Looking from the Outside In

Our four Independent Outside Directors delivered the following messages, pointing out Nissha’s management issues.

Free, robust discussions take place at meetings of the Board of Directors, covering matters that involve risks. Nissha’s challenge is to ensure effectiveness of the PMI process and pursue synergy. (Tamio Kubota)

Evaluation of Nissha Board of Directors

Tamio Kubota, MBA, Independent Outside Director of the Board

Tamio Kubota, MBA, Independent Outside Director of the Board

With one scandal after another emerging in companies that heretofore were rated as leaders in corporate governance, I realize more keenly than ever that building a handsome framework is no good at all without effective controls in place in the course of day-to-day operations.
Since 2015, Nissha has reviewed the requirements of Japan’s Corporate Governance Code and rectified a few noncompliant items through discussion at meetings of the Board of Directors. Here again, the question is whether or not these items are operated effectively. In this respect, Nissha’s meetings of the Board of Directors have included not only Directors and Independent Outside Directors but also the persons presenting specific proposals. This has been the case since before the introduction of the Corporate Governance Code, and I feel that the practice of reporting, coordinating, and consulting about matters that involve risks is well established in the corporate culture. Judging also from the free, robust discussions that take place at the meetings, I feel that the Board of Directors is highly effective.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
4 5 3 4
*Five-scale rating

Matters to Be Addressed in the Sixth Medium-term Business Plan

The Fifth Medium-term Business Plan, which started in April 2015, produced poor financial results in the second year. Certain factors were beyond the company’s control, such as volatile exchange rates and shifting customer demand. Yet the Nissha profit structure also relies heavily on Devices. This mainstay business both suffered a plunge in demand and required prior investment for orders in the following year, leading to a drop in year-on-year financial performance. This demonstrates that Nissha’s greatest concern is redressing its heavy reliance on a single business segment.
Nissha’s direction in the next medium-term business plan will likely remain the same at a basic level. In the Fifth Medium-term Business Plan, the company achieved its goal of expanding into the metallized paper and medical devices fields through large M&A deals overseas. This much is certainly an accomplishment. Its challenge in the Sixth Medium-term Business Plan and beyond is to ensure effectiveness of the post-merger integration (PMI) process so that these newly acquired companies may contribute to improvements in the earning capacity of the Nissha Group.

Challenges in Global Management

Amid little hope for market expansion and a limit to pursuing growth of existing businesses, acquisitions of and tie-ups with the other companies continue to be an important option. Also, since a large share of demand for Nissha products comes from outside Japan, the company needs to improve its resilience against exchange rate fluctuations through M&A activity abroad and the promotion of local production for local consumption.
Thus far, the process of deliberating on M&A deals has involved surveys and analyses performed by internal divisions and at the managerial level. The results are then presented to the Board of Directors for discussion covering a broad range of topics: the validity of the acquisition and potential synergy in the context of the group strategy, forecasting of future profitability, rigorous assessment of assets (particularly hidden debts and the details of subsidiary assets), competence of the target company’s leaders and retaining of key personnel, local legal and accounting systems, and local management and extent of intervention by Nissha Global Headquarters after closing the deal. Our ultimate aim has been to avoid paying an unreasonably higher price than the intrinsic value of the target company. I believe this is a sound deliberation process.
M&A transactions with companies abroad have expanded the Nissha business foundation into Asia, the Americas, and Europe. Group management after acquisition, however, now and then comes up against differences in areas like regional industry trends, management, labor market, language, and culture. The ideal scenario for Nissha is to respect the acquired company’s independence while promoting communication between Global Headquarters and subsidiary, focusing on PMI, and maximizing synergy.

Profile

April 1972: Entered The Dai-Ichi Kangyo Bank, Limited (currently, Mizuho Financial Group, Inc.)
June 1979: Completed MBA, Yale School of Management, Yale University, USA
January 2001: General Manager, International Credit Supervision Division, The Dai-Ichi-Kangyo Bank, Limited
April 2002: Entered TOKYO LEASING CO., LTD. (currently, Tokyo Century Corporation)
June 2006: Representative Director of the Board and Senior Executive Officer
June 2007: Senior Executive Officer
June 2007: Independent Outside Director of the Board, the Company (present post)
June 2008: Independent Audit and Suppervisory Board Member, Takashima and Co., Ltd. (full-time)

Nissha needs to do two things: improve the organizational capabilities of the Nissha Group overall, and build a new regional portfolio and strategic assets portfolio from a global perspective. (Kenji Kojima)

Evaluation of Nissha Board of Directors

Kenji Kojima, MBA, Independent Outside Director of the Board

Kenji Kojima, MBA, Independent Outside Director of the Board

In order to achieve the reforms in corporate governance structure and function that are under way at Japanese companies, an important role of a board of directors is to appropriately carry out the three oversight functions given below.
First, check if business execution performed by the management (corporate officers) serves the interest of stakeholders effectively for the purpose of creating corporate value. Second, check that the management responsible for business execution is taking action in compliance with legislation and its articles of incorporation. And third, check that the management appropriately fulfills its accountability by disclosing necessary information that satisfies a certain level of consistency, continuity, and transparency.
The Nissha Board of Directors carries out all of these oversight functions to a certain level, and has steadily made improvements over the previous year. In future, I believe it needs to draw on the knowledge and insight of Independent Outside Directors while further reinforcing the capabilities of the management so as to swiftly share accurate information and appropriately fulfill its accountability.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
5 5 4 4
*Five-scale rating

Matters to Be Addressed in the Sixth Medium-term Business Plan

In the Fifth Medium-term Business Plan, which started in April 2015, Nissha has worked to deliver on the reorganization of its business portfolio through a number of core growth strategies. One of them, “growth using M&A,” has progressed according to plan and seen solid results. The others, centering on internal growth, however, appear unlikely to be achieved according to the initial plan. This indicates a shortfall in the organizational capabilities necessary for adapting effectively and efficiently to a reorganized business portfolio.
Further improvement in the organizational capabilities of the Nissha Group overall is a key challenge to be carried over into the Sixth Medium-term Business Plan. The organizational capabilities required even more strongly moving forward are accurate understanding of changes in the business environment, the drive to promptly respond to those changes, and the tenacity to achieve targets. In my view, the capabilities of upper management, particularly department directors and higher-level personnel, do not quite meet the required standards. It should perform a fundamental review of the traditional thought and action framework, and take the initiative in a reorganization based on clear understanding of the contents and standards required. Middle management should understand the details and methods of strategy execution assigned to it, share this with employees, and ensure that personal challenges and targets are steadily being met.

Challenges in Global Management

Nissha is at a new stage of corporate growth where it is required to promote reforms swiftly and continuously in line with the changes toward global management. To this end, the company needs to build a regional portfolio and a strategic assets portfolio from a global perspective to accompany the reorganization of its business portfolio. Awareness of this challenge should be the core of the corporate growth strategy in formulating and executing the Sixth Medium-term Business Plan.
To do this, Nissha needs to accurately grasp the organizational capabilities of the entities that constitute its global business bases, and appropriately evaluate them from the perspective of global management. That is, Nissha should further reinforce and reshuffle its organizational capabilities, and by doing so, build an effective and efficient strategic assets portfolio based on a regional portfolio.
As I point out above, upper management and middle management should raise awareness of their roles and capabilities, take the initiative, and lead the action. This is a crucial challenge from the standpoint of global management as well.

Profile

April 1970: Entered Matsushita Electric Industrial Co., Ltd. (currently Panasonic Corporation)
June 1975: Completed MBA, Kellogg School of Management, Northwestern University, USA
March 1979: Acquired PhD, Kobe University Graduate School of Business Administration
March 1985: Visiting Researcher, Yale School of Management, Yale University, USA
September 1988: Visiting Researcher, Stanford University, Electrical Engineering Department, USA
January 1993: Visiting Researcher, Harvard University, Economics Department, USA
May 1999: Professor at Research Institute for Economics & Business Administration, Kobe University
June 2008: Independent Outside Director of the Board, the Company (present post)
April 2012: Specially Appointed Professor at Research Institute for Economics & Business Administration, Kobe University (present post)

A bird’s-eye view from the standpoint of the Independent Outside Director is required at Nissha’s meetings of the Board of Directors, where lively discussions and deliberations are held. To promote a reorganization of the business portfolio, it’s important to engage specialized personnel and build a plan for human resources development. (Sawako Nohara)

Evaluation and Issues of Nissha Board of Directors

Sawako Nohara, Independent Director,Member of the Board

Sawako Nohara, Independent Director,Member of the Board

Nissha’s meetings of the Board of Directors are a place for long, vigorous discussion, where Directors and Audit and Supervisory Members as well as Independent Outside Directors and Independent Audit and Supervisory Board Members, in addition to Corporate Officers as necessary, exchange candid opinions on a variety of management topics. With the establishment of a Nomination and Remuneration Committee in October 2015, and the election of four Independent Outside Directors in June 2016 for a board comprising an equal number of Directors and Independent Outside Directors, Nissha continues to work actively toward strengthening its corporate governance structure.
Lengthy discussions are often held at meetings of the Board of Directors, posing the risk of weakening the independent standpoint of the Independent Outside Directors and Independent Supervisory Board Members. In an effort to avoid this, I will carry on drawing on my independent position and presenting comments enthusiastically with a bird’s-eye view.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
3 4 4 3
*Five-scale rating

Matters to Be Addressed in the Sixth Medium-term Business Plan

Nissha has entered the final year of its Fifth Medium-term Business Plan, covering the three-year period from April 2015. Owing to a shift in financial term, this year has only nine months, until December 2017. Yet the company has succeeded in entering into the new field of “Life Innovation” with the acquisition in September 2016 of the Graphic Controls Group, specializing in medical devices and consumables, following the acquisition in August 2015 of the AR Metallizing Group, offering the stable, profitable field of metallized paper and packaging materials. With one contracted year left to go, the major steps are complete for redressing over-reliance on the IT field and promoting balanced management, and I believe the significant operational reforms central to the Fifth Medium-term Business Plan are progressing smoothly.
An important challenge to be addressed in the Sixth Medium-term Business Plan is further reorganization of the business portfolio. As opportunities rise for conducting M&A, and technology and product development, in industries and business segments where Nissha currently has little skills or connections, an ever stronger need will emerge to engage specialized outside personnel and foster internal human resources. To this end, it will be essential to build a tailored human resources development plan and career path program.

Challenges in Global Management

In consequences of robust M&A activities that took place abroad over the course of the Fifth-Medium-term Business Plan, Nissha became a global corporate group with overseas sales accounting for more than 70%. This M&A activity is expected to continue in future, and I believe it will be important to establish a governance structure for overseas subsidiaries, and a risk management system for the global Nissha Group overall.

Profile

December 1988: Entered Living Science Institute, Inc.
July 1995: Entered InfoCom Research, Inc.
July 1998: Head of the E-Commerce Business Development Group, InfoCom Research, Inc.
December 2000: Director, IPSe Marketing, Inc.
December 2001: Representative Director, President of IPSe Marketing, Inc. (present post)
June 2006: Independent Outside Director of the Board, NEC Corporation
November 2009: Project Professor, Keio University Graduate School of Media and Governance (present post)
June 2012: Independent Audit and Supervisory Board Member, Sompo Japan Insurance Inc.
June 2013: Independent Outside Director of the Board, NKSJ Holdings, Inc. (currently, Sompo Holdings, Inc.) (present post)
June 2014: Independent Outside Director of the Board, the Company (present post)
June 2014: Independent Outside Director of the Board, Japan Post Bank Co., Ltd. (present post)

The equal number of Directors and Independent Outside Directors creates a healthy, constructive tension at meetings of the Board of Directors. Accurate identification of market needs and development of products through methods like open innovation are a central management issue. (Kazuhito Osugi)

Evaluation and Issues of Nissha Board of Directors

Kazuhito Osugi, MBA, Independent Outside Director of the Board

Kazuhito Osugi, MBA, Independent Outside Director of the Board

In my view, the Nissha Board of Directors sufficiently fulfills the role expected of it from the standpoint of corporate governance. The equal number of Directors and Independent Outside Directors creates a healthy, constructive tension at meetings of Board of Directors. At times a heated discussion goes on for hours, and quite often participating Corporate Officers leave with “homework” to be completed by the next meeting. These in-depth sessions always explore agenda items from various angles, making good use of the independent view provided by us Independent Outside Directors.
My hope for the future is that the discussions will be held more efficiently in a limited amount of time toward further enhancing the effectiveness and productivity of the meetings overall.
Overall evaluation Composition Role Operation
Taking into account the three items at right, what is your overall evaluation of the Nissha Board of Directors? Does the Board comprise an appropriate number of members, and is diversity ensured? Does the Board appropriately deliberate on formulation of strategies and oversee execution of business? Are agenda items and information shared appropriately? Does the Board convene frequently enough, and is time used wisely?
4 5 4 4
*Five-scale rating

Matters to Be Addressed in the Sixth Medium-term Business Plan

M&A activity is under way toward reorganizing the Nissha business portfolio, and I recognize that the Fifth Medium-term Business Plan, which started in April 2015, has progressed steadily thus far. With the globalization of Nissha business operations, risk management covering the entire group is a top management priority. To this end, I believe it was a very appropriate decision to unify the financial term to end on December 31 for all group companies.
Acquiring the Graphic Controls Group as a subsidiary, and thereby launching the new business segment of Life Innovation, was a remarkable achievement in the Fifth Medium-term Business Plan. For Nissha to expand further, it will be essential to continue developing products that meet market needs. Accurate identification of growth fields and precise selection of product development methods—M&A, open innovation, or in-house development—continue to be a central management issue.

Challenges in Global Management

The global economy appears to have moved beyond the long transition period following the “Lehman shock” and entered a new growth path.
So far as a company’s investment decisions constitute a bet on expectations of future earnings, however, there is no eliminating the risk of uncertainty. And the key to global management under uncertainty is to hone the global outlook of all officers and employees. It’s essential to maintain an open mind, view the world with keen curiosity, remain humble, and absorb the lessons provided by various events and situations.
On October 6, 2017, Nissha Printing Co., Ltd. will be renamed Nissha Co., Ltd. Under such circumstances, continuous company-wide efforts are required to cultivate the global outlook that, I believe, push forward Nissha into the global market more than ever.

Profile

April 1977: Entered the Bank of Japan
May 1984: University of Michigan, Graduate School of Business Administration (MBA)
November 1986: Economist, BIS(Bank for International Settlements)
June 1999: General Manager, the Bank of Japan Matsumoto Branch
May 2001: Deputy General Manager, the Bank of Japan Osaka Branch
May 2003: Senior Director, Industrial Revitalization Corporation of Japan
July 2005: Deputy Director- General, Head of Center for Advanced Financial Technology, the Bank of Japan Financial System and Bank Examination Department
May 2006: Director-General, the Bank of Japan Internal Auditors’ Office
April 2007: Director-General, the Bank of Japan Secretariat of the Policy Board
April 2009: Guest professor, Ochanomizu University
September 2011: Auditor, the Bank of Japan
October 2015: Advisor, Security Transport Business Division, NIPPON EXPRESS CO.,LTD. (present post)
June 2016: Independent Outside Director of the Board, the Company. (present post)

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