Outside Officers Interview

August 2021

Through bouncing ideas of one another from diverse perspectives
Pursue continuous enhancement of corporate value

Takashi Mitachi (Left)
Outside Director

He has worked for Japan Airlines Co., Ltd. and the Boston Consulting Group, where he is currently a senior advisor. He also serves as an outside director of Rakuten Group, Inc. and DMG Mori Co., Ltd. He became a director of Tokio Marine in June 2017.

Nana Otsuki (Right)
Outside Audit & Supervisory Board Member

She has worked as an analyst at various financial institutions, including Standard & Poor's Ratings Japan K.K. and Merrill Lynch Japan Securities Co., Ltd. Currently, she serves as chief analyst at Monex, Inc. She also serves as an outside director of Credit Saison Co., Ltd. and a professor at the Graduate School of Management, Nagoya University of Commerce and Business. She became an outside Audit & Supervisory Board member of Tokio Marine in June 2018.

Effectiveness of the Board of Directors

Link between the Board of Directors and lively discussions outside the board

QHow do you evaluate the effectiveness of the Board of Directors?
Mitachi
One of the biggest features of Tokio Marine's corporate governance is that not only there are lively and active discussions during board meetings, but the discussions happening outside of these meetings are also well linked. For example, when we hold "discussions on corporate strategy" several times a year, everyone, including outside officers, participates in discussions on management issues that have a large impact on medium- to long-term corporate value, such as future direction of global strategy and digital strategy. Such active participation plays a very important role to improve the quality of discussions and decision-making during Board meetings, and enhances awareness and understanding of management issues.
Otsuki
There are some companies that set aside a separate meeting to formulate major business strategies including the medium-term management plan. I find it very unique that Tokio Marine conducts frequent discussions on various themes that also include the outside officers.
Mitachi
Also, there are many instances where we receive presentations directly from staff outside of the board, including persons in charge of individual business departments according to the theme, and exchange opinions with them.
Otsuki
Absolutely. Tokio Marine's major feature is that it actively creates opportunities that involve not only the management who are regulars at board meetings, but a variety of members including mid-level employees in our discussions. For outside directors and auditors, it is very helpful to hear directly from employees who are at the frontline of each business. Also, for employees, it provides a great opportunity to consider business from a different perspective than what they are used to through exchanging ideas with those outside of the company. In this manner, by sharing ideas between people who come from different job positions and standpoints, we get to consider topics from multiple angles, which gives rise to very solid and wide-spanning discussions, which, I believe, by extension, improves board effectiveness.
QThere are views in the stock market that outside officers should focus on the monitoring aspect and it could be problematic if they get too involved with inside officers. How do you two feel about the role of outside officers?
Mitachi
As a company with an Audit & Supervisory Board, we have created a disciplined governance structure including a voluntary Nomination Committee and a Compensation Committee with outside directors leading the meeting discussions. However, this structure barely meets the minimum requirement, and in order to prevent damage to corporate value and instead enhance such value, it is critical to look at how to run these committees.
Otsuki
To that end, as I mentioned earlier, it is important for directors and auditors both inside and outside the company to conduct discussions in a horizontal manner, regardless of their rank or standpoint. In particular, I think it is necessary for outside officers to speak and act while feeling the weight of the trust bestowed by shareholders. For this reason, it is unacceptable to fulfill our roles only ceremonially. When a meeting is formalized, it tends to be filled with statements such as "I would like to give my opinion from the perspective of governance for the time being."
Mitachi
For example, we cannot have constructive discussions in a formalized meeting, such that we could discuss the compelling reasons for implementing a project, what risks are involved in the execution, how to control these risks, and how to expand such projects in the future. In this sense, I feel like we are running meetings in the company effectively without them being only ceremonies.
Otsuki
"What is the point of having people outside of the company who are not familiar with our business serving as directors or auditors?" It is also true that some people have doubts such as this. However, as far as the outside officers of Tokio Marine are concerned, they have a certain level of knowledge about the business through on-site inspections and talks with employees, as well as through meeting materials clearly outlining issues and sufficient prior briefings. On top of this, since they are specialized in areas other than insurance, they can often provide suggestions on our business challenges from perspectives that we don't normally notice from inside the company.
Mitachi
Since outside officers come from various backgrounds, there are many diverse opinions and it is not unusual to hear opposite standpoints.
Otsuki
Just the other day, there was a heated debate on a certain strategy with divided opinions among the outside officers. I think this is a very good thing for the company's governance. For people who are mutually external to one company to be able to take on a debate that seriously, I feel it is not only driven by each speaker's personal character, but there is an ingrained corporate culture that enables everyone to speak freely.
Mitachi
I have served as an outside director of Tokio Marine for four years. I feel it is the company’s strength that outside officers are playing a substantial role this way, with this being yielded through the process of our business operations, which has a slight advantage.

Business Portfolio Strategy

Strengthen monitoring of M&A

QHow do you evaluate the portfolio reshuffling of recent years?
Mitachi
Tokio Marine has recently made decisions to sell multiple businesses, which I think stands as proof that our portfolio strategy is functioning well. Tokio Marine has optimized its business portfolio through acquiring companies with unique businesses and outstanding management. However, as the market environment changes rapidly, we need to welcome new businesses into our portfolio while carving out and divesting businesses that no longer fit in with the purpose of our strategy in order to optimize our portfolio. Particularly for Japanese businesses, there are many instances where their overseas subsidiaries are sold off due to a downturn in business performance that cannot be salvaged.
Otsuki
In that respect, we have started considering divesting businesses from an early stage that are no longer in line with the purpose of the Group Strategy or for which profit growth cannot be expected from a future perspective. I believe this is driven by the strong conviction among our board members to fulfill shareholders' expectations as they have invested capital in us.
Mitachi
Of course, since we are not an investment company, we do not have to constantly replace our business portfolio, but we must be cautious to some extent. Looking at recent examples such as the sale of TMR, which was a stepping stone for our overseas expansion, we find that the sale was made at a very appropriate timing, which was a positive move for our corporate value.
Otsuki
In addition to large merger deals, we also have a track record of over 60 successful deals in bolt-on acquisitions that complement our existing business model. The new Mid-Term Business Plan aims to further enhance the quality of M&A, which also includes such bolt-on acquisitions, under the proactive governance of Tokio Marine Holdings. I would also like to carefully monitor the progress of this measure.
Mitachi
One other thing is Tokio Marine's positive attitude toward risk taking as a distinctive feature in its M&A strategy. Perhaps because its core business is insurance that takes on various risks, I feel the philosophy is built in to the company's management such that we should not take too much risk, and at the same time, we should take enough risks.
Otsuki
For sure that the company is very conscious of return on risk. Generally speaking, risks are considered to be negative and conversations tend to be dominated by how to reduce risks. However, in Tokio Marine's situation, we have quite a few discussions on whether we can take on more risks.
QWhat are some future challenges?
Mitachi
I think it will be a big challenge for the next generation of board members to consider how to incorporate new frontier areas into the foundation of our global business portfolio that we have developed to date.
Otsuki
Large Japanese corporations usually say no to taking risks, but Tokio Marine is conscious of "return on risk," "unafraid of challenges," and "learning from mistakes." If we take on frontier areas in our business, having the corporate culture we do will serve as a great advantage.
Mitachi
Absolutely. In our business operations, for example, promotion of DX, there are many things that we don't know or cannot foresee until we actually give it a try. As well, I believe we have success today in our overseas expansion as we were able to critically analyze and draw on our experience of failure 40 years ago while having the spirit of trying again. Again, in the future, I believe we must stand firmly with both feet without fear of failure and we should embrace trial and error.
Otsuki
Another issue is that it is necessary to continue to have a sense of urgency in a good sense. While Tokio Marine is currently the world's top class insurance company, I think it is important to continue having a healthy sense of urgency in order to achieve further growth from here on. I had a conversation with a mid-level employee the other day. The person was working on addressing concerns they have had including the fact that other companies are enhancing their competitiveness and that Tokio Marine cannot do business the same way 10 years from now. It is important to have such solid sense of urgency for everyone from management to young employees. I hope they will continue to grow and evolve with the awareness that the right answer today will not necessarily be the right answer tomorrow.
Mitachi
As many officers, including Ms. Otsuki, have pointed out this issue, while I also feel we are properly sharing our sense of urgency for now, I hope the outside officers will continue to monitor this area going forward.

Toward enhancement of corporate value over the medium to long term

The role of non-financial information in corporate value

QLastly, what are your thoughts or advice on how to enhance corporate value over the medium to long term?
Otsuki
Until now, financial information such as sales and profits has been a major factor in determining corporate value. However, recently, the importance of non-financial information has been rapidly rising as ESG investment expands around the world.
Mitachi
The non-financial information Ms. Otsuki has pointed out is called non-competitive factors in my specialized area of consulting, which is indeed gaining traction. Conventionally, competitive factors such as the efficiency of operations and quality of marketing often had a direct impact on corporate value. However, nowadays, we have entered an era in which corporate value is also greatly influenced by factors outside the framework of simple microeconomic competition, including the ability to deal with issues such as climate change and human rights, and the ability to reorganize the business portfolio while recognizing geopolitical risks.
Otsuki
People inside the company bear the burden of business performance in numbers, and can't help but orient themselves in that direction. For that reason, it is more important than ever for outside officers to provide opinions and suggestions on initiatives for non-financial information and non-competitive factors.
Mitachi
That is true. I think we will continuously enhance corporate value by sharing opinions on how to use these non-competitive factors to benefit shareholders from multiple viewpoints.
Otsuki
In the new Mid-Term Business Plan, we have announced that we will newly include "future generation" in our stakeholders. In that sense, I believe we are further expected to take responsible actions while thinking about the future. Going forward, I hope all outside officers will continue to fulfill our monitoring role while thinking together with everyone.

Thank you for your time today.