GovernanceInterview with Outside Director

Interview with Outside Director
NISHIKAWA Koichiro
Biography
Apr 1970 Joined Hitachi, Ltd.
Aug 1995 Vice President of Hitachi America, Ltd.
Jun 2001 Managing Officer and General Manager of Global Business Development Division ofHitachi, Ltd.
Apr 2003 Manager of Business Development Division of the same company
Jun 2003 Executive Officer and Manager of Business Development Division of the same company
Jan 2006 Vice President and Executive Officer in charge of Business Development of thesame company
Apr 2007 Senior Vice President and Executive Officer in charge of Business Development ofthe same company
Apr 2010 Senior Vice President and Executive Officer of Hitachi Cable, Ltd.
Apr 2012 Senior Advisor of Hitachi Research InstituteMar 2014 Outside Director of Kyowa Hakko Kirin Co., Ltd.
May 2015 Audit & Supervisory Board Member of J. Front Retailing Co., Ltd. and Audit &Supervisory Board Member of Daimaru Matsuzakaya Department Stores Co. Ltd.
May 2017 Outside Director of J. Front Retailing Co., Ltd. (present)
May 2018 Director of Daimaru Matsuzakaya Department Stores Co. Ltd. (present)

Governance reform is shifting from“container”to“content”

Directors meetings in 2015, which I attended as an
Audit & Supervisory Board Member, for example, theagenda concerning investment was explained andI have been involved in the governance of the64

discussed only from a perspective of“whether or not it

Company as an Outside Audit & Supervisory Board

would

Member of the then Company with an Audit &statements, only P/L (statement of profit or loss) wasgenerateprofit.” Speakingoffinancial

Supervisory Board since May 2015 and as an Outside

discussed. At the recent Board of Directors meetings,

Director of the Company with Three Committees

we have mainly discussed what impact the invest(Nomination, Audit and Remuneration Committees)

would have on B/S (balance sheet), what effect itsince May 2017.

would have over the short, medium, and long terms toI think a full-fledged governance reform started after

increase ROE, what relationship would be between

the Governance Committee was created in Julyrisk and return, and furthermore, how it would be able

2015. Executive Directors and Outside Directors had

to contribute to capital received from shareholders formany discussions to establish a desirable governanceactual management from shareholder perspectives tosystem. The Governance Committee drew a proposal

achieve an ROE of 8%. Thus our managementthat the Company should transition to a Company

changed to ROE management in which we canwith Three Committees (Nomination, Audit anddiscuss based on B/S instead of focusing on P/L as

Remuneration Committees) to realize the establishment

in the past. I think this is a striking example showingofinmanagement valuing shareholder perspectives isconsideration of what we aim at including strengthening

steadily taking root. Recent discussions on ICTof oversight function by separating oversight fromstrategy particularly impressed me. We took time toexecution, greater clarity of authority and responsibility

consider from various angles not only measures toin business execution and promotion of agile

implement the Medium-term Business Plan such as

management,

andthe measures for remarkably leaping e-commerce

objectivity of management, and global investor
perspectives. As a result, the Company transitioned tobusiness but also a wide range of issues including“2025Digital
Cliff” involvingDX(digitala Company with Three Committees (Nomination,transformation) and appropriate allocation of roles

Audit and Remuneration Committees) in May 2017. Inand responsibilities between the head offices andJanuary 2019, the Governance Committee developed

operating divisions in the Group not only at the Board

into the Management Advisory Board where Presidentof Directors meetings but also preliminary hearing atseeks active advice from Outside Directors. Now that

the Audit Committee and executive sessions attended

the“container”of governance has been created, itby only Outside Directors. I recognize they are

evolved into the one for discussions to improve

included in the most important issues that will be“content”to be put in the container.

continuously followed up by the Board of Directors.

easy-to-understandgovernanceimprovementofsystemtransparency

The Board of Directors clearly changed after theSince 2015, monitoring, questionnaires, interviews,

governance reform was launched. At the Board ofand quantitative and chronological analyses areGovernanceprovided by a third-party organization on a regularcalled“the most trusted man in America”for his liberalbasis to evaluate the effectiveness of the Board ofDirectors. I reread the reports on the past fourand patriotic stance, to join the board as an outside

evaluations and found that concerning“agenda for thereality. By that I mean the majority of outside directors

Board of Directors meetings,”“time allocation inof the company I worked for before are foreigners

discussions,”“how to evolve discussions including

though the Company has no foreign directors. What
seemed unrealistic at that time has become a reality.

prior explanation about agenda”and“securing enoughdirector. Looking back, it is just about to become atime for discussions, having exhaustive discussions

From such experience, I am always aware of sharing

and narrowing down problems concerning important“common sense”as an Outside Director.

matters to reach a decision,”we are highly evaluatedbecause the framework is being completed.

We also need to pay attention to risk. By restating“risk” as “uncertainty,” the Company studies risk

On the other hand, particularly according to thefrom both positive side and negative side in relation tolatest evaluation,“there were few opinions from Outside

management strategy. Generally speaking, risk is

Directors among those who attended discussions,”“theconsidered negative. Therefore, I thought I had betterfocus of agenda should be on the matters related to theorganize the wording and particularly should be careful

progress of the Medium-term Business Plan, forto use the word “risk.” By restating “risk” asexample,”“the Audit Committee is not working enough”“uncertainty,” we can treat so-called “risk” asand“some Outside Directors are not satisfied with theuncertainty in a negative sense and“opportunity”asspeed of execution.”We have to keep them in mind. I

uncertainty in a positive sense and I think we canwould like to say the Board of Directors is evaluatedbetter organize it than ever before. I often tell thethat the framework is well in place and that the Board

Board of Directors that leaving the uncertain future oris at the phase of improving content to be put in theunforeseeable situation untouched is not management.

framework and the management capabilities andIf we leave it to fate, we need no managerial people.
In this sense, it is important to cover risks in a negative

execution capabilities to produces results.

Important role is to provide“commonsense”to management
I think the common sense of Outside Director isimportant. For example, a person who became amember of the management team after accumulating
experience in retail and department stores has
extensive knowledge about and expertise in the industry
but I am afraid his or her measure of management
decision making was developed in a limited environmentor to a limited extent. Common sense in Japan may not
be common sense in the rest of the world. I myself haveoften encountered such cases in my past experience.
In this sense, I think it is more important to share“common sense,”which means“common sense in
the world,”than to share my management ability andmanagement experience. In the 1980s, an industrial
spy scandal happened. The FBI conducted anundercover investigation and some employees ofJapanese electronics manufacturers were arrested. Atthat time, I was involved in resolving the scandal. A
famous American corporate lawyer made a defense
and finally it was resolved. The lawyer said,“Theoperation of your company lacks vitamin C.”I asked,“What do you mean by vitamin C?”and he answered,“It means common sense”and he added,“It lacks
common sense to do business globally. So you causedsuch an incident.”He also said that we should invite
Mr. Walter Cronkite, a renowned American journalist

sense and actively take chances in a positive sense.
As all the management should do is how they makedecisions for the uncertain future, it is important how
many options we will have when implementing them.
We need to analyze the probability and sensitivity ofeach option, implement the option that will maximize
corporate value over the medium to long term, andprepare a backup plan. We also have to think in detailabout how we will take it if it is a chance or how wewill cover it if it is a negative risk. Needless to say,quantitative analysis is essential for this purpose.
Speaking from my past experience of serving as an
outside director of a pharmaceutical company,
investments at pharmaceutical companies are highly
uncertain and large in scale, and if a wrong decision ismade, they will face a financial crisis. For this reason,
AI is used in a significant part of investment decision
making. With the current backdrop of increased big
data and simulation ability, I am beginning to think theera of“AI management”using them is just beginning.
The Company, which mainly operates retail business,
may need such ideas and thoughts. I was appointed as
the Chairperson of the Audit Committee in the current
fiscal year. Valuing provision of common sense to
management including these ideas and thoughts, I
will strive to audit not only illegal operations but also
whether or not the Company conducts risk-return
managementwithcomprehensively

balancedmanagement decision making for the uncertain future
to achieve the Medium-term Business Plan.

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