Outside Directors x Investor
Squarely facing challenges and exploring the optimal approach to achieving VISION 2030
Reflecting on progress with VISION 2030 and challenges that have emerged
Three years have passed since you embarked on VISION 2030, so I’d like to start by asking you for your assessments of the strategies that have been implemented and the challenges that have emerged so far. To begin with, could you give me your thoughts, from your perspectives as outside directors, on the Mitsui Chemicals Group’s competitive advantages and how it plans to leverage them to achieve VISION 2030?
Chief Sustainability Officer
Managing Executive Officer,
Responsible Investment Division
Resona Asset Management Co., Ltd.
Mr. MATSUBARA Minoru
Since joining Resona Bank in 1991, he has spent his entire career in the asset management field. He has worked in investment management, planning, and responsible investment in the Investment Development Office and Public Fund Management Department, Pension Fund Management Department, Trust Fund Management Department, Investment Management Department, and Asset Management Department. In April 2020, he became an Executive Officer and General Manager of the Responsible Investment Division of Resona Asset Management, before assuming his current position in August 2023.
His appointments as a committee member include Vice Chairman of the Steering Committee of the Japan Impact-driven Financing Initiative; Member of the SX Study Group of the Ministry of Economy, Trade and Industry; Member of the Steering Committee of the Impact Consortium; and Member of the Expert Committee for the Sustainable EXPO of the Japan Association for the 2025 World Exposition. He authored or co-authored several books including Ethical White Paper (co-author).
After spending about 40 years in technology development and corporate strategy in the automotive industry, I was made an outside director of Mitsui Chemicals in 2021, just as VISION 2030 was launched. In summing up the past three years, while the Group has made steady progress with business portfolio transformation, there remain many issues that still need to be addressed. Although earnings in the growth domains have been rising, those from the Basic & Green Materials business remain volatile, with the business still in the process of restructuring. I also feel that there are still barriers between departments in the growth domains, and I think one of the reasons for this might be a lack of horizontal connections with the researchers. For example, it would be good to improve the ability of the research side to produce output, share their results with the business side, and enable their potential and capabilities to be more clearly visualized.
In addition, I believe it’s necessary for the company, at the level of the Group as a whole rather than the business division level, to be fully cognizant of the direction in which it should concentrate its efforts, and to clearly articulate that direction. The Group has defined its ideal vision for 2030 as “Chemistry for a Sustainable World.” However, this message can give the impression that it’s only about chemistry in general, so I think it should break this down further and pursue a more specific direction for the Group.
Outside Director
(three years in role)
MABUCHI Akira
Outside Director
(two years in role)
MIMURA Takayoshi
It’s been two years since I was appointed as an outside director in 2022, having made my career in the medical industry. Overseas competitors have become a more formidable presence since the formulation of VISION 2030, and I have the impression that progress in the growth domains is becoming patchier, so I think it’s necessary to pursue additional forms of growth. From a management perspective, I believe it’s important to pay more attention to the cost of capital, and especially to strengthen follow-up monitoring and post-merger integration (PMI) after M&A, an essential component of future growth strategies.
As for the Group’s competitive advantages, it has materials and technologies that boast huge market shares worldwide, in Asia, or domestically in Japan, so I think deepening understanding of these fields throughout the Group is critical to fostering the kind of Group-wide consciousness that Mr. Mabuchi mentioned.
Focusing on the challenge of reducing the short-term volatility in the earnings of the Basic & Green Materials business seems to create a bit of a conflict in terms of time frame with the long-term goals outlined in VISION 2030, but do you consider these two separately or do you think they will eventually be connected?
I view the growth domains and that business separately, at least to some degree. Regarding the growth domains, risks and opportunities are carefully assessed not only from the financial side but also from the non-financial side, with the aim of making growth more stable going forward. On the other hand, I believe that the Basic & Green Materials business should, while fulfilling its responsibility to support social infrastructure as a key industry for Japan, take a leadership position in, for example, collaborating with other industry peers. I think this will be crucial for strengthening the Group, so I hope that’s what will happen.
Promoting DX and further utilization of intangible assets
I became an outside director in June 2024, so I’d like to express an opinion from a fresh perspective. At Ricoh Company, Ltd., I was involved in the digital human resources strategy for the entire group, so witnessed digital transformation in the manufacturing industry up close, and I feel that strengthening digital skills is a key task for the Group. In VISION 2030, the only DX-related KPI is the number of data scientists, but this can’t be said to be sufficient for future transformation, so I think it’s necessary to review targets and KPIs.
Mr. Mabuchi mentioned that there are issues with cooperation across divisions, and I believe another reason for this is the lack of visibility of the skills of human resources within the Group and the skills required internally, which is inhibiting the smooth allocation of human resources in line with business strategies.
However, given the recent introduction of the Workday platform and the fact that the infrastructure is being put in place, I think the task for the Group going forward is to visualize skills related to the materials technology that it has accumulated over the years, and also to improve the skills, including literacy, of its people, in the realm of digital technology, which is critical for developing its solutions business and orienting toward the circular economy.
Outside Director
(newly appointed)
KIHARA Tami
Many companies are grappling with the issue of siloed business strategies, and digital technology is effective as a means of slicing through organizational boundaries. To make the transition to a solutions-based business, I think it’s essential to have an understanding of other departments’ talent pools and initiatives and to be convinced of their merit. But the hurdles to creating such a platform for that kind of human capital seem to be high. So what kinds of challenges will need to be embraced to create a platform like that?
I believe that the purpose of a human resources strategy is to define the “to be,” as represented by business targets, and to fill the gap between the “to be” and the “as is,” as represented by factors such as current skill levels. But I think the first step is to visualize the “as is” through the painstaking process of properly identifying the skills of each individual and the skill levels that are required. I think that in the manufacturing industry, people aren’t used to visualizing skills, because skills are transferred in the form of tacit knowledge, as though being passed down from father to son in some cases, but by measuring the skills of all employees in the same way and making them open, individuals will realize what they themselves are lacking and be able to define their personal “to be,” so I think it’s important to move swiftly to visualize the “as is.”
When you look at an organizational chart, I think you can infer a great deal about the relationship between corporate strategy and human resources strategy. For example, if the HR department is under the purview of the finance department, there’s going to be a heavy focus on cost-cutting, making it difficult for the human resources strategy to be aligned with corporate strategy, and the strategies of each department will tend to become siloed. The “to be” that Ms. Kihara is talking about should probably be defined as part of overall corporate strategy.
In the Group, a director serves as the chief human resources officer (CHRO), so it’s clear from the organizational chart that management places importance on human resources strategy. Going forward, I think the challenge is going to be to work with a sense of urgency to break the strategy down into concrete tactics.
Alongside human capital, I get the impression that intellectual capital is another area attracting attention in the capital markets as a key theme, but what do you think is going to be the key to building the Mitsui Chemicals Group’s muscle in terms of intellectual capital and intellectual property in the future?
I think it’s going to be essential to visualize the intellectual property possessed by the Group. Though progress with visualization may be being made in research departments, I feel that the sharing of information on a Group-wide basis is still insufficient. In M&A, there should be discussions on how to leverage synergies based on an understanding of the strengths of both the other company and the Group, but I think it’s also useful to visualize the status of one’s own IP so that objective and careful judgments can be made at that time.
To acquire and develop high-caliber talent to handle intellectual property, I think it’s also going to be important to make effective use of human resources systems for highly specialized talent, such as the so-called fellow system. The Group has already instituted a framework for specialist positions in research and IP, setting evaluation criteria that differ from those for line positions, and I think initiatives like this can be a powerful tool for emphasizing to the outside world that here is a company that values technology.
The question of how to treat technical specialists so that the company can deliver results is a key issue for the manufacturing industry. Among technical specialists, there are the types with strong skills in a narrow field, and there are the generalists with a flair for organizing and commercializing technologies across a wide range of fields. It’s inherently important to strike a balance between the two groups, but even so, I feel that conventional human resources systems are biased, with the latter more likely to pick up high marks in their evaluations. I think criteria for properly evaluating personnel who specialize in technology are essential.
As you say, evaluation design is indeed critical. However, in any company, I believe that highly specialized talent such as fellows are not valued solely for their expertise, but also for their ability to bring others on board and for their project management skills, so I think we need to incorporate those elements into the definition of “highly specialized talent.” Evaluation systems like that tend to get gradually hollowed out over time, so I think it’s necessary to update the definition as the environment changes.
With technological challenges becoming more diverse, it’s become harder for a single company to complete projects on its own, so M&A deals are on the rise, but companies should pay attention to whether the overall design is solid. To make sure M&A doesn’t become an end in itself, it’s vital for the technology divisions and those who create the overall vision to be on the same page before any decisions are made, but there are some areas where the Group has been falling short in this regard, and unfortunately the success rate of past M&A deals has been low, so I view the strengthening of monitoring as a key task. To accomplish that task, the human resources strategy is going to be important, so I think acquiring and developing people who can design businesses is imperative.
Aiming to both create economic value and fulfill social responsibilities as a chemicals manufacturer
Moving on, I’d like to hear your thoughts on social challenges as a chemical manufacturer. A lot of emphasis has been put on sustainability governance in recent years, and the key question is how to monitor negative impacts and then turn them into positive impacts. That being said, focusing on discharging such corporate responsibilities may conflict with earnings in the short term, and it’s often difficult for investors to see how non-financial initiatives will eventually lead to financial gain. What are your views on this?
Regarding issues like that, the Group has set targets for reducing greenhouse gas emissions by 2030 and has pledged to achieve carbon neutrality by 2050. And it is driving initiatives to accomplish those goals in line with detailed non-financial KPIs. Among these initiatives, Blue Value™ and Rose Value™ products not only contribute to surmounting social challenges, but are also characterized by high profit margins, so they can be seen as initiatives for creating both economic value and social value. On the other hand, I feel that with initiatives such as the introduction of bio-based hydrocarbon, challenges still need to be overcome before they can generate stable earnings.
Earlier on I mentioned that the objective visualization and utilization of data with digital technology is effective in the areas of human capital and intellectual capital, and I think the same can be said for sustainability initiatives. The Group is currently working to strengthen its IT infrastructure, including ERP, and I expect this to enable it to quickly run simulations of sustainability-related measures that will have a negative effect on earnings in the short term but a positive effect in the long term. By utilizing such systems, it will be able to speed up the implementation of more appropriate measures and also hasten recovery. The Group will be able to secure a competitive advantage and stakeholders will be more convinced that the Group is heading in the right direction.
In the future, it will be important to steadily advance initiatives such as Blue Value™ and Rose Value™ products and bio-based hydrocarbons, and at the same time, to take steps to ensure that society recognizes the added value of these products. As part of that process, it’s also going to be necessary to pay close attention to recent debates surrounding electric vehicles, for example, that are taking place especially in Europe.
Looking at developments that Mr. Mimura just mentioned, it could perhaps be said that part of the global debate on ESG and sustainability concerns the notion that while the ultimate goal is to improve the earth’s environment, business strategy will also play a major part in shaping the rules. That being the case, is there any chance that the Mitsui Chemicals Group will get involved in the rule-making process?
I think it’s really important that it does. I take the VISION 2030 slogan as an ambitious message of commitment to reaffirming the power of chemistry and altering certain negative images, rules, and social mechanisms, so I expect the Group will demonstrate leadership in such areas as well. I think this will require it to avoid being swayed by the rules currently in place. Instead, it will need to actively emphasize the value that the chemical industry contributes, and at the same time to take part in the process of setting rules for the realization of sustainability in such a way as to ensure that this value isn’t compromised.
Developing a bespoke governance structure for the Mitsui Chemicals Group
I’d like to move on to talk about governance. Could you share your thoughts on the current level of effectiveness of the Board of Directors and the appropriate organizational design toward realizing VISION 2030?
First off, one characteristic of the Group that I’d like to mention is that, in my view, the Board of Directors is quick to incorporate the views of us outside directors. The committee system has also been revitalized, and the executive compensation system, in particular, has undergone significant changes that I feel are contributing to fostering an awareness that the company is being run together with investors. An example of that is the way stock compensation as a proportion of total compensation was altered in response to the opinions of outside directors.
I agree, as I also feel that the Board of Directors views opinions from outside directors and external parties positively. As for the design of the governance structure, it’s currently a hybrid structure in which the Company is formally classified [under the Companies Act of Japan] as a company with an Audit & Supervisory Board, but has also voluntarily established various committees. Going forward, it should move further to separate execution and oversight functions, engage in thorough discussions on the roles of each function, and if necessary, consider shifting to a company with an Audit and Supervisory Committee. In doing so, there’s a risk of the structure being reduced to just a set of formal arrangements, so it’ll be necessary to encourage attention to be paid to ensuring it functions properly.
Speaking from our standpoint as investors, if you have 100 companies, they’re going to be governed in 100 different ways, so I believe it’s important for the organizational design to be tailored to the company concerned, but I’d still like to see an awareness of the global perspective over the long term.
As Mr. Mabuchi touched on just now, care should be taken not to be satisfied with just establishing the form of governance. While keeping in mind the original objective of enhancing effectiveness, I think it’s also important to clearly emphasize that the structure for considering systems has also been changing for the better, with an example in the case of the Group being Mr. Mabuchi serving as the chair of the Executive Compensation Committee, and the way that free and open discussion had a significant positive effect on the revision of systems.
If I had to point out a current issue that I see from my vantage point as chairman of the Committee, it would be the question of whether the thinking behind the new compensation system has been properly communicated internally and externally. I view one of the roles of the compensation system as being to have the officers who are being evaluated think not about the final amount of compensation, but instead about what approach to business execution will earn them high marks, and given that, how they should alter their behavior. Facilitating the understanding of stakeholders that this is the policy of the Group is another role of the compensation system.
Indeed. I also feel that compensation systems are a key factor in driving behavioral change. Since the goal is to motivate officers to execute business in line with corporate strategy and thereby enhance corporate value, the essence lies in the design of the system and the process of discussion that led to it, rather than the amount of compensation itself, and I’d like them to focus on that.
As I mentioned earlier, governance differs from company to company, so we don’t make judgments about them based on the surface-level structure. Rather, we focus on how that structure functions. Right now, I get the impression that awareness of issues related to governance at each company is growing, and I’m increasingly asked for my opinion on how committees should be organized and how they should function. I also come across domestic companies that are ahead of the curve in this area. Looking ahead, I hope that the Mitsui Chemicals Group will take a look at such examples and continue searching for even better forms of governance. Thank you very much for today.