Integrated Report 2020: Stakeholder Dialog

Morikawa: Mr. Yoshimatsu had been active as a CFO of various companies for a long time and had also been a customer of Avant, a provider of accounting information systems. As a representative of our customers, I would like to ask for your advice on how we should proceed in the future.

 

Yoshimatsu: Thank you very much for the opportunity.

 

Morikawa: First of all, I would like to hear about the role of the CFO based on your experience. I think that the role of the CFO in enhancing corporate value is also changing in the context of the recent governance reforms and the Corona crisis.

 

Yoshimatsu: The first thing I can say is that everyone should have access to management information and management should make decisions based on data. These norms have become even more important in this uncertain era, especially under Corona crisis. The most recent survey conducted by this major auditing firm pointed out earnings forecasts as an item of increasing importance as the CFO's role in the Corona crisis.

 

Morikawa: You say the conventional method of performance management does not apply…

 

Yoshimatsu: No. As many companies suddenly found themselves caught in turbulence called Corona, it is important how quickly to grasp the drastic changes in the spiral, that is, the changes in the management environment, and navigate the company to the destination by observing the condition of the aircraft. Under such circumstances, you cannot rely on the accounting manager who reports only the results, you need a Western-style CFO who supports the CEO's decision-making.

 

Morikawa: Japanese companies sometimes have so-called super accounting manager, who make statements to the management team.

 

Yoshimatsu: Yes. For many Japanese companies, however, decisions are made in accordance with the rank of chairman, president, directors in charge, and division heads. However, the U.S. and European-style CFOs look at business performance alongside the COO and report directly to the CEO. The CFO then assists the CEO in making decisions. I believe that the Corona crisis has begun to raise awareness of such an image of a CFO.

 

Morikawa: The point is that the CEO and the COO are separate and that the COO and the CFO are parallel. In the midst of drastic changes in the environment, it is important to adjust course and set a landing point, always balancing what is happening in the field with future financial strategies. That may be too much for the super accounting manager.

 

Yoshimatsu: Prompt decision-making by the CFO is important.

 

Morikawa: In order to fulfill this role as the CFO, he or she must visualize data--¬not just current earnings, but also the visualization of various indicators. If we are unable to do so, we will be unable to establish the course.

 

Yoshimatsu: You're right. Heated discussion at Board of Directors sounds good, but if that is the exchange of qualitative views not based on data, discussion would drift away from corporate management and end up in exchanges of personal belief and philosophy. We sometimes refer to it as “aerial combat”. So, as the first step of the discussion, we should share a sense of crisis by looking at numeric, quantitative management information that is rooted in the operation front. And statements should be concrete as possible.

Morikawa: Our Company also experienced stronger need for visualization under the Corona crisis. This includes not only the performance and financial aspects, but also employee motivation. I believe results are performance indicators, and in order to make highly accurate forecasts, it is necessary to understand changes in the level of satisfaction of people who support our business processes, including sales activities.

 

Yoshimatsu: Corona crisis also raises a major question about the visualization of human and organizational decision-making processes, doesn't it?

 

Morikawa: It does. Therefore, we started to conduct quarterly surveys of employee satisfaction in some areas and are working more than ever on management that incorporates narrative opinions.

 

Yoshimatsu: The idea of placing emphasis on human resources to support medium-to long-term growth is precisely what is required of S of the ESG management in recent years, in other words, strengthening the social aspect.

 

Morikawa: Thank you for pointing it out. But our awareness is rather desperate. We cannot grow without incorporating employee motivation as one factor of management information.

 

Yoshimatsu: I'm sure many companies feel the same.

 

Morikawa: I think the CFO in the future should promote visualization of people, goods, and money and use that information to support the CEO's decision-making. Accordingly, that F should also stand for future, not only for finance.

 

Yoshimatsu: I understand very well. In addition, when it comes to quantifying people's satisfaction, it responds to the recent trend of employment shifting from membership-based to job-based. In order to make the job-based employment to work, it is necessary to make the hierarchical organization flat, adopt DX, and promote efficiency. In such cases, we can respond quickly to issues by establishing KPIs related to personnel, such as employee satisfaction. Of course, it is important to collaborate with CHRO (Chief Human Resource Officer), who is the chief personnel officer.

 

Morikawa: When I think of group management, I am pursuing optimization from the perspective of business portfolio. However, in the future, I should weigh human resources as more important factor when considering the Group's strategy and each company's strategy. Human resource is the important part of the equation in the strategy for the future. That's what I realized under this Corona crisis. In this sense, I think that it may be difficult to design business restructuring itself in the true sense unless the CFOs go all the way to tackle people's motivation, together with the CHROs.

 

Yoshimatsu: In the aftermath of the Corona crisis, corporate safety was highlighted first, and from this perspective, shareholders and investors in Europe and the U.S. have started to announce that companies should not overly strive to increase shareholder value, such as by reviewing shareholder returns. On the other hand, there is growing demand for greater labor share and investment in people. This means that there has been a growing demand for medium-to long-term growth, not short-term performance. Mr. Morikawa's point of view on people is increasingly important in considering the trend toward achieving SDGs in 2030, contributing to the sustainability of the global community, and strengthening ESG as non-financial capital that will generate F as the future.

Morikawa: I would like to hear your opinions on the role of outside directors in the trend toward strengthening governance. Mr. Yoshimatsu yourself have a wealth of experience as an outside director. What stance do you take on the Board of Directors?

 

Yoshimatsu: The basic role of outside directors besides supervision is to give accurate questions and advices on how to increase the company's medium-to long-term corporate value on top of monitoring and supervision of management. So I’m always ready to give them. What I am paying particular attention is to make my proposal more specific in a situation people are more hesitant in judgement and not to give the kind of "aerial combat" that I referred to earlier, qualitative and philosophical stuffs that end up with "good stories!"

 

Morikawa: You need to be bold, aren't you?

 

Yoshimatsu: I'm trying to avoid complicating the discussion. I would suggest my point of view and ask, "Why don't you think about it this way?" Then management can make a hypothesis from a perspective that they didn't have. From that point I prompt brainstorming, and I will join them to materialize the story. In terms of the perspective, since it is an uncertain era, sometimes I would suggest that we should aim for transformation by setting high, discontinuous targets.

 

Morikawa: I see. Meanwhile, since the introduction of Corporate Governance Code, many outside directors have been created. I understand this is a system in which an outside person who does not have an interest intentionally oversees a company, based on the recognition that in reality no company can discipline itself internally. I am also serving as an outside director of a company, and I feel that it is very difficult to truly express my opinions from a third party perspective. In the midst of an overwhelming shortage of information on corporate activities compared to in-house directors, it is quite difficult to decide what to say.

 

Yoshimatsu: I understand very well. That's indeed why I think that the visualization of the management the Avant Group is promoting become meaningful.

 

Morikawa: Thank you very much. In fact, there are many opportunities when I interview the company I sit as an outside director about business situation, but all I get are qualitative matters and I can't engage in the dialogue. The language that forms the basis of dialogue, then, is finance. Look at investments, returns. Only after these figures are available can we discuss corporate activities, including people and processes. At present, however, there are no rules for discussing dialogue with outside directors in what terms.

 

Yoshimatsu: You're right. You mentioned earlier that outside directors became mandatory, the current situation does not seem to meet the needs of companies for outside directors with “finance as a common language.” Compared to Europe and the U.S., where job-based employment has become the norm, a professionalism has been established, and there are many managers of these capacities. In Japan there are few candidates for outside directors who have management experience with finance as a common language.

 

Morikawa: When I founded the company, we positioned accounting information as a common language for management, but now I believe that finance information, including people, goods, and money, is important. By visualizing performances, you can understand past performance, but you can't see what you need to do in the future. Therefore, I want to strongly support outside directors, CEOs and CFOs, which are in short supply, by proactively building a management information system that will trigger them to think about what they should do in the future. In addition, if we are able to realize these goals and objectively view ourselves, I believe that this will also strengthen governance as a whole.

 

Yoshimatsu: You're right. My awareness of issues is precisely this point. I think that accounting information will become more automated. However, as for how to make forecast, I think there is also a method to utilize a wide variety of management information with AI. I think that creating such tools will lead to the "spreading accountability" that Team Morikawa is developing.

 

Morikawa: Thank you very much. In addition, in order to make management information available to the public, we will make it available a process in which manual operations are converted to BPO (Business Process Outsourcing) and substantially automated with the use of IT and AI. In other words, we intend to contribute through our collective strengths while properly aligning various tools, services, and solutions in response to customer issues.

 

Yoshimatsu: That's encouraging. If you are able to provide such comprehensive services, I think that management will be able to have sound dialog with a diverse range of shareholders and investors, including activists, on issues including the direction of portfolio reform, which is now a challenge for various companies.

 

Morikawa: Lastly, can you tell us your expectation for the Avant Group?

 

Yoshimatsu: This is a summary of what I have said so far. I hope your group of companies support not only the CFO but whole management in making decision, creating a multifaceted and comprehensive common language, solutions that pave the way for the future, not only the past.

 

Morikawa: Thank you very much. Listening to your opinion, we were able to raise our confidence in the Avant Group's course.