Advanced Solutions, Inc.
Interview with the Chairman of the Board of Directors
We asked Atsushi Abe, Chairman of Fujitsu’s Board of Directors, and Chairperson of Fujitsu’s Executive Nomination Committee, about discussion points at the Board of Directors meetings with regard to the formulation of the 2023–2025 Medium-Term Management Plan (new medium-term plan) and the activities of the Executive Nomination Committee in fiscal 2022.
Q. Please describe the key activities of the Board of Directors in the year to June 2023.
A. We prioritized our allocation of time according to three strategic themes. The first theme—which took up the most time during the Board of Directors meetings— was related to the new medium-term plan. Over the course of nearly a year, we held in-depth discussions to define our ideal state for 2030, the management strategies to achieve this, a three-year business plan, and financial and non-financial targets for fiscal 2025 that we created by backcasting from our ideal state. We pursued these deliberations with the aim of announcing the plan in May 2023. We also considered our revised Materiality in conjunction with the medium-term plan, taking into account global information disclosure requirements and other developments.
The second theme was improving our compensation system for executives and employees. We had already revised our basic policy on executive compensation for executive directors in fiscal 2022, but we continued our discourse as we realized that we still needed to make changes, particularly to the level of compensation of employees in Japan.
The third theme involved the supervision of our system quality and information security management. In this category, we monitored the progress of the third-party verification committee that was set up in response to an information security incident that occurred in fiscal 2021. We sought to determine whether the committee’s improvement proposals had resulted in specific remedial actions.
Q. What were the main points of discussion regarding the new medium-term plan?
A. The key to achieving growth lies in how we go about it. Our current source of earnings as a system integrator that develops and operates on-premises systems is essentially built on our legacy. In our new medium-term plan, we place significant emphasis on businesses that leverage the foundational legacy we have cultivated, particularly by supporting modernization. We also focused on discussing how we can further expand Fujitsu Uvance, especially in Vertical areas, as a growth business, and how we can capitalize on our competitive advantages. In line with this, we decided to make changes to our business segments to clearly indicate the businesses we are concentrating on and their growth prospects to internal and external stakeholders.
The conversation about strategy during the Board of Directors meetings did not end with the announcement of the new medium-term plan. We intend to continue this discussion, monitoring the progress and results of our initiatives, to determine how much growth we can achieve during the period of the plan and how we should accelerate that growth.
Q. What sort of discussions did you have about Materiality?
A. The Group has been promoting sustainable management through our GRB (Global Responsible Business) framework. Now, we have further clarified the value we provide to society through digital services as “solving global environmental issues,” “developing a digital society,” and “improving people’s well-being.” We have identified specific initiatives to achieve these goals and organized them as our Materiality.
In our Board of Directors discussions, we zeroed in on embracing the values of our employees. In 10 years, Millennials and Generation Z will make up the majority of the workforce. Many people from these generations have made it clear through various surveys that they believe contributing to society is the purpose and mission of a company, and they do not want to work for a company that does not align with their values. In other words, companies that do not reflect their values may struggle to attract talent and achieve sustainable growth.
In establishing our Materiality, we focused on going beyond the superficial message that the Fujitsu Group is necessary and good for society. Going forward, we will monitor the incorporation of specific initiatives to create social value through our business activities and translate that into corporate value.
Q. Could you provide some details and describe the objective of your revisions to the compensation system for executives and employees?
A. As part of our investment in human capital, we decided to increase the monthly salaries of employees in Japan by an average of 10%, up to a maximum of 29%, starting in April 2023. This decision was driven by the need to compete globally and to attract top talent in the highly competitive global IT services industry. We recognized that low compensation levels for our employees in Japan were an issue and that it was crucial to address this concern.
To bring the perspective of directors into alignment with that of shareholders and investors, we resolved to introduce a system to pay part of the independent directors’ remuneration under a post-delivery type stock remuneration plan, as restricted stock units rather than cash, without changing the compensation level. This proposal was approved at the Annual Shareholders’ Meeting in June 2023. Following a recommendation by the Compensation Committee, in July 2023 we updated the basic policy on executive compensation in accordance with the financial and non-financial targets set forth in the new medium-term plan.
Q. What progress has been made with the supervision of the system quality and information security management?
A. The Board of Directors takes the recent recurrence of system quality issues very seriously, especially in light of our ongoing efforts to strengthen our system quality and information security management measures following major system failures and information security incidents. System quality and information security are fundamental to the Group’s business. We will continue to monitor the status of improvement measures to prevent further occurrences under the reorganized structure led by the CISO (Chief Information Security Officer) and the CQO (Chief Quality Officer).
Q. Please also describe the activities of the Executive Nomination Committee.
A. Scott Callon, who served as a director from 2020, asked to retire at the expiration of his term in June 2023 due to increased commitments outside of our Company. Our search for an equally qualified candidate who could convey the voice of the capital markets directly to the Board of Directors was successful, and we welcomed Byron Gill as a director, following approval at the Annual Shareholders’ Meeting. Mr. Gill is a seasoned executive from an asset management firm, with extensive knowledge and practical experience in finance and investing. He also possesses a deep understanding of Japanese companies, making him a perfect fit for our company.
I think our management succession planning, with a focus on the CEO and CFO, is appropriate. In its regular assessments, the Executive Nomination Committee confirms candidates’ suitability and readiness, including aptitude and experience, for future expected roles. The committee also creates opportunities for communication with candidates, getting to know them personally, to foster ongoing development of the management team.
Q. In closing, please describe the tasks you plan to tackle in your role as Chairman of the Board of Directors during the year to June 2024.
A. I understand that although shareholders and investors are acknowledging the growth potential of our digital services, centered on Fujitsu Uvance, some have expressed skepticism about us reaching the financial targets outlined in the new medium-term plan. To address these concerns, we need to demonstrate numerical results, in terms of revenue and operating profit margin. At the same time, we need to increase the “granularity” of our communication to provide a more concrete roadmap for growth. I intend to discuss with the Board of Directors how to disclose information in a way that will aid communication with shareholders and investors, as well as to supervise the progress of our growth strategy.