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Small Meeting with Investors Held June 2015

photo:Dialogue Between an External Director and Institutional Investors Tamio Oda-Director, Executive Vice President and Chief Financial Officer (CFO), Capcom Co., Ltd./ Takayuki Morinaga- External Director, Capcom Co., Ltd.

Dialogue Between an External Director and Institutional Investors

In conjunction with the launch of the Tokyo Stock Exchange Corporate Governance Code, the role of external directors is more important than ever.
「In response to questions including "Are external directors really expressing brutally honest opinions at Board of Director meetings?" and "What exactly does the function of an external director entail?" Capcom held its first-ever small meeting with institutional investors, who met with External Director Takayuki Morinaga. The following page provides excerpts from this dialogue.

Takayuki Morinaga, External Director

My role as external director is to enhance corporate value, which consists of two aspects: economic value and social value.

While I think it is of course important to pursue profits and enhance economic value, it is also important to provide social value required by the public. Without that, it will be difficult to maintain economic value.

Social value involves a variety of aspects. In the context of games, it is not absurd to suppose that by playing games more you could make yourself smarter, improve your character or keep your mind sharp, and if this were the case, it significantly increases our social value, which would then tie into an increase in our economic value.

We at Capcom also wish to focus on social value along with economic value as we move forward.

I admire both the number and diversity of external directors (including corporate auditors) present at Capcom Board of Directors meetings As the founder is running the company, I was concerned that his views would go unchallenged; however this was absolutely not the case at Capcom.
Board of Directors meeting discussions are lively, and thanks to the visualization of management via quantitative data, materials provided to the Board have been put together in a highly intelligible manner.

We engaged in a diverse range of discussions at Board of Directors meetings regarding this year's resubmittal of the takeover defense measures. Based on my corporate management experience up to now, there are two types of takeovers: one that benefits the shareholders, and one that does not. In the case of the latter, corporate value is destroyed, resulting in potential losses for shareholders. Personally, I think the above measures are necessary to eliminate these potential losses. By leaving the final decision to the judgment of the shareholders at the general shareholders' meeting, I feel the interests of shareholders have been secured.

Q&A Summary

Materials used during the small meeting


Currently, it is set up so that should Capcom move to invoke the takeover defense measures, an emergency shareholders' meeting will be held; however, is it not the case that this ensures neither the validity nor the transparency of said takeover defense? Supposing 75% agree to implement the measures, but 25% oppose them; is it not true that the interests of the25% minority of shareholders are being damaged?


Actually, we will disclose a variety of information before we actually put the measures into practice, which will provide those shareholders who are in opposition with enough time to sell their shares if they so choose.

At the same time, asking for approval to invoke takeover defense measures at the emergency general shareholders' meeting is a last resort and not the meeting's main purpose. The source of Capcom's content development is its people, thus development expenses consist in large part of labor costs. In this context, the purpose was to create a place and time to discuss development policies with buyers so as to avoid distressing our developers, who are the backbone of the company.

Furthermore, with respect to the establishment of an independent committee in the event takeover defense measures were to be actuated, investors told us that "independent committees are meaningless; all decisions should be made at Board of Directors meetings". However, as Capcom is a company with a board of corporate auditors, we think an independent committee would be effective in terms of reflecting the opinions of corporate auditors in the discussion. We were also criticized regarding whether people external to the company are of any use in an emergency situation. We accept this criticism and are in the process of making improvements.


External director neutrality is critical, but if one serves on the board long term, doesn't one tend to take the company's position? What does Capcom do to prevent this situation?

An outside perspective is critical, but it is also important to build a certain degree of relationships within the company as well. Without prerequisite knowledge and information, one cannot provide appropriate advice, nor can they be very convincing. In my (Morinaga) case, I want to maintain a balance in light of my experience. External directors and corporate auditors are appointed from a diverse range of backgrounds, so there is no issue in terms of transparency.
In fact, at Board of Director meetings, we make extremely critical observations, so there is no concern regarding our neutrality.


On what basis are external directors appointed? Shouldn't people with a more detailed knowledge of the contents industry be appointed? From the outside, it seems like external directors are appointed based on their friendship with management. What do you think about standards for replacing external directors?


At present, Capcom has not made the standards by which external directors are appointed explicit to the public. That being said, in as much as possible we select individuals from as wide a range of areas, bearing in mind we want people who are specialists with the highest level of insight in their field, who are able to deliver objective decisions regarding Capcom management and business activities. It is not at all the case that friendship is the reason individuals are appointed. To dismiss such concerns, I would like to further improve the basis for appointments going forward.


What do you think about risks and issues pertaining to owner-run companies?


I think there are many positive aspects of owner-run companies. An owner should never become an autocrat, and decisions should be made by the Board of Directors, not only by the owner. If a governance structure is in place, the speed of the owner's independent decision-making capabilities, their consciousness, and their reform capabilities are effective in propelling corporate growth. In companies where visualization of quantitative data is advanced such as Capcom, maintaining checks and balances from outside the company is more than possible.


In the event the owner is taking the company in the wrong direction, are external directors able to call the appropriateness of it into question as a third party?


For external directors, Chairman Tsujimoto is not an absolute presence; we external directors provide our opinions at Board of Directors meetings without reserve until we are satisfied. Furthermore, the Chairman listens thoughtfully to our opinions. Considering Capcom introduced the external director system in 2001, Chairman Tsujimoto has been proactively listening to differing opinions for quite some time now.


When discussing governance, the focus is usually on governance demanded by investors and governance that facilitates corporate management. It is ideal when both these approaches are in congruence, but the most important thing is enhancing the quality of corporate management. The more skillful a manager is, the stronger his power, which in turn makes it easier for him to become an autocrat. To avoid this risk, I hope you engage in vigorous debates to ensure corporate management does not wander off course.


Understood. This is the first opportunity I have had to engage in dialogue like this, and there are probably a few areas where my answers weren't as detailed as they could have been, but I will continue to monitor and support management in light of the opinions you shared today. I hope we have a chance to meet and engage in dialogue again next time.

Investors in Attendance

Iichiro Yamaguchi (Daiwa Asset Management Co. Ltd.)/Yasushi Arakawa (DIAM Co., Ltd.)/Daisuke Oshidari (JPMorgan Asset Management (Japan) Ltd.)/Masayuki Yonezawa (Mitsubishi UFJ Kokusai Asset Management Co., Ltd.)/Kenji Kido (Mizuho Trust & Banking Co., Ltd.)/Jiro Nakano (Nikko Asset Management Co., Ltd.)/Naoki Iwata (Nomura Asset Management Co., Ltd.)/Akira Namegawa (Schroder Investment Management (Japan) Limited)/Akio Otani (Tokio Marine Asset Management Co., Ltd.)

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