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The “evolution” achieved in the four years of the Mid-term Management Plan, and looking to further development
We are finally entering the final year of the Mid-term Management Plan 2023, “Challenges for Evolution.” How has Dexerials evolved and developed over the past four years of significant social turmoil on a global scale, including the COVID-19 pandemic and geopolitical risk? And what are the challenges and new initiatives that Dexerials needs to address for further development?
Three directors with intimate knowledge of the current Mid-term Management Plan looked back on the past four years, and discussed the outlook for the future.
Representative Director and President
Yoshihisa Shinya
Outside Director
(Chairperson of the Nomination and Remuneration Committee)
Takashi Yokokura
Outside Director
(Chairperson of the Audit and Supervisory Committee)
Rika Sato
Changes in the social environment
ShinyaWe have finally entered the final year of the Mid-term Management Plan 2023, “Challenges for Evolution” (hereinafter referred to as the Mid-term Plan) begun in 2019. With the rapid and tremendous changes in the external environment just after we began the Mid-term Plan, we started out feeling that we were entering an era in which the way forward was not clear.
It was a period when trade friction between the U.S. and China intensified, and it became remarkably clear that both countries were moving toward decoupling. Then, completely unforeseen major social upheavals occurred, such as the pandemic and Russia's sudden invasion of Ukraine.
On the other hand, the awareness of the need to firmly face various social issues, including the SDGs, began to spread, and opportunities increased to consider how to proceed with things more efficiently, and how to make a better society utilizing digital technology. These have been the major changes in society over these past four years.
YokokuraCertainly, there has been a rapid spread of awareness that digital technologies such as digital transformation (DX) and generative AI are driving the sophistication of society. Also, stock exchanges and central government agencies have come to express their views on how a company should be relatively more than they used to. As a result of this, I think this has led to a trend of companies becoming more aware of sustainability and increasing corporate value, which is also a big change.
SatoThe further advancement of digitalization, including remote work is a social change that many people feel for themselves. In my field, the legal world, new movements such as advancement in the digitalization of court procedures have come about.
At the same time that this systemic digitalization is advancing, I feel another tremendous change is the deepening movement toward new styles of communication that connect people to people, and people to society.
YokokuraAnd even before that, numerous unforeseen events have occurred within a few years, such as the bursting of the IT bubble, the 2008 financial crisis, and then the Great East Japan Earthquake. When one upheaval occurs, it takes a number of years to return to normal, but these events occurred one after another.
—And then, in these past four years the pandemic and the issue of Ukraine. I think that if we expect unforeseen social upheavals to be frequent in the future, then it will be important to strengthen not only risk management, but also resilience.
The “evolution” striven for in the last four years of the Mid-term Management Plan
ShinyaThe three basic policies set in the current Mid-term Plan are (1) accelerate business growth in new domains, (2) qualitatively change businesses in the existing domains, and (3) strengthen the management base.
In these past four years, we've made great progress in transforming our business portfolio by refining our business in existing domains and concentrating our resources in new domains. Furthermore, in terms of strengthening of the management base that supports that change, we've been able to steadily implement a number of growth measures, such as relocating our headquarters to Tochigi, so as to integrate on-site and management, and realize faster management decisions; altering our institutional design to a company with an Audit and Supervisory Committee; introducing remote work and a “job-type personnel system”; and providing treasury shares as compensation to our domestic employees.
YokokuraI feel that through this Mid-term Plan, great progress has been made, especially in strengthening the management base. I've been watching Dexerials since the time of the previous mid-term plan, and at that time “structural reform” was the big theme, the Company was newly established as Dexerials, and effort was poured into putting the management base on firm footing. And now with the current Mid-term Plan, I have a solid sense that strengthening the Company by taking steps to strengthen the management base, which was already well-ordered to a certain extent, has further enlivened the Company.
I also applaud the great development in changes to the business portfolio through advancement into new domains, and reexamination of existing ones. Product development anticipating the needs of the Company and the customers has matched the market, and the Company is now able to engage in highly profitable business activities.
SatoI've really had a sense that getting a head start on issues in discussions by the Board of Directors and by the initiatives of the executive side, along with constant awareness of what this realized led to better outcomes on things such as transforming the business portfolio. And more than anything, the greatest result of this Mid-term Plan has been the achievement of so many quantitative targets.
YokokuraIn addition, the fact that the Company has been able to strengthen the management framework while proactively adding external human resources is a tremendous outcome that will lead to the next stage of growth. I imagine that there has been a lot of work and effort by the president and executive side in these past four years.
ShinyaUpon transitioning to the current management system in 2019, we had a strong sense of crisis that we had to change. So, we thought first that we needed to change the top management level, and actively searched for and appointed external human resources, while changing the form of the Board of Directors as the highest decision-making body of the Company.
We were constantly considering what kind of skills we would need in human resources for this level of change. While internally there were some people we could have appointed, it was necessary to bring in people from the outside who had the skills we did not have in the Company.
Our Company has always had many employees who joined mid-career. About half of the manager-level employees is made up of such people, and those people with diverse backgrounds became the driving force of our growth.
Notable endeavors over these four years
ShinyaBecause we've been able to increase the speed in which we execute various reforms and measures, the four years since the current Mid-term Plan began have just flown by.
Among these various measures, please tell me what you think are some especially notable endeavors.
SatoI was heavily involved in this myself, but I think transitioning the institutional design to a company with an Audit and Supervisory Committee was an especially notable reform. An essential part of that, and the most important point this reform brought about, was the widespread progress of delegation of authority to the executive side. Through this transition, it's become possible to respond at each site with an even greater sense of speed.
I also get a sense of the evolution over these four years from the fact that the focus of discussions by the Board of Directors has become the more essential and substantial question of “What kind of company should Dexerials be?”
YokokuraI feel that the 2022 merger and acquisition of Kyoto Semiconductor Co. Ltd (Kyosemi) was especially notable. Dexerials had previously engaged in financing and investment in outside companies, but this was on a much greater scale than ever before. Of course, there were multiple debates among the Board of Directors until the M&A was decided, but ultimately President Shinya, you said, “I will personally take the reins of Kyosemi and lead from the front.” At that time, I truly felt your strong intention as the top executive to take personal responsibility for this M&A, and link it to Dexerials' future growth. I agreed with a sense of conviction.
That said, the synergistic effects of an M&A are not seen right away. Even if there is an immediate added benefit, I think it is necessary to patiently wait a certain amount of time before the extra additive results come to fruition.
ShinyaWith the Kyosemi M&A, the discussions of the Board of Directors got deep into the question of “Why do we want to bring Kyosemi into the fold?” while keeping a clear image of the kind of company we want to be.
The understanding of the outside directors was reassuring support enabling the final decision.
Evolution of the Board of Directors
ShinyaWith the change in membership to the current make-up of the Board of Directors, I felt it was important to first build a mutual sense of trust. So I arranged opportunities so that we could discuss various agenda at “off-site meetings,” and not just gather for the decision-making of the Board of Directors. I feel that by having “camp-style” meetings occasionally, we could discuss various management issues with the outside directors, and deepen our mutual understanding and sense of trust.
YokokuraThe regularly-held “outside directors’ meetings” were also a very good initiative. We can freely voice our concerns and feel for the issues from each of our perspectives, while at the same time exchanging our frank opinions and requesting the executive side to respond as necessary.
Also, that the outside directors who are not Audit and Supervisory Committee members, including myself, can view audit materials is an initiative that enhances efficiency. There are more than a few detailed insights into the Company's climate and culture, as well as actual on-site events, that can be seen through the audit materials. For me, being able to obtain information that's not sugar-coated leads to a greater sense of security.
There are also many opportunities for the outside directors and the directors on the Audit and Supervisory Committee to exchange views, and there's much information we can obtain from that.
SatoAs the Chairperson of the Audit and Supervisory Committee, I've striven to widely share as much useful information and materials as possible with all the directors, so I'm very honored to hear that.
The members of the Audit and Supervisory Committee receive a variety of briefings from people within the Company, so they have more information available to them than the outside directors who are not on the Committee. For some time, I felt that closing the information gap was an important issue. While we cannot disclose everything, we have made a conscious effort to share information among the directors, and it's reassuring that it has had results.
At the same time, through my activities as an outside director, I've also felt that those on the executive side take the initiative in trying to deepen our understanding. For example, with the Kyosemi M&A, they planned a site visit of Kyosemi’s offices, and afterward there was an off-site meeting where everyone could discuss things from a new perspective.
Some things are understood for the first time when you see them for yourself, and I was really reminded of how important that is.
YokokuraA good thing about the current Board is that there is a deeper understanding of the Company, and stronger trust among the directors, while at the same time maintaining a sense of healthy tension that sometimes we will constrain each other.
I approach the Board of Directors always keeping in mind the various stakeholders and with a keen eye on whether the Company is following sound management practices.
SatoThere is certainly a sense of healthy tension in the board. During the Kyosemi M&A, we were able to have blunt and lively debates that included negative views and criticism.
ShinyaNor am I trying to make the Board of Directors just a gathering of people who get along. Each outside director comes from a different background, and there is much we can learn from their diverse opinions. Achieving sustainable growth of the Company is our common goal, and I believe it is very important that the executive side receives suggestions from different perspectives in response to its proposals.
We have become conscious of making the Board of Directors a place for constructive discussion, and I feel that this is one of the major evolutions over the past four years.
Future outlook and issues for our business
ShinyaWe are now at last moving to the 2024 mid-term plan.
It will be necessary to formulate the next mid-term management plan with the assumption that there will continue to be significant changes in the management environment going forward. We are currently discussing with the Board of Directors what risks and opportunities we can anticipate in an uncertain future, and then exploring how we can and should evolve.
In the current Mid-term Plan, the business portfolio has changed considerably, with expansion of the automotive business and new directions such as photonics. But for future growth, it will be necessary to make even more dynamic changes.
SatoI believe that the various measures we have taken so far have solidified Dexerials' existing domains. We must steadily maintain those, while digging even deeper. At the same time, the development of new domains will undoubtedly be the key to future growth, and we must accelerate this even more. I also believe that it has become more important than before to be able to demonstrate this to investors and others outside the Company.
Our products range from adhesives to optical semiconductors, and even though I'm an outside director, some things are difficult to understand as I'm not a specialist. It is necessary to continue disseminating information to the stakeholders so that they know Dexerials and its products.
ShinyaCommunication with stakeholders is extremely important. I would like to continue to expand our activities and innovations to make our Company better known to as many people as possible.
In addition, we have already started working to expand into new businesses, such as preparing to launch a new company integrating the business and resources of Kyosemi with those of our consolidated subsidiary, Dexerials Precision Components Co., Ltd. The two companies are scheduled to merge in April 2024, and we aim to make this integrated company a leader in the growth of the photonics business.
YokokuraWhat I've noticed in the last few years is that the speed of technological innovation has accelerated on a global scale. New technologies, such as generative AI, are being developed every day.
At various times in the past, people would say, “This is the era of technological innovation,” but the innovation then was never to the extent that it is now happening every day in the materials field through the use of digital technology.
What I would like to say in such circumstances is that no matter how new the technology is, there are many people who are thinking about the same thing on a global basis, and someone else may already be working on it.
Then what becomes important is the “people” who use the technology. I believe that an increasingly important management issue for the future will be creating a system that attracts outstanding human resources and an environment that allows them to maximize their activities.
Toward even greater growth, and strengthening ever more important human capital
ShinyaI also recognize that the key to realizing the reinforcement of our business model, a strength of our Company, is people. It's very important to become a company that can be chosen by talented human resources from outside the Company to play an active role in our business.
As part of the reform to achieve this goal, we first introduced a “job-type personnel system” for manager-level employees in Japan in fiscal 2023. From a macro perspective, it's certain that Japan's working-age population will decline. We will shift our business portfolio to a more global perspective, and a review of the human resources portfolio at the global level will proceed. For this reason, we will steadily expand our “job-type personnel system” on a global scale so that excellent human resources can play an active role around the world.
YokokuraThis may be a little off topic, but President Shinya often says, “We are a venture company.” Certainly it is a young company, only 10 years since its founding. However, it is a large publicly traded company, with a changing Board of Directors and a rapidly evolving management base. What do you mean when you say “venture company?”
ShinyaIt has various meanings, but as you said earlier, the speed of technological innovation in the world is extremely fast, and in order to create things that have never existed before, and things that have value to the world, it is essential to have the enthusiasm for always taking on new challenges.
Although we are listed on the Prime Market of the Tokyo Stock Exchange, I use the term “venture company” because I think that it is like Dexerials to engage in business with as much spirit as a start-up company. I also feel that in our Company, like in a venture company, it is easy for young people to express their opinions, and challenge themselves, and I would like to continue that.
YokokuraTo continually challenge without giving up. I also want to fully support them as they take well-measured risks.
A message to all our stakeholders
YokokuraThe ability to anticipate customers’ needs and deliver products that exceed their expectations is what I believe is the strength of Dexerials, and the source of its sustained growth. This is what has led to its current performance, and should give its employees confidence.
The focus of this Company is the digital field, and no doubt this field will continue to be necessary to society going forward. However, much like the IT bubble once burst, there is a cycle in this industry.
Dexerials has been working on building a strong corporate structure that is not affected by that kind of external environment, and now we are gradually seeing results. By expanding its product domains to include sensing, automotives, and communications, it has become more flexible in responding to changes in the environment. There are, however, some areas that are still lacking, but continually challenging itself without giving up is the Dexerials way.
As one of the outside directors, I will provide advice, recommendations, and the utmost support for continuing sound management, with consideration for all stakeholders, so that Dexerials can realize sustainable growth and further increase its corporate value.
SatoWhen we look back over the past 10 years since its founding, we see that despite some difficult times in the beginning, Dexerials has made solid strides, and I feel that it has reached the 10-year mark in good shape.
In the decade ahead, it will further hone the technology it has developed, and bring together human resources who have an abundance of motivation and flexibility. I would like the Company to create an environment in which employees can fully demonstrate their abilities, and management to steadily pull these employees up, further building a good relationship between the two sides. That will be absolutely necessary for sustained growth.
As Chairperson of the Audit and Supervisory Committee, I have always been thinking of how our activities can contribute to the Company’s business. Only a company that has solidly ensured a system for internal governance and compliance can focus on its business. I feel that the Audit and Supervisory Committee has especially contributed on that front. We also have an Internal Audit Department under the Audit and Supervisory Committee, and have been conscious of how to appropriately appreciate the concerns and issues of the executive side.
I’d like to continue to actively communicate with the Board and the executive side to advance audit activities that contribute to the Company’s further development and growth.
ShinyaIn terms of what kind of company we will grow into in the next 10 years, I feel that you are absolutely right.
Starting with our independence from the Sony Group, the past decade has been one of trial and error, as we learned how to develop this new company called Dexerials, while making use of the foundation built over the past 50 years. The accelerated evolution seen in the last four years has led to confidence.
Going forward, I will continually endeavor to make this Company one that even more shareholders, investors, customers, and excellent human resources will choose and support.