Corporate Governance
Dialogue between external
directors and institutional investors

I would say that the discussion about the business integration of Z Holdings and LINE was impressive. After Yahoo Japan (now Z Holdings) became a consolidated subsidiary, various projects were proposed to the Board in quick succession and I vividly remember discussing them at Board meetings many times over. In particular, I remember getting goose bumps when I realized how momentous the synergies from those projects were likely to become. It was then that I was convinced about SoftBank's emphasis on speed and prompt decision making and that the integration was without doubt part of its “Beyond Carrier” strategy plans. Another point I'd like to make is President Miyakawa's backcasting management approach. I had the opportunity to hear him talk about the Company's long-term vision, the long-term management plan, and what SoftBank might look like 10 years from now. He explained where the Company needs to be 10 years from now by looking 15 years ahead and calculating backwards from there. In other words, he spoke about what needs to be done now to achieve that vision. While I may be singing his praises a bit too much, I get the feeling that there are very few managers out there that look so far ahead.

I believe it is important to assess Board agenda items from an external point of view and always speak one's mind. I'm also keenly aware of lending an ear to the opinions of the market so that we might improve corporate value. From that perspective, the discussion that had a lasting impression on me was from 2019 when SoftBank acquired the shares of Yahoo Japan and increased its ownership ratio to 45%. We discussed on multiple occasions why a parent-subsidiary relationship would be required because it was assumed that the SoftBank Group Corp. would relinquish its Yahoo Japan shares.

It was explained to us that Yahoo Japan had the potential to become a key partner in the “Beyond Carrier” strategy, that a parent-subsidiary relationship would be a good thing for forging strong ties, and that from Yahoo Japan's point of view, SoftBank users are a valuable asset to the growth strategy of the shopping business. In addition, Yahoo Japan would remain in a neutral position as an information platform, which SoftBank would respect as much as possible. For these reasons, both companies would maintain their stock market listings. The result of these repeated discussions ultimately ended with the proposal being unanimously approved.

There were uninhibited discussions mainly regarding two points: (1) the possibility of a heavy decline in the share price; and (2) the likelihood of similar sell-offs in the future.

Our discussions focused a lot on the extent to which the Company had factored in the risk of a share price decline. We came to the conclusion that there was the risk of a considerable drop in the share price if SoftBank Group Corp. was to sell that amount of shares on the market, so even though the decision was to make a public offering and also buy back shares at around the same time, SoftBank took steps to avoid a plummeting share price by seeking out long-term shareholders similar to those seen at the time of the Company's IPO. We also held discussions with Director Masayoshi Son and confirmed that he has no intentions of selling additional SoftBank shares in the future.*

He certainly says some pretty harsh things, but I know that he speaks his mind in order to enhance SoftBank's corporate value. At the same time, the Company's internal directors do not remain silent—they will unreservedly object if they are not satisfied with the outcome of a discussion.

In short, Director Son's perspective is of a global nature and my impression is that he makes comments about the direction the Company needs to take in light of global circumstances. He also says not to be content with the status quo and instead think about the future without being a slave to convention. This is something that mirrors the “stay hungry, stay foolish” mantra of Steve Jobs. In my view, I've often thought them to be similar people in a way. This message rings true for all kinds of businesses, and it has certainly galvanized me personally.

The number of subsidiaries and affiliates has now swelled to around 320 and I've heard that a system for managing them has been established, even though some companies are more tightly controlled than others. The Audit & Supervisory Board Members are paying close attention to this issue and improvements have been made on an ongoing basis, but Group governance, and especially the prevention of information leaks, is something we are always monitoring closely.

I think the effectiveness of Group governance is not yet sufficient. Both SoftBank and Z Holdings share the role of managing the subsidiaries and affiliates under their respective company umbrellas. I've heard that a risk management structure is in place whereby officers are dispatched and monthly reports are compiled, but once every quarter we still have to enquire about the true state of affairs.

An external director previously pointed out the problem of impairment. On several occasions, the external director asked why it had occurred and how it could be remedied going forward.

We receive quarterly reports mainly regarding management conditions at subsidiaries and affiliates, but Director Kamigama requested that reports about all of the companies that affect SoftBank should be provided as needed. We also looked into the information management systems of LINE and Demae-can Co., Ltd, both subsidiaries of Z Holdings, and pointed out that a system similar to the risk management system established by SoftBank should be set up at Z Holdings as well.

The issue of conflict of interest is of utmost importance. From the perspective of protecting minority shareholders as well, the transparency of procedures, including those for transactions between the parent and a subsidiary, along with the disclosure of information, must be intensively checked. To do that, we make best use of briefings before Board meetings to hear detailed explanations about transactions before discussing them. Resolutions are then passed at Board meetings. The Company also established the Special Committee in February 2022, which I think will further strengthen governance in regards to conflict of interest.

On this point, all of the external directors make a concerted effort to check the transparency of procedures and information disclosed. In particular, the external directors take great care to examine transactions that might constitute a conflict of interest with SoftBank Group Corp. To protect minority shareholders, we particularly focus on how much a transaction between the parent and a subsidiary will benefit SoftBank on a stand-alone basis, not the group as a whole. We also firmly request to see evidence that supports the appropriateness of a transaction price, not just its purpose. The Company's executive officers are also fully understanding of this and always promptly respond to our requests for additional information. As a result, some transactions with SoftBank Group Corp. have been cancelled because the parties failed to reach an agreement on price.

The Group has become a large and complicated organization, but we think Z Holdings will be key to SoftBank's growth strategy going forward. Governance needs to function effectively, but at the same time, it must also allow for a certain level of independence and neutrality to be maintained. As external directors, governance is something we pay most attention to.

Yahoo Japan grew its business online with computers being the main marketplace, but the market is now shifting to smartphones, so the collaboration with SoftBank smartphone users makes a great deal of sense. The integration with LINE and even the “PayPay” business would not have been possible if SoftBank and Yahoo Japan had not joined forces. SoftBank users are also contributing to growth in Yahoo Japan's user base in the shopping business. For SoftBank too, Yahoo Japan is a key partner in terms of differentiation in the telecommunications sector and I think synergies of considerable importance are being generated for both companies.

Meanwhile, both companies have different policies on balancing shareholder returns with retained earnings, but more than anything else, I think this owes to the fact that they make decisions independently as listed companies.

I have discussed this point with the external directors of Z Holdings. I believe it is important that we discuss how we can remain independent from each other and build a win-win relationship. Going forward, we will look to find the optimum solution whilst generating synergies for both organizations.

There is some business overlap, but that aside, I believe the business integration of Z Holdings and LINE is absolutely essential. Although there have been somewhat chaotic times, I think the merger of these two companies will give rise to new businesses, ideas, and synergies in one or two years from now.

Z Holdings will be able to achieve significant growth if it can make clever use of the roughly 50 million “PayPay” users and the 92 million “LINE” users, and it will also be ably supported by the competent sales capabilities of SoftBank, so I expect both companies to be able to reap the benefits.

As an experienced manager, I think decisiveness is the most important quality required of a manager. Also, in light of SoftBank's makeup and the “Beyond Carrier” and “Beyond Japan” growth strategies, Mr. Miyakawa was the most suitable candidate to lead the Company as president because of his logical thinking based on the aforementioned backcasting management, as well as his knowledge of technology and extensive experience of M&As. Another point is that he is capable of competing fairly and squarely in any kind of debate with Director Son. For these reasons, the vote was unanimous.

Rather than choosing someone straight up, we first discussed what the prerequisites are for the president of SoftBank. In terms of the requirements for a top management position, we concluded that the candidate should be able to thoroughly envision a growth strategy for SoftBank's future, be as familiar as possible with AI and other cutting-edge technologies, and also be able to say “no” to Director Son. We ultimately asked all candidates to give a 30-minute presentation on a growth strategy for the next 10 years, and as a result of our discussions based on the candidate presentations, we unanimously recommended Mr. Miyakawa for president.

President Miyakawa is a person of ideas who likes to plan new businesses based on a strong spirit of constant evolution. He spearheaded the establishment of HAPSMobile Inc. and MONET Technologies Inc. and even now is still organizing collaborations and tie-ups with universities. Also, people in the Company tend to gravitate towards him and naturally lend their support.

Even though the reason for this arrangement was to let President Miyakawa take responsibility for the share price, we were surprised by the large amount borrowed. Nevertheless, in the US it is said that good management comes from running a company from an owner's standpoint, and Director Son too has stressed the importance of operating the company from an owner's point of view. The borrowed funds were secured by the shares purchased and Director Son, as guarantor, has pledged his own personal assets as collateral, which shows just how much President Miyakawa is trusted.

To be honest, I too was surprised, but I suppose we need more than just any ordinary businessman to take the helm of a Company like SoftBank. We did discuss the fact that this arrangement could lead to the wrong kind of management approach in response to the risk of near-term share price declines, but President Miyakawa said he would contribute to shareholders by boosting the share price and that he would take full responsibility, so with this kind of person in charge, we were satisfied and ultimately agreed to the arrangement.

Going forward, all performance-based remuneration for officers will be in the form of shares. The maximum ratio of share-based payments will be roughly 80%. This means officers are responsible for the Company's earnings, and also the share price by receiving share-based compensation. The TSR is calculated quite objectively and designed in a way to prevent subjective intervention. I think the remuneration system is rather strict because the cash weighting is small and compensation will not increase unless net income does.

I too agree with the changes that were introduced based on the reasons explained now by Ms. Uemura.