Conversation between the New and Former Chairpersons of the Nomination and Remuneration Advisory Committee

Photo (left)

Takahiro Ikeda

Independent Outside Director,
member and former chair of the Nomination
and Remuneration Advisory Committee
Former Chair of the Committee

Photo (right)​

Ryoko Nagata

Independent Outside Director
chair of the Nomination and Remuneration
Advisory Committee

Nagata:

We outside directors play a big role in ensuring fairness and objectivity. The Company’s Nomination and Remuneration Advisory Committee is comprised of two internal directors and five external directors, so even if the sitting president prefers a certain successor, it must be approved by a majority of the outside directors. From an external perspective, I think this is an excellent arrangement for placing a strong check on the process, but it also means that outside directors have a big responsibility. My input and even a single vote in the committee can affect the future course of the Company, so in each round of deliberations, I feel the pressure and come fully prepared.

Ikeda:

After announcing our succession plan, we have been building a pool of management talent for the future. When selecting candidates, I place importance on whether they have experience as managers in intensely competitive industries, have worked overseas, and have been given tough assignments in those roles. In other words, I look at whether they have handled really challenging work and overcome obstacles. Since UACJ was established in 2013, it has faced dramatic changes in its operating environment, such as the pandemic and a trade war between China and the United States. It has never operated in normal times, so to speak, so it needs leaders who can spearhead changes in times of crises.

Nagata:

Among the candidates for president, the committee ultimately nominated Shinji Tanaka because he had demonstrated leadership in various ways, such as starting up a subsidiary in Thailand and executing structural reforms.

Ikeda:

The committee also has an important role in evaluating the performance of the new executive team. Amid an increasingly uncertain operating environment, we need to assess whether the mid-term management plan is making real progress, targets are achieved by the plan’s final year, and management is contributing to realizing the Group’s long-term roadmap, UACJ Vision 2030. We will evaluate President Tanaka every year and point out specific issues that need to be addressed.

Nagata:

When pooling talent, I feel there is some room for improvement. We are choosing candidates for the future president, so it is natural to confirm that they meet certain requirements across all categories of capabilities. If candidates must meet every one of these requirements, however, we might overlook people who have exceptional capabilities in specialized areas. Succession planning is a process of grooming the next generation of leaders—not only the president—who will guide the Company’s management, so I think we should ensure diversity in the talent pool while considering what kind of management team we want to form in the future.

Ikeda:

As you say, a broad pool of talent is very important for ensuring diversity in management in the years ahead. Following its establishment, the Company appointed three successive presidents with technical backgrounds. That was certainly not intentional, but if we keep appointing presidents with technical backgrounds, management could become too focused on technical matters in the future. Therefore, I think we should choose capable candidates from among people who have experience in sales, finance, and planning, and provide career development support for future managers.

Nagata:

The labor market for outside directors and auditors is very competitive now, and exceptional people tend to receive a flood of offers from many companies. That makes it difficult when selecting candidates who suit the Company’s corporate culture and have the necessary specializations and experience, because there are only a limited number of people we can target, and if we take too much time to identify the candidates, other companies might get them first.

Ikeda:

To ensure diversity in the Board of Directors, we also need to consider women, foreign nationals, and people with expertise in fields that other board members do not possess when making selections. In practice, however, the number of qualified people becomes even more limited and competition for talent is more intense when diversity is added to the equation.

Nagata:

That’s right. When identifying women with corporate executive experience, for example, we can find many with backgrounds in human resources and public relations, but there are actually very few women with executive experience in other fields, especially technology. In the years ahead, I think the Company’s Board of Directors will increasingly need members who are well-versed in AI and digital technologies, but business savvy people who specialize in these technologies are in high demand, regardless of gender, so it is not easy to attract them.

Ikeda:

To recruit such exceptional talent, the Company will need to consider suitable and competitive levels of remuneration for outside directors and members of the Audit and Supervisory Board.

Nagata:

At a time when business conditions are changing dramatically, the qualities and capabilities of outside directors are also sure to change. Even if outside directors were fully qualified at the time they were nominated, a system is needed for periodically confirming that they can contribute in the future as the Company goes through different stages.

Ikeda:

The term of a director is one year, and their nominations must be approved at the general meeting of shareholders each year. It is difficult for newly appointed outside directors to fully understand the Group’s businesses over a single year, so the committee expects them to serve for several years. The Committee deliberates on whether each outside director can sufficiently fulfill his or her duties and serve another term. The results of the annual peer evaluations are reported to the committee and used as a resource for deciding on the reappointments of the outside directors.

Nagata:

My first experience with the peer evaluations came about half a year after I was appointed. I was surprised by the depth of evaluations, but receiving comments from the other outside directors was a novel experience for me and gave me many insights. While people may be evaluated quantitatively, the higher up they are in an organization, the fewer opportunities they have to receive qualitative feedback, so I think this system is useful for self-reflection.

Ikeda:

Each time we are evaluated, I renew my focus because many comments are unsparing, but I feel this helps to keep us on our toes. The fact that we can comment so openly is proof of the trust we have built up with each other.

Nagata:

At UACJ, the Board of Directors is guaranteed as a safe space, which allows all members to speak freely, regardless of whether they are internal or outside directors. Our contributions are rated in the peer evaluations, so if scores are higher in the second year than in the first, we can feel gratified about making a genuine contribution.

Ikeda:

Three years have passed since the peer evaluation system was initiated. The system is important for ensuring the effectiveness of the Company’s corporate governance, so I think it should continue to be developed in the years ahead.

Nagata:

In the future, I think the scale of performance-linked remuneration should be even larger. If officers receive a large salary every month regardless of performance, they may lose their motivation to take risks and take on challenges at a time when changes in business conditions are more extreme. The system must be designed to offer incentives, including both types of performance-linked remuneration, and not become a vested right.

Ikeda:

Unlike employees, results are everything for officers, so it is important to fairly evaluate their performance and properly compensate them. In our industry, however, results of measures being taken now might not appear by the following year. For that reason, besides rewarding shortterm performance, it is essential to offer medium- and longterm incentives like stock-based remuneration, which reflects improvements in the Company’s performance and market capitalization. Based on this perspective, while incorporating data from survey firms and emphasizing objectivity and transparency, the committee has been working to optimize the officer remuneration system so that it contributes to raising the Company’s market capitalization.

Nagata:

Over the two years when you served as chair, I closely observed your actions as a member of the committee. While I cannot chair it in the same way that you did, in addition to facilitation, I will do whatever I can to contribute in my own way.

Ikeda:

Looking ahead, I want the committee to discuss how to raise public awareness of the Company’s businesses, which has been a challenge. We have actively advertised in the past, including through television commercials, but we are still at the stage of trying to increase brand recognition. Furthermore, as a result of serious deliberations on how to improve corporate governance, which were led by the Nomination and Remuneration Advisory Committee, the Company’s corporate governance system has several unique features, such as the peer evaluation system for outside directors that we talked about earlier. We need to make people involved in capital markets more aware of this.

Nagata:

Corporate governance is largely associated with compliance, but practicing proactive governance is important for raising the Company’s value over the medium and long terms. For example, I think we should discuss the Company’s future PR and branding strategies with promising managers from the next-generation management pool, and appoint those who are highly ambitious and have fresh and innovative ideas.

Ikeda:

As you say, seeking out new ideas is important. When discussing things like officer remuneration and employee salaries, we still limit our scope to the nonferrous metals industry. If we remain stuck in outdated conventional paradigms, we will not be able to compete with growing new industries to attract talent.

Nagata:

UACJ will execute strategies for adding more value to aluminum products and apply a business-to-business-toconsumer model to enter new business domains. Therefore, its business structure as well as its corporate culture and organizations will need to evolve. Moreover, it will be important for the Group to broaden its outlook as much as possible, apply new ideas, and take on challenges without staying within the bounds of its three-country manufacturing network because it will develop the aerospace and defense materials business in the future, and building a circular economy is a global project.