A Tripartite Discussion among the Outside Directors Who Chair Committees

Scott Trevor Davis
(Chair of the Nomination Committee)

  Sawako Nohara
(Chair of the Compensation Committee)

Naoki Yanagida
(Chair of the Audit Committee)

—Governance for the Realization of “A Theme Park for Security, Health & Wellbeing”—

Q1 As outside directors of the Sompo Group, on what type of viewpoints do you place particular emphasis?

Davis  Generally, I try to remain aware of the external viewpoint. I focus on being objective at all times and viewing actual situations in the context of what the ideal situation would be. Not being an internal executive, I am expected to adopt an external viewpoint and provide clear opinions on proposals submitted to me.
Personally, as my position as a faculty member calls for the separation of the personal and the professional, I am particularly aware of the importance of having such a viewpoint. No doubt my two colleagues will have their own particular approaches to achieving the appropriate viewpoint for an outside director.

Nohara  As well as remaining aware of maintaining an external viewpoint of the Sompo Group, I focus on cultivating a broad perspective and taking a bird’s-eye view of the Group.
Rather than finding common ground, I believe it is important to offer opinions from a different viewpoint, thereby broadening horizons a little and encouraging appreciation of new perspectives. In this sense, my role is to make the kind of stir that stimulates further discussion.
Another perspective that I am mindful of is, naturally, the significance of the appointment of a woman to my position. I think my being a woman gives me a heightened awareness of certain issues, and I try to offer opinions that will help enhance women’s status.

Yanagida  I also take particular care to ensure that I provide evaluations from an external viewpoint. Management decisions are made after due consideration of how the outside world evaluates companies. Taking outside evaluations into consideration is extremely important for companies, which makes doing so vital for the Sompo Group too. We as outside directors have to adopt an approach of checking whether the Sompo Group’s management decisions make sense from the viewpoint of a third party. In other words, we have to check that such decisions are not being driven by in-house groupthink.
Further, as I chair the Audit Committee, I always focus on whether decisions are reasonable and have been taken based on appropriate procedures pursuant to the principles of management decision-making.
In addition, my approach is affected by the specific characteristics of the Sompo Group. I pay particular attention to the overseas insurance business as it is reforming rapidly and accounts for a significant share of the Group’s business. I also focus on the nursing care & healthcare business, which is in some ways an unusual business for an insurance company to be engaged in.

Davis  I believe that outside directors have superiors, namely, the shareholders who delegate responsibilities to them.
Also, I think that reflecting the various policies, positions, and expectations of shareholders is important, which is why I consciously try to represent shareholders’ opinions in discussions.

Nohara  Rather than just contributing from an external perspective to the making of in-house decisions, the role of an outside director includes acting as a representative of shareholders and providing supervision and recommendations in relation to the management of a company. I believe that we are in a position to draw on the lessons learned throughout our respective careers and make positive pronouncements based on the experience and specialized knowledge we have garnered. With a view to enhancing the Sompo Group’s value, I provide supervision from a broad viewpoint as well as constructive suggestions.

Q2 Sompo Holdings transitioned to a Company with Committees structure one year ago. What changes have you noticed since then?

Nohara  Previously unified, the functions of management supervision and operational execution have been separated. Consequently, the Board of Directors focuses exclusively on making decisions on management plans and supervising the progress of operational execution, while specific matters pertaining to executive divisions come under the purview of the Global Executive Committee (Global ExCo) and the Managerial Administrative Committee (MAC).
My impression is that this new structure has speeded up business management.

Davis  With the aim of achieving a transfer of authority to executive divisions rather than to the individuals thereof, at the same time as transitioning to a Company with Committees structure, the Company created Global ExCo, a decisionmaking platform for executive divisions that encompasses overseas matters, and MAC, a decision-making platform for executive divisions that mainly deals with domestic affairs.
I think the speed of business management has increased because this structure is functioning very effectively.

Nohara  By attending Global ExCo meetings as an observer, I have gained insight into not only domestic businesses but also overseas businesses.
As a result of having a vantage point closer to frontline operations and witnessing the types of topics on which the leaders of operating companies focus in discussions that transcend corporate and national boundaries and becoming familiar with the management plans under consideration, I am better able to read between the lines of agenda items submitted to the Board of Directors. Moreover, such insight has made it easier to audit the progress of operational execution.

Yanagida  I agree. Attending meetings of Global ExCo or reading its documents make it abundantly clear that the committee is committed to bringing matters to a resolution at meetings whenever possible. Of course, some matters cannot be resolved at meetings. However, the Global ExCo members’ approach of setting concrete time limits and moving matters forward accordingly is very clearly in evidence. My impression is that all committee members take the approach of holding discussions to reach decisions rather than having a discussion for discussion’s sake.

Davis  I think that the transition to a Company with Committees structure has speeded up business management. Conversely, it has also slowed down certain things. Time spent on considering and evaluating management strategies has increased significantly. Consequently, modulated, extremely in-depth discussions have become possible.
While on the one hand the discussion of certain matters has been expedited, more time is now devoted to discussing matters that require thorough examination. Thus, I feel that a sounder overall balance has been achieved.
So far, we have been speaking about speed. However, the most important consideration is whether the management structure is sufficiently flexible to enable strategic decision-making. With respect to providing enough time to mull over management strategies in advance and securing venues for discussions of such strategies, I feel that the Sompo Group’s governance structure meets both of these requirements very well.

For a more detailed explanation of Global ExCo

Q3 In relation to the Sompo Group’s vision of realizing “A Theme Park for Security, Health & Wellbeing,” what expectations do you have?

Nohara  In terms of showing the form that globalization and the diversification of businesses should take, I believe this is an excellent vision. In Japan, expectations of the vision are probably already mounting with regard to contributions toward addressing the country’s social issues. Moreover, I hope that the vision will become a turning point that leads to the Group increasing its presence and becoming a high-profile corporate group internationally.
At present, the Group’s four major pillars are the domestic P&C insurance, overseas insurance, domestic life insurance, and nursing care & healthcare businesses, with digital technology businesses and other business being added steadily. As the Group evolves, it is also developing a variety of services. For example, it is offering nursing care and dementia-related services in Asia. Beyond Asia, the Group is likely to strengthen the rolling out of such products and services as agricultural insurance going forward. Whether the Group can market these products and services in a rapid and appealing manner will be key. I believe that the Group can step up collaboration between its domestic and overseas bases and provide services globally that earn strong customer endorsement.

Yanagida  The use of the words “theme park” was not a product of management priorities but came about as a result of focusing on the priorities of customers. Having set out the “theme park” concept, the Group should make itself into a place that people visit with the expectation of being able to benefit from great services. In other words, I would like to see the formation of a corporate group inspiring all customers to feel that SOMPO services can enrich their lives and that they can rely on the Sompo Group to offer good ideas for improving their lives.
Currently, insurance companies are associated with services that people rely on when accidents and other unlikely events occur. However, I hope the Group can go one step farther and become a more familiar presence in customers’ day-to-day lives.
Of course, customers will continue to rely on the Group when unlikely events occur, but it should also offer other useful services, including those for the prevention of accidents and illnesses and the minimization of disaster damage. The nursing care and dementia-related services that Ms. Nohara mentioned are examples of such services. I want to see the Group benefit the society of the future by establishing innovations for customers that enable the enrichment of all aspects of life.

Davis  In order to realize “A Theme Park for Security, Health & Wellbeing,” I would like the Group to leverage effectively the relationships of trust that it has with customers.
The first time I listened to a discussion of the Sompo Group at a meeting of the Board of Directors, the topic was how to turn “on” elements that are currently “off.” For customers, services are “on” at the moment customers enter into an insurance policy and at the moment they make an insurance claim upon the occurrence of an unlikely event. At other times, however, points of contact between an insurance company and its customers are almost non-existent. Nonetheless, during such periods the customers maintain their policies because they continue to trust the Sompo Group and feel reassured that it will help them if they have a problem. I look forward to the Group leveraging these relationships of trust to find the kind of demand that even customers themselves do not realize is there during “off” periods and to then turn such switches “on.”

Q4 Will the worldwide spread of COVID-19 affect the Sompo Group’s target profile?

Yanagida  I think the target profile itself is unlikely to change, but the methodology and means by which it is realized could very well change.
Given that an acceleration of digitalization is inevitable, digital technologies are likely to become one of the main focuses when thinking about strategies.
However, it is not enough to just say in an abstract way, “yes, digital technologies are important.” Considerable differences in the extent to which companies implement concrete measures are certain to emerge going forward, thereby revealing the level of commitment of each company’s management team. Further, whether or not management teams are able to communicate their level of commitment to employees is an important point. I am sure that Sompo Group employees understand the strong commitment of their senior management team as it consistently issues messages to that effect. I anticipate that the whole Group will make a concerted effort to move forward toward its target profile.

Nohara  While the vision of the “theme park” strategy has remained consistent from the outset, its content has changed in many ways. As events in society have unfolded, the Group has adroitly adjusted its direction or decided to expand and increase focus on certain fields that have become more certain.
Therefore, in a similar fashion the Group needs to take into account changes in demand from society that are resulting from the spread of COVID-19.
For example, although by necessity interactions tend to be noncontact and non-face-to-face, there must be growing demand for timely, painstaking communication focused on each individual’s needs. The Group has to think about how it communicates with customers and provides them with services. I believe services that enable new approaches in these regards can lead to the creation of new businesses.
Also, the Sompo Group has long stated its intention to build a lifestyle-related Real Data* Platform. As a platform developer, there is potential for the Group to provide lifestyle-related big data to other companies and to roll out a variety of its own services. Accordingly, the Group should adjust such initiatives to reflect the ongoing changes in society.
* "Real data" refers to data that is acquired from various real-life activities.

Davis  In my view, demand for the “theme park” strategy has increased.
Under this strategy, the Group provides a broad, varied menu of services that ensure and heighten security, health, and wellbeing. Consequently, from the viewpoint of consumers this range of services offers lifestyle solutions suited to each individual.
Of course, there were those who felt that they had no need for such solutions because if adequate societal infrastructure was in place their security, health, and wellbeing would probably be fine. For this reason, despite having attractive offerings the Group’s “theme park” did not entirely match the circumstances of society and had yet to be fully utilized.
However, the crises and lack of provision in various respects that have stemmed from the worldwide spread of COVID-19 have given people firsthand experience of how difficult it is to deal with matters as an individual. As a result, my guess would be that those who did not feel the need for solutions now feel it necessary to ensure their security, health, and wellbeing as well as that of their families.
Over the past several years, the Sompo Group has been working extremely hard to build partnerships and networks that will enable the realization of a “theme park.” Now is the perfect opportunity to use this infrastructure to benefit society.

Q5 What are your impressions and evaluations of your first fiscal year as the chairs of your respective committees?

Yanagida  For me, one of the main differences accompanying the transition to a Company with Committees structure is that my position has changed from that of an Audit & Supervisory Board member to that of a director who is an Audit Committee member. That said, I am not performing my duties from a completely different viewpoint, as I believe that the viewpoint I had as an Audit & Supervisory Board member is basically still required.
However, in addition to focusing on avoiding bad decisionmaking as I did previously, I now also concentrate on enabling better decision-making. Achieving the latter objective calls for proactive statements of opinion. Looking back over the fiscal year, this sums up the way in which my mind-set has changed.
Further, at meetings of the Audit Committee we have discussed the likelihood of having to develop innovative auditing methods in response to the spread of COVID-19. In some cases, the new approaches that replace previous methods may even prove to be more effective.

Davis  As a result of the transition to a Company with Committees structure, the previous, non-mandatory Nomination and Compensation Committee was split into the Nomination and Compensation committees.
The existing frameworks of the previous Nomination and Compensation Committee together with the decision to include its former members on the Nomination and Compensation committees allowed the new committees to get off to a particularly solid, vigorous start.
Governance involves making a promise, of which the most important commitment concerns management strategy. Governance demonstrates whether this promise is being kept. In other words, governance has two aspects: making an appropriate promise and keeping it.
The more that a nomination committee ceases to be a decoration and becomes truly active, the more that its discussions focus on what the promise is, how it can be kept, whether it is being kept properly, or when it will be kept. Over the past fiscal year, the Sompo Group has gone through this process very rapidly.
The Group CEO firmly believes that good governance is indispensable for the realization of transformation. I think this commitment has been even more in evidence at meetings of the Nomination Committee over the past fiscal year.

Nohara  During the past fiscal year, I think the Compensation Committee has established an effective base and framework. Going forward, however, I want to work on deepening their substantiveness.
Compensation Committee members are tasked with discussing the compensation of those in executive officer positions and above. But rather than existing in isolation, the executive compensation system is connected to Companywide systems that encompass all other employees, including those for personnel, evaluation, management, and training.
Recently, we have been discussing how young employees are evaluated, how talented personnel are identified, and how they are fostered. In addition, we have been discussing the need to seamlessly link such efforts with succession planning and the compensation system.
I believe that considering ways of ensuring each employee stays highly motivated will lead to enhanced corporate value. This is a weighty responsibility in the sense that the process of considering such matters should include an examination of the personnel system and in the sense that the associated issues must be thoroughly discussed, and then decisions must be reached.