We spoke with Mr. George Olcott, an outside director of Dai-ichi Life, about efforts to strengthen the governance of Japanese companies and Dai-ichi Life and the role of outside directors.
Outline of the Stakeholder Dialogue
| Theme | To Strengthen Governance -Initiatives at Dai-ichi Life Group and the Roles of Outside Directors- |
|---|---|
| Stakeholder | George Olcott, Outside Director |
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The affiliation and position are at the time when the dialogue was held for producing Annual Report (published in July, 2016).
Q. Changing governance practices in Japan has recently been drawing considerable attention. How do you evaluate the governance of Japanese companies in general and that of Dai-ichi Life?
A. I think that the governance reforms of Japanese companies are moving things in a better direction. In the past, a serious problem with Japanese boards emanated from the fact that the board consisted almost entirely of internal directors. As most important decisions relating to the company’s strategy and investments had been made separately at the executive board, the board of director’s role was merely to rubber stamp these decisions. Today, however, the culture of external oversight over the decision-making process is becoming more embedded thanks in large part to the introduction of the Corporate Governance Code. The introduction of two or more outside directors is spreading thanks to changes to the listing rules of the Tokyo Stock Exchange. The increase in the number of outside directors from two to five in the previous fiscal year at Dai-ichi Life is a good example of its governance reforms. I believe that this has improved the transparency and objectivity of decision making. On the other hand, care needs to be taken in the selection of outside directors. A diverse and balanced board is essential for the promotion of objectivity and avoidance of bias. Outside directors should raise questions about agenda items from various perspectives and question the company executives until they are convinced that proposals made by executives are truly for the benefit of all stakeholders, but particularly shareholders. I think that through this process, management as a whole will move in the same direction. The outside directors of Dai-ichi Life are well balanced, including a lawyer, an experienced investment banker and a person with experience in financial authorities. Dai-ichi Life has a foreigner and two women. Although outside directors are not specialists in the life insurance industry, there is active debate at the board and we express opinions from our various perspectives based on our careers and other experiences.
Q. What are your views on the role of an outside director?
A. The role of an outside director is not to direct the strategy of the firm or make specific proposals at the board. The main responsibility of outside directors should be to ascertain that the company has clearly set a vision and mission, that this vision and mission makes sense and will increase corporate value and that it has the strategies to realize its vision and mission and the resources to support those strategies. Without full participation in the formulation of the company’s long term objectives and strategies, it is difficult for outside directors to make sense of the company’s investment plans and proposals, and to make a meaningful contributions when, for example, a specific M&A proposal is debated at the board. Therefore, it is also very important to hold discussions about not only individual projects, but to hold regular and thorough discussions on medium- to long-term strategies. Checking that the company has effective risk management systems and proper internal controls is also an important role.
Q. What are other key governance issues for a global company?
A. Among listed Japanese companies, the number of female outside directors has increased quite sharply in recent years, from 150 in 2001 to 816 in 2014. That number is still considerably lower than in almost all other OECD countries. However the number of foreign outside directors is still shockingly low and has barely increased, rising from 232 to only 274 out of approximately 40,000 directors of listed Japanese firms in the last 15 years. Diversity is still a major challenge facing Japanese companies, given the role of outside directors to bring diverse perspectives to board discussions. I also think that there is still considerable scope to reflect the voice of shareholders and investors in the management of Japanese companies in general. In the United Kingdom, there is a lead outside director, and a key role of the lead outside director is to have a clear understanding of how shareholders view the company. The lead director therefore needs to keep in close touch with institutional investors. Japan may not yet be ready for this system, but there are still many Japanese companies that do not give feedback on the results of IR activities, including those overseas, to the board of directors, and I think that this is an issue they should address. At Dai-ichi Life, board members receive regular updates on IR activities in Japan and overseas and it is important for the board of directors to continue to hold discussions where the expectations of shareholders and other stakeholders are truly reflected. I believe that Dai-ichi Life will enhance its international presence in the future. The more that presence increases, the stronger the governance system that will be required. It is important that the company continues its efforts to strengthen governance.