Chair's testimony on sustainable value creation in Japanese multinational company

In our new series of "Directors Sparkle interviews", Jo Hendrikx, Stéphane Leclef, Danny Vandevyver and Chris Wouters once again engage with other GUBERNA directors from the network.   

The content of the interviews links up with the research themes around which GUBERNA's 'Centres of Expertise' work: 'Resilience' , 'Board Dynamics', 'Innovation' , 'Sustainable Value creation' and 'Diversity & Inclusion.   

Jo Hendrikx was allowed to kick off the show and invited Sam Strijckmans to our studio. Sam is executive vice-president at the Japanese multinational Nitto Denko Corporation and president and CEO of Nitto EMEA NV. This is the Leuven-based regional headquarters for Europe, the Middle East and Africa. Sam joined Jo in a dialogue on ESG and sustainable value creation. He explained how the EU Green Deal has been a real lever for the Nitto board to accelerate its sustainability transformation. But he also knew how to deal with Jo's healthy curiosity around strategy, acquisitions, good governance and board mandates in a Japanese multinational...  

Jo Hendrikx especially remembers how vision, strategy and good governance can generate big change from within. When the company top manages and carries the strategic story well, the effect of good governance is felt right down to the workplace.

Its core technologies such as adhesion technology, coating technology and polymer function control technology have led to an extensive product portfolio such as film materials, industrial adhesive tapes, membrane filtration materials, flexible printed circuits, sealing materials and medical and personal care products...  

In 2021 alone, Nitto published 2,962 new patents. The company was already recognised for the 10th time by Clarivate as one of the Top 100 Global Innovators.  

Belgium played a crucial pioneering role in its international expansion: in 1974, the second production facility outside Japan was established in Genk (after Taiwan).  

The EMEA regional headquarters in Leuven sets the strategic direction for seven manufacturing companies and several sales offices with a 2,500-strong workforce, representing a turnover of around €573 million. 

What follows here is an edited summary of our fascinating conversation. The full conversation is also available as a podcast and as a video.  

Welcome Sam, you chose the topic of 'sustainable value creation' today. Can you talk a bit more about it?    

In fact, the big positive driver for us was the European Union's "EU Green Deal" and later the "Fit for 55 plan". Based on the European plans, the board of directors determined our first strategic 'environmental midterm plan' in 2018. The various operational entities then started working on it. "We want to become a carbon-neutral company already by 2045. This is five years earlier than what the European timeline envisages."   

In 2018, we structurally incorporated a series of KPIs and CSR topics into our decision-making process. We set milestones for 2022. Initially, we had to reduce our own CO2 emissions by 30% and we also wanted to reduce our waste by 12.5% and our emissions of "volatile organic components" by 50% in the EMEA region. We more than met these targets.  

We also wanted to make a major advance in eco-governance. For this, we engaged rating agency EcoVadis and used it as an external audit system. This refers to the 'plan-do-check-act' cycle to keep making progress.   

For all our manufacturing entities in the EMEA region, we aim to achieve the platinum EcoVadis label by 2025 at the latest. In fact, Nitto Belgium has already achieved that sustainability label for some time and is among the top 1% of over 100,000 companies worldwide in terms of ESG performers   

How is all this decided and monitored in the boardroom?   

In fact, the discussion in the boardroom should not be about the question, "Is it cash creation or 'sustainable value creation'? This is why today at Nitto we no longer speak of "financial indicators" and "non-financial indicators". For the latter, we speak of "future financial indicators". Because we firmly believe that sustainability goals will also create value after a certain time. On the one hand, healthy profit and cash generation remain important for the future of any company. But on the other hand, it is also important to make those 'sustainability goals' very explicit and steer on them.  

How big a transformation did you have to undertake as a board to include all those entities under it? 

Many local managers usually have some questions about the ecological investments and the payback of those investments. But we did not put so much emphasis on that when approving the sustainability investments. Meanwhile, due to the huge increase in the price of CO2 allowances, the 'payback' has come much faster than originally expected. In 2017, CO2 allowances were still below €10, recently reaching a record amount of more than €100 per tonne of CO2 emissions. As a result, the payback period of those investments has been greatly reduced. Local management is now convinced and we observe a very positive vibe among our people. The top-down approach is now no longer so necessary. Now even many new initiatives come up without being asked.  

Today, sustainability is an integral part of the strategy of all Nitto manufacturing companies within the EMEA region.  

How do they view the sustainability business at headquarters in Japan?    

Japan looks very closely at policy-making in Europe in this regard. They believe that Europe is the trendsetter globally and that many other regions will adjust their policies based on what happens in Europe. Our global president has also stated that we are going to strongly consider ESG in our vision and strategy. 'ESG and Growth', both in our product development and throughout product innovation. We developed quite a few KPIs for that, such as the 'return on carbon'. But we are also looking at the development of "Human Flags" and "Planet Flags". "Human Flags" are about products and solutions that contribute to an easier or better life for people. With "Planet Flags", we talk about products that contribute to a greener planet.   

Perhaps a little example for "Human Flags": in 2017, there was a major fire at London's Grenfell Tower with around eighty casualties. The cause was a short circuit in a fridge. The EU subsequently launched stricter legislation on the fire resistance of all refrigerator components and other household appliances. So we are now developing a fire-retardant coating that can be applied to all components. So this product leads to more safety for people.  

In "Planet Flags", I refer to the use of biodegradable materials. For example, we recently developed a tape for smartphones that is 'bio-based'. All the global players have a high demand for such innovative ecological products.   

How do you involve stakeholders?   

We strongly steer our suppliers towards sustainability. We have a supplier evaluation system in which the sustainability story plays an important role.  

How does the board deal with strategy?   

In the board, we focus strategically on 2030. Through a kind of 'back casting', we decide what needs to happen in the next three years to make progress towards our vision by 2030. That then becomes our strategic plan for the next three years. Now that is from 2023 to 2025, and sustainability already plays a very important role in that.   

In the shorter term, you always have some external factors affecting the business: geopolitics, disruptions in the semiconductor market and so on. These are rather short-term challenges to achieve the year's budget itself. This is important, but somewhat less important for the board of directors, which is primarily concerned with achieving our longer-term goals.   

How have you grown in the EMEA region?   

At the EMEA level, an important question for us was whether we saw opportunities for external growth in addition to organic growth.   

In the meantime, we made a few acquisitions. One was a Turkish company in 2012. I then lived there for two years to oversee the post-merger integration.   

And last year we made another significant acquisition of two German entities. That roughly doubled our sales in Europe. So from the EMEA board, we are working out a growth trajectory for the entire region. Originally, the EMEA region was fairly limited in size: we were around 4% of total group turnover. Now it is around 10%.   

When I started almost twenty years ago, sales were 25% outside Japan and 75% inside Japan. Now we make as much as 78% outside Japan, albeit mainly in Asia. Due to the ageing and declining population in Japan, Nitto does have to realise its growth elsewhere. I think we have also grown with our customers who themselves have grown very strongly internationally. So originally you follow your own customers abroad and then you also start growing locally there and looking at other local customers.  

What are your challenges at Nitto EMEA as CEO and chairman of the board?   

So I have been chairman since we started with a regional headquarters in a separate legal entity in 2016. For me, the specific challenge is that within the multinational it is not always easy to make a real split between the day-to-day management as CEO and the role of chairman. I try by all means to stay away from real short-term thinking in the board of directors. Therefore, I bring key elements on the agenda such as IT security, sustainability, eco-governance to properly guide both capex investments and talent investments.   

In your board of directors, what are the key competencies? How do you make sure you have a balanced board of directors?  

We always look at the competences: someone for 'operations', someone with a commercial background and someone with a more corporate background (legal or finance). Currently, our legal counsel, who also has compliance and strategy under his belt, is a director, among others. I always try to look for a good mix of competences and nationalities within our region.   

In Nitto's large Japanese corporate officer team, I am a bit 'the odd man' out because I am the only non-Asian.  

Why are there no external directors on your board?  

We have already raised that topic to our management in Japan. Partly influenced by the Japanese governance code, they do it with conviction on the main board. There, there are three internal people and six external directors. But in the more than 100 entities worldwide, they are internal people and no external directors are recruited. Actually, that is a waste of time and therefore not an issue. I think the same is true within many other multinationals.   

You took the GUBERNA course. In your opinion, what is a good director?  

For me, it is someone who can look very well at the strategic part of a company and give guidance and direction on the future without going into strategy himself. In addition, it is someone who fulfils his monitoring function very well. It is very important to support management well in its journey without stepping into the management's shoes.   

I am now in my final months of the GUBERNA training and I like it. In time, I do look forward to some mandates. At the moment, that is not yet compatible with my current role. Because you have to be able to devote the necessary time to it to do it well.   

Have you already started doing things differently as a result of this directorship training?   

Surely there are some things I try to apply immediately then. I looked at the boards of our 15 entities in Europe: how are those boards composed? Is that diversity of competences present? We received some tools during the GUBERNA training such as the competence matrix, which I find very useful.   

On the other hand, we put cybersecurity more on the agenda and had an external audit done to know where our 'gaps' are. We then set up a remediation together with our IT department to reduce that 'gap'. 

What tips do you have for prospective board members?  

Before taking office, directors should thoroughly question their potential role and the specific nature of the company to see if there is a good match.   

It is not because you are very competent in a certain area that that competence is also needed in that company. A director must also stay sharp in terms of knowledge. Investing in a lifelong learning path is essential because there are so many developments in society and in the boardroom.   

Was there perhaps something else you wanted to share with us?   

Yes, perhaps this: the European Corporate Social Responsibility Reporting Directive is coming our way fairly quickly. At Nitto, we are preparing thoroughly for it. We published our first sustainability report in Belgium in 2022 and we are very satisfied with the result. Now we are looking with our external auditor at how this report should evolve. Because the audit standards still have to be drawn up for it. Thanks to this first experience, we can now involve the right departments within the company in the development of such a report. And we certainly like to unpack the good KPIs of our environmental strategic plan! 

Thank you and good luck!