Discussion Between Independent Directors

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社外取締役

One year has passed since Sojitz transitioned to the Company with Audit and Supervisory Committee structure, as described in the Companies Act of Japan, and installed a new management team. Over this year, the Company has proceeded to overcome various challenges in its ongoing march toward its Next Stage.
The following is a discussion between independent directors Tsuyoshi Kameoka and Ungyong Shu in which they talk about the changes following the transition, leadership under the new management team, and the investment strategies and engagement with capital markets needed to double corporate value leading up to 2030.

Q. One year has passed since the installment of a new management team and the transition to the Company with Audit and Supervisory Committee structure. What is your opinion regarding the present state of Sojitz from your perspective as an independent director?

Kameoka
The transition to the Company with Audit and Supervisory Committee structure was the greatest change seen in terms of corporate governance during the year ended March 31, 2025. Most notably, this change has increased the degree of authority delegated to executive directors in relation to crucial management decision-making. At small meetings and other venues for engagement with investors, we often receive questions about whether this approach will allow for effective governance. Contrary to these concerns, however, the executive team has been even more proactive in providing the Board of Directors with information given their desire to inform the Board about specific projects. Moreover, as independent directors participate in meetings of the Finance & Investment Deliberation Council as observers, the frameworks are in place to ensure that the Board is sufficiently aware of even small projects. Given these frameworks, I see no need for concern with regard to governance. At the same time, the delegation of authority has allowed the Board to devote more time to important themes meriting discussion like the medium-term management plan, digital transformation, human resources, and sustainability. When considering the amount of discussion time and agenda items for Board meetings, I feel confident in saying that the transition to the Company with Audit and Supervisory Committee structure yielded the anticipated benefits in its first year in effect.

Shu
We pinpointed a number of issues that could emerge in relation to the transition to the Company with Audit and Supervisory Committee structure based on case studies of other companies that had already adopted the structure. Accordingly, Sojitz was able to apply the lessons learned from its peers to its own transition process. Major issues identified included how directors who are Audit and Supervisory Committee members can effectively fulfill their roles as both directors and as Audit and Supervisory Committee members, how to address the immense burden of fulfilling those two roles, and how to minimize information gaps between directors who are Audit and Supervisory Committee members and those who are not. Moreover, Sojitz also found its own unique issues to be addressed, namely, how to approach the goals of maintaining an appropriately compact Board of Directors and enhancing the effectiveness and functionality of the Audit and Supervisory Committee. In looking for ways to address these issues, there was some talk about whether an independent director should chair the Audit and Supervisory Committee. Ultimately, it was decided that this role should go to full-time director Yoshiki Manabe, and this decision has heightened the effectiveness and functionality of the committee. The Company also introduced a senior auditor system* to further reinforce the auditing function. It is important to refrain from adopting a limited, company-centric perspective when it comes to developing governance systems. Rather, a company should be open to learning from the experience and lessons of outside entities and demonstrate a certain level of understanding and humility that allows for incorporating such lessons into its own systems.

Kameoka
I have a lot of praise for the successful transition to a new management team, starting with the appointment of President Uemura. The process of selecting Mr. Uemura to be the next president involved numerous discussions by the Nomination Committee as well as interviews, and we were very deliberate in making this decision. Even after selecting Mr. Uemura, we continued to carefully observe progress based on the understanding that we—independent directors—have a responsibility given our role in the selection process. Specifically, I looked at how the new management team was working toward a new vision for Sojitz, as opposed to just continuing to tread down the path walked thus far.
I think that Sojitz’s small workforce, in comparison to other trading companies, is a major strength. Of course, a small workforce is generally perceived as a weakness, but one cannot deny the benefit of the swift and agile mobility that a smaller workforce brings. However, if the Company is to take full advantage of this strength, it needs a corporate culture, a commitment, to combining the insight of all employees to maximize the capabilities of teams and create value. Sojitz also must facilitate open communication characterized by a closer relationship between senior management and general employees. Fortunately, Sojitz already has these foundations in place. The fact that the senior management team consists of President Uemura’s contemporaries has already contributed to this type of close relationship. I therefore anticipate that the new management team will inspire dynamic discussion and help Sojitz generate even greater results.

Shu
One of Sojitz’s strengths that I want to emphasize is how President Uemura is able to exercise finely tuned leadership given the Company’s incredibly flat management structure. In more traditional large-scale organizations featuring stratified management structures, the ability to confirm conditions on the ground is generally lacking or bottom-up decision-making processes may be in place but require time, resulting in decisions missing the ideal timing for successful execution. Management at Sojitz, however, is functioning effectively without falling into this trap. President Uemura and other members of management take a hands-on approach by communicating their ideas to executives through discussions with the Finance & Investment Deliberation Council and at the annual management retreat. Only one year has passed since the installment of the new management team, but it has already demonstrated commendable stability. I want to see President Uemura making bold decisions with the support of this solid management foundation.

Q. What are your opinions of and hope for Sojitz’s initiatives to advance to the Next Stage? Also, what do you see as your role as independent directors in the march toward the Next Stage?

Kameoka
In the past, Sojitz has had to overcome a period of challenging management due to a weak financial base. During this period, the Company lacked the funds to make the investments it might have wanted to conduct, leading to an inability to sufficiently amass investment experience and skills. However, this has not been the case over the past four or five years. During this time, Sojitz has been investing aggressively, and it has finally gotten on the right course as a result. In the year ended March 31, 2025, the Company announced a number of new business investments and loans, thereby laying the groundwork for future growth. I thus feel no qualms in saying that Sojitz has made a strong start on its path toward 2030. Sojitz has set the targets of profit for the year (attributable to owners of the Company) of ¥200.0 billion, ROE of 15%, and market capitalization of ¥2 trillion for the Next Stage. I believe that achieving these targets is entirely feasible. The Company’s net profit was at just ¥30 billion around 2014. However, in the span of 10 years, Sojitz’s profit for the year (attributable to owners of the Company) has surpassed ¥100 billion, an amount three to four times greater. Backed by these strong results, Sojitz is also securing funds and amassing investment experience and insight. This can be seen in the target of ¥600 billion in investments set in Medium-term Management Plan 2026. Of course, not all of these investments will be successful. It is therefore important to navigate through failures effectively. If a company continues to cling to loss-making projects, conditions will only get worse. Accordingly, we must constantly monitor projects and be prepared to make the decision to divest when the need emerges. There are currently no significant issues in this regard. However, this is something that management will need to remain aware of in the various investments it undertakes in the future. In today’s increasingly uncertain environment, it will be more important than ever for Sojitz to respond flexibly to the changes that emerge, as opposed to remaining married to its initial plans.

Shu
Sojitz’s performance in the year ended March 31, 2025, the first year of Medium-term Management Plan 2026, was as anticipated. The benefits of this strong performance for Sojitz’s stock price, however, have been limited. The only conclusion that can be drawn is that the Company’s performance is not yet surpassing the market’s expectations. Accordingly, Sojitz’s management is not satisfied to just achieve their performance targets; they are departing from their prior course to pursue a new pattern of growth based on the defined goal of doubled corporate value. This goal is not a mere slogan. Quite the contrary, it is positioned as the underlying assumption for all decisions at Sojitz, whether by management or at the front lines, guiding the Company as it works toward growth that exceeds what can be found on its current growth track.

  • Kameoka
    Sojitz has put forth its vision for 2030 of becoming a general trading company that constantly cultivates new businesses and human capital. Simply investing money will not be enough to realize this vision; Sojitz must continue to generate distinctive value. The fundamental business creation process entails achieving growth by getting Sojitz’s people involved in investment projects and by leveraging the Company’s networks to ensure that businesses can grow as much as possible. I believe that truly worthwhile investments will be those that demonstrate the distinctive value produced by the Company. To ensure that the Company can create this value, it will need to carefully examine whether the desired results are being delivered based on current human resource allocations and whether employee performance may be limited due to human factors despite the operating environment presenting the anticipated conditions.

  • 社外取締役
  • 社外取締役
  • Shu
    Independent directors must be cautious when a company is undertaking transformational investments, which entail massive changes in a company’s status, business portfolio, or risk profile. When it comes to standard investments, which are conducted as part of everyday operations and are contained within the acceptable scope of risk exposure, matters should generally be left up to the executive team. The role of independent directors in regard to these investments is to monitor progress to confirm whether the investments are generating the anticipated results. At Sojitz, independent directors participate in meetings of the Finance & Investment Deliberation Council as observers. Judging by the discussions at meetings of this council, I have determined that the investment screening process is functioning effectively. In screening investments, the council does not merely think from the perspective of the Company’s finances. Rather, discussions delve deep into factors like the fundamental reason why Sojitz should conduct a given investment and the approach it should take toward improving value after the investment. Based on this fact, I believe that independent directors have an important role to play in encouraging discussion on, for example, why things did not go as expected in cases where the desired results were not seen, the lessons to be learned from this outcome, and how our approach should be amended in the future.
    From my experience, there are some cases in which the performance of investments falls below expectations for the first several years. It is difficult to pinpoint one common reason for all these cases, but one reason that is frequently cited is “unexpected changes in the operating environment.” What we can take from this is that postmerger integration should be advanced based on the assumption that unexpected changes in the operating environment are incredibly likely to occur. In times of uncertainty, we should not expect everything to go as planned. Rather, we should anticipate unexpected changes when making our plans to ensure that we are prepared. While it is essential to allocate adequate management resources, some projects won’t enjoy the luxury of having all the necessary resources at hand. Accordingly, I think it will be important to be more strategic in selecting investment projects going forward.

Kameoka
Yes, I feel the same with regard to Sojitz’s investment screening process. The Company has learned from its experience during periods of financial constraint, and it has used this experience to craft incredibly rigorous investment screening and monitoring frameworks. For example, Sojitz has frameworks in place for monitoring post-investment progress of its business plans. If progress is not going according to plan, the Finance & Investment Deliberation Council will look at the possibility of revising business plans. Our role as independent directors is thus to ensure that these frameworks are functioning effectively. It is the executive team, meanwhile, that should be responsible for the details of specific investment projects.

Shu
Sojitz’s price-to-book ratio (PBR) is currently falling below 1.0 times, meaning that the high cost of capital is imposed on the Company by the capital market. It is not easy to generate returns that surpass the presumed high cost of capital. Accordingly, until Sojitz can get its PBR above 1.0 times, I think it will be important to create a situation in which it is easier to produce returns by lowering the cost of capital through shareholder returns. We should not view the relationship between growth investments and shareholder returns as being about trade-offs. Rather, I think shareholder returns should be positioned as one of the building blocks that can be used to create an environment in which growth investments are more likely to contribute to greater value.

Kameoka:
Profit margins are one factor considered in relation to investments, but it is worth noting that even a project with low profit margins requires the same human resource investment as a large project. In this manner, it is crucial to think about how human resources, a critical asset, can be utilized most effectively. Sojitz is limited in terms of human resources when compared to other trading companies, meaning that it is all the more important for it to think strategically about how it allocates resources such as people and money. Also, when conducting investments, the Company must consider the fact that there are also people at the target company. Sojitz needs to think about how its involvement will contribute to the growth of the investee and how its people can excel. These are both factors that will drive Sojitz’s growth. To go a step further, when conducting business investments on a global scale, Sojitz must consider how it can facilitate communication and growth together with people of various nationalities, cultures, and religions. This will be no easy task. That is why it is so important that Sojitz foster people who are confident in the Company’s ability to take on challenges going forward.

Q. What is your view regarding the capital market’s current appraisal of Sojitz? Also, how are you engaging with the capital market as independent directors?

Shu
Improving Sojitz’s stock price is a pressing issue, but not one that will be easy to resolve. As touched on previously, raising its stock price will require the Company to deliver results that exceed investor expectations. Sojitz has put forth the lofty goal of doubling corporate value. If it cannot demonstrate that this goal is feasible, we will not likely see improvements in the stock price. Simply generating steady returns from business investments and management will not be enough to convince the market of the feasibility of this goal; Sojitz must implement an investment and recovery cycle that involves swift recovery of capital invested in fields not contributing to higher corporate value so that this capital can be reinvested in other areas.
Meanwhile, we independent directors need to engage with the capital market to maintain an up-to-date understanding of the matters of interest to shareholders and other investors. Direct conversations with shareholders and other investors help us gain an understanding of these matters that is more vivid than reading words on paper. We must share the input and insight gained through such conversations with management so that these findings can be utilized in future management practices.

Kameoka
When it comes to engagement with the capital market, I tend to emphasize the importance of a concerted approach toward communication with investors that involves senior management, independent directors, and other relevant individuals. It is only if we take such a concerted approach that we will be able to gain opportunities to engage in direct conversations with investors and thereby solicit their questions and opinions. Such opportunities are incredibly meaningful for Sojitz. When speaking with investors at small meetings, I cannot help but notice how well they understand Sojitz, as well as how high their expectations are for the Company. As mentioned by Director Shu, an important task to be addressed going forward will be to generate results that exceed these expectations and to effectively communicate these results to the market. Being able to go beyond simply explaining what has been accomplished to underscore how those accomplishments surpassed expectations will be an important factor in improving Sojitz’s stock price. I, of course, am committed to doing whatever I can to aid in this process.

*Organization affiliations and titles are current as of July 2025.

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