Dialogue 04

Dialogue 04

Need to Aggressively Communicate New
Business Models to Investors
Okajima: MARUI GROUP’s strength is rooted in its
DNA of innovation and in the frameworks that allowemployees embodying this DNA to create innovation.
The Company has been cultivating employees capableof responding to change through a variety of measuresover the past 10 or so years. The central pillar forthese initiatives has been the leadership of President
Aoi. Another major factor has been the developmentof frameworks for advancing initiatives throughan approach that is simultaneously top down andbottom up.
Sampei: You could not be more right. It is clearly
apparent, even to me, that MARUI GROUP has been
implementing various innovative initiatives and that thisspirit of innovation and change is permeating its
employees. However, investors do not yet appear to beable to completely understand what type of businessmodel will arise from this innovation in the future. While
it may seem that the Company’s stock price is doing
well, I think that the market has yet to evaluate
MARUI GROUP correctly.
Muroi: MARUI GROUP’s co-creation sustainability
management is almost perfect, and it has an incredibly
sincere corporate culture. I therefore think that therisks associated with the Company are few. In fact,
I first thought that there was not much for me to do

First Panel for Face-to-Face
Discussion between
Long-Term Investors
and External Directors
As companies come to be expected to engage inconstructive dialogue with investors regarding theimprovement of their corporate value, exchanges
between external directors and institutional investors
are becoming increasingly more important.
We therefore invited two long-term investors tosit down with three external directors and discuss
MARUI GROUP’s business model and the ideal
relationship with the employees that support
this model.

at MARUI GROUP, given that the role of external directors is supposed to be monitoring. To address the issue
that you, Mr. Sampei, point out, it would probably be agood idea to think of ways to improve the materials
provided at meetings with investors and to supply datathat backs the Company’s assertions.
Sampei: Data should not be the top priority. Around
70% to 80% of the work should be done by alleviating
investor concerns through explanations of theCompany’s policies, its frameworks, and the areas withwhich it is exercising caution. The role of data comesaround when investors ask for evidence after hearing
such an explanation. If the data can supply the remaining 20%, everything should click with investors. The
other day, I spoke with Director and Managing
Executive Officer Hirotsugu Kato on the subjects offinancial inclusion and credit management. He put fortha clear vision together with a wealth of data. The fundmanagers and analysts from my firm that were present
at the time were quite impressed with this explanation.
To investors, it is important to be able to paint a clear
picture of the next step in a company’s evolution andof its business model. If a company can aggressively
broadcast such information to market representatives,
the expectations of the market for this company willincrease. This is the bridgehead MARUI GROUP needs.
Taguchi: MARUI GROUP’s spirit of innovation is its
unbreakable backbone, and the Company boasts aresponsiveness to change that spurs it toward theappropriate action, regardless of the means or methods. I believe that these qualities are contributing toincreases in lifetime value from customers. I would liketo ask: When a company puts forth a new businessmodel, how do investors judge this model?
What benchmark do you use in these cases?
Sampei: We do not have a particular benchmark.
New business models are exactly that, something
completely new, and we therefore have nothing withwhich to judge them against. What is important is theelements of the business model that will allow it tocontinue. I tend to take interest in business models
that I judge to have the potential to continue for 10or 15 years.
Makino: At the moment, the main factors behind any
variation when I assess MARUI GROUP’s corporate
value are the growth rates of EPOS Gold cardholders,the per card usage amounts, and how the Company
intends to improve these indicators. However, althoughGold cardholders may be highly loyal to MARUI GROUP,
their income tends to be around the same level as thestandard cardholders of rivals. The question then turns
to the degree to which revolving and cash advancetransactions can grow through these cardholders.
MARUI GROUP estimates that one-third of women
living in the Tokyo metropolitan area will hold an EPOS
card in the future. However, one cannot help but question the validity of this estimate. I cannot say for sure at
the moment. However, if MARUI GROUP’s stock price isThis face-to-face discussion started witha photograph session. The anxious gazes
captured in this photograph are symbolicof the curiosity regarding the course of thisdiscussion between external directors andinvestors.
From left: External Director Yoshitaka
Taguchi, Nao Makino, Hiroki Sampei,External Director Etsuko Okajima, andExternal Director Masahiro Muroi

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Dialogue 04

Dialogue 04

Hiroki Sampei

Nao Makino

Head of Engagement
Fidelity International, Japan

Investment Officer, Misaki Capital Inc.
Technical Committee: Revenue Recognition
Accounting Standards Board of Japan

After graduating from Waseda University’s School of Scienceand Engineering in 1987, Mr. Hiroki Sampei joined Nippon
Life Insurance Company. He worked as a foreign stock analyst and portfolio manager in New York, Tokyo, and London
in the years that followed. Mr. Sampei was also a member ofthe Ministry of Economy, Trade and Industry’s Ito Reportproject team, and he took part in the formulation of the ministry’s Guidance for Integrated Corporate Disclosure andCompany-Investor Dialogue for Collaborative Value Creation:
ESG Integration, Non-Financial Information Disclosure, andIntangible Assets into Investment.

struggling, it is probably because it is reaching thelimits of evaluation frameworks developed under its
current business model. MARUI GROUP has a lot of
potential for the future, including its financial inclusion
and other initiatives. However, it is currently hard tojudge which of these initiatives will begin generating
value and when.

Positive and Negative Aspects ofNot Appearing Business-LikeSampei: MARUI GROUP’s co-creation sustainability
management has become well-known. However, there
is a bit of a communication gap experience when talking on this subject with frontline staff enacting this typeof management at operating companies.
Taguchi: When you are on the front lines, your perspective tends to be focused on this area. It is only natural for this perspective to change as one’s rank rises
and they find themselves positioned in different
divisions.
Muroi: Looking back at my own experience, after transferring from being head of a business segment to working in the investor relations division, it took a year or
two before I could truly bridge the communication gap
with medium-to-long-term investors. The perspectivesof those overseeing operations and those viewing
a company from the outside are fundamentally different.
Okajima: I understand what you are saying. In my timeat MARUI GROUP, I have probably met more than half ofthe Group’s roughly 5,000 employees, including thosetaking part in the Co-Creation Management Academy(CMA) future leader development program. Overall,MARUI GROUP’s employees are good, devoted, andhonest people. Most of them seem as though they were76

Mr. Nao Makino graduated from the University of Tokyo
Faculty of Law in 2012 and then joined Morgan Stanley
MUFG Securities Co., Ltd., where he was responsible forresearching Japanese stocks. He later took up a position
at a socially responsible investment research firm, providing
consultation services on ESG investment in Japanesecompanies.

born with the purpose of working with or for the sake ofcustomers. This is definitely a strength, but at the sametime this situation does not appear business-like.
Specifically, there is not much consideration of how tomonetize the efforts of employees.
Makino: There are both positive and negative aspectsof not appearing business-like. MARUI GROUP is advocating the idea of stores that do not sell with the goal oftransitioning to a business model that generates earnings by stimulating growth in the lifetime value of customers. Not appearing business-like is perhaps a wayof facilitating the development of long-term relationships with customers. Still, it will be impossible to­maximize the value of this model without employeesthat are able to understand and effectively implement
it. I have high expectations for MARUI GROUP’s idea oflifetime value. However, there may be cases in which
increasing lifetime value will require decisions to continue operating a business at a loss in order to achieve
future cash flows. Earnest dedication to turning a profit
on a single fiscal year basis is not enough in thesecases. On the contrary, the Company will need to foster
employees with the type of acumen that allows them todevelop frameworks and businesses that, for example,
force customers to use EPOS cards, despite their nothaving a desire to do so. A company only needs a­handful of such employees, and I truly hope thatMARUI GROUP will be able to cultivate them, throughthe CMA or some other such initiative.
Okajima: The clearest example I can think of such
unorthodox human resource development is Masahisa
Aoki, who was recently promoted to a director ofMARUI GROUP. Mr. Aoki joined MOVING CO., LTD., asa truck driver. He later became the general manager ofthe Anime Business Department at MARUI GROUP andthen was appointed to the position of president andrepresentative director of MARUI CO., LTD., at age 49.
I suspect that such examples will become morecommon going forward.
Makino: Similarly, Ms. Asumi Kantake, who was incharge of investor relations until just a few years ago,
is now representative director and CEO of tsumiki Co.,
Ltd. MARUI GROUP’s co-creation management reports
let readers track the growth of various employees,
offering another way to enjoy these reports.

Venues for Deeper Communication
with Long-Term Investors
Sampei: In regard to stakeholder engagement, I see
that dialogue with employees and customers has
become common place within MARUI GROUP. How areshareholders and other investors positioned among
stakeholders? MARUI GROUP’s co-creation management reports feature an image of six overlapping ringsof stakeholders, and investors are included among
these rings. However, I feel that the number of venues
for engagement with shareholders and other investors
are few and the information provided is lacking andunsatisfactory. This rings especially true when looking
at the level of communication practiced with otherstakeholders.
Okajima: MARUI GROUP has an incredible power todraw people into its orbit, and it has appointed experts
in various areas to serve as advisors. It may need toestablish a capital market advisory board next.
Taguchi: I definitely think it would be a good idea toestablish such a board. Japanese companies are often
thought to be good at following rules, but bad at
making them. However, I suspect that MARUI GROUP

will be able to propose a new, made-in-Japan benchmark for assessing companies: the rule that companies
should engage in co-creative, sustainable management.
Muroi: External directors could be seen as agents ofinstitutional investors. This is because our job is to raise
the questions that you two investors have at meetingsof the Board of Directors. For this reason, it is incredibly
important that we have opportunities to speak withinstitutional investors. I therefore think that your comment about the need for venues for deeper communication is right on the mark. MARUI GROUP is quick toaddress issues, so I hope to see the rapid resolution ofsuch issues in the future.
Makino: I feel that there is a close relationshipbetween external directors and the executive team at
MARUI GROUP. General shareholders may look at thisrelationship and wonder how oversight functions canbe effectively exercised given this closeness. I hopethat you can draft a narrative that will enable you toanswer this question by illustrating how there is stilla healthy degree of tension in this relationship, allowing
for oversight to be exercised, along with a narrative
about how this relationship makes it possible for external directors with a greater understanding of internalaffairs to support management.
Sampei: The gap between the perspectives of shareholders and other investors and companies, while notgoing as far as to represent a dichotomy, still signifies
a lack of shared recognition. There is a need to actively
approach the other party and to foster understanding,and this could be said of both companies and investors.
I think that one major takeaway from this discussion wasthat it highlighted the shared recognition of the need formutually deepening communication going forward.

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