Special Dialogue

Management succession at SEGA SAMMY

The SEGA SAMMY Group saw a dramatic turnaround in performance in the fiscal year ended March2023 in the wake of the COVID-19 pandemic, recording financial results that far exceeded ourexpectations. The past ten years or so have been marked by a great deal of turbulence for the Group,
as it sought to navigate technological innovations and mounting competition in the consumer games
sector, as well as regulatory changes and contraction in the pachislot and pachinko machines market. In
the midst of this turmoil, the Group proceeded with the succession of a new President and Group CEO.
We sat down with Chairman Hajime Satomi and his son, the current President and Group CEO
Haruki Satomi, to get their thoughts about how the transition in management came about and what
led up to it.

Chairman Satomi, how did you view the transfer of staff tothe new company?

Haruki Satomi

Hajime Satomi

President and Group CEO, Representative Director
SEGA SAMMY HOLDINGS INC.

Chairman, Representative Director
SEGA SAMMY HOLDINGS INC.

Lead-up to 2017, when Haruki Satomi became President and COO
First, Chairman Satomi, I would like to ask: What kind oftraining opportunities did you provide for CEO Satomi tofoster him as someone fit to be a top manager?
Hajime: When Haruki joined Sammy Corporation in 2004, I felt heshould experience a range of challenging work environments. As acompany, Sammy was familiar to him from childhood, so, thefollowing year, I purposefully transferred him to SEGACORPORATION. I felt it would be effective to have him takecharge of a new business there and gain business experience.
Because he was stationed on the West Coast of the United States,
he began building his career in an environment where there wereno familiar faces around to help him out in a pinch. At his own

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request, he also completed an MBA at UC Berkeley School ofBusiness while working. It was during this time that he learned thebasics of management. A typical MBA course takes two years ofintensive study, but Haruki took three years, attending school on
weekends and in the evenings while working at the office during
the day. I imagine it was a really tough time for him.
Haruki: Out on the West Coast, I was working on a new business
distributing SEGA games over the Internet. I had originally beeninterested in starting up a business, and after graduating fromuniversity, I worked for a while at a financial institution to gain
expertise. So, being allowed to start this new business was exactly

Hajime: As I observed a series of developments related tosmartphone games, I myself felt keenly that ICT was evolving, so I
was fully on board with addressing the emerging era of thesmartphone. Also, to accomplish anything it is extremely importantto have a manager who is really driven and willing to push himself
to the limit, so I also appreciated Haruki’s stance of taking initiativein setting up his own operation.
To be honest, though, for someone of my generation, I felt it
was difficult to properly gauge what was going on in the fastchanging digital world. So I think it was very fortunate for ourGroup to have young managers appear on the digital stage withthe determination to take on new challenges.

CEO Satomi, you were also responsible for undertaking
structural reforms at SEGA.
Haruki: That’s right. I started at SEGA in 2005 and became
Senior Vice President in 2014. At that time, SEGA’s businessperformance was in fairly bad shape, so I set out to build theCompany back up. We separated the various businesses into
separate companies to clarify earnings responsibilities,
established the Mission Pyramid, and aimed to bring theCompany together under a shared set of values.
Hajime: Sammy’s executives approached me around this timeand asked me to appoint Haruki as President of Sammy. I wasaware that he was helping SEGA bounce back from a very
trying situation, but I recall being surprised at how muchattention he was attracting within the Group as a whole, muchsooner than I expected.

Haruki became President of Sammy in April 2016. Aroundthat same time, we announced the establishment of ZEEG,
a joint venture with competitor Universal Entertainment.
The announcement that the two companies vying for thetop spot in the industry had come together in a tie-up musthave been a big surprise, even within the industry.
Haruki: In tandem with the structural reforms at SEGA, I
began laying the groundwork for ZEEG several years before
assuming the role of President at Sammy. I knew we could
expect this partnership to bring cost benefits through the useof common cabinets and parts and enhance the quality ofentertainment through technical collaboration. After a long
period of repeated discussions both in and outside the Group,
we finally reached this goal.

Integrated Report 2023

SEGA SAMMY HOLDINGS

what I had hoped for. By the way, video game console software atthat time was still mainly sold as a package, and the Group still had
a conventional sales network. Getting involved in this business in adigitally advanced country like the United States was an invaluable
experience, which prepared me for the various technologicalinnovations that were to come.
Balancing the MBA studies and work was demanding andtough to be sure, but looking back now, those three years haveinformed my whole life.
In 2012, I started up SEGA Networks, a business company
specializing in smartphone games. As you know, SEGA’s focus
had been on developing games for home video game consoles
and amusement facilities. In those days of the flip phone, mobile
games still felt like a completely different industry, and not many
employees were interested in their development. But I wentaround to SEGA employees pitching the advanced
performance of smartphones, which were already becoming
more widespread overseas before they reached Japan, andemphasized the future potential of smartphone games. Then,
eventually, I was able to make SEGA Networks a separatecompany. In its first year, the company was unable to achieve
its forecasts and ended up in posting a significant loss.
However, confident that this business would pan out, I asked
my whole team to transfer over from SEGA. At the time, mysense was that we couldn’t beat up-and-coming players in themobile game business without that degree of commitment.
After that, we put out a hit title and the business quickly started
turning a profit. I’m truly grateful to that team at SEGA Networks
who were supportive of my thinking.

Hajime: When I called Haruki in to speak with me around thattime, I got the impression that he knew much more about thebusinesses of both Sammy and SEGA than I did, including thedetails of what was going on. If that were the case, I thought, heshould take charge of managing the entire Group as COO
under my leadership. I brought his appointment as
Representative Director, President, and COO of SEGA SAMMYHOLDINGS to a discussion of the Board of Directors meeting in2017. Under the framework at that point, Haruki was at theforefront of the business, but as CEO I still had full responsibilityfor management.

During your time as COO, I heard you felt that you were
under the most pressure ever in your career. How did you
overcome that?
Haruki: Being entrusted with all the businesses of the Group wasa lot of pressure. But I also had the habit for many years of playingout in my mind what it would be like in the future to become thePresident and writing down bullet points in my notebook about thekind of mission I ought to carry out. So, when I became COO, I
looked back at my notes and went about putting them into
practice one by one.

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About management succession and leadership
In the INTEGRATED REPORT 2021, Kohei Katsukawa,one of the outside directors of SEGA SAMMY, said,“Haruki is someone who played a central role in thestructural reforms in 2020 and who is determined toachieve the goals of the new medium-term plan. That’s
why I feel that the Group under his leadership as CEO ismoving into a pivotal period, like a second founding.”
Chairman Satomi, what are your thoughts now that you
have stepped down as CEO?

Haruki Satomi spearheading structural reforms in 2020
People attribute strong performance in the fiscal year
ended March 2023 to the structural reforms carried out
in 2020 in response to the pandemic, which yielded
great results.

Overview of Structural Reforms
Review of business portfolio (transfer of Amusement CenterOperations area, resource reallocation from Amusement
Machine area to Consumer area)
Reduction of fixed expenses (call for voluntary retirement)
Review of non-business assets (disposal of owned assets)
Hajime: At the time, when I saw the proposed reforms, as CEO I
honestly wondered if we needed to go that far. The Amusement
Center Operations area was still profitable, so I thought it would be
a waste to sell it off at a low price. But Haruki and our CFO, Koichi
Fukazawa, told me that they didn’t want to shirk responsibility byhaving me choose from among several scenarios. Instead, theywanted to make their best choice and take responsibility forseeing it through. When I realized how committed they were, itcame across how seriously they were thinking about the Groupand its management, so I approved their proposed structuralreforms for the sake of the Group’s future.

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Haruki: We carried out these reforms because we had Japan’s
Stewardship Code and Corporate Governance Code in mind. To
be honest, if the Group were not a listed company, we likely could
have maintained minimal earnings and gradually deteriorated
while carrying out business as usual. But that’s no way to beaccountable to shareholders and other stakeholders. Since we area listed company, the management team has a duty to elevate theGroup further toward a growth trajectory while achieving a certain
rate of return on capital. Otherwise, the management team would
quickly lose the trust of investors and we would no longer have areason to exist as a company.
Hajime: Along with the reforms, I also decided to step down as
CEO. In 2021, I discussed Haruki’s appointment with anindependent advisory board consisting of all of our outside
directors. No one objected.
Haruki: From a sustainability perspective, my personal opinion isthat the survival of a company is the most important thing. The
next important question is how we can increase earnings. It’s
possible to generate strong earnings in the short term without
considering any negative impact on society or the environment. In
fact, from time to time companies with such strategies appear,
both in the pachislot and pachinko machines sector and in theconsumer games sector.
But that kind of approach can’t guarantee a company’s future
prospects. All of the employees and business partners involved
with our Group can take pride in the fact that they contribute tosociety every day. In other words, a company’s value increases
only if its management takes the straight and narrow path. I’mconvinced that the structural reforms we carried out in 2020 wereabsolutely necessary measures for creating such a framework.

Haruki: Clarifying the authority of the CEO is the essence ofcorporate governance. Within the scope of their authority, CEOsenhance corporate value and reward shareholders and otherstakeholders. The higher level body that oversees this is theBoard of Directors. I believe the Board ought to be a place wherea diverse range of outside directors evaluate the CEO’s
management from a variety of perspectives. I am also a Director,
but at Board meetings, my position is always to takeresponsibility for proposing management strategies as the headof the executive officers.
Hajime: Going forward, I will take part in management as one ofthe Directors. Of course, as the Company’s founder, I have a strong

Chairman Satomi, tell us about the qualities you think arenecessary for a leader.
Hajime: I think the most important quality is being able to obtainbuy-in from others. Doing this calls for three things: setting anover-arching direction and not wavering from it; translating thisdirection into realistic measures and sharing them with employees;
and never giving up until you achieve greater success.
I also want leaders to have a bold vision. In 1965, I started selling
game machines because I thought I could have a bold vision for thatbusiness, considering the huge market potential and thecompetitive situation at the time. I want Haruki to become a leader
who shares that kind of vision with employees and stakeholders.

CEO Satomi, what did you learn from Chairman Satomi asa leader?

Integrated Report 2023

SEGA SAMMY HOLDINGSHaruki: In our previous medium-term plan Road to 2020, which
covered the fiscal years ended March 2018 to March 2020, we
did not achieve our targets. However, by running a PDCA cycleon the plan, I think we were able to grasp the weak points andissues of the Group as a whole, which was a good outcome. As
you know, the impact of COVID-19 was enormous and ourbusinesses were hugely affected. I thought we should start out
by imagining the worst-case scenario and think about what weshould do from there.
In our worst-case scenario, we estimated a possible loss of¥45.0 billion. Even if that were to happen, the Company would not
be immediately insolvent, but I felt we should use this crisis as anopportunity to confront long-standing issues and undertake
structural reforms at a level that would have been impossible innormal times.

Among the people who took voluntary retirement there werenearly 400 Sammy employees who had supported me since theCompany’s founding. I set up the opportunity to talk directly withthe retiring employees, and did everything in my power to support
their career transitions.

Hajime: For me, the title of CEO, even more than Chairman orPresident, encouraged me to work hard to manage the Company
with a deep sense of responsibility. From that perspective, passing
on the CEO position was a big decision. Now that I have passed on
this responsibility, I do not interfere more than necessary inmanagement decision-making.
Although I stepped down as CEO, it is a well-known fact that Ifounded the Company. If I give directions to the CEO, everyone will
feel like I’m still in charge. I’ve let Haruki assume full responsibility
for Group management. In Japan, you often see cases where acompany’s founder or a charismatic CEO continues to cling to thereins of management even after appointing a successor, andsometimes even dismisses their successor. But if someone
doesn’t want to cede authority, I think they should continue toshoulder responsibility as CEO.

desire to return the Group’s market capitalization to ¥1 trillion andmake SEGA SAMMY a world-leading entertainment company. So,I want to put proactive governance in place that will encourage
people to take on this challenge. However, I mustn’t forget that I
have entrusted the realization of that vision to my successor. In
that sense, the Group truly is in a kind of second founding period.
Also, having integrity as a company is something I haveinsisted on since our founding. More than anyone, I know what
the Group has prioritized and how it has acted at various
turning points in our history. So, I will be taking a hard look atwhether or not the current management team keeps to the rightpath in this regard.

Haruki: I’ve been observing my father for a long time, and I feelthat his courage to believe in people is truly remarkable. People
never do exactly what you expect, but if you can believe in themto do their job, trusting your subordinates and business
partners, you can obtain greater buy-in. That’s something I’mlearning every day.
Hajime: My creed was never to mislead others, never to take out
my anger on others unnecessarily, and never to speak ill of others.
In other words, I’ve lived my life to this point with a clear sense of
how my behavior affects my family and my employees. Integrity
may also be an important quality for a leader. In business as well,I’ve never sought to make a profit in a way that would cause people
to talk behind my back.
Haruki: We are passing on what I learned from my father’s
management style to employees in the form of five personal
skills: drive, initiative, resolve, control, and empathy. I also put ahigh value on integrity. In business, even if you have to make harddemands on employees or business partners, there should
always be integrity at the core. History clearly shows that if you
lose your humility and don’t act with integrity, you will stop being
able to obtain as much buy-in from others and will only go
downhill as a leader.

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