External Director Roundtable
In this roundtable discussion, Tsutomu Abe (pictured above left)—who has served as an external director of Tosoh since 2015—spoke with newly appointed external directors Keiichi Miura, Mariko Hidaka and Yoshihiro Hombo (pictured in order above) and about their perspectives on Tosoh’s efforts regarding its governance and future business. He also got their perspectives on ideal governance.
Bringing Diverse Experience and Expertise to Management
Abe: The three external directors appointed in June 2020 come from different backgrounds and bring with them a wealth of experience and specialized knowledge.
I come from a banking background, so I don’t have a great deal of experience in specific industries. I, however, gained a degree of knowledge about a wide variety of industries through the relationships I developed with my customers. Believing that I could apply the varied knowledge and experience I’d accumulated throughout my career as a banker, I became an external director of Tosoh in 2015 and continue to serve in that position. I’d like to ask each of you how you intend to leverage your expertise.
Miura: I served on Taiheiyo Cement Corporation’s board of directors. Cement is a type of chemical product and is closely related to the equipment industry, and the business of cement has a lot in common with that of Tosoh. I feel my experience will prove valuable in the commodities field in particular. This field, while inconspicuous, serves a vital role in supporting the foundation of society, much like cement and concrete.
In the specialty field, the other pillar of Tosoh’s operations, research and development (R&D) capabilities are key in achieving success. I have many years of experience overseeing R&D efforts, including having served as the director of a central research center. I’m familiar with the approach to R&D investment and project promotion from the viewpoint of a manufacturer, and I’m confident that know-how will serve me well in this position.
Hombo: I began my career in 1979 with Mitsui & Co, Ltd., and since then have been involved in the petrochemical business. In my time with Mitsui, I had the opportunity to work closely with Tosoh management in establishing a joint venture company and with successive Tosoh management teams on a host of projects after that. At present, I serve as the president and chief operating officer of a chemical manufacturer called Valqua, Ltd.
For more than 40 years, I’ve watched Tosoh’s development from various perspectives. And now that I’ve been afforded the opportunity to view Tosoh from the inside, I’m eager to contribute to its achievement of sustainable growth.
Hidaka: My area of expertise differs somewhat from that of my three distinguished colleagues. I’m a certified public accountant with more than 30 years of experience in auditing companies, assisting them in going public, and advising them on management.
I have also served in a variety of administrative positions. These include human resources and promoting the participation of women and as a trustee of an internal council, the governance body of an auditing firm. I hope this experience will enable me to contribute to Tosoh’s financial and human resource systems, risk management, and sustainable growth.
Abe: In today’s increasingly diverse society, diversity is also important for a board of directors. In that sense, I believe that having people like you, who possess such diverse specialized knowledge, join us as external directors can only help to strengthen governance at Tosoh.
Evaluation of Business Development and Growth Strategies
Hidaka: In my case, I am still in the process of learning more about Tosoh’s business and products. From a financial perspective, I think Tosoh has a solid financial foundation, as evidenced by such figures as its 64% equity ratio and -0.01x net debt-to-equity ratio as of the end of fiscal 2020. From that point of view, my first impression of the company is that it is extremely sound. What about those of you who are more familiar with the company? What are your views?
Abe: While it’s true that we’re on sound footing, it’s only recently that we’ve seen a significant improvement in our financial position. Five years ago, when I was appointed a Tosoh external director, we were in a very difficult position, both in terms of profit and finances. This was due in part to an accident that occurred at the Nanyo Complex in 2011.
The management team worked hard to turn the company around, gradually increasing revenues and reducing debt. Our overseas operations have been reinforced and product markets expanded, leading to improved earnings, reduced debt, and a more stable financial position. We are now presented with a new challenge in the form of COVID-19. But when I look back on the past five years, I am deeply moved by the fact that we were finally able to come to this point, with the entire company working together as one.
Hombo: Over the 40 years of my relationship with Tosoh, I have watched closely while Tosoh has repeatedly reinvented itself. It has shown its awareness of prevailing conditions by withdrawing from a petrochemical project in Iran, strengthening its vinyl chain, and diversifying its business. It has endured many hardships. Frankly, looking at its current situation, I think the company has become very strong. Tosoh’s basic strategy is dual management. This entails balancing the development of its commodity and specialty businesses. The demand for commodity products is steady. The specialty field, though, for which Tosoh began developing products more than two decades ago, is now driving profits. When I think about how the company’s devotion to R&D is finally being reflected in the bottom line, it makes me very enthusiastic about our future.
Miura: My first impression was admiration for the diversity of Tosoh’s product offerings. From a manufacturing perspective, I have to admire the company’s ability to maintain quality and provide a stable supply of products in such a wide range of fields. As Mr. Hombo just said, chemical product R&D takes so much time that management tends to become impatient and make shortsighted decisions. Looking at Tosoh’s business plan, though, it is clear that management understands the importance of carefully cultivating new products over 10- and 20-year periods.
In the specialty field, it’s essential to continue generating next-generation products as market needs evolve. The Tosoh Group has a diverse range of R&D departments and makes good use of open innovation, such as joint research, enabling it to constantly sow the seeds for growth.
Hidaka: That’s very interesting. When I was being briefed on Tosoh’s operations, I was a little surprised to learn that there were many more laboratories than I had imagined. R&D certainly is vital in sowing those seeds of growth in such a diverse range of fields.
I had studied a bit about dual management and thought I had a grasp of the concept. But when I hear about the difficulty of balancing commodities and specialties and of identifying and selecting opportunities and cultivating them over a long period, I am reminded of the depth of this strategy.
Importance and Challenges of Environmental, Social and Governance Initiatives
Miura: In the future, companies will need to focus on nonfinancial activities, such as ESG (environmental, social, and governance), if they are to achieve sustainable growth.
I participated in the waste and recycling council of the Japan Business Federation. During that time, it became evident to me that environmental and social initiatives undertaken by companies were not only being closely watched by investors but by society as well. This is difficult to notice if you are inside a company or industry. It’s important for us as external directors to objectively view the environmental and social activities of the company, as well as its business activities.
Hombo: This ESG perspective—the importance of nonfinancial information in the evaluation of a company—was brought to the fore primarily by investors in Europe and the United States. As evidenced by its management philosophy, though, Tosoh has regarded the resolution of social issues as the foundation of management since long before ESG came into vogue.
Promoting such activities to the outside world is not exactly my specialty. But I do believe that part of our mission as external directors is to support the company by promoting social recognition of this area as well.
Abe: That may indeed be one of the issues we need to address. As may be expected, since we are an extremely earnest company, we are the “unsung hero” that is hesitant to assert itself.
Most people don’t know that Tosoh products are used or incorporated in a wide variety of end products that many of us take for granted in our daily lives. This includes social infrastructure and durable consumer goods.
Some people are perfectly satisfied with a company that is not well known, provided it is serving a useful role in society. But if our objective is to resolve social issues through joint research and open innovation, we need investors and other stakeholders to be aware that we are a company that is contributing to the realization of a sustainable society close to home.
Miura: I believe that the “environmental” component of ESG is the one that chemical manufacturers should emphasize. The chemical product manufacturing process emits large amounts of CO2, and as the problem of climate change becomes more serious we as manufacturers will increasingly be held accountable.
Marine plastics—for which Tosoh manufactures and sells materials—have become a global issue. Unless we pursue the possibility of recycling in developing and manufacturing those products, it will negatively impact our corporate image.
Dealing with these challenges can be time-consuming, so we should apply the backcasting method of establishing long-term goals and achieving them. During my tenure with Taiheiyo Cement, I formed a cross-sectional internal organization to set long-term goals and promote planned, ongoing activities. I hope to draw on this experience in providing advice regarding Tosoh’s environmental initiatives.
Hidaka: Although Tosoh has been working on environmental measures for a long time, society has become increasingly demanding. This requires us to step up our efforts.
From the viewpoint of ESG, the utilization of human resources—particularly the participation of women—is an issue that must be addressed.
I’m in the process of receiving a briefing from the human resources department about the company’s internal systems and policies. I think Tosoh has made great strides in improving the work-life balance and workplace environment for its employees. This is reflected in the high rate of employees, including men, taking childcare leave.
And although the number of women in management positions is steadily increasing at Tosoh, this movement is still nascent. I believe that I can help in this regard.
Hombo: For companies where the workforce has been predominantly male, the theme of women’s advancement is not something that is going to take root overnight. Time will be required to evolve recruiting principles to the point that change becomes evident in the numbers. But I have a strong impression of Tosoh as a company that is very open, that values its employees, and that offers a comfortable workplace. Amid a spate of scandals involving other corporations in Japan, I believe that this kind of corporate culture will be a strength for Tosoh in the coming years.
External Perspectives Lead to Stronger Governance
Abe: Over the past five years, Tosoh has made significant progress in its efforts to strengthen its corporate governance. In 2016, we introduced an executive officer system to separate the decision-making and supervisory functions of management from the business execution functions. And in fiscal 2020, we established the Nomination and Compensation Advisory Committee to advise the Board of Directors on improving the fairness and transparency of procedures for the nomination and compensation of executives.
We also, of course, in fiscal year 2021 increased the number of external directors to four and invited the three of you on board to help further management oversight. To heighten the effectiveness of the Board of Directors, it is important that we, as external directors, put in place the needed institutional structure and ensure that we perform the functions required of us.
Miura: I think the biggest role of an external director is to take an impartial look at things that people who have been inside for years have taken for granted and to point out problems with an unbiased external perspective.
I haven’t attended many Board of Directors meetings at Tosoh, but I feel that there is an open atmosphere at the meetings I have attended that allows people from outside the company to speak freely. I would like to contribute to the effectiveness of the Board of Directors by speaking out with the awareness that I represent an outside viewpoint.
In addition to discussions at board meetings, I would like to see more opportunities for external directors to exchange ideas with each other. If our varied experiences and knowledge can be combined to create a synergistic effect, it will be possible to make more effective recommendations for Tosoh.
Hidaka: I still have a lot to learn about Tosoh’s business, so my opinions may be regarded as misguided at times by others within the company. But I believe that my mission is to express my thoughts without being swayed by what I may perceive as resistance or opposition.
I also believe there are expectations for me as a female member of the Board of Directors. I have experience raising children and caring for family members in my personal life. I believe this makes me well suited to support the activities of female employees in various ways, such as helping them balance work and family and increasing their job satisfaction regardless of the type of work they are engaged in.
Hombo: For a company to achieve sustainable growth, it needs secure quarterly earnings. But it must also formulate a vision of the future of its business on a decade-by-decade basis and think about global issues in terms of centuries. We were entrusted with the vital responsibility of external directorship amid the coronavirus pandemic. It’s very exciting for me to have the opportunity to discuss with you the direction Tosoh should take across these time frames.
I look forward to working with all of you to fulfill my responsibilities as an external director, to enhance Tosoh’s corporate value, and to fulfill the role required of us by our stakeholders.
Major Changes in Strengthening Corporate Governance
June 2002
- Appointed two external auditors
May 2003
- Established the Compliance Committee
June 2006
- Shortened the term of office for directors from two years to one year
April 2007
- Established the Internal Control Committee
June 2014
- Appointed one external director
June 2015
- Increased the number of external directors from one to two
June 2016
- Evaluated the effectiveness of the Board of Directors
- Introduced the Executive Officer System
June 2018
- Established the CSR Committee
June 2019
- Established the Nominating and Compensation Advisory Committee
June 2020
- Increased the number of external directors from two to four
- Appointed one female external director
About Tosoh's External Directors
Tsutomu Abe
Abe served as a representative director and vice president of Mizuho Bank, Ltd., and as the president and CEO of IBJ Leasing Co., Ltd. (now Mizuho Leasing Co., Ltd.). He became an external director at Tosoh in June 2015.
Mariko Hidaka
Hidaka is a certified public accountant who was a senior partner of EY Ernst & Young ShinNihon LLC. She was appointed an external director of Tosoh in June 2020.
Keiichi Miura
Miura served as a director and senior executive officer of Taiheiyo Cement Corporation. He was appointed an external director of Tosoh in June 2020.
Yoshihiro Hombo
Hombo was an executive vice president and representative director of Mitsui & Co. He is the president and chief operating officer of Valqua, Ltd., and was named an external director of Tosoh in June 2020.