“ Freer, more open, and vigorous discussion aiming at boosting corporate value ”
(Left) Hiroyuki Kato
Independent Director
Former director and current advisor to Mitsui & Co., Ltd. Became independent director of Obayashi Corporation in 2021.
(Center) Masako Orii
Independent Director
Served as executive officer at Suntory Holdings Limited and senior managing director of Suntory Wellness Limited. Current advisor to Suntory Holdings Limited. Became independent director of Obayashi Corporation in 2020.
(Right) Yukiko Kuroda
Independent Director
Worked previously for Sony Corporation. Founder and current advisor of People Focus Consulting Co., Ltd. Became independent director of Obayashi Corporation in 2022.
Orii Looking back on Obayashi Corporation’s progress in recent years, I feel it has made steady advances on governance led by the Board of Directors. Indeed, the Company has been enhancing governance in true Obayashi style. After establishing Obayashi Group Medium-Term Business Plan 2022, it decided to incorporate dividend on equity (DOE) into its shareholder return policy, revised its officer remuneration system, clearly stipulated the succession plan as well as criteria for the appointment and dismissal of the president, and then announced the revision of its basic capital policy in March 2024. All this was inspired by open and honest discussion between internal and independent directors and the airing of various perspectives, underpinned by mutual trust and an appropriate degree of tension. The challenge now is for all of us to show the determination to maintain momentum and generate even greater progress. Personally, I would like to deepen the discussion on ensuring safety and quality in recognition of the tragic nature of the serious accident that occurred. I would also like to encourage further discussion on human capital to ensure the Obayashi Group’s employees become its greatest strength.
Kuroda We have been able to regularly discuss medium- to long-term strategies and issues in the Directors’Roundtable Meeting that was set up roughly one year ago. It is worth noting that we discussed capital policy revision on multiple occasions in FY2023. Instead of opting for the widespread practice of buying back shares, the Company considered its medium- to long-term growth strategy and reviewed the level of equity and shareholder return ratio required to achieve its return on equity (ROE) and return on invested capital (ROIC) targets. Looking ahead, I think that business portfolio development and the amassing and utilization of intangible assets will become priority areas for achieving the Group’s growth strategy.
Kato I agree that the Directors’Roundtable Meeting recently established to support the Board of Directors is a successful venue for internal and independent directors to freely discuss different issues. One of the positive results of open discussions facilitated by the board and the Roundtable Meeting was the capital policy revision announced in March. As my two colleagues have mentioned, nurturing a dynamic corporate culture and effective human resources is also important. Meanwhile, we may not yet have sufficiently discussed the construction business, although it is high in priority and is the Group’s core business. This segment is the main source of Obayashi Corporation’s earning power, so I believe we have a responsibility to encourage a broad and deep discussion on the most important themes of safety
and quality.
Orii From my interactions with employees, I feel their keen sense of carefully structuring ideas, as well as their impressive ability to give shape to those ideas. I converse regularly with people involved in the voluntary projects run by female employees as well as the Diversity & Inclusion Promotion Department. Also, the other day, I was struck by employees’ commitment and responsibility with regard to “making things,” as well as their sincerity when talking to the Head of Hokuriku Branch about the 2024 Noto Peninsula Earthquake response. Ultimately, it is the people in the front line that implement a company’s strategy, so I believe these particular qualities represent vital strengths for the Obayashi Group. Creating value is important, but it is also important to communicate the significance of that value. To fully leverage these strengths, the Company should accelerate diversity and nurture a corporate mindset and culture that encourages employees to demonstrate greater individuality.
Kato It is hard to describe the Group’s strengths in a nutshell, but when I interact with Obayashi Group employees, I am always struck by their sincerity, open-mindedness, candor, and professionalism. The Group culture empowers frontline people by delegating responsibility to them, which in turn leads to the power of its people and to its frontline capabilities. The employees fulfill the work entrusted to them admirably. The challenge going forward, however, will be to build frameworks that encourage employees to create things that are completely new based on their own ideas. I think the Company needs to promote freer and more vigorous discussion in order to create a framework for incorporating employees’ ideas into business and expanding on those ideas.
Kuroda I have heard that Obayashi Corporation’s key strength lies in its frontline capabilities, but, unfortunately, I have not yet had many opportunities to interact with employees working at construction sites. I am, however, constantly impressed by the determined perspective and high degree of competence of employees working in the office. The materials they prepared for our capital policy revision and our discussion of management strategy were excellent. They do not just simply present the rhetoric but also offer statistical verification based on data analytics and other methods. I thought the documentation had been created by a consulting company, so I was very surprised when I found out it had been compiled in house.
Kato The discussion of capital policy over the past few years culminated in a successful revision, and feedback from capital markets was positive. That is significant progress, but to ensure a more robust and sustainable capital policy going forward, the Company needs to establish a strong, growth-driving earnings base. This falls largely within the realm of the Company’s executives, but we independent directors must ensure the creation of such an earnings base by participating in discussions and monitoring the relevant factors including strategies, their implementation, and human resource training. Elsewhere, in the core construction business, the proportion of overseas business is increasing, and local human resources will be vital in achieving success in those business going forward. Finally, Obayashi Corporation needs to strengthen governance frameworks for the whole Group and there is an urgent need to train managers who can effectively supervise overall management.
Kuroda I see my role as assisting with the determination of the Obayashi Group’s chosen path and management strategy, overseeing internal control and risk management, and reminding management of shareholder and broader stakeholder perspectives. General contractors have been around for a long time, so they have some unique business practices and values, but we speak up if we are not comfortable with any of those practices.
Orii I would like to help the Obayashi Group accurately and reliably implement Company-wide transformation to achieve sustainable growth as stipulated in the medium-term plan. To that end, I will keep a close eye on initiatives encompassing clear awareness of the issues, the need for speed, and incorporation of such transformation into the organizational culture. In terms of further enhancing corporate value, the other day I watched the first episode of the new Project X television series by the public broadcaster NHK featuring Obayashi Corporation’s challenging journey to construct the TOKYO SKYTREE® tower. I visited the Technology Research Institute last year and experienced firsthand the astonishing technologies at the very core of the Company. Given its determined corporate philosophy and technological prowess, I can see the Obayashi Group utilizing technologies to promote carbon neutrality and well-being to help bring about a sustainable future for society while achieving its own sustainable growth. For my part, I will carefully monitor and discuss initiatives to ensure the coordinated pursuit of the Obayashi Philosophy, technology, and strategy.
Kuroda The market viewed the capital policy that was announced in March very positively. Usually, the price of shares tends to spike and then fall right back when any strategies on shareholder returns are announced, but that didn’t happen this time. I believe this is because investors understood the underlying medium- to long-term strategies and policies. The Group aims to boost corporate value over the medium to long term instead of taking piecemeal measures to shore up its share price. I hope investors will support that quest.
Orii The best way to meet the expectations of investors and other stakeholders is to create value for society and achieve sustainable growth as a company. I want to consider a range of perspectives on the axes of time and space and evaluate all pertinent risks and opportunities in order to ensure that aim can be achieved in accordance with the Obayashi Philosophy.
The capital policy revision in March 2024 was well regarded by the investors. I am aware that there will be growing demands on the Company to determine an appropriate balance between growth investment and shareholder returns based on various factors, and to boost both shareholder profits and corporate growth.
Kato With respect to the medium-term plan, although the Obayashi Group has not been able to achieve its planned targets as a result of the unprofitability of some projects since the first year, I have confidence in its solid earning power. Indeed, the Group is already on a recovery track and is expected to generate near-plan performance in FY2025 and FY2026. It is our job as independent directors to closely monitor the situation. Meanwhile, shareholder returns have improved considerably thanks to the capital policy revision implemented through board discussion. The Company is now successfully pursuing management with an eye on share price and shareholder interests, which is a great step forward. I will continue to promote discussions on how to achieve a virtuous cycle in which the Group’s earnings base expands and shareholder returns increase even further.
