Message from an Audit & Supervisory Board Member
Thinking about the appropriate governance for the SoftBank Group
I became an Audit & Supervisory Board member in 2004. At that time, the Softbank Group was making a series of acquisitions in preparation for a full-scale entry into the telecommunications business while struggling to improve business performance. I recall that the Board of Directors often rejected the investment proposals made by Chairman & CEO Masayoshi Son due to funding considerations. Now, the earnings foundation of our domestic telecommunications business is sound and competitive against those of its domestic peers. In recent years, the percentage of non-Japanese directors on the Board of Directors has risen as the Group's business base has expanded globally. Further, SoftBank Group Corp. is in the process of transforming itself from an operating company to a strategic holding company. I think these are significant changes in the Group's history.
Meanwhile, despite the fact that the business base of SoftBank Group Corp. has expanded worldwide, we still maintain a governance system with an Audit & Supervisory Board, which is different from the company-with-committees system seen in many Western corporations. While the Board of Directors of SoftBank Group Corp. comprises talented corporate managers with strong backgrounds and functions as a body to scrutinize and decide on strategies and large-scale investments from a big-picture perspective, it is less likely for discussions to address compliance-related issues and risks due to time constraints. At SoftBank Group Corp., a company with an Audit & Supervisory Board governance system, the Audit & Supervisory Board members can strengthen business management supervision by auditing from an independent standpoint. Moreover, full-time Audit & Supervisory Board members who are thoroughly familiar with in-house and local operations can constantly inspect sites in Japan and overseas for a more efficient audit. Masato Suzaki, a former corporate officer and general manager of the Legal Department of SoftBank Group Corp., is now a full-time Audit & Supervisory Board member, and brings in his in-depth knowledge of frontline operations, while Maurice Atsushi Toyama, an external full-time Audit & Supervisory Board member, tirelessly participates in conferences of overseas subsidiaries. The latest frontline information that they provide is invaluable.
SoftBank Group Corp. has a distinctive approach to the tenure of external directors and external Audit & Supervisory Board members. External Director Tadashi Yanai and I have served longer than most directors and members ordinarily do. However, given that it takes considerable amount of time to understand the SoftBank Group because of its broad and rapidly-changing businesses base, the long term in office has its merits. In addition, the SoftBank Group has wide-ranging and complex businesses that require quick and flexible decision-making by Chairman & CEO Masayoshi Son and other directors of the board. Therefore, beyond just logical thinking, it is also necessary to be able to detect problems using intuition born from past experiences both inside and outside the Group. Director Tadashi Yanai has made valuable comments about what the strategy of the SoftBank Group should be and his statements which have always come from a constant perspective create healthy tension among directors, including Chairman & CEO Masayoshi Son.
Enhancing the transparency and fairness of the decision-making process
Now that the SoftBank Group's overall profit structure has changed with cash generation capabilities having significantly improved, fewer investment proposals brought by Chairman & CEO Masayoshi Son are rejected at Board meetings solely due to a lack of funds. However, the Board still premises discussions regarding investment proposals on the mutual understanding of the SoftBank Group's strategy.
Meanwhile, the size of investment proposals has become very large. When dealing with large investment proposals, the information regarding these proposals can be very complex. Among such investment proposals, those that are added to the agenda at short notice could lead members to make decisions without fully grasping the details. With this in mind, upon the appointment of Masato Suzaki as a full-time Audit & Supervisory Board member in June 2017, a system was established under which Audit & Supervisory Board members request prior briefings of the proposals and, if the explanations (especially the explanations of risks and risk analysis) are inadequate, request additional documents or revisions. This new process not only enables Audit & Supervisory Board members to participate in discussions with a firm grasp of the proposals, but also enhances the external directors' understanding of the proposals and induces focused discussions.
Examining SoftBank Vision Fund from the viewpoint of an audit & supervisory board member
Until now, after such large-scale acquisitions as Sprint and Arm, SoftBank Group Corp. itself has involved with their business management. However, continuing to pursue this style of management is not practical given the financial and personnel constraints. SoftBank Vision Fund offers the opportunity to enlarge the scope and scale of investments while curbing the risks of SoftBank Group Corp. SoftBank Vision Fund complies with the strict regulations of U.S. and Europe, so it has the added advantage on governance ground.
When SoftBank Vision Fund was initially launched, there were occasions when the post-investment management systems were not fully established. However, this problem has now been addressed. While keeping in mind that speed and efficiency of investments are the strengths of SoftBank Group Corp., as an Audit & Supervisory Board member, I will continue to pay close attention to the establishment of sound governance systems overseas.
Identifying the issues of the governance and auditing systems
I have served as a director and provided consultation to several companies in my capacity as a lawyer and I can say that no other company has changed and grown as rapidly as SoftBank Group Corp. And as I mentioned earlier, businesses of SoftBank Group Corp. are large-scale, varied, and globally-expanded. This makes auditing more challenging. For this reason, external Audit & Supervisory Board members have also been attending important in-house meetings recently to get briefings on the major business segments.
As I have become acquainted with the frontline operations, I am a bit concerned about the comparative shortage of personnel in the SoftBank Group considering its scale and pace of growth. At SoftBank Group Corp., there are still many cases where salespeople also handle back-office duties. This makes me concerned should any problems occur in the sales division if the problems can be pointed out and solved objectively. This concern is also applicable to the Board of Directors' composition. Therefore, I think SoftBank Group Corp. will need to promote someone from the back-office operations to the position of director. Another important consideration is to secure a system whereby conflict of interests between SoftBank Group Corp. and SoftBank Vision Fund or Delta Fund and their investees are prevented.
A successful governance system is one in which efficient management and compliance are compatible. Companies will lose momentum if they focus too much on compliance, but this does not mean that compliance can be neglected. There are opinions at the meetings of the Board of Directors, that members should also seek reports on the effectiveness of compliance and routine governance in addition to those on investments. Limiting the number of proposals is inevitable since directors are extremely busy, but as an Audit & Supervisory Board member, I will continue to urge the Board of Directors to set aside a little more time for discussing the SoftBank Group's governance issues.