Dialogue between External Directors
This dialogue between external directors was held in May 2024.
- Shigeru Murayama
- External Director, Chairperson of Audit and Supervisory Committee
Shigeru Murayama has served as Representative Director and President of Kawasaki Heavy Industries, Ltd. and has held other important positions. He assumed the position of external director at the Company in June 2020.
- Makoto Sumita
- External Director
Makoto Sumita has served as Chairman & Director of TDK Corporation and has held other important positions. He assumed the position of external director at the Company in June 2022.
Transition to New Management Structure
Process of Nominating New President and Role of External Directors Therein
Sumita: Effective April 1, 2024, Nikon transitioned to a new management structure with Toshikazu Umatate acting as representative director and chairman, CEO and Muneaki Tokunari holding the position of representative director and president, COO and CFO. A list of potential successors to the president was compiled about two years ago, and we began the process of nominating the new president in late 2023. This decision was prompted by discussions of the type of management structure that would be ideal for achieving growth beginning in FY2024, the midway point for the Medium-Term Management Plan launched in FY2022. The discussions for nominating the next president began with the Nominating Committee, which I chair. However, given the importance of this decision, a number of opportunities were arranged to allow all external directors to interview candidates outside of meetings of the Nominating Committee in order to allow the Board of Directors to make the decision appropriately. Through this process, the Board officially nominated the next president following discussions by the Nominating Committee.
Murayama: The interviews had an open and frank atmosphere. We were thus able to ask candidates their honest feelings toward the Company as well as their approaches toward management. The interviews also helped us gain an understanding of the disposition of each candidate.
Sumita: This was the first time Nikon had appointed a new president since establishing the Nominating Committee. I think one of the reasons we were able to reach a consensus so smoothly was because of the brisk communication that took place among external directors and all other members. Moreover, the opportunity to interview candidates in advance of formal meetings allowed us to discuss the type of leader that Nikon would need going forward and which candidate best fit the description based on a shared understanding at meetings of the Nominating Committee and the Board of Directors.
Future Succession Planning
Murayama:
During the process of nominating the current president, the Nominating Committee comprised four external directors and inside director and then-Chairman of the Board Kazuo Ushida.
Then-President Umatate participated in meetings as an observer and explained his feelings regarding the next president and why he had recommended the candidates. This experience led us to the conclusion that a system in which senior executives are able communicate and discuss their opinions on equal footing as members of the Nominating Committee would be ideal. For this reason, we plan to have Chairman Umatate and President Tokunari join the Nominating Committee after they are chosen as the members of the Board of Directors at the General Shareholders’ Meeting. As for us external directors, we will continue to fulfill our role of ensuring the transparency and impartiality of the nomination process based on our outside perspectives.
Sumita: Having experienced the process of nominating the new president, I acknowledge the importance of going beyond just choosing leaders to identify candidates as early as possible, from both inside and outside of the Company. Early identification of candidates will allow us to devote more time to discussing candidates and move forward with their development. In order to fully understand the entirety of Nikon’s diverse business operations, it is crucial for candidates to gain a wide range of experience and to heighten their skills as a leader.
Expectations for New Management Structure
Sumita: When nominating the new president, discussions took place on the subject of what type of person, given Nikon’s operating environment, would be best suited to raising the Nikon Group’s comprehensive capabilities in order to achieve further growth.
Murayama: The discussions led to the consensus that Mr. Tokunari would be best suited for this position. Factors that we considered along the way included how he helped former President Umatate formulate the current Medium-Term Management Plan and how, in his capacity as CFO, he promoted company-wide strategies from a perspective that was not limited to finance. In the past, Nikon has failed to accomplish the targets laid out in its Medium-Term Management Plan. The Company may be achieving a rapid recovery from the impacts of the COVID-19 pandemic under the current Medium-Term Management Plan, but this does not change the fact that achieving the plan’s targets is not expected to be easy. Now-President Tokunari’s insight and experience will no doubt be essential to accomplishing this task.
Sumita: President Tokunari identifies issues in Nikon’s business from a company-wide perspective, without becoming preoccupied with specific individual businesses, to formulate an accurate approach toward tackling these issues. He also maintains close contact with business divisions and understands the essence of each of Nikon’s businesses to the point that you might be forgiven for thinking that he had spent his entire career here. This is probably why he is able to offer such easy-to-understand explanations at meetings of the Board of Directors. Moreover, he has a wealth of overseas experience and a global perspective. These qualities truly make him suited to the position of leading Nikon.
Murayama: Mr. Tokunari himself was quite surprised to be nominated for the position of president a mere four years after joining Nikon’s management team. However, there are no concerns with regard to his ability to fill this role as he has already proven to have a deep understanding of Nikon’s businesses. In his new capacity as president, I look forward to seeing him advance reforms that get more to the heart of the Company.
Sumita: The new management structure will be led by Chairman Umatate and President Tokunari, two people with very different backgrounds. I hope to see them successfully guide the Company to accomplish the goals of the Medium-Term Management Plan and to achieve growth thereafter.
Progress of the Medium-Term Management Plan and Future Prospects
Monitoring of the Medium-Term Management Plan and Foreseeable Issues
Murayama: Including FY2024, only two years remain for the current Medium-Term Management Plan. The Board of Directors receives reports on the progress of the Medium-Term Management Plan twice a year from the executive team. When there is cause for specific concern with regard to the plan, it is included among the agenda items for Board meetings, and explanations are provided on the situation. As the Board monitors the progress of the Medium-Term Management Plan, they pay particular attention to changes in the operating environment to determine whether there is a need to adjust strategies. In fact, at the midpoint of the plan, revisions were made to outlooks for distributions of earnings by business and to capital allocations based on changes in the operating environment.
Sumita: When the current Medium-Term Management Plan is not progressing on schedule, the Board of Directors delves deep into the potential causes of the issues. Should progress toward numerical targets be slow, for example, the Board will drill down into the executive team’s understandings of the situation to determine whether the cause lies in the operating environment or in Nikon’s strategies. It will also review initiatives to ensure that they are not lacking. Feedback is provided with regard to the findings of these examinations.
Murayama: The Healthcare Business used to be in the red, but it has since been made profitable and is now serving as a new source of earnings for Nikon. Moreover, the Company’s plans to conduct M&A activities in growth markets are moving ahead as intended. Progress on this front can be seen in the conversion of SLM Solutions Group AG (currently Nikon SLM Solutions AG) of Germany into a subsidiary in 2023 and the conversion of RED.com, LLC of the United States in 2024. In order to ensure the steady growth of the businesses of these new Group constituents, it will be important for the Board of Directors to engage in ongoing monitoring of their progress.
Sumita: Having completed the acquisitions of SLM Solutions and RED.com, Nikon no longer has any large-scale M&A activities on its plate. Accordingly, important tasks going forward will be to improve profitability and to strengthen Group governance of overseas subsidiaries and other companies. It is not easy for a Japanese company to practice effective governance of a large-scale overseas company that it has acquired. This is why the Board of Directors must take a focused approach toward monitoring how newly acquired subsidiaries are being handled and how management is being strengthened for these new members of the Nikon Group. I also suspect that Nikon is at a point at which it should begin ramping up capital investment in domestic production systems.
Murayama: I too feel that Nikon’s handling of the overseas companies it has acquired might be a bit lacking. I also share your opinion with regard to domestic production systems. On a visit to an actual production site, I noticed some areas in need of improvement. This prompted me to suggest that Nikon should devote more funds to its production facilities at a meeting of the Board of Directors. The executive team was also aware of these issues. This is why, when we revised the allocations of capital under the current Medium-Term Management Plan, a significant amount of capital was shifted away from M&A activities and other strategic investments and toward reinforcing operating foundations through means such as capital investment.
Sumita: Augmentations to production facilities have the potential to contribute to earnings over the long term. At the same time, creating comfortable working environments is crucial to securing human resources. These are some of the reasons why I hope Nikon will actively invest in making its production bases more competitive.
Outlook for Nikon
Sumita: For better or for worse, Nikon is a technology company. With Toshikazu Umatate as representative director and chairman, CEO and Muneaki Tokunari as representative director and president, COO and CFO, the management structure is positioned to ensure that Nikon can capitalize on its high technological prowess to improve profitability. Nikon’s various businesses are expected to see growth in earnings in FY2025. Nevertheless, I remain committed to engaging in lively discussions at meetings of the Board of Directors going forward to ensure that Nikon is able to achieve the targets of the Medium-Term Management Plan and continue growing thereafter.
Murayama: There can be no denying that Nikon currently faces issues when it comes to profitability, but I still believe that the Company’s present course is the right one. I look forward to seeing Nikon achieve ongoing improvements in corporate value through the steady growth of the Components Business, the Healthcare Business, and the Digital Manufacturing Business, in addition to its core Imaging Products Business and Precision Equipment Business.