Sustainabilityベラジョン 違法ing with Outside Directors

Daicel’s Strengths and Human Capital Management

Mr. Yamada (hereinafter titles omitted): First, please tell us about Daicel’s strengths and potential.

Asano: Daicel’s strength lies ベラジョン 違法he fact that it has built up a strong global position across a series of acetyl chains, from methanol to acetic acid, cellulose acetate, and acetate tow. Furthermore, Daicel is unique ベラジョン 違法hat, although it is a chemical company, it also excels in mechanical technologies that require high reliability as seen ベラジョン 違法he inflator business, and has successfully commercialized these technologies.

Nishiyama: I think Daicel’s strength lies in its commitment to fundamental principles, as represented by DAICEL Production Innovation. As demonstrated by its “virtual company,” “microfluidic device plant,” and other initiatives, this commitment is what leads to the uniqueness of its approach, which is not to create a single product, but rather to conceive and realize a completely new manufacturing structure from scratch.

Yamada: Because of Daicel’s unique value chain, it has little competition in Japan and even if DAICEL Production Innovation is applied to other companies, there would be no losses for Daicel. This gives Daicel the potential to grow while achieving co-existence and co-prosperity through various collaborations. What is your impression of Daicel from the perspective of human capital? To achieve Daicel’s ambitious Long-Term Vision and Mid-Term Management Strategy, Daicel’s management must have a strong will and on-site behavioral changes are essential.

Asano: Human capital management is something that all companies have been addressing up to now, and the history of each company shows how they have achieved growth while doing so. ベラジョン 違法he case of Daicel, the starting point for human capital management was when eight companies merged together before World War II. Consequently, management was keen to express their intentions and communicated with stakeholders, which is precisely why employees were able to follow along too. With the commercialization of cellulose from its founding celluloid business, it established an area where it could demonstrate its competitiveness while making profits, and even ベラジョン 違法he inflator business, it has identified a profitable area with an awareness toward social issues and is doing its level best to make the business a success. I believe that this history of Daicel is the result of Daicel’s management recognizing its merger roots and valuing people while steering the company ベラジョン 違法he right direction.

Monitoring of Daicel’s Mid-Term Management Strategy

Yamada: From that story about how Daicel was able to successfully commercialize products like inflators, I feel that it is very important thベラジョン 違法he intentions of Daicel’s management are conveyed to employees. Next, I would like to hear your views on the supervision provided by Outside Directors. Daicel’s current Long-Term Vision and Mid-Term Management Strategy aim to form a new business group that will expand the scope of value creation while creating overall optimization across company boundaries, and to form a new Daicel, which is the step before that. However, from an outsider’s perspective, it seems thベラジョン 違法he milestones and KPI management required to achieve these aims are quite challenging. From your positions as Outside Directors, how do you evaluate the degree to which these aims have been achieved?

Asano: I would like investors to understand thベラジョン 違法he first step for Daicel is to grow as a real company, and then to realize a virtual company (new business group). The most important target of the current Mid-Term Management Strategy as a real company was to make Polyplastics a wholly owned subsidiary of Daicel and to demonstrate synergies. ベラジョン 違法he time of the formulation of the Mid-Term Management Strategy, this endeavor had some uncertain elements. But with the setting of targets, the leadership of our President and CEO Mr. Ogawa, and the efforts of both our management and employees alike, the integration of both companies’ management personnel is progressing smoothly, and synergies are also being achieved. The virtual company that follows this is, to be more specific, an alliance with other companies. Although it is too early to make an announcement about it, I understand that seeds have been sown to create value by forming alliances throughout the supply chain, including customers of existing businesses. The challenge ahead is to bring about the breakthroughs needed to illustrate the benefits of co-creation across corporate boundaries. The results of these breakthroughs will eventually be reflected in financial statements, but before that, they will be visible qualitatively like if a patent is successfully registered, if a certain product is strengthened or able to be created, or if something is able to be done or not. So I think that even as an Outside Director, I will be able to grasp the progress of the Mid-Term Management Strategy.

Nishiyama: Simply speaking, DAICEL Production Innovation means virtualization. What people used to see physically on site will be digitized with the IoT and software and efficiently managed. ベラジョン 違法his sense, there is a continuity between our efforts regarding the virtual company (new business group) that we are aiming to realize and our efforts regarding DAICEL Production Innovation. The DX capabilities of an organization are directly linked to its ability to realize a virtual company. This is a little different from quantitative KPIs, but since a virtual company goes beyond just Daicel and is something that can be achieved by working with other companies, I think it is easy to evaluate from the outside whether or not progress is being made regarding this concept.

Yamada: I agree that DAICEL Production Innovation means virtualization. It is my view thベラジョン 違法horough standardization and the elimination of wastage and loss will free up people’s time and create a culture of looking ベラジョン 違法hings comprehensively. This is an important point when discussing Daicel’s corporate culture, but why do you think this kind of production innovation emerged at Daicel and why did it take root?

Nishiyama: I have had contact with Daicel since around 2008, when I was working as a government official. As I understood it, Daicel’s organizational culture was rooted in “the hardships of a company with merger roots.” ベラジョン 違法his context, its culture and ideas that emphasize delegating authority to young employees, changing things, and aiming for overall optimization from a broad perspective must have taken root some time ベラジョン 違法he past. This open mindset is also evident ベラジョン 違法he development process of the Autonomous Production System, the evolved version of DAICEL Production Innovation using AI which was jointly developed with the University of Tokyo. Currently, Daicel has concluded comprehensive collaboration agreements with several universities, aiming to accelerate R&D. I believe these relationships have been established precisely because the universities also see Daicel as a company that is ready to discuss and incorporate new ideas.

Looking Back on the Decision That Made Polyplastics a Wholly Owned Subsidiary

Yamada: You mentioned earlier how making Polyplastics a wholly owned subsidiary was a major point for the new Daicel, the step before realizing a virtual company. ベラジョン 違法he time, paying such a high acquisition price might have compromised Daicel’s financial soundness in some respects, but looking back, do you think the Board of Directors had sufficient discussions on the matter? Also, do you think that Polyplastics’ performance and synergies with Daicel are being realized as planned?

Asano: Naturally, the Board of Directors discussed the extent to which this acquisition decision would affect Daicel Group’s financial position and the extent to which it would lower Daicel’s credit rating. While it is true that our debt would temporarily increase, that was a hurdle that we had to overcome. I was confident that the synergistic effects ベラジョン 違法erms of business areas as well as technology and personnel exchanges had a greater medium- and long-term appeal that would outweigh any financial impacts, and I think all the Directors at the time thought so too. As mentioned above, efforts to realize synergies, such as the integration of management personnel, are progressing smoothly. However, the challenge going forward is to create new value, such as new products, manufacturing methods, business models, and alliances, from the strengths and differences of both companies. I believe we can achieve that over the long-term, and looking back over the last five years, I believe we have delivered the results we expected.

Nishiyama: I was not in my current position when the decision to acquire the company was made, but Polyplastics’ business model was original from the beginning, and I believe it is a company with strengths that differ from the organizational capabilities cultivated by Daicel. The two companies also differ in what their respective employees believe is important to do, as well as ベラジョン 違法heir relationships with customers. Also, from the viewpoint of globalization, the two companies have distinct differences. ベラジョン 違法hat sense, making Polyplastics a wholly owned subsidiary is an opportunity for Daicel itself to acquire new organizational capabilities that Polyplastics possesses. I believe that gradually learning about each other’s differences and changing over time will bring about more substantial acquisition benefits from an organizational point of view than forcibly integrating in a short period of time.

Questions from Institutional Investors

Q.Regarding Daicel’s policy on compensation for Directors, I believe that net sales and operating income account for a large portion of the evaluation items for Daicel’s performance-based bonuses. While many companies include efficiency-based perspectives such as ROE and ROIC, Daicel has not adopted such indicator targets. What discussions have the Board of Directors held about this? In addition to sales and operating income, investors also have asset efficiency as a key target. I would like you to consider a compensation system thベラジョン 違法akes this into account.

Asano: While there are various indicators, we would like our investors to understand that our policy is based on mutual understandability. As for ROE and ROIC, we have only just started introducing them in our business. And it is difficult to determine compensation with difficult-to-change KPIs, which is why Daicel set them as they are now. Going forward, taking the feedback we have received into account, we will consider a compensation system that not only satisfies investors, but also is easy to understand for the people at Daicel and encourages us to do better.

Q.I think Mr. Ogawa’s various reforms ベラジョン 違法he current Mid-Term Management Strategy are great and consider the big picture. On the other hand, at a previous financial results briefing, Mr. Ogawa commented that some on-site employees were unable to keep up with the speed of the reforms. What is your advice as Outside Directors regarding this situation?

Nishiyama: I do not think it is a good thing that employees cannot keep up, but I do think it is necessary for management to set differential targets. Even withベラジョン 違法he Daicel Group, employees’ work is diverse, with some initiatives being cutting-edge and others being conventional. It is the role of management to explain what the Company is trying to achieve and to help employees understand where their work fits ベラジョン 違法he big picture. On the other hand, some cutting-edge initiatives require new organizational structures or involve significant changes to relationships with other companies. We believe that the role of Outside Directors is to advise management on the challenges of how to concretely conceptualize and implement such initiatives as a company.

Asano: There is no doubt thベラジョン 違法his was a tumultuous period for employees. I think there initially was some confusion regarding the reforms. This issue was discussed repeatedly by the Board of Directors, with the general consensus being that Directors should have sufficient discussions with employees and give them detailed explanations. I recognize that management is making efforts to gather employees’ opinions and candid feedback in a variety of ways.

Q.Daicel’s current Long-Term Vision and Mid-Term Management Strategy are aiming for a bold change in direction, but, looking from outside Daicel, there is a strong sense that it is being guided by the strong leadership of Mr. Ogawa. Could you please provide us with details from the Nomination and Compensation Committee’s discussions, including those thベラジョン 違法ake Daicel’s potential successors—its next-generation management candidates—into account?

Asano: We discuss how to develop and decide on potential management personnel, including not only the President and CEO’s successor but also Directors, Executive Officers, and those immediately below them. One issue that has been pointed out is that efforts must be made to secure and develop personnel from the perspective of diversity.

Nishiyama: In order to develop next-generation management personnel in a broader sense, it is important to create a vibrant environment that produces candidates with diverse backgrounds and ideas by securing and developing personnel from the perspective of diversity, as Mr. Asano mentioned, and by appointing external personnel. Furthermore, there is a need for initiatives that share the know-how possessed by Daicel’s management as organizational knowledge and ensure its continuity across generations, which I would like to support as Outside Director.