Outside Directors Roundtable Talk

Our First Year of the Mid-Term Plan: Demonstrated Ability to Execute

We’ve now wrapped up the first year of our mid-term plan that began in 2023. Under this new plan, we’re engaged in structural reforms around the selection and concentration of existing businesses, with 2025 set as a milestone. In my view, this exercise has been instrumental in re-evaluating our longstanding practices— to put it dramatically, it’s a break with the past. One aspect of these reforms is the dissolution of the Three-Region Structure and the transformation of our executive structure. As outside officers, we’ve been drawing attention to pending issues like the North America business. But there is now a clear commitment across the Company to resolve these challenges through the structural reforms. I feel this marks a turning point for us. President Yamamoto has communicated a strong message that has led to a change in mindset among all employees.

In the 2023 structural reforms, we decided to withdraw from the gas hoses business and the business of rubber parts for medical applications in Europe. As part of this business selection and concentration process, we decided to prioritize profitability over scale and standardize our metrics across the Company, which I think was a good move. We’re making good progress in laying the foundations for 2025. The challenge for 2024 and 2025 will be to further solidify these foundations within the limited time available.

Having joined as an Outside Director last year, I’ve witnessed President Yamamoto’s strong dedication to the “Be the Change” Project for strengthening our management foundations. He has been resolute in sorting out the past and initiating a cultural change among employees. At last year’s “Be the Change” reporting session, I saw colleagues from various departments, regardless of their position or years of service, sharing their thoughts and examples of transformation. That really made me feel that the entire company was united on this.

Regarding the selection and concentration of businesses, there were times when I, having interacted with people on the front line, wondered if it was really okay to withdraw from certain businesses. However, matrices were drawn up and tough management decisions were made based on the data, not on emotions. This was also a case where I recognized the difference in perspectives between those internal and external to the Company.

In terms of business selection and concentration, I joined after most of the discussions had taken place, and honestly speaking, I sometimes wonder how certain choices were made when there didn’t appear to be much difference in the numbers. Predictions for the future can change significantly based on selling prices and the number of customers. However, I understand that we are where we are now after having gone through a period of trying to do things more boldly and freely, while changing our mindset through measures like ROIC management and initiatives like “Be the Change.”
On the other hand, I still see many challenges. As we prioritize key businesses, there will inevitably be things that have to be postponed. Those internal to the Company may feel things are moving faster than before, but from an external standpoint, certain things still seem to be on the slow side. There is a culture of encouraging the reporting of “bad news” and issues that people might not always want to hear, but it can still take time for these things to actually get reported. For those in more senior positions, it’s inevitable that they must present solutions along with the problems, but I sometimes feel that if these issues had been raised at an earlier stage, there would have been more room for discussion in Management Meetings or Board of Directors meetings.

A sense of urgency is indeed important. On the other hand, it’s also necessary to nurture new businesses like SENSING CORE and ACTIVE TREAD with a long-term perspective. In any manufacturing industry, it takes time for a product to go from development to market. We must be prepared for the considerable time it takes to further improve the product, expand its audience, and develop it into a highly profitable business.

On the organizational front, the Tire Business HQ was established this January. It was surprising that, despite approximately 85% of our sales revenue coming from the Tire Business, there had never been an organization to oversee this major segment from a holistic perspective. There may have been difficulties in integrating the organization horizontally due to the rapid overseas expansion that took place over an extended period. That being said, I am hopeful about such an organization having been created for the first time since the Company was founded.
When it comes to strengthening human capital, it’s important to place the right people, already within the Company, in the right positions. While I believe our training and development programs are progressing well, what I really want to see is everyone becoming a bit more involved in supporting one another— offering a helping hand if another business unit is having difficulties, and so on. Machines and equipment are of course important, but ultimately, it’s the people who run the business. It may be a bit irritating at times, but I believe that being a little nosy about others’ business can go a long way toward improving the organizational culture.

A Board of Directors with an Open and Diverse Culture

The other day, I attended my first General Meeting of Shareholders as an Outside Director. Based on my experience, I had expected the Board of Directors meeting that followed to be a very routine one. But at Sumitomo Rubber, important issues are discussed by the Board directly after the General Meeting of Shareholders. Even the newly appointed Outside Directors on that day were actively sharing their opinions right away. This further reinforced my impression that the Board of Directors is seriously committed to management.

At Sumitomo Rubber, Mr. Kosaka, an Outside Director, serves as Chair of the Board of Directors. The Board of Directors tends to be influenced by the Chair’s approach, and it is clear that Mr. Kosaka conducts his role with a supportive attitude toward President Yamamoto on the executive side. My impression is that our Board of Directors is able to engage in open and lively discussions, and much of that is down to the positive atmosphere.

Various Innovative and Sustainable Initiatives

I’d also like to touch on our sustainable initiatives.
As I mentioned earlier, our Tire Business accounts for approximately 85% of our sales revenue, and many people are involved in the related R&D. On the other hand, there are not many people involved in entirely new businesses. We will need to develop that area going forward.
Moreover, although we’ve been moving away from a focus on volume- led approaches and sales expansion, our net sales surpassed ¥1 trillion in fiscal 2023. Be that as it may, I hope we will continue to provide our customers with good products, and sustainable ones at that, without ever changing our stance on this. For example, the ACTIVE TREAD all-season tires, scheduled for release this fall, feature highly advanced technology. However, from another perspective, they eliminate the need to change tires between summer and winter, which could potentially reduce net sales. Yet, my hope is that the Company will continue to develop and provide good products from a sustainability perspective. The same goes for SENSING CORE.

The biggest challenge in the Tire Business is the development of materials. In the coming era, it will be difficult to pursue innovation solely on our own. The Company is currently using advanced external equipment, such as supercomputers, to analyze the components of rubber. However, moving forward, I believe we should make even better use of external institutions in our R&D activities.
On the other hand, we cannot focus solely on materials development forever. The challenges for the future lie in the shortage of labor. Increasing the employment of women and senior workers will be vital in this regard. But the challenge is how to create a supportive environment for them to work effectively in factories that operate 24 hours a day. We must also advance R&D into fully autonomous driving and fully automated production by leveraging external expertise and cutting-edge tools.

Among the questions made in advance of the recent General Meeting of Shareholders, there was a query about resin spoke tires. I don’t believe this is something that can be achieved overnight. However, we have introduced the TOWANOWA concept, a Circular Economy Business Model utilizing big data. I believe that declaring such long-term goals both internally and externally is beneficial, as it clarifies our direction of travel.

A Supporting Role with a Love for Sumitomo Rubber

Lastly, I’d like to talk about my own role as an Outside Director at Sumitomo Rubber.
We are currently implementing an ERP system. As an engineer, I am well aware of the challenges involved in implementing a new system on the ground. When it comes to investing in systems, companies often anticipate operational costs after completion, but fail to account for improvement costs. You never know what issues might arise when you start using the system. I aim to provide advice to ensure that the return on investment is accurately assessed with the operational phase in mind.
Another point is that we are developing software called SENSING CORE, which is installed in vehicles. In addition to direct sales, we may also offer it as a subscription service with a monthly fee. Since we still don’t have many colleagues within the Company who are familiar with such methods, I’d like to leverage my experience to provide advice on business development as well.

Various issues are brought up in the Management Meetings, but I feel that the ability to monitor them is a bit weak. That’s why it’s important for us to check in from afar and ask “What happened with the issue you mentioned three months ago?” When I was a president myself, there were times when I was concerned about delays in progress, so I believe I can offer advice in that respect.

Unlike the two of you, I don’t have management experience and am not an expert on rubber or tires, but I do have the advantage of being able to assess people based on my experience as a lawyer. I’ve interacted with past presidents and officers, assessed their personalities and qualities, and provided necessary advice. In other words, I act as a kind of glue between internal officers and outside officers.
As the coordinator for the outside officers, who are a support group for the president, I believe it’s my role to encourage and give the president a bit of a push whenever there are issues he is hesitant about. We have Mr. Tanisho, who is knowledgeable about technology and business development. We have Mr. Fudaba, who is knowledgeable about governance and management. And then we have the other highly specialized outside officers. I see my role as bringing together this harmony with love for Sumitomo Rubber, providing support that is both strict and warm at the same time.