Message from External Board Director—SoftBank Group Report 2023
We encourage investors to take a medium- to long-term view during our period of perseverance
As an external director, I take seriously the fact that our Net Asset Value (NAV), which Mr. Son has long emphasized as the most important performance indicator, has declined significantly over the past two years. I also sincerely listen to the criticisms and concerns of our shareholders who question our current endeavors. However, as someone with leadership experience, I know that running a business has both sunny and rainy days. We are going through a challenging period and I firmly believe that by weathering this storm, we will emerge even stronger. There will come a time when we can make a significant push once again, and I am confident that we are preparing ourselves for that moment. We have been working diligently to build a strong financial base, by monetizing our assets and curbing our investments throughout fiscal 2022. As a result, I can confidently say that our preparations are almost complete.
I would also like to emphasize that I do not see SBG moving in the wrong direction. If you take SoftBank Vision Funds, for example, the investments might appear to be here and there—such as e-commerce, logistics, and fintech—but they are all based on a single strategy with AI at its core. We are currently in a challenging situation due to a complex interplay of various factors, such as the conflict in Ukraine, growing disputes between the U.S. and China, and turmoil in the financial markets. However, I believe in approaching our business with a medium- to long-term perspective. As stated in SoftBank’s Next 30-Year Vision, SBG aims to be a company that continues to grow for 300 years. I hope that as long as we continue to make progress over the medium- to long-term, through both ups and downs, we can achieve sustained growth.
The crucial balance of harnessing Mr. Son’s good qualities
Many might see Mr. Son as a so-called charismatic figure who dogmatically pushes through whatever he decides to do. But this is not the case. What surprised me when I joined the Board was that directors, both external and internal, are very active in expressing their opinions at the Board meetings, and Mr. Son listens to them very carefully. On one occasion, he even graciously accepted the opinions of other directors by saying, “Let’s withdraw this proposal for now. Let’s continue the discussion.” I greatly admire this flexibility and the high regard Mr. Son has for the Board. When we struggle to speak up, he solicits everyone’s input, encourages open and constructive discussion, and collectively decides on the best course of action. It is a truly democratic operation.
One of the most important roles of external directors is to ensure that the company’s overall strategy is on the right track. SBG is a company founded by Mr. Son that is constantly adapting its business model and achieving consistent growth. Therefore, it is of the utmost importance to effectively harness Mr. Son’s ideas, energy, and foresight when considering the company’s growth. While it is important to prevent overreach, we must not be so rigid that we risk stifling progress. The remedy should not be worse than the disease. It is our important duty as external directors to strike the right balance between harnessing the strengths of Mr. Son and the executive team, and carefully overseeing management in line with the overall strategy. I personally attach great importance to this task. Mr. Son has an incredible ability to quickly consolidate his thoughts and take action. It is therefore vital for the Board to take due account of his sense of urgency and agility, and at times to provide support, while also occasionally urging a slower pace. I believe this is where we need to exercise sufficient wisdom and care.
As the Chairperson of the Nominating & Compensation Committee, which was established in 2020 as an advisory body to the Board of Directors, I have taken on the responsibility of overseeing Mr. Son’s succession plan. While acknowledging the unique position he holds as the owner and founder, it is important to recognize that this is an important issue. However, given that Mr. Son himself is still relatively young (he is 65 years old as of July 31, 2023) and remains highly motivated, especially during these challenging times, I strongly believe that he should continue to steer the company with steadfast leadership.
Evolving risk management and corporate governance
Following the Annual General Meeting of Shareholders in June 2023, I entered my sixth year as an external director. During my tenure, I have observed significant advancements in enterprise risk management (ERM). Reports on ERM are now reported approximately four times a year at the Board meetings, and we receive detailed explanations beforehand, indicating a well-established framework. I am also aware that efforts are being made to identify risks and develop mitigation measures.
Corporate governance has been further strengthened since my appointment. In particular, diversity has improved significantly. In June 2018, seven of the 12 directors were non-Japanese, so there was diversity in terms of ethnicity and nationality. However, at that time there were only three external directors, including myself, and no female directors. At present, five of our nine directors are external members, making up a majority, and we now have one female director, though that is perhaps still not enough. In addition, two of the nine directors are non-Japanese. I am proud to say that overall diversity of the Board, including gender, has increased significantly.
We should deepen discussions on investment and loan projects and sustainability
There is still room for improvement in the operation of the Board of Directors. While the Board reviews investments and loans above a certain threshold, decisions on projects below this threshold are made by the Investment Committee, to prioritize flexibility. However, with a view to improving the effectiveness of the Board, I believe that it would be beneficial to have further discussions at the Board level on individual investment and loan projects.
With regard to sustainability initiatives, these are reported at the Board meetings, but the time allocated for discussion is insufficient. I have suggested that, similar to ERM, we should receive detailed reports in advance to facilitate more in-depth Board discussions. I believe that the objective opinions of external directors would be valuable in further strengthening our commitment to sustainability. As an advisor to Mitsui and an external director for three companies, including SBG, I have learned from the practices of multiple companies across various industries. By sharing the knowledge I have gained, I believe I can contribute even more than before.
Co-investment programs could become a new form of incentive
SoftBank Vision Fund 2 has a co-investment program, where Mr. Son holds a 17% stake in common equity. We discussed this implementation at the Board meeting after Mr. Son excused himself. We then made two points to Mr. Son. The first was that as Mr. Son holds 30% of SBG shares, it would be appropriate for him to benefit from the value appreciation of his shares as an investment return. We also mentioned that receiving incentives as a conventional fund manager would help avoid conflicts of interest and provide clarity. However, Mr. Son expressed a strong desire for shared responsibility and stated that he did not like the fact that fund managers receive performance-based compensation when they succeed but lose nothing when they fail. Instead, he preferred to focus wholeheartedly on investments, whether profitable or not, and to take both gains and losses proportionally.
Taking into account his strong conviction and with the assistance of legal opinions, we discussed this matter thoroughly. Although the current arrangement might be considered unconventional, we as a Board have accepted this structure in recognition of Mr. Son’s endeavor to chart a new path that could potentially become a standard for future incentives. At present, the performance of SoftBank Vision Fund 2 has been unfavorable, resulting in significant losses for Mr. Son. However, I do not expect this situation to persist indefinitely. This is a long-term fund with a maximum term of 14 years, including extension options. So I believe it should be looked at and assessed from a longer-term perspective.
For details of the co-investment program, see page 90.
Three challenges for growth
As we look ahead to our future growth, I believe there are three key challenges that we need to address. First, it is crucial to ensure the successful initial public offering of Arm and establish it as a solid pillar for our next phase of growth. Second, we need to revitalize SoftBank Vision Funds. With a portfolio of nearly 500 companies, it is essential that we carefully evaluate each investment, enhance their value, and rebuild our ecosystem. In the meantime, SoftBank is actively expanding its business under its Beyond Carrier growth strategy, which encompasses prominent businesses such as PayPay, Yahoo! JAPAN, and LINE. Therefore, I believe that the participation of Arm and SoftBank Vision Funds would contribute as new growth avenues in this pursuit. Lastly, the final challenge is the development of human capital. After all, it is people who truly determine the success or failure of an organization. With regard to Mr. Son’s successor, I intend that the Board of Directors, acting on the advice of the Nominating & Compensation Committee, will select a successor candidate. This selected candidate, under Mr. Son’s guidance, should receive the necessary nurturing and support to facilitate a smooth transition. By actively addressing these three challenges, SBG will be able to return to a path of growth. That is what I believe.
This page is based on the information as of July 27, 2023.
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