MEDIA DO’s Approach to Growth and Corporate Governance

Diversifying from dependence on a single segment and further improving the effectiveness of governance

Kanamaru: The new Medium-Term Management Plan (MTMP) clearly represents a turning point for the Company. MEDIA DO has signaled its intention to transition from its single segment of eBook distribution business to strategically develop new businesses over the next five years. At the same time, the MTMP fully conveys the message that the Company needs to produce results from new businesses.

Kanda: As you point out, the main message is how can MEDIA DO transition from this dependence on a single segment. We have been able to achieve strong growth in the eBook distribution business by focusing on developing infrastructure and systems for the growing eBook market along with building robust sales and operating systems. The eBook distribution business will remain the most important business for MEDIA DO, and because of this strong business foundation, we will be able to tackle the challenge of creating new businesses. On the other hand, the strategic investment businesses start from the creation of new markets from scratch. As a second pillar of earnings, we plan to increase its share of net sales from 8% currently to 25% in FY2026, the final fiscal year of the new MTMP. The period of the MTMP provides an opportunity to change our organizational approaches to achieve this goal.

Kanamaru: In addition to management and business strategy aspects, the new MTMP mentions improvements in the effectiveness of governance, eyeing the Board’s transition to a “monitoring board” as well as establishment of a Nomination and Compensation Committee and Sustainability Committee. The Company is making strides in strengthening governance over the past year, including its transition to the TSE Prime Market in April 2022. While it is important to present the ideal framework, what is more important is continuously enhancing the effectiveness of governance while carefully evaluating and analyzing initiatives on an annual basis.

Initiatives to increase sustainability

Kanda: Together with rising worldwide interest in ESG (environmental, social, governance) investment, companies are now facing increased demands to pursue sustainability management, which positions society’s sustainability as a growth opportunity for business. We are working to build and strengthen promotion systems to transform environmental problems and social issues into opportunities for business activities and creation of corporate value. Specifically, in June 2022, we reorganized our Risk Management Committee and established the Sustainability Committee in order to identify and review opportunities and material issues that increase MEDIA DO’s sustainability. At a Board meeting last year, you recommended that we not only gauge the risks, but also monitor the progress of countermeasures and improvements. I recognize the importance of strengthening the PDCA process of regular monitoring and assessments to visualize current initiatives and improvement measures.

Kanamaru: I have seen a number of companies face challenges after launching initiatives to strengthen governance or promote sustainability. For example, these companies had a risk management committee that did not function effectively or they did not know how to identify and gauge risks. The word “risk” is vague. Depending on one’s outlook, almost everything can be categorized as a risk. It is also very difficult for the frontline to define what is risk and what should be reported to management. The decision is very difficult. For this reason, it is vital that a company present standards and tools that can be used to report risks appropriately.

Increasing personnel mobility

Kanamaru: The Company is using M&A as one strategic means of expanding its operations. I believe one issue has been a minor shortfall of human resources perceived in the post-merger integration (PMI) and follow-up after a merger. The more appropriate allocation of management resources, such as assigning the right person to the right position more often, should lead to a greater sense of stability.

Kanda: As the parent company, we are able to monitor and assess financial key performance indicators, but we need to further strengthen collaboration for generating synergies while strengthening governance when it comes to corporate functions such as human resources, legal affairs, and administration. I also believe that we need to get more deeply involved in the operations of acquired companies, such as by sending our up-and-coming young talent to work there. From the perspectives of both PMI and human resource development, if we can increase personnel mobility across the Group as a whole, our people will be able to learn a great deal about operations, challenges and dynamism not always possible at MEDIA DO alone. This will also serve to broaden their horizons. As a result, this should lead to the development of management resources with these experiences and knowledge.

Increasing women in managerial positions

Kanda: From the standpoint of utilizing human resources, I feel issues remain in our promotion of diversity and inclusion. Women account for about 55% of MEDIA DO’s workforce, but only around 20% of managerial positions. As a first step, we plan to increase this representation to 30%. Looking at our talent pool, there are a number of women who are ready to play an active role in managerial positions. We will focus on establishing and executing a human capital strategy that includes examining ways for our people to play a more active role, regardless of gender or age, and appoint this talent to managerial positions.

Kanamaru: Since more than half of the Company’s workforce is women, this means that there is a comfortable work environment embraced by women, so the Company needs to analyze the factors behind why there are not more women in managerial positions and fix them. To increase women in managerial positions, ideally there should be a large number of role models who are already achieving their desired work style in terms of life stage and lifestyle. Rather than uniform work styles, it is important to create a work environment where people can utilize their skills to accomplish results. Expanding the diversity of talent and work styles, free of unconscious gender bias, represents a fundamental element of diversity and inclusion.

Kanda: I agree. In addition to supporting diverse work styles, employment of foreign nationals and people with disabilities, along with consideration for the LGBTQ community, are also important perspectives of diversity and inclusion. Following the growth of our business internationally, we have increased room for foreign nationals to play an active role, and the number of employees with disabilities hired in recent years is on the rise. However, to make diversity one of the drivers of corporate value creation, the overall number (of people of diversity) needs to be increased while at the same time their values need to be embraced and incorporated (inclusion). As for the LGBTQ community, there are companies working on a number of initiatives, including the Rainbow Project, which seeks to promote understanding both internally and in the community. I hope to eliminate unconscious assumptions and bias at MEDIA DO and promote true understanding of diversity and inclusion.

Kanamaru: For example, the number of companies with internal regulations that take into account different forms of marriage, other than legal marriage, is on the rise. It should not be too difficult to introduce similar regulations at the Company. In the process of reviewing such systems, I believe the Company will find unconscious assumptions, so first, I would like to see the Company begin working to introduce these regulations. Japan lags behind other countries when it comes to diversity and inclusion initiatives. Depending on the industry, I feel that these initiatives and policies could become a prerequisite for doing business in the future.

Making executive management’s duties and remuneration more transparent

Kanamaru: The Company’s Nomination and Compensation Committee, which I chair, mainly reviews and deliberates on procedures as well as the validity of policies related to the nomination and remuneration of directors and executive officers. A majority of the committee’s members are independent outside directors. By having independent outside directors involved in the decision-making process for nomination and remuneration, and incorporating perspectives on behalf of the shared interests of shareholders including minority shareholders, the Company can strive for greater transparency, fairness and objectivity in management, and ensure the committee functions as a mechanism for the Company’s long-term and sustainable growth.

Kanda: The Group’s Basic Corporate Governance Policy states that the term of office of outside directors shall be four years. Therefore, the makeup of the Board today could be completely different in two to four years. The nomination function is very important. This requires consideration for how to secure and develop the next generation of executive leadership, expand the pool of executive officers, and whether or not to appoint from outside the Company. Thinking must take into account how to define supervision and execution and what process to use to evaluate and nominate, and how to create a sustainable organization. These activities truly shed light on the Company’s approach to management.

Kanamaru: That is right. In that sense, the Company should have executive officers attend Board meetings and provide them with more opportunities to speak up or explain matters. This approach will result in sustainable Board governance such as securing and developing next generation executive leadership.

Shifting the Board of Directors to function as a monitoring board

Kanda: As you talked about earlier, as presented in the new MTMP, the Board of Directors seeks to transition from a management board involved in the decision making of business execution, to a monitoring board dedicated to supervising business execution.

Kanamaru: Looking at the characteristics and growth stage of its business, the Company needs to create a mechanism for much quicker decision making. Having the Board of Directors function as a monitoring board, which rigorously supervises the business execution system and speeds up the pace of business growth by enabling quicker decisions and expanded authority of executive officers and frontline operations, better fits the Company. To achieve this, it will be important to create systems and mechanisms that evaluate business execution, even if these come after the fact.

Kanda: As one measure for transitioning to a monitoring board, we are considering increasing the ratio of outside directors in stages. This is expected to further ensure objectivity and independence, and improve the supervising function of the Board of Directors. We also need to flexibly review company regulations and business operation methods, such as for each business segment and timeline. While this may be an ever-lasting issue, we will pursue an appropriate balance between speed and governance. Since fulfilling accountability to stakeholders including shareholders is most important, we will strengthen corporate governance with the Company’s institutions along with all officers and employees working toward improving the soundness and transparency of management.