A Conversation between Outside Directors

Changes in the Kirin Group during the Directors' Tenure

Arima: Kirin is a company that is taking a sincere approach to management. Since I joined the Company, I have had a high opinion of the corporate culture, in which officers and employees accurately recognize important management themes and issues and work to tackle them in a straightforward manner. However, I also think that there have been some issues where the approach may have been too refined and not aggressive enough. President Isozaki has indicated the importance of "practical strength," and this concept could apply to driving success in the face of intense competition or to launching an all-out response to changes in the operating environment. In that regard, perhaps the approach could have been more aggressive in some areas. However, looking at the recent reversal in the market share for beer and the structural reforms at Brasil Kirin, I am pleased to say that I am starting to see positive changes, such as the assignment of precise priorities to management issues and the implementation of finely tuned initiatives.

Iwata: My thoughts are similar to those of Mr. Arima. I think that the Company is taking a very sincere approach, including both managers and employees. I am pleased to have the opportunity to work together with everyone, and I have a strong sense of trustworthiness. However, on the other hand, I have had the impression that there has not been a sufficient sense of urgency in responding to the competitive situation and changes in the operating environment, perhaps because there still remains a bit of the mindset from the Company's former position of market dominance.
  I became an outside Audit & Supervisory Board Member of Kirin Holdings in 2012, and it was about that time that the Company began to face challenges in terms of profitability. However, there was hope for improvement because it was clear where the problems were. For example, there were significant problems with management in Brazil, and there were failures in such areas as product renewals and sales agents. Nonetheless, the causes were clear, and now countermeasures are being implemented. The issue of widely dispersed marketing investment has also begun to be addressed with the gradual assignment of priorities. Looking over the past year, I have started to see positive signs.

Arima: Overseas, one issue is the extent to which management is being conducted from a global viewpoint. And another important issue is how global human resources will be developed. These are issues that will require some time to address, and they will not be resolved quickly. However, as an outside director, I will be taking a close look at these issues.

The "New KV2021" Long-Term Business Plan and the New Medium-Term Business Plan

Iwata: I was very impressed with the "New KV2021" vision. "Creating social value" and "creating economic value" are positioned as having equal merit in terms of management success. This is a clear declaration that the Company will achieve both. I think this reflects a recognition that the only way for Kirin to achieve sustained growth is to grow together with society. Moreover, the strategic framework incorporates Kirin's distinctive approach to CSV. CSV management is indispensable for sustained growth, yet there are a surprisingly small number of companies that have a deep understanding of the essence of CSV management and are working earnestly to implement it. In that regard, Kirin is taking a serious approach to CSV, and I believe it to be a company that is extremely advanced in this area.
  Of course, a future issue for Kirin will be reflecting the vision in its future annual plans and implementing it on a broad scale.

Arima: I feel the same way about the vision. After all, it has to be implemented with "conviction." And to have that conviction, an effective methodology is essential. As Ms. Iwata said, the next issue is to demonstrate the methodology. The Company will follow a two-axis approach that incorporates both social value creation and economic value creation, with management plans and CSV unified. To that end, Kirin will need to incorporate a specific methodology into the time frame, while providing detailed explanations and making the vision more practical for growth.

Iwata: The Company has made clear that business will be grown through the creation of social value, and I am starting to see specific progress in this area. This is a positive development. A number of steps have been taken in a very good direction, such as the launches of Hyoketsu® products that use peaches from the Tohoku region and Ichiban Shibori products that leverage the individuality of regions throughout Japan. However, these initiatives have just gotten under way. The real challenges are still ahead. "Health" is a key word in the current medium-term business plan, and I look forward to seeing how this key word will be given shape in the creation of value.

Arima: I am paying considerable attention to time frames. Companies must manage their businesses and succeed in the face of competition. The use of Tohoku peaches is, in a sense, only a relatively small initiative, but I think of this as part of the process of building a business model through the accumulation of these types of initiatives. If a methodology can be identified, then it can be implemented in a variety of directions. In addition, society also benefits when employees are active outside the Company in areas other than business activities, such as volunteering.

Progress in Kirin's Governance

Iwata: I believe that Kirin is doing an excellent job in regard to governance. Kirin has reduced the number of inside directors. In addition, while continuing to utilize the "Company with Audit & Supervisory Board" system of governance, Kirin has established committees that conduct a wide range of discussions. I think that the Company has an extremely advanced governance structure. In particular, at meetings of the Board of Directors the atmosphere is conducive to free and open expression by the outside directors. Accordingly, we are speaking our minds without hesitation. Of course, this is also our responsibility, but I think that there are still some points that need improvement, such as the ways in which agenda items are decided and time is allocated.

Arima: I agree. If I were to add one more thing, when I was asked to be Chairman, I was not sure what to do and I hesitated, because I thought that this was one method of further progress for the management of Japanese companies. Now that I have undertaken this position, I will pursue changes accordingly. The first will be the method of holding discussions. To increase the efficiency of time utilization, I think we should establish a framework for clarifying the discussion points that will be addressed and for providing explanations. And the decisions, or agreements, should lead to action. I think we should strive for discussions that make absolutely clear what the next step will be.
  Another issue is the way in which discussion points are selected. I think that the Company should have a framework for holding discussions that incorporate, from an outside viewpoint, important topics such as challenges and risks that Kirin faces but are not readily visible from an insider's perspective.

Iwata: This year, I transitioned from outside Audit & Supervisory Board Member to outside director. In 2012, I became Kirin's first female Audit & Supervisory Board Member, and now I have become the Company's first female director. With a focus on diversity, the Company is working to increase the number of outside directors and to include more women. I will strive to understand what is expected of me in this setting. Thus far, I have expressed my thoughts in a natural manner, and there will be no change to this basic position now that I have become an outside director. In other words, in contrast with employees who have been with Kirin for their entire careers, I have experience outside Kirin in government and in corporate management, and in addition I also have experience as a woman and as a consumer. Accordingly, I have information that reflects a different sense of values. I will strive to leverage those characteristics, and without being limited by the conventional wisdom of the Company, I will add my opinions to discussions without hesitation, even if they are minority positions.
  With responsibility for a portion of the management of this large company in a challenging market environment, I know that I have taken on an extremely important task, but moving forward I will do my utmost to make full use of my experience.