Growth through Transformation
Scott Trevor Davis
Director (Outside Director)
Chair of the Nomination Committee
Member of the Compensation Committee
Q1: Why has this change in the governance structure been implemented at this time?
In general terms, the goal of governance is to make sure that a company continues to create new value and meet the expectations of all of its stakeholders. Achieving governance goals entails setting appropriate targets, making good decisions, and implementing them effectively. Monitoring and assessing the entire process—from formulating targets to evaluating their results—are key issues for governance.
Individual companies not only have their own distinctive features tailored to meet the specific expectations of their stakeholders but also possess unique business models and value propositions. Of course, this also applies to Sompo Holdings. What this means is that in order to evaluate the quality of governance at the Company and the importance of its adoption of a Company with Committees structure at this time, one must also look at the strategic direction of the Company’s businesses and its characteristics.
Almost a decade ago, the Company was faced with the question of how to generate growth in a business focused primarily on the domestic P&C insurance business, a country that faces an aging and declining population and low levels of economic growth. The answer was transformation. In other words, Sompo Holdings aims to realize growth and create new value by transforming itself into a corporate group that provides a range of seamless services, similar to a theme park for security, health, and wellbeing. The Company’s business operations have therefore been reoriented to emphasize growth through transformation—both through the renewal of existing business models and expansion into related but novel fields.
In terms of governance, this reorientation resulted in a need to facilitate decision-making with an appropriate sense of speed to match the different dynamics of specific markets and to promote the identification and development of promising business opportunities as well as synergies across markets. From the perspective of a holding company, the reorientation of business operations heightened the need to enhance the management of a growing portfolio of businesses.
Therefore, Sompo Holdings is carrying out governance as an ongoing process to clarify lines of responsibility and promote greater objectivity and transparency. The Company is also pursuing synergies by promoting greater coordination among business units. Accordingly, the adoption of the Company with Committees structure was a very effective means of ensuring governance that could guarantee appropriate management supervision in order to enhance the objectivity and transparency of decision-making as it engaged in this process of transformation.
However, the transition to this organizational structure is only a part of the ongoing process for strengthening the governance structures and systems required to keep our promise to create new value and meet stakeholder expectations.
Q2: How is the Group CEO nominated?
Nominating the right person to serve as Group CEO is an issue of critical importance to any corporation, and Sompo Holdings is not an exception. The question, however, should not be, “How is the Group CEO chosen and nominated?” but, “How is executive appointment and evaluation linked to strategy?”
The Company has promoted various organizational innovations to achieve growth through transformation. At the executive level, the Company has established the positions of Business Owners and Group Chief Officers (CxO). Business Owners are the heads of the Group’s business segments (including domestic P&C insurance, overseas insurance, domestic life insurance, and nursing care & healthcare). Meanwhile, under the overall supervision of the Group CEO, Group Chief Officers (the Group’s COO, CSO, CDO, CFO, CHRO, and CRO, respectively) oversee their respective functional areas: the Group’s business operations, business strategies, digital strategies, financial affairs, human resources, and risk management. The result is a matrix-style management system wherein Business Owners are charged with directly developing and managing business segments, while Group Chief Officers focus on their functional responsibilities.
Through this system, the Company is able to examine business operations from different perspectives simultaneously. For instance, innovation in the nursing care sector can be evaluated in terms of trends in the changing needs of the elderly, and with regard to the potential for leveraging digital and other new technologies to enhance efficiency or develop entirely new services. This distinction between ownership and function enables highly objective, transparent, and balanced strategy deliberation at both the planning and implementation stages. At the same time, it creates a wealth of opportunities to evaluate the performance, aptitudes, and potential of executives as they work and interact across different roles.
Regardless of whether an executive is a Business Owner or a Group Chief Officer, all are required to formulate their own missions, drawing from the overall aim of transformation into “A Theme Park for Security, Health & Wellbeing.” Executive nominations and compensation are based upon a mission-driven, results-oriented policy.
Executive succession planning at Sompo Holdings is not based upon how closely a candidate resembles an abstract ideal of a chief executive, but is instead based on these missions. All executives, including the CEO, are constantly evaluated and compensated according to their ability to create and implement missions that can define and contribute to the realization of the Group-wide strategy of growth through transformation.
Q3: What is the next step in the development of Sompo Holdings’ governance?
To date, Sompo Holdings’ mission-driven, results-oriented policy has been highly effective in promoting innovation and delivering results. Similarly, the matrix-style management system that combines the Business Owner and Group Chief Officer positions has had a marked effect on promoting further transparency and objectivity in management processes. As a result, the current executive team at Sompo Holdings and those at its Group companies deliver solid performance. The quality and performance of these executive teams, combined with the policies and procedures that support them, currently place Sompo Holdings in a position to take full advantage of the Company with Committees structure as it takes the “growth through transformation” strategy to the next level of implementation.
One of the benefits of the abovementioned organizational structure is that it enables the flexible and timely implementation of strategies by separating policy formulation and strategy implementation. In other words, it offers a clearer differentiation between supervisory and management responsibilities. Using this new structure, the Board of Directors will allocate more authority to Business Owners and Group Chief Officers as required in order to facilitate greater flexibility and timeliness of decision-making. At the same time, the Company has introduced a new level of strategic organization called Global ExCo (Global Executive Committee).
While the Board of Directors sets overall strategic direction and closely monitors its progress and achievement, Global ExCo will serve as a management platform staffed by Business Owners and Group Chief Officers drawn from Group companies worldwide, with the objective of enhancing the coordination and development of both domestic and global operations in accordance with the Company’s mission-driven, results-oriented policy. In addition, by creating synergies of knowledge, insight, experience, and resources in a manner that transcends individual regions and markets, the Global ExCo is expected to help the Sompo Holdings Group further enhance the agility and transparency of its executive management functions across all Group companies.