unit promotes its business in an individually optimized manner, the Executive Officer responsible for Business Management acts as a liaison between each business unit and the corporate division to control the vector of the business toward overall optimization.
- Sakuma
- In addition, to strengthen executive abilities, we need to have some "naysayers." Sometimes policies and requests from business units need to be rejected out of hand without mercy. I feel that there are still not enough people in our Company who can play the naysayer, and I have pointed this out to the executive side.
- Kubota
- Normally, the CFO would play that role. Even if the CFO is disliked or feared by the various business units, he or she is in a position to take a hard look at the Company from a numerical standpoint.
- Sakuma
- Of course, CFOs need to take on the role of the naysayer at a high level of management. However, there are various decision-making processes that take place even before a proposal is brought up at a board or management meeting, so we need people other than CFOs who are willing to be the naysayer at each milestone and give tough criticisms. I believe that we need to develop more human capital to be like this.
Updating investment criteria and monitoring mechanisms based on lessons learned from the past
- Minagoshi
- On that note, has your Company updated its investment criteria and monitoring system based on past experiences with large investments?
- Hodo
- Yes. To avoid making the same mistakes as in the past, we have revised our investment evaluation rules, tightened the investment decision and survival/exit consideration process, and established criteria for such decisions. In past decision-making for major investments, I believe too much emphasis was placed on executives' conviction that certain areas are going to grow in the future. Based on these lessons learned, we have updated our investment decision-making and monitoring mechanisms.
- Sakuma
- During the four years since I became a Director, we have not had the opportunity to make any major investments, but we should be seeing some major investment projects in the future as we work to establish a foundation for growth in fiscal 2025 and beyond. Not all investments will necessarily be successful, but even if they do not go according to plan, we will be prepared to make stricter investment decisions so that we do not have to record a major impairment loss. We will also prepare a plan B in advance, for example, in order to be prepared for grounded decision-making.
Promoting the transformation of Konica Minolta from a medium- to long-term perspective
- Matsubara
- From what you have told us, I see that your Company is aware of the current issues and is working on various management reforms. What is the time frame for the Board of Directors to move forward with these efforts?
- Hodo
- Structural reform, growth strategies, and the transformation of intangible assets and corporate culture to support growth are the major agenda items for the Board of Directors in fiscal 2024, but each have different time frames for their implementation. As for structural reform, we plan to complete them during the year. Of course, we do not want this to be a one-time effort, so for example, regarding productivity improvement, we would like to achieve the target KPI and at the same time incorporate a system that will allow the front lines to continue making improvements and reforms on their own, which we will monitor as the Board of Directors. Meanwhile, we are discussing growth strategies, including the next Medium-term Business Plan, looking three to five years ahead. Furthermore, we believe that we need to work on a time horizon of five to ten years in order to transform our intangible assets and corporate culture.
- Matsubara
- How do you evaluate the speed of Konica Minolta's management?
- Hodo
- Even among the Outside Directors, there are many who say that it is a bit slow.
- Sakuma
- Nevertheless, I feel that the speed of execution has improved considerably recently, as evidenced by the prompt execution of the sale of Invicro,LLC in the U.S. and the fulfillment of commitments, despite the challenging environment.
Continuous improvement of employee engagement as a barometer of corporate vitality
- Matsubara
- I believe that increasing employee engagement, especially internal motivations such as “the importance of working for this Company” and “the joy of working”, is crucial in changing a corporate culture. In recent years, you have had a difficult time in terms of business performance, but how has your engagement score been changing?
- Murayama
- Regarding the engagement score, we commissioned a third-party research organization to monitor global tech companies as benchmark targets. Since many of the target companies have high scores, we are still in a lower rung, but our score has improved from the previous year.
- Sakuma
- Despite the continued sluggish performance, the level of employee engagement has not been bad. In fact, when I participated in the “Value Creation Forum” and other events that the executive side holds every year, and spoke with people from the business units there, I felt that everyone seemed to be enjoying their work very much.
- Hodo
- While it is important to enjoy your work, from the opposite perspective, I am concerned that the sense of urgency may not be properly conveyed to the frontlines. We will implement global structural reforms as an additional measure starting in fiscal 2024, and I will continue to keep an eye on how engagement, including the impact of these measures, will evolve in the future.
- Murayama
- Employee engagement is also a barometer that measures the vitality of the entire Group, and our Company is committed to continuously improving it with an awareness of the challenges it faces. As part of this effort, we have incorporated the employee engagement score as one of the evaluation indicators for medium-term stock bonus for Executive Officers.
Promotion of Sustainability Management Sustainability as a growth strategy and linking it to business growth
- Matsubara
- Konica Minolta is one of the leading companies in the field of sustainability, and I have been paying attention to it myself. However, the Company's performance has been sluggish recently. What are your thoughts on how to balance sustainability efforts and corporate growth?
- Sakuma
- As you say, the biggest challenge is to achieve both. In addition to being one of the first companies in the world to comply with sustainability-related guidelines and frameworks, Konica Minolta has led the way in the field of sustainability by announcing Carbon Minus and other environmental initiatives. In the future, it is important for us to turn these sustainability initiatives into a competitive edge for our business and to make a solid profit.
- Hodo
- To achieve this, we must place sustainability in the middle of our growth strategy and promote it as one strategy that cannot be separated from the others. For example, we are focusing on fields related to recycled plastics and biomanufacturing as seeds for future growth, and we need to increase the profitability of these fields and link them to business growth.
- Kubota
- In the case of Konica Minolta, you can do a variety of things with regard to sustainability as well as business, so it would be easier to understand your strategy and lead to better results if you narrow down your targets from the perspective of what you really need to do and in which areas you can differentiate your business.
- Matsubara
- Looking at the relationship between sustainability and business on a time axis, we believe that even if we strengthen sustainability, it will not be immediately reflected in business performance, but the effects will gradually appear later. Therefore, it is very important to clearly and simply explain to the capital market how sustainability is integrated into growth strategies and how it will lead to business growth and increased corporate value in the future.
- Sakuma
- In our case, a high percentage of our business is conducted in Europe. As you know, in Europe, addressing sustainability issues has gone beyond the scope of a target to strive towards and is shifting to a legal requirement. Sustainability has become a compliance issue, and the number of elements that the legal department must deal with is increasing.
- Hodo
- With such accountability issues and legal responses in mind, we intend to promote sustainability as the core of our growth strategy in our next Medium-term Business Plan. The Board of Directors will also discuss this as an important agenda item.
Evolution of Corporate Governance for Sustainable Growth
Governance level improved by having a majority of Outside Directors and an Outside Director
as Chairperson of the Board, as well as the Corporate Governance Committee
- Minagoshi
- You newly established a Corporate Governance Committee in fiscal 2023. Can you tell us about the aim of this decision?
- Sakuma
- We have established an advanced corporate governance system as a Japanese company, starting with our transition to a Company with Committees (now a Company with three Committees) in June 2003. Nevertheless, our performance has remained sluggish, with profit in the red for four consecutive fiscal years since fiscal 2019. Therefore, we have established a new committee to resolve issues that could not be addressed by the previous structure alone and to achieve governance that leads to proper results.
- Minagoshi
- What do you see as the reason for the lack of performance despite the advanced governance?
- Sakuma
- The direct cause is the failure of investment for the future. We made a large investment that exceeded our financial capacity, and as a result, we posted a large impairment loss because we judged that it would be difficult to recover the investment within the period we had initially expected. In view of the results, there may have been some governance problems.
- Minagoshi
- What specific problems did you encounter?
- Sakuma
- One problem is the composition of the Board of Directors, which has had a majority of Outside Directors since fiscal 2022, however, at the time of past large-scale investments, Outside Directors were in the minority. I believe that this may have prevented the board from functioning properly to consider the pros and cons of investments from the perspective of shareholders.
- Minagoshi
- What changes have occurred since Outside Directors became the majority?
- Hodo
- This is a very significant change because important decisions, including the confidence of top management, can now be made only with the approval of Outside Directors. This has certainly strengthened governance, which separates supervisiory and execution in terms of responsibility.
- Sakuma
- In order for us to achieve solid results in the future, it is essential for us to strengthen our executive abilities. In fact, the Corporate Governance Committee has been discussing this as an important theme for the first year. In addition, the committee also discusses how to ensure the effectiveness and transparency of the Board of Directors and each committee, and has clearly stated and disclosed the process for selecting the Chairperson of the Board.
- Hodo
- We also discussed the criteria for the tenure of Outside Directors and decided to extend it from four to six years. This is because we decided that four years is not long enough to fully fulfill the responsibility of an Outside Director, who must understand the essential issues of the Company in order to make important decisions as an Outside Director.
- Sakuma
- The Corporate Governance Committee plans to continue discussions in fiscal 2024 on how the governance system should be structured with a view to executing the growth strategy in fiscal 2025 and beyond, including further enhancing executive abilities.
Supporting efficient board meeting operations
by providing advance explanations of agenda items and enhancing Outside Director meetings
- Matsubara
- I believe that the support of the secretariat is very vital to stimulate discussion at board meetings and improve the effectiveness of governance. What kind of efforts is your Company focusing on?
- Murayama
- In the past, we limited the agenda items and report- or proposal-makers themselves would conduct advance briefings on an irregular basis, but since September 2023, the secretariat has been conducting them for Outside Directors on a monthly basis, setting aside time for them individually. The background and purpose of the agenda setting and issues to be discussed on the day of the meeting are provided in advance, and any questions are answered on the spot to the extent possible. In addition, by providing feedback on opinions and requests from the Outside Directors to the Executive Officers, we are able to organize the issues before the actual meeting, which leads to more efficient discussions and management of the meeting.
- Matsubara
- How many opportunities do you have for discussions among Outside Directors alone?
- Murayama
- Since June 2022, when Mr. Hodo assumed the position of Chairperson of the Board of Directors, we have held meetings every time the Board of Directors meets. Although the framework has been in place for some time, it is now being put to effective use.
- Hodo
- The Board of Directors recognizes the importance of support by the secretariat, and we have been working to strengthen its functions by increasing the number of Board of Directors Office personnel. I feel that the Outside Directors have become more empowered as their understanding of our business has deepened due to better explanations given in advance and more opportunities for meetings.
- Murayama
- The secretariat will continue to work together with the Board of Directors and the various committees to continuously improve the Company's corporate governance and enhance our corporate value. Thank you very much for taking time out of your busy schedules today to provide us with your valuable comments and suggestions.