Corporate Governance Roundtable Discussion
From left to right in the photo,Toru Kuwano, Chairman (Chairman of the Board of Directors）, Naoko Mizukoshi, External Director, Fumio Tsuchiya, External Director
Transition to monitoring-based Board of Directors
Kuwano ：Strengthening corporate governance is an ongoing priority for TIS. In fiscal 2024, ended March 31, 2024, we focused on key topics, such as Group Vision 2032 and Medium-Term Management Plan (2024–2026), and worked to transition the Board of Directors from a management-based structure to a monitoring-based structure.
Tsuchiya : I think we made a good start on the transition to a monitoring model. Certainly, we dedicated a lot of time to exploring basic management policies, including the underlying strategies in Group Vision 2032 and Medium-Term Management Plan (2024–2026). With the Board of Directors functioning as a monitoring-based structure, the executive side will gain considerably more discretion over decisions than ever before.
Mizukoshi : At the same time, we have to have a meeting agenda that elucidates clear goals and the connection to medium- to long-term policies as well as a timeline for implementing relevant strategies so that the Board of Directors can properly monitor progress. On a slightly different note, the Nomination Committee and Compensation Committee worked toward revision of the executive compensation system in fiscal 2024, but from fiscal 2025 onward, I’d like these committees to delve deeper into succession plans and consider the composition of an ideal management team.
Kuwano : To enhance board functionality, it is essential that the executive side — not only members of the board but also executive officers and frontline managers throughout the TIS INTEC Group — act as a cohesive team and, from a high vantage point, ensure accurate execution of operations. As well, the future described in Group Vision 2032 requires leaders who can inspire employees and also requires greater diversity in our workforce.
Tsuchiya : Mr. Kuwano, you mentioned executive cohesiveness. TIS is constantly promoting activities to deepen awareness of the TIS INTEC Group philosophy OUR PHILOSOPHY, which I believe is an extremely important process for cultivating a shared perspective throughout the Group. The number of companies under the Group umbrella continues to increase, creating human resources with diverse backgrounds and culture. Consequently, if the entire group is to move together toward the same destination, the Board of Directors must manage risks from a groupwide perspective.
New Group Vision and New Medium-Term Management Plan
Tsuchiya : Under the previous medium-term management plan, TIS achieved very commendable results, none better than reaching financial targets a year ahead of schedule. But I have the impression that shareholders and investors see current results as having hit a plateau of sorts and are waiting on the next growth strategy and its effectiveness. Group Vision 2032 is, to me, an extremely ambitious vision for the future. To TIS, it’s not some castle-in-the-sky dream, as management is truly determined to realize this vision and meet the expectations of shareholders, investors and other stakeholders. But success undoubtedly depends on a making offering services profitable and reinforcing overseas operations.
Mizukoshi : The Board of Directors has delved extensively into strategies designed to achieve growth, including steps to improve the profitability of Offering Service Business and creating services to solve social issues. These strategies are organically linked to basic strategy, so implementing them separately is unlikely to yield the desired results. The key is smart selection and concentration. TIS needs to direct resources into areas where the Group has a competitive advantage as this will underpin a successful growth strategy. More importantly, however, is trust. TIS — indeed, the entire TIS INTEC Group — must earn and keep the trust of clients and strategic partners who regard this organization as an innovative, forward-thinking co-creation partner. I think we allocated sufficient time to key discussions about securing the talent to drive the growth strategy and creating an environment in which these people can thrive, which ultimately cements trust.
Kuwano : As you point out Ms. Mizukoshi, human resources hold the key to achieving further growth through new pursuits. To build the business portfolio described in Group Vision 2032, it’s essential that we complement parallel-model businesses, such as contract system development matched to client needs, which has always been our forte, by creating new businesses and cultivating self-sustaining businesses, such as service-based businesses that anticipate client needs. We are working to diversify human resources in terms of job category through skill development and recruitment of individuals, such as consultants, who already have the expertise we seek. But more must be done.
Mizukoshi : Generally speaking, the type of talent and organizational structure required by companies developing systems differs from that of companies selling products (solutions). This applies to the TIS INTEC Group as well. A human resources portfolio that drives corporate results is vital for TIS to grow both parallel-model businesses and selfsustaining businesses. I think, to complement the positive impact of recruitment and M&A, we should consider analyzing the organizational structure and work environment of innovative companies in Japan and abroad where individuals with excellent skills are able to showcase their capabilities. Job satisfaction, along with compensation, is extremely important to employees who have invested in their qualifications. Providing a comfortable environment that enables these talented individuals to showcase their capabilities inevitably leads to enhanced organizational efficiency and improved operating income per person, a key metric included in Medium-Term Management Plan (2024–2026).
Tsuchiya : Achieving higher average operating income per person on a groupwide basis requires an increase in operating income per person from each business. At the same time, it’s important to reduce the occurrence of unprofitable projects for many reasons, not the least of which is to ensure that the time talented individuals put into projects is actually well spent. In my experience, management issues arise due to inaction — that is, when leaders fail to do what leaders are supposed to do. Within the TIS INTEC Group, various steps are being taken to reduce the occurrence of unprofitable projects, and I have emphasized to different audiences the need for leaders to actually lead and eliminate inaction
Expectations and evaluation from stock market
Tsuchiya : The other day, I had the opportunity to speak with institutional investors. From our conversation, I sensed that the steady growth charted by the TIS INTEC Group to date has raised expectations among institutional investors to a new level. The Group’s information disclosure is deemed quite comprehensive, but I believe that opportunities for me, as an external director, to engage with investors leads to a deeper appreciation of what TIS and the whole TIS INTEC Group does. Providing appropriate information and repeatedly engaging shareholders and investors in dialogue about the Group’s growth strategy will surely produce a fair market evaluation.
Mizukoshi : To keep shareholders long term, TIS must ensure that they believe the Company, and by extension, the Group, can achieve sustainable growth. TIS must explain both its aggressive approach to challenges and swift response to unprofitable projects in a timely manner so that shareholders have that eureka moment and see the potential for future growth and profitability. If TIS can do that, the stock market is sure to factor performance expectations into its evaluation of the Company. With large-scale system development projects having peaked and now on a downtrend, TIS needs to communicate that the Group is on track to the next stage of growth. Maybe TIS hasn’t conveyed the message well enough. Also, the Board of Directors must take an in-depth look at the growth strategy — is it reasonable, rational, doable? — and monitor progress and any issues that arise.
Kuwano : As you both point out, we have to encourage the executive side to give shareholders and investors a clear picture about our path to growth to gain their trust and respect. Because business execution and supervision functions are separate, I don’t get involved in the executive side of business. But I am available for individual consultations when necessary and share honest opinions and advice based on my experience in executing operations. For example, I will indicate whether or not initiatives taken by each Group company are being properly coordinated so that, in the big picture, the Group shines. That is, have we as a corporate group achieved overall optimization without sacrificing the individual characteristics that make each Group company unique?
Seeking diversity in composition of Board of Directors
Mizukoshi : As an external director, I strive to ensure that the Board of Directors tackles topics to the satisfaction of diverse stakeholder groups, including shareholders. I have experience as an external director, and I know management expects me to apply the knowledge and expertise I have gained. Therefore, when appropriate, I voice my opinion that swift action would be the sensible thing to do, taking the external environment into account, and I will stand behind bold but necessary moves on the business execution side while confirming a clear commitment to the timeline for implementation.
Tsuchiya : In fiscal 2024, not only did the Board of Directors set an agenda for its meetings, which Ms. Mizukoshi touched on earlier, steps were taken to boost efficiency. This included defining the role and position expected of each director based on individual background and skills, and deepening a shared perspective on issues. The great thing about the Board of Directors at TIS, as well as the nomination and compensation committees, is the culture of open, candid discussion that permeates these structures. As an external director entrusted to represent shareholders, I will continue to engage in frank discourse.
Kuwano : The TIS INTEC Group places considerable importance on open-mindedness. Today, as on any day, I was open about the issues we face. And that’s because challenges are the starting points for a better future. As subsequent issues emerge, we shall address them one by one. Going forward, I hope the Board of Directors will become more diverse in its composition, which will expand the parameters of discussions.
Mizukoshi : On the diversity point, Junko Sunaga was recently appointed as an external director, bringing female participation on the Board of Directors to two. The number of women on the Audit & Supervisory Board is also increasing. This is great, but I hope we can dig deeper into topics beyond encouraging women to be more active in corporate settings by incorporating outside perspectives based on different standpoints and expertise into conversations. I myself have been offering advice on intellectual property and supported efforts to establish a revitalized Legal & Intellectual Property Department in April 2023. I offered advice on the content of the intellectual property strategy for Medium-Term Management Plan (2024–2026), and I feel TIS is making progress in acquiring and utilizing intellectual property to drive business activities.
Tsuchiya : Ms. Mizukoshi contributes extremely useful information from a legal perspective at board meetings but also demonstrates her expertise beyond the boardroom, including intellectual property seminars for Group employees. Meanwhile, I bring corporate management experience, and Ms. Sunaga has expertise in domestic and international mobile communications technology. Our different areas of specialization allow us, as external directors, to bring multiple perspectives to our supervisory roles.
Kuwano : But greater diversity on the supervisory side must accompany increased diversity on the executive side. We need foreign nationals on our executive team and external sources of expertise as well. I believe execution and supervisory functions must work in tandem for TIS to achieve sustainable growth for itself and, by extension, the Group and to maximize corporate value. To that end, let’s maintain the openness that characterizes our discussions to promote lively interaction between the executive and supervisory sides, inside and outside the Company, as we travel toward the same vision and goals.
September 30, 2024