Dialogue between Outside Officers Structure
MOL is striving to further enhance its governance to realize growth through reinvention.
The Company's outside directors Hideto Fujii and Etsuko Katsu discussed how MOL should strengthen its governance in order to get into new fields beyond conventional ocean shipping business and to realize the 10-year vision to "Become a Group of Business Units with No.1 Competitiveness in Respective Areas" amid dramatic changes in the external environment.
Evaluation of MOL's Governance
Fujii:In my evaluations of MOL's governance, the extremely open and natural discussions that are held at Board meetings have always impressed me. Since the start of my position, I recognized that such discussions have been an unchanging part of MOL's corporate culture. They enable the Company to provide a foundation for and play an important role in enhancing the effectiveness of the Company's governance.
Katsu:I also give the Company high praise for having a corporate culture that facilitates the open exchange of opinions. From the beginning of my assignment, I have had the impression that MOL was a global company given the nature of its business. Through the actual discussions, I was truly moved by how open-minded the Company's approach was and how discussions were consistently held with a global view far beyond Japan-based perspectives and ways of thinking.
Fujii:Given MOL's history of having developed as a major player in the ocean shipping industry, it may be easy to become optimistic and assume that MOL can naturally continue to enjoy such position going forward. However, based on the dramatically changing global economy, MOL is anticipating the future and taking steps by actively promoting a forward-thinking approach and carefully selecting businesses to be preferentially invested within its portfolio.
Katsu:"Rolling Plan," which entails reviewing the Company's medium-term management plan each year, is an extremely good idea. Taking into account the current external environment, including intensifying geopolitical risks and the rise of protectionism, leading companies in the ocean shipping industry in particular are facing increasingly difficult challenges. Seeing the hardships that are arising in this industry, it was an extremely important action for the Company to transition to "Rolling Plan," which is flexible and agile, rather than adhere to a conventional medium-term management plan that aims to pursue a set vision and strategies for several years.
Fujii:Since I took on the position of outside director, there have been two major changes. The first change was the improvements the Company has made to the format and process regarding projects brought up at Board meetings. Discussions are now held on specific projects with a clear awareness of their level of strategic importance or of their relationship with "Rolling Plan." By determining a clear focus, the Company is now able to sufficiently deliberate the most important aspects pertaining to each project with a sense of speed. The other significant change was that the Company has been able to set up opportunities to actively share issues relating to projects and discuss during the examination phase of a project. Such an opportunity allows for more specific discussions toward a project's realization before final decisions are made, and I believe this was an excellent trend for the Company to adopt.
Katsu:In the past two years, the volume of information that is shared at Board meetings has greatly increased, thereby helping the directors to be better aware of the particular details of each issue. Especially in the case of the integration of the containership business, there has been a significant increase of information since last year, despite the fact that several details were actually not communicated in the beginning of the integration process. Also, in order to take proactive steps to address risks that would likely materialize as losses in the future fiscal years, the Company set aside adequate provisions and extraordinary loss related to the integration. The speed at which the Company was able to do this is something I believe deserves praise.
Fujii:At the time of the NIPPON MARU accident last year, the measures the Company should take to respond to the accident and prevent a reoccurrence were promptly reported to Board of Directors. It was a good example showing the Company's well-functioning governance. I have a high opinion of the swift responses taken against scandal, more so than the action toward business growth.
The Role the Nomination Advisory Committee and the Remuneration Advisory Committee Should Play
Katsu:As can be seen in the revision of Japan's Corporate Governance Code, we are being constantly reminded how the role of committees has become more and more significant in terms of meeting social demands. When it comes to director nomination, the face-to-face information, which we can obtain as outside directors, is somewhat limited compared with inside directors, and it is therefore important to have a large number of opportunities to receive information that helps us gain an understanding of future management candidates.
In the case of MOL, we have been given opportunities to meet with the candidates rather frequently at training programs and presentations given at Board meetings. These are extremely valuable opportunities for us.
Fujii:At a recent meeting of the Nomination Advisory Committee, we discussed how we should select the candidates for future management positions as well as the direction to develop them. The Nomination Advisory Committee should become more involved when the Company considers the qualities, the size of the pool, and the evaluation standards for candidates. Furthermore, for the Remuneration Advisory Committee, there is a need to incorporate non-financial indicators in evaluations, in addition to short-, medium-, and long-term contribution to profit. Also, the committee should deepen its discussions on the ideal evaluation standards and remuneration levels regarding efforts toward projects with future potential and other qualitative aspects. The roles of both of these committees have become more significant than ever from the points of eliminating arbitrariness, ensuring transparency and fairness, and establishing an effective framework to increase sustainable corporate value.
Evolution of Governance to Accelerate Growth through Reinvention
Reinforcement of Risk Management during This Period of Change
Fujii:In the process of strategically allocating resources toward becoming a "Group of Business Units with No. 1 Competitiveness in Respective Areas," the business fields that are highly specialized and enable differentiation should be prioritized. However, the specific projects that the Company should pursue in the future will likely be more complex both qualitatively and quantitatively due to the further diversification of countries in which these projects take place and the increasing scale of investment. For overseas projects, an even wider range of risk factors is to be considered. Also, the larger the scale of investment becomes, the more sophisticated risk management is required from various aspects, including deciding what scheme to go with, diversifying risk through joint investment, and establishing project finance frameworks. At the same time, it is essential that the Company thoroughly monitor the ongoing projects. As the conditions surrounding a project can change rapidly, the Company needs to be always well aware of how its evaluation varies from when the investment is decided and swiftly adjust the plan depending on the situation. Accordingly, it is of the utmost importance that the Board of Directors enact a two-pronged approach relying on beforehand risk management enhancement and continuous monitoring.
Katsu:When it comes to risk management, in addition to the "Total Risk Control"* approach, which considers things from a set point in time, it is also important to adapt and appropriately respond to the situation at the time. For example, for the currently popular topic of clean energy transport, it goes without saying that its initial evaluation varies as time passes due to changes in the external environment and the competition conditions. While the "Rolling Plan" already requires such mechanism, the Company must carefully monitor the changes occurring with each project and make swift decisions.
* "Total Risk Control" is a unique risk management method in the industry developed by the Company based on management methods commonly used in financial institutions. The method controls the total amount of risk in the whole fleet at a level that is less than the Company's shareholders' equity even in the event that the market continues to be at historically low levels for an extended period of time.
Fujii:Reflecting on MOL's risk management to date, the relative comparisons between its shareholders' equity and overall risk amount were done properly and periodically. Meanwhile, the Company sometimes was unable to utilize its risk control method in decision-making for investment. However, each division has better recognized its importance through repeated discussions on specific projects, including the recent integration of the containership business. Accordingly, the "Total Risk Control" approach is being applied even more thoroughly.
Katsu:It is important that each division understands risk management perspectives and controls risks independently. At the same time, the most crucial aspect in risk management is how the Board of Directors can steer the Company as a whole. As outside directors, we will therefore confirm whether the Company is consistently making decisions incorporating global trends and is heading toward the appropriate direction from a macro perspective.
ESG Initiatives to Ensure Sustainability
Katsu:While strengthening cash flows is obviously necessary in the aim to enhance corporate value over the medium to long term, it is also extremely important for a company to increase its presence as an entity that contributes to the sustainability of society and the resolution of social issues such as those adopted under the SDGs. MOL includes environmental and governance-related goals within its "Rolling Plan," as management that integrates ESG elements is becoming key.
Fujii:Recently, companies are required to respond to multifaceted issues such as social and environmental issues from an ESG standpoint. This trend can also be a new business opportunity. MOL has traditionally shared a DNA of contributing widely to society, for which it should be proud. While deepening the knowledge and faculty cultivated by the many social contributions the Company has made through its businesses, I would like to see MOL move forward with projects to reduce environmental burden and contribute more extensively to social activities such as education.
Katsu:I have also experienced this kind of DNA within the mindset of personnel involved in ocean shipping. In terms of "Rolling Plan," environmental perspectives are being incorporated deeply within the strategies from the standpoint of both business opportunities and risk, such as the Company's participation in clean energy fields and its response to SOx regulations. In addition, as diversity is becoming increasingly important, the Company newly appointed a female Audit & Supervisory Board member and an executive officer in fiscal 2019. I hope to see MOL hold discussions from more diversified viewpoints going forward. Although MOL tends to be seen as a male-dominated company, there is actually a considerable number of women working in managerial positions as well as non-Japanese staff. Therefore, I can expect more from the future human resources strategy that takes diversity into account.