Roundtable Talk with Outside Directors

Kinya Naito  Keiko Yamahira  Junko Kawano  Seiji Nishikawa

Outside Director   Outside Director   Outside Director   Outside Director

Frank and proactive recommendations based on career experience improves the effectiveness of the Board of Directors and helps create corporate value by establishing new business models.

Roles and responsibilities of outside directors: Outside directors leverage their career experience to improve profitability and corporate value

From my position as an attorney, I have made it my duty to support the Company’s corporate value, including through compliance and internal controls, and to provide recommendations on other matters, such as the systematic preparation of the
Company’s infrastructure. I have been very happy to see in recent years that recommendations from us as outside directors have stimulated discussions by the Board of Directors.
Yamahira I use the expertise developed through my own experience in corporate management to focus on providing advice on topics such as sustainable growth, increasing capital efficiency and profitability, and enhancing our human capital.
This year is the first fiscal year of our new medium-term management plan. I want to leverage our management resources, while fully considering the business environment in which we find ourselves, and focus on expanding into new fields and improving the profitability of our existing business segments.
Kawano I have been involved in business and service development in the B2C (business to consumer) field for many years. I want to use this experience to provide effective advice on new businesses and services that contribute to creating new value as well as proposals for new lifestyles. It is absolutely vital that diverse employees play a more active role in Joshin Denki so we can anticipate the needs of diverse customers and address them through our business activities. I believe that one of my important roles is to provide advice from the perspective of promoting diversity and inclusion (D&I), such as promoting the advancement of women.
Nishikawa Since this is my first time as an outside director, I initially struggled with how I should best fulfill my role, but the message that outside director Naito shared in the integrated report in fiscal 2021 provided me with a much deeper understanding. You said that outside directors were expected to oversee the Company’s management from an objective perspective, and that you also believed helping the CEO decisively make decisions by taking risks was also the role of an outside director. In addition, I think it is important for me to use my career experience in DX and ICT to provide advice to executives.

Improving the effectiveness of the Board of Directors: Aiming to provide honest advice from the perspectives of delegating authority to the Board of Executive Officers and raising the skill levels of Directors

Within the Board of Directors’ meetings, I always strive to speak openly. In past Joshin Denki’s Board of Directors’ meetings, mixed in with strategy-level projects, there were discussions on individual business activities, so I had been feeling there was a need to organize the proposals that we discuss. That is why we decided to make major revisions to the Regulations on Approval and Decision; we can now focus on only what is really needed to be discussed. A great deal of approval authority was delegated from the Board of Directors to the Board of Executive Officers, and we were able to reduce the number of Board of Directors’ meetings, which had previous been twice a month, to an average of once a month, for 14 meetings over the course of the year. This freed up time in Board meetings and made it possible to devote more discussion to the current medium-term management plan, human resource development, and the like. I think this has been a major change over the past four years.
Nishikawa The Board of Executive Officers meetings are held once a week, and I participate once a month as an observer.
I am sometimes worried about whether we are really gaining a complete picture of what is going on in the workplace in the ICT or DX fields, for example. I’m still new to this position, so right now I’m trying to confirm the background circumstances surrounding the discussions by the Board of Executive Officers and so on.
Kawano The agendas and materials from the Board of Executive Officers meetings are also shared with us outside directors, and looking them over, I sometimes wish that the discussions went a little deeper. If there are opportunities like roundtables where people could speak more frankly about medium- to long-term projects, I think we could achieve a deeper level of connection with these discussions, including sharing business perspectives.
Yamahira As you point out, in recent years, the primary functions of the Board of Directors have shifted from business execution to monitoring, supervision, and evaluation, so as an outside director there are times when I am not sure just how deep I should go in giving my input. I would like to explore improving the functions of the advisory board.
Naito Since fiscal 2017, we have been performing the training for officers to improve the effectiveness of the Board of Directors.
However, since this training primarily consisted of classroom study, it has not really succeeded in improving the participants’ practical skills. That is why we have revised our training system so that from this fiscal year onward officers will be able to choose and take
training on their own to supplement the gaps in their skills. Unlike training provided by the Company, every person will be able to work on their own issues, which we hope will be even more effective. For the duties of officers, I think that it would be better
to use a job rotation system. Right now, in an attempt to diversify officers’ skills, we are trying out a system in which every officer is responsible for a project that spans multiple fields. I think we’re making serious progress on improving our effectiveness.
Also, in recent years, there has been a growing shift to introducing performance-linked compensation for directors/ auditors, in consideration of shareholders and investors. We have adjusted our fixed and performance-linked compensation percentages and our monetary and stock compensation
percentages, reducing the portion of fixed and monetary compensation. This was a bold revision of our compensation system, and I think it is worth recognizing because it clearly highlights the weighty responsibility of directors for the Company’s performance.

JT-2025 Management Plan, the new mediumterm management plan: Promoting the effective use of customer information and the clarification of targets, while supporting the implementation of strategies

Naito Under JT-2025 Management, we are promoting a fan base strategy. Although we have collected tremendous amounts of customer information, we have not always realized what we should do with it. For example, there have been cases where we have not fully informed customers who have bought
appliances when it is time to replace them. I think we need to delve deeper into customers who have the potential to become fans. It has become clear, statistically, that a lot of our sales comes from “fan” customers. Through our fan base strategy, we will tackle the issue of how to value our fans and
further grow our fan base. This was a central discussion point when we formulated the new medium-term management plan.
Nishikawa DX (digital transformation) and ICT (information and communications technology) will be vital for realizing the new medium-term management plan, which is focused on a fan base strategy. We must use customer data, our most valuable asset, to rapidly, inexpensively, and continually
develop systems for new services that focus on our customers’ needs. To do that, we need to change our current information system to a simpler, holistically optimized platform centered on customer data. We created the DX Committee within the Company, and they are developing a grand design that
represents the ideal form of Joshin Denki’s entire information system. We plan to make this grand design the core for our system development, and I want to monitor the progress that we make.

Kawano The first thing I noticed since becoming involved in Joshin Denki’s management is that we needed to evolve our marketing strategies. Since we are in an age of overflowing information, it is extremely difficult to attract new customers through mass media advertising. However, we have fans that we have developed through our high-quality services. By having our fans come to our stores over and over again, having positive experiences, and recommending us to others, we can approach new customers. This is how our growth strategy works. Japan’s population is shrinking, so if all we provide is a one-shot service, or selling appliances, then our business will also shrink. The fan base strategy is a response to these changes, and consists of us being a concierge for our customers, providing services that resolve some of the problems that our customers face throughout their lives so that they use our services over the long term. I am very pleased that we have placed this fan base strategy at the center of our business strategies. Further, I recognize the importance of accurately conveying the contents and objectives of this strategy to our stakeholders, so I also believe that we need to jointly evolve our communications strategy.
Yamahira This is the first year that we have launched a new medium-term management plan, after releasing our mediumto long-term vision in 2021. I think we have brushed up our plans from 2021 and clarified our business segments. We have got our sights set on 2030 as we implement this medium-term management plan, and I believe we will be formulating more concrete plans in the future. I recognize that we have launched our fan base strategy—positioned as the cornerstone of our sales strategy—with the desire to be a company that customers find useful and trustworthy, and that they can rely on again and again. As the framework for this strategy takes shape and we implement more concrete initiatives in the future, there is a sense of anticipation that the number of customers and fans we bring joy to will rise, which will contribute to improving our profitability. I will try to provide advice based on my own experience with marketing and management in the B2C (business to consumer) business field.

E-commerce (EC) also plays a major role in the new medium-term management plan. Last year, we put a new logistics center into operation, and the EC store is poised for even more growth as we move ahead with restructuring our logistics in the future.

At the same time, we have also focused on addressing the issue of PBR (profit before tax) falling below 1.0 x. Although the market decides share prices, as a company we must work to earn the recognition of the market. I believe that what we need to do is to achieve the efficiency of the management of our existing businesses and make them even more profitable. We need to produce steady profits from our existing business segments and actively invest in other businesses, turning them into core businesses as growth drivers. Investing in ESG has become our main form of investment, and our own the climate change countermeasures are progressing according to plan. We must quickly inform investors and stakeholders about these initiatives through IR, SR, and corporate branding. The key to going ahead with these initiatives is our human resources. One of the exceptional things about the Company is how low our employee turnover is. However, because of that, our workforce has the undeniable image of lacking diversity, such as diversity of skills or values. I believe we need to hire people from outside, increasing the diversity of our skills and values so that our people can create innovation.

Naito I agree. I also think one of the issues we have to address for evaluating effectiveness is discussing PBR, paying close attention to capital costs. At the same time, I think we have made a lot of progress by including indicators for consolidated management and capital efficiency in the medium-term
management plan. Without specific targets, we cannot have a clear roadmap. By setting numerical targets for capital costs, we have made people aware of what we can do to achieve these targets, which I think is a significant development.

The roles and aspirations of outside directors:
Assisting with establishing new business models and creating social value over the medium to long term.


Nishikawa If things remain as they are, the home appliance mass retailer business will end up as a mature industry. So, how can we revive this as a new growth industry? To do that, we need to not only put into practice our slogan “To be a concierge to customers, drawing close to their daily lives” but also to refine our new medium-term management plan into a business plan with a more concrete business portfolio, such as launching new peripheral businesses. The external environment surrounding the home appliance industry is also undergoing major changes. For example, specified prices and direct sales by manufacturers have the potential to bring about tremendous changes in the traditional business model for home appliance mass retailers. Now is the crucial point for addressing these extremely significant management issues. As an outside director in the midst of this, I will be working deeply on these initiatives.

Kawano Creating social value will be important for companies going forward, and I intend to provide support to make that possible. For example, one of the values we offer to society is “helping to strengthen the resilience of our aging society.” To achieve this, we must further research the changes that are happening in consumers’ lifestyles. People aged 65 and older account for 30% of the population, and the services that are needed differ completely depending on their living environment, health, and values. We will support richer lifestyles by maintaining an understanding of the physical changes that happen as a result of aging, paying close attention to the lifestyles of individual customers, and recommending home appliances with appropriate functions, services, renovations, and so on.

I believe that this will enable us to “help strengthen the resilience of our aging society.”

Yamahira Like other companies, it has become difficult to achieve significant growth in Japan through existing businesses alone, given the current Japanese business environment. We have re-examined other segments besides home appliance mass retailing from the medium- to long-term growth perspective. Changes in the business environment could require bold management decisions and the need to overcome challenges. Under these circumstances, we will make every effort to flesh out our management plan to develop these new segments into second and third business pillars.

Naito Right now, it looks like we have two business segments: real stores and the EC store. However, both of these are mainly for selling home appliances. To build new business pillars, we need to have the courage to consider M&As and to move into new business segments. I plan to do my best to provide advice from these perspectives.