An Interview with an Outside Director

Tsutomu Okuda Outside Director, Mitsubishi UFJ Financial Group, Inc. Senior Advisor, J. Front Retailing Co., Ltd.

Career Summary

After joining The Daimaru, Inc. in 1964, Mr. Okuda assumed the office of president at Daimaru in 1997 and was appointed chairman & CEO in 2003. Having spearheaded the merger of this reknowned department store group with its rival Matsuzakaya, he took the office of president & CEO at J. Front Retailing Co., Ltd., the merged entity, in 2007, becoming chairman & CEO of that firm in 2010. Since 2014, MR. Okuda has served as a senior advisor of J. Front Retailing. In the same year, he was appointed as an outside director at MUFG (current position).

What is your evaluation of MUFG’s corporate governance?

Upon the approval of the General Meeting of Shareholders held in June 2015, MUFG transitioned from a “company with a board of corporate auditors” to a “company with three committees” governance system. In addition to the three statutory bodies, namely, the Nominating and Governance, Compensation, and Audit committees, MUFG voluntarily established the Risk Committee, a move that distinguishes its governance system. The outside directors appointed to its Board of Directors consist of three business managers, a lawyer, a corporate and tax accountant and an academic expert, ensuring the Board is well-balanced. Collectively, the membership boasts extensive experience and expertise in various fields of specialty. At Board of Directors meetings, every member of the Board actively engages in discussions with an open-minded attitude. I believe that the outside directors, with their diverse backgrounds and perspectives, are ensuring that the Board maintains lively discussions and executes a solid supervisory function.

Usually, Board of Directors meetings are followed by Independent Outside Directors Meetings that all outside directors attend. At these meetings, attendees engage in the frank exchange of opinions regarding such matters as the content of and progress in discussions held at the preceding Board of Directors meeting and executive members’ briefings on agenda and materials used for such briefings, in addition to any forthcoming management issues. I am in charge of communicating conclusions reached at this meeting to the chairman and president. I report our conclusions in detail. Also, I sometimes request briefing sessions for outside directors so that we may gain deeper understanding of specific problems. Thankfully, both chairman and president are quite open to our ideas and they quickly decide on concrete steps to be taken in response to our suggestions. The way the opinions of outside directors are reflected in management is impressive. I also admire that MUFG’s top leaders take corporate governance very seriously.

As Chairperson of the Nominating and Governance Committee, what roles are you playing?

When it was inaugurated in 2005, MUFG adopted a “company with a board of corporate auditors” governance system while also appointing three non-mandatory committees. Moreover, MUFG has been performing the evaluation of the Board of Directors’ effectiveness since 2014. Our experience in operating three committees and performing such evaluation enabled MUFG to execute a smooth transition to the “company with three committees” system. Because of this, I am convinced that the Nominating and Governance Committee has functioned very well from the first year of its inception.

As for management succession, we have been selecting candidates by focusing on personality, competence and background. Since its inception, the Nominating and Governance Committee has been engaged in exhaustive discussions to define the personal traits of ideal candidates and to clearly describe their core duties. In April 2016, the committee nominated top management leaders of The Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Trust and Banking Corporation, along with key personnel who support them, in accordance with prescribed procedures. We are confident that our selection process is transparent, and every detail can be explained in a concrete manner. Moreover, not have we developed rules and procedures, we’ve appointed candidates and now are seeing the results of nomination. The committee has thus experienced a fruitful year, with a PDCA cycle being implemented to improve its operations one year after initiation.

What challenges are you facing in executing succession plans?

As for the selection of candidates, we must identify who is capable of pushing forward with aggressive expansion and who is excellent in enforcing protective measures. We also give consideration to whether a candidate is good at tackling major adversity or if their forte lies in building a long track record in stable circumstances. As MUFG employs a wealth of human resources with widely varying competencies and backgrounds, we are confident that we will be able to discover appropriate candidates. In line with a succession plan spanning five to ten years going forward, we are looking for ideal candidates throughout the Group and encourage said candidates to acquire additional business experience to best bolster their own competencies.

Of course, we are also aware of the need for a succession plan aimed at securing outside director candidates. Previously, discussions for appointing outside directors have centered on merely listing the names of promising available candidates. However, I believe that criteria for candidates’ backgrounds and career accomplishments have to be defined in the upcoming discussions and applied to this selection process, just as when we are selecting executive successors. In addition, because MUFG is a global financial institution, we see the promotion of diversity as an important issue and are considering choosing those who have non-Japanese cultural backgrounds as candidates for both inside and outside director positions.

The Board of Directors will soon complete its third round of self-evaluation. What discussions have been under way?

We are confident that our evaluation skills have been improved by the experience of the preceding two rounds. Every member of the Board is committed to relentlessly enhancing corporate governance by employing this evaluation system.In the third round, we have been deliberating on how to upgrade our monitoring system to better adapt to the evolving operating environment surrounding MUFG. Specifically, we are looking to establish clearer monitoring targets to ensure that the Board of Directors has as accurate a picture as possible of the status of operations. Such targets will include the monitoring of quantitative changes in management indicators over the course of business execution, spanning formulating strategies and implementing business plans to reaping operating results.

On the other hand, as we confront the rapidly changing business environment, discovering potentially critical issues that may affect future operations is as important as assessing current events. As some Board members have suggested that we need to allocate more time to deliberate on future issues, we will improve how we handle these matters. Priorities in and schedules for addressing such issues will be subject to discussion going forward. We will also consider the best way to glean input from every Board member, taking advantage of their individual interpretations of the business environment and awareness of potential problems.

In addition, our corporate culture has been a prevailing subject at many sessions of Board of Directors meetings. Corporate culture plays a key part in supporting the reliability and traditions of a company. On the other hand, an overly conservative corporate culture can present a barrier for those taking on ambitious challenges or striving to realize innovation. After all, the corporate culture has to be aligned to the objective of management. Although MUFG has a strong brand capability, the Group needs to enhance the positive aspect of its corporate culture to achieve sustainable growth into the future. I recognize this is one of important management issue.

I believe that corporate governance has twofold objectives. On the one hand, businesses are expected to ensure “protective” governance to avoid risk, misconduct and operational mistakes. The appointment of outside directors is intended to support this. On the other hand, businesses have a duty to stakeholders to achieve sustainable growth and improved corporate value over the medium to long term, this calls for “aggressive” governance. This is also a key factor stated in Japan’s growth strategies. As a financial group engaged in operations in regions throughout the world, MUFG is clearly aware of its significant social responsibilities. Therefore, with a view to benefiting the greater public, we will endeavor to strike the optimal balance between securing shareholders’ and other stakeholders’ interests.

Although we feel some pressure as we face new challenges one after another, we are determined to fulfill our roles as outside directors by employing unbiased and broader viewpoints to monitor MUFG’s operations.

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