Message from an External Director

A company’s future hinges on its executives.
I will support Shiseido’s management
through discussions and formulating
a viable succession plan.

External Director
Chair of the Nomination & Remuneration Advisory Committee

Shinsaku Iwahara

Corporate Governance

Message from Chair of the Nomination & Remuneration Advisory Committee

Our mission as external directors is to ensure that Shiseido addresses change, maximizes corporate value, and contributes to society.

The mission of an external director is to enhance corporate value and pursue shareholder interests. We do this by leveraging our professional experience to supervise management from an objective and independent standpoint and provide expertise and advice on how to operate the business. At the same time, we need to balance the interests of society, including those of employees, consumers, and the local community, and to maintain a delicate balance among stakeholders. Therefore, we also play a vital role in supporting sustainability and ESG initiatives.

It is true that we may not necessarily have a sufficient understanding of the business from the outset. However, to fill these blanks, Shiseido’s external directors regularly receive reports and issue assessments from executive officers and business managers. Shiseido President and CEO Mr. Uotani himself also provides us with timely and candid commentaries on the issues Shiseido is facing and topics he would like to discuss, which is helpful for us to understand management issues as well as the actual situation on the ground. Being aware of the environmental changes and other issues Shiseido is confronted with leads to high-level discussions at the board meetings.

Understanding the workplace and listening to employees’ opinions is also a vital part of our role. In 2021, Shiseido’s external directors and Audit & Supervisory Board Members visited the newly established Osaka Ibaraki Factory and West Japan Distribution Center, and we plan to continue such engagement opportunities in the future. I believe that dialogue between external directors and the capital market, mentioned in the revised Corporate Governance Code, is an essential item that must be addressed.

The CEO succession plan is the greatest task of the Nomination & Remuneration Advisory Committee.

A company’s future hinges on its executives. The Nomination & Remuneration Advisory Committee, consisting of external directors and the CEO, is responsible for the key elements of governance, namely the selection, dismissal, and evaluation of executives.

In the past, Shiseido had two separate committees—the Nomination Advisory Committee and the Remuneration Advisory Committee—but because evaluation (remuneration) and nomination are inextricably linked and the committees consist of the same members, the two committees merged in January 2021. I have served as Chair of the new committee since September 2021, following the retirement of the previous Chair. It is an extremely heavy responsibility for someone without corporate management experience, but I am striving to facilitate a place for high-level discussion where we can deliberate and consolidate our views based on mutual understanding.

In addition, what I emphasize as the Chair of this committee are discussions with external Audit & Supervisory Board members who, similar to external directors, oversee the Company from an independent standpoint. At Shiseido's Board of Directors meetings, the Chair actively encourages external Audit & Supervisory Board members to speak up. The nomination and remuneration of corporate officers also involves active discussions with external Audit & Supervisory Board members at the Board of Directors and external director meetings.

The CEO succession plan is undoubtedly the greatest task facing the Nomination & Remuneration Advisory Committee. Shiseido has discussed CEO succession for several years, carefully evaluating and deliberating the issue over time. The current CEO, Mr. Uotani, is an outstanding business leader in terms of achievement, experience, and capability, so it is not easy to select and train a suitable candidate to succeed him. This is why I believe that the Nomination & Remuneration Advisory Committee has such a significant role to play. We will continue to focus on the succession plan by examining each of the requirements for our next CEO.

In terms of executive remuneration, it is also crucial to keep reevaluating criteria and position details in response to management issues and changes in the social environment. For example, the current performance-linked compensation (long-term incentive-based remuneration) is designed to evaluate both economic and social values. Multiple internal and external ESG indices are added to the evaluation indicators alongside consolidated ROE to share profits with shareholders. In 2022, we believe it will be more important than ever to conduct business with a more acute awareness of social value to achieve sustainable growth. Therefore, we have increased the evaluation weight of indicators related to social value from 10% to 20% and have newly set an environmental indicator therein related to reducing CO₂ emissions, an important initiative under the Company’s sustainability strategy.

Business model restructuring and management reform must be based on changes in consumer behavior.

The Board of Directors met many times to discuss and deliberate WIN 2023 and Beyond. Shiseido’s profitability was adversely affected by drastic changes in the business environment due to the COVID-19 pandemic, which made management reform essential. The Company must rebuild its business model in response to consumers' changing values and purchasing behavior, and the key challenge is to increase productivity.

For Shiseido to grow globally in the future, it needs to improve profitability and enhance competitiveness. There is a significant gap between Shiseido and global competitors in terms of operating profit per employee. Further improvements are also needed to improve the SG&A ratio and operational efficiency of invested capital. To this end, the Company must select and focus on core brands to solidify its position as a Skin Beauty Company in addition to DX and cost reduction measures. In other words, it needs to review the business portfolio and aggressively invest in growth areas. And the key to these reforms is raising employee awareness and motivation. However, changing corporate mindset and culture is not only the most important task but also the most difficult one, and it’s easier said than done. Some of the changes may be painful, so we need employees to share our sense of crisis and realize that they are also part of the reforms.

As Shiseido continues to evolve, we will support its management through ongoing discussions.

Under such circumstances, Shiseido pushed through a bold restructuring of its business in FY2021. Though it proved to be very challenging, the Company managed to execute multiple business transfers and organizational change in an extremely short period. Mr. Uotani and the management team have been in constant communication with employees and have developed various ways to share business strategies. Employees’ awareness is changing, and their overall understanding and satisfaction have improved.

At the end of 2021, Shiseido also launched Project Phoenix, a bottom-up initiative that aims for each and every employee to come up with new, unprecedented ideas and play a leading role in creating the future of the Company by 2030. As one of Shiseido’s most significant and mainstream awareness-raising initiatives, I am giving it my full support.

Shiseido will continue to evolve, aiming to become a "Personal Beauty Wellness Company" by 2030 under its mission of BEAUTY INNOVATIONS FOR A BETTER WORLD, fueled by a desire to contribute to a lifetime of beauty and wellness for each and every one of its consumers. What value can Shiseido provide, and how do we create a world where people can experience happiness? These are the discussions that we will continue to have at the meetings of the Board of Directors, and I pledge to make every effort to support the management in pursuing these reforms.

April 2022

Visit to Osaka Ibaraki Factory and West Japan Distribution Center

In October 2021, after a significant drop in the number of COVID-19 cases in Japan, Shiseido’s external directors and Audit and Supervisory Board members visited the newly constructed Osaka Ibaraki Factory and West Japan Distribution Center.

The tour included inspections addressing how Shiseido manufactures the bulk (contents) of its skincare products; product finishing lines and automated conveyor systems; GP3 (Goods to Person for Pick and Pack), the world’s first innovative shipping system; and quality control and safety assurance efforts. A lively Q&A session and discussion ensued on the workplace environment, which is designed based on the concept of PEOPLE FIRST; deployment of the state-of-the-art functions to other factories; and Shiseido's roadmap on ESG. One external director commented on the Osaka Ibaraki Factory, "This is a wonderful example of a factory designed with great consideration for its employees and the community. The visit was extremely helpful for us to gain a better understanding of the excellent functionality of the facilities.”

Explanation from the Factory Director
Observation of skincare products manufacturing process

Introducing Our New External Directors

External Director

Charles D. Lake II

Shiseido has provided value to customers and society by drawing from its unique traditions and culture woven over its 150-year history and I am thrilled to join the Company.
In recent years, the competitive environment for global markets has grown more volatile, uncertain, complex, and ambiguous with geopolitical risk and the rapid shift of stakeholders needs.
Against that backdrop, by leveraging the experience I have gathered over the years through my various roles and activities in Japan and the United States, I will do my utmost to fulfill my responsibilities as an Independent External Director by advising management from a global perspective and by providing oversight to further strengthen the Company’s governance, including by contributing to enhanced corporate value through the creation of new value.

External Director

Mariko Tokuno

I am honored to be joining Shiseido‘s Board of Directors as an external director on its 150th anniversary of founding. I have had a long career in the business of global prestige brands, having worked with several companies in France, Italy, and the US. I hope to use my knowledge and experience in branding and management to support Shiseido’s further success in the global market. I also have close to a decade of experience as an external director for several Japanese companies in different industries, which I hope to use to promote Shiseido’s medium-to-long-term growth and maximize its corporate value in addition to reinforcing corporate governance, which will be key in bolstering these initiatives.