GOVERNANCE Outside Directors Roundtable

We interviewed the outside directors about the strengths and challenges of the Air Water Group, which has formulated the vision “terrAWell30” toward 2030.

SAKAMOTO: I believe our internal control system has been well established. The internal auditing unit is functioning systematically, and I think the management is highly aware of the importance.
The outside directors actively speak out based on their experiences, and the management accepts their comments, making me feel that our governance is functioning effectively.

MATSUI: Our governance structure has been enhanced year by year. I see our discussions are lively especially at the pre-briefing sessions on the Board meeting’s agendas. It can take up to an hour for a single agenda item, which is very helpful in organizing points for discussion at the Board meetings.

SENZAI: I feel the Board of Directors’ discussions are very open. I am able to speak my mind all the time, and the roles of each outside director, based on their areas of expertise, are well combined to allow for lively discussions from a variety of angles.

SAKAMOTO: This year, Japan has released a target this year of 30% or more for female directors in Prime listed companies by 2030. We believe that our Board of Directors also needs more diversity. Now we have one female board member, so I think it would be better to raise this ratio as part of the governance structure.
In addition, with many group companies and an increasing number of overseas subsidiaries, the internal audit department is struggling, but there is some variation in the penetration of governance throughout the Group, and I recognize that further strengthening of internal controls is necessary.

SENZAI: The challenge is that we still don’t have enough perspectives on governance in many areas. We need the stronger governance by embracing the perspectives of various stakeholders outside the company, but my impression is that our company is still focused on internal viewpoints. In this age, I think it is important to both enhance the internal enrichment and strengthen the incorporation of external perspectives.

SAKAMOTO: I am working on three points in particular. The first is to accelerate the realization of diversity. Society is changing at a tremendous pace, and I believe we must further accelerate the current speed of our company. The second is to advice on the development of human resources. This is also important because human resources are the treasure of a company and support its growth. The third is to help our employees work with a high sense of satisfaction and contribute to the development of society. Especially, I am eager to advise on our Company’s goal of the realization of a healthy and long-lived society, social contributions such as preserving the global environment, and the improvement of the working environment, including work-life balance.

MATSUI: Because outside directors are responsible to shareholders and other stakeholders, I believe I should not be a mere adviser, but must supervise and monitor the business operations of the executive side thoroughly. Therefore, even if it is something difficult for me to say, I try to speak up using the knowledge I have gained from my 35 years at an auditing firm. In addition, I make sure to speak up if I have a feeling of strangeness about the perspective of external stakeholders. I also try to avoid reading the room.

SENZAI: I see four roles to fulfill. The first is to offer advice as an outside director by deeply understanding each of our business. Air Water started with industrial gas and has expanded into other business areas, but I would like to provide advice on businesses other than gas after a more indepth study. The second is to give advice on cross-sectional functions across the business units. The third is to appropriately reflect the perspectives of external stakeholders in the management. And the fourth, I recognize that we must develop our communication with our external stakeholders enough to gain further understanding of our company.

SAKAMOTO: Our strength is a very wide range of business areas and diverse group companies. However, this can be a strength and a weakness at the same time, so we must conduct our business with caution. Also, each of our employees likes a challenge that is a great strength and why I believe our company will be able to achieve further growth.

MATSUI: Our strength lies in our ability to create synergies among the businesses, given our diverse business operations and a number of group companies. Our weakness is that the synergy effects and PMI results of acquired companies have not been fully disclosed in numerical form, which is not well linked to the valuation of the stock price. That seems to me the weakness. I believe it is important to improve these points and disclose more information outside the company in the future.

SAKAMOTO: Our company gives our employees the opportunity to gain management experience at group companies from a relatively young age, which I feel contributes to the development of management. I also expect that the mission grade system introduced in FY2022, along with the internal recruitment system, will function effectively and deliver results in the future.
On top of that, promoting women’s leadership has greatly advanced as well over the past decade. I think the main reasons for this is that the top management has a high level of insight regarding the advancement of women, and the women themselves have been actively involved in raising awareness and improving the environment. However, as a company that focuses on overseas expansion, I think we should not be satisfied with this. It is important to move forward with the goal of setting a global standard by further promoting the activities of younger generation, foreign nationals, and women.

MATSUI: I see it is a good trend that initiatives for the utilization and development of human resources, such as the internal recruitment system, are being introduced one after another. Since our business diversifies and keeps expanding overseas, I feel that the next generation of management must acquire essential management skills through experiencing not only the sales but also various departments, such as planning and human resources.

SENZAI: I am also a visiting professor at a university, and I believe that education of human resources, especially management personnel for manufacturing, is an issue. I have been focusing very much on human resources training in my career. In particular, since all technical employees have different backgrounds, the content of their understanding may inevitably change even if they are trained on a one-off basis. Therefore, in human resources training, it is necessary to set up case studies and create common values and terminology among all employees. To this end, I think we should set a time frame, select the target group to some extent, and thoroughly conduct the training program.

MATSUI: I am sure that overseas expansion is essential for our company’s growth. I am strongly in favor of promoting business development in India and North America, where market growth is expected in the industrial gas field, which is the keystone of our diverse business domain.
However, even in the industrial gas business with a proven track record and expertise, there are business risks unique to overseas, and once a problem occurs, overseas business can be greatly affected. In overseas, if the parent company does not have good management control over its subsidiaries, the environment will be prone to fraud, so special attention should be paid to this point. As with the development of overseas human resources, I will be proactive in making recommendations to strengthen the internal controls of our overseas subsidiaries.

SENZAI: I do not yet have the impression that our company is aggressively expanding overseas, but I appreciate the fact that we are pursuing overseas expansion for the sake of growth. Our strength is that we are able to expand overseas based on our industrial gas and other businesses with infrastructure elements. In addition to that, we have a diverse business domain and can offer a variety of products and services. So, I believe that we can surely grow if we can successfully arrange and bring what is appropriate for each country.
And since a brand is essential to get trust in each local market in expanding overseas, I believe we need to promote measures to strengthen our brand power suited to each country.
From a technical point of view, I also believe that we need to appropriately manage the technology we possess in terms of intellectual property.