External Board Director, Independent Officer, SoftBank Group Corp.
Message from Lip-Bu Tan, External Board Director of SBG, on his resignation from the Board
As announced in “Appointment of Board Directors” on May 24, 2022, Mr. Lip-Bu Tan will resign from the position of External Board Director of SoftBank Group Corp. (“SBG“) on June 24, 2022. The following is a message from Lip-Bu Tan upon his resignation.
Enabling Further Success Amid a Challenging Environment
SBG appointed Lip-Bu Tan as an External Board Director in June 2020 given his extensive background in technology investing, dating back to his founding of the venture capital firm Walden International (“Walden”) in 1987 (he will resign from the Board on June 24, 2022). He also served as CEO of Cadence Design Systems (“Cadence”), a successful electronic design tool provider, beginning in 2008, later serving as its executive chair of the board.
Board holds lively discussions from diverse perspectives
Although I am leaving the SBG Board, I would like to share how the SBG Board works from my two years of duty.
Over the past two years, most of the Board meetings were online rather than in person. Even so, we have managed the best we can. Our meetings have been constructive and interactive with many questions from the Board members. The meetings are carefully run to ensure all the members are provided with reasonable and easy-to-understand explanations so that they can actively participate. As a result, the Board makes decisions via consensus.
One of the functions of the Board is to provide supervision, guidance, and advice for Masa and the rest of the management team. Rather than making decisions that direct specific investments, which is the role of Masa, the Board members focus more on the policy, overall governance, financial management, and strategic direction of the company. The Board’s functions are clearly defined. While Masa and the management team are responsible for the day-to-day operation of the company, we help them to do the right thing, take part in strategy and some financial discussions, and pass resolutions. We are responsible for protecting shareholder value and making sure that conflicts of interest are addressed. All our current Board members are proactive and vocal, asking many questions from different perspectives and approaches until fully satisfied. We ensure that management gives us the necessary information, and then we make decisions as a Board.
How SBG addresses challenges posed by changes in circumstances
Turning to the external environment, the global situation is challenging—not only for SBG but also for every other company. For some companies, the supply chain is a big problem because of the Russia-Ukraine situation. Although that issue does not immediately affect SBG, it is still facing some challenges as an investment company, including the deteriorating U.S.-China relationship, inflation, rising interest rates, and the slowdown in the IPO market.
In such circumstances, as an investment company, SBG must carefully manage cash flow and liquidity. As SBG uses capital raised through borrowings for investments, these require close attention particularly with interest rates rising and challenges in the IPO market. Now the Board is more cautious of making new investments and is considering slowing the pace. We must ensure that the level of debt is comfortably managed and the company can service the interest and principal payments. So far, Goto-san (CFO Yoshimitsu Goto) and the team have done well and weathered such challenges. I believe that the Board will continue to monitor this activity closely after my departure.
Although making decisions on specific investments is not a role of the Board, I was able to oversee that, using my knowledge and experience at Walden. I am personally bullish on disruptive technologies. Walden invests heavily in AI, machine learning, computational biology, drug discovery, and crypto—I believe these are good areas in which to invest. But we must be mindful that there’s a sea change under way in terms of valuation at the entry point. Nobody wants to invest based on valuations that are too high when the public market is under downward pressure.
Regarding Vision Funds (“SVF”), SVF1 is substantial with about $100 billion of committed capital. The fund’s investment amount in each portfolio company tends to be large, and there is a limit to the number of good opportunities in which we can invest at such a scale. Moreover, there is a learning curve associated with these investments. SVF2 is more focused on early-stage companies, and its portfolio is more diverse. In some ways, this is positive, but we are not the only game in town. Many other venture firms and hedge funds are employing a similar strategy. For this reason, SBG needs to further strengthen our investment evaluation capabilities. It must differentiate itself, detailing what makes it unique in terms of what it can provide besides money.
Retaining the right talent
The key to the success of an investment business is to retain the right talent and the right team. The best venture firms have little turnover because they understand the importance of retaining rainmakers, or excellent deal makers. This is a people-oriented business, and when you have a big home run hitter, you do not want that person to leave. This is something I have discussed with Masa. He understands the importance of building a team culture and making sure that everyone works well together. That is an ongoing effort at SBG.
It is also important to provide an incentive for the team so that they can reap the fruits of their hard work. Typical PE funds, including Walden, have a standard 20% carry interest, but as a corporation, SBG does not have such a mechanism. Masa has tried to create an incentive scheme tailored to SBG by introducing a co-investment program. This structure is unique in the industry as SBG is in a unique situation. I should emphasize that this structure encourages Masa and other management to take appropriate risks to achieve success, while adequately incentivizing them. The Board spent a lot of time on this proposal to ensure that conflicts of interest were properly addressed. For instance, we excluded public company shares from the scheme because the program is intended for less mature investments with room to improve their value. That makes the investments fair for SBG’s shareholders. After a thorough review and ensuring that conflicts of interest were properly addressed by structuring the program pro-rata with the company without any cherry-picking, the Board approved the program.
Promoting sustainability management as a global company
Sustainability and governance are increasingly important topics for public companies across the globe. Companies are also stepping up their emphasis on ESG such as diversity of employment in terms of race/ethnicity and gender. Investment in climate technologies is also becoming a key area of focus. The Russia-Ukraine situation was a wake-up call for many industries to turn their attention to alternative energy resources, such as solar and wind.
SBG should lead by example in this area. Some of its investment strategies already focus on climate technologies, including electric vehicles. What really matters is to make change in a substantial and significant way rather than just preparing a nice and good-looking report. Then actions will speak for themselves. SBG could be even more proactive by working together with its portfolio companies to achieve improvements in the climate area. It also must make such efforts and improvements visible. Such initiatives could set a good example in Japan and the Asia/Pacific region.
Continue fine-tuning the Board
In the past two years of my tenure, I believe SBG has made solid progress strengthening its corporate governance by improving the balance and diversity of the Board. But you need to continue fine-tuning. Masa is brilliant; he’s a visionary. But he still needs people to provide safeguards, give him advice, and make him even more successful. Poor choices made too quickly can have negative consequences for the company. Therefore, it is essential to bring the right talent onto the Board of Directors and Audit & Supervisory Board. As a technology investor, having people knowledgeable of the market and technology trends would be helpful.
Enhancing diversity is also a continuing agenda item. SBG is as much a global company as a Japanese company. There is a need to build a more diverse Board with more female and international members and people from more diverse industry backgrounds. I feel that it is constantly evolving on this front. Masa is open-minded, and SBG is moving in the right direction.
Creating a succession plan is a key issue
CEO succession planning is one of the Board’s most important responsibilities. This is an ongoing effort, not something that happens overnight. Ideally, you want to promote from within so you can maintain the culture. Masa is now in his mid-60s, about the same age as me, and succession planning is something that needs to be addressed, albeit not with immediate urgency.
I just went through succession and transition at Cadence starting with recruiting my successor. I groomed him and invited him to my board for mentoring and coaching. Eventually, the board and I agreed that he was the best to take over my position and strategy. Customers and all our major shareholders need to be comfortable with the transition. Continuity is important to them. So, I have stayed on as the executive chair of the board to provide that continuity for the shareholders. This process takes time, so it is important to identify a successor and groom that person to allow the company to continue. Moreover, not only customers and shareholders but also non-shareholders must be comfortable with the transition.
Similarly, Masa needs to think about grooming his successor. He would continue to provide leadership, but much of the day-to-day work could be handled by his No. 2. Masa is still young; you have a few more years, but that needs to be addressed in the next few years.
We would all like to see SBG become increasingly successful. I am convinced that the Board will continue to help Masa to be more successful, safeguard him, and give him appropriate advice. He is brilliant—a visionary. We always try to help Masa, and he knows that all of us are here to support him.
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