Dialogue between the Chairman of the Board of Directors and the Group CEO
Progress towards achieving continuous growth
Mizuho's role in society as a whole and our strategic priorities
Chairman of the Board of Directors Izumi Kobayashi sat down with Group CEO Tatsufumi Sakai to reflect back on fiscal 2020 and discuss the role of finance and Mizuho in society as well as our progress towards achieving continuous growth.
Looking back on fiscal 2020
I recall that when I was appointed to Mizuho's Board of Directors in 2017, the main priority was how to enhance capital and earnings power. In 2019 with the launch of the 5-Year Business Plan, at a time when the shape of finance was greatly evolving, Mizuho was resolving on its next step while also improving its capital and earnings power. Then, as we entered fiscal 2020, we were unexpectedly faced with the pandemic and our major concern was whether it would truly be possible to achieve the objectives of the 5-Year Business Plan. Now, as we reflect on the results, there are two major points to note.
The first is the role that finance plays in society. In particular, the pandemic has prompted us to reaffirm the importance of financial institutions’ traditional role. It was clear that it acted as a major support structure during this tumultuous time.
The other point is that Mizuho's results for fiscal 2020 exceeded the initial estimates in the 5-Year Business Plan. This is due to the steady progress on reforms which were an organization-wide focus, including efforts to strengthen corporate foundations. This is not only my belief but also that of the other directors.
As you mentioned, in formulating the 5-Year Business Plan we were aware of the need to constantly update ourselves amidst structural changes in the business environment, and so we decided to implement structural reforms in three areas―to our business model, the corporate foundations that support it, and finance. In fiscal 2019, the first fiscal year of the plan, I would say it went well overall. Fiscal 2020 was a crucial point at which our overall initiatives would finally take root. Of course the pandemic occurred just at that moment, but there are also two points I would like to reflect on regarding fiscal 2020.
The first is that structural changes have only accelerated as a result of COVID-19. Looking ahead to the post-COVID-19 era, we are beginning to see a variety of developments and changes to megatrends which are particularly impactful on our business, such as digitalization, an aging population and declining birthrate, and globalization.
The second point is that, as you mentioned in regards to the role of finance, amidst all these changes there are some things that remain constant, and the true value of financial institutions is one thing that has been reaffirmed. I believe that financial functions which serve as a lifeline for corporations and people's lifestyles are a true form of lasting value. There was an urgent and large-scale rise in demand for financing outside Japan during the January to March period of 2020 and in Japan during the April to June period of 2020; however, unlike the 2008 global financial crisis, the financial system remained robust. At Mizuho, early on we recognized that this was a time for us to commit to returning to our fundamental mission and fulfilling our role as a financial institution. We were also able to use this as an opportunity to advance our transition to the different business models which we had envisioned.
For example, providing quasi-equity financing as a strategic domain within our business targeting large corporations. When client demand was suddenly rising due to the effects of the pandemic, we fully leveraged our understanding of clients’ businesses and our industry insight in order to not only support clients’ cash flow needs but also to support them in terms of capital where necessary. I think that among financial institutions, our reaction was especially swift. By supporting companies in their time of need, we deepened our relationships with clients and further accelerated our strategic initiatives. These efforts formed a new foundation for our relationship with our clients, and with their understanding, we were able to make more progress than expected on reducing cross-shareholdings, including those held in our retirement benefit trust.
All members of the organization around the world came together through these efforts to realize our strategic initiatives, and this enabled us to enhance our fundamental earnings power.
Exactly, Mizuho was able to transition the role it should fulfill as a part of the social infrastructure, for example by switching the anchor of a client relationship from cross-shareholdings to quasi-equity financing. I think this was a year in which we began to see the emergence of a single next-generation model for financial services unique to Mizuho as the company leveraged its capabilities in digital, fintech, industry insight, and other areas.
Bringing prosperity to society: Mizuho's expected role
The major trend towards sustainability has also been affected by COVID-19 and a wide range of themes are becoming apparent. Sustainability is linked to the underlying issue of the expansion of economic disparity and social inequity, as well as to geopolitical issues and the destabilization of the global order. Under our 5-Year Business Plan, we are directly addressing these facets of the global agenda.
As global interest in the environment and climate change is rising significantly, governments around the world are strengthening their response, including Japan which has pledged to become carbon neutral by 2050. Sustainability is now one of the top priorities for corporate management. At Mizuho, when we discuss management and business strategy with our clients, sustainability is the first thing we consider.
We want to deliver benefits to our customers and other stakeholders, as set forth in our Corporate Philosophy and embodied in the name Mizuho, which evokes images of a “bountiful harvest of rice” in Japanese. We have built in to our strategy a range of sustainability issues and challenges in order to minimize risk and maximize business opportunities, an approach which has points in common with the thinking behind stakeholder capitalism, a concept which has been gaining traction recently.
Yes, sustainability is built into Mizuho's business and is at the core of its growth model. And the success of Mizuho's business activities brings prosperity to society. I think that all executives, regardless of the industry or company, are currently grappling with how to synchronize and synergize sustainability with their business and make it a source of growth for their company and of benefit for their stakeholders. This is what newly emerging business models seek to achieve. In this regard, Mizuho has taken the initiative in building such a business model and has been conducting dialogue with its clients since the early stages. My impression is that, as a result, a wide range of stakeholders now have an understanding of Mizuho's thinking and business model. As sustainability is becoming even more crucial, cooperation and collaboration with stakeholders is likely to become easier to pursue.
On the other hand, I think that a customized approach to sustainability on the frontlines of our business will be an important task going forward. Currently, there is a movement towards creating a globally consistent standard for evaluating sustainability, but sustainability can intrinsically vary depending on the natural environment and social environment in each country or region, so it is not necessarily globally homogenous. The thinking is that, even when aimed at the same goal, sustainability initiatives may differ between countries and regions, and ultimately form a cycle that is positive on a global basis. In that sense, it is essential for employees on the frontlines to proactively think, act, and deliver in line with what is best for their local environment and society in order for Mizuho to bring prosperity, as you mentioned. This is especially challenging, but that is why it is worth accomplishing.
Although there are common global goals such as those in the Paris Agreement, the steps taken to achieve them will vary depending on economic and social circumstances and values, or on access to resources and other such factors. There will also be differences in industrial policy, including energy policy, and in corporate action. With this in mind, we can enhance the steps toward and feasibility of reaching these common global goals through a harmonious approach. I think that a customized approach to sustainability, as you mentioned, can be a source of added value for Mizuho.
Certainly if you consider sustainability in terms of a product-oriented or market-oriented philosophy, a “one size fits all” product-oriented approach does not work. A customized approach containing multiple traditionally recognizable elements is the most easily accepted, and each client requires advice and solutions that fit the social environment they operate in. I think that Mizuho has a major role to play in that respect.
With a firm understanding of the many variances between different countries and regions, we aim to support industry and business transformation which is both feasible and aligned with the local economy and society. As for Mizuho, we are drawing on our research and consulting capabilities as well as industry insight to communicate with our clients’ executive management, relevant authorities, and others in order to act as a catalyst. We will start to further develop these initiatives going forward.
I think that Mizuho can fully utilize the value it has built up in order to differentiate itself. In terms of securing both its own value and stakeholders’ understanding, I think Mizuho is in a good position and can focus on non-financial value and fully leveraging it in order to transform business models.
Also, in terms of the connection between a prosperous society and business development, I think there are more ways that Mizuho can contribute indirectly. For example, in the sense of bringing prosperity to each individual, including those who are not Mizuho customers, Mizuho's role is not limited to direct finance but includes contributing to the sound development of companies, which is a vital element of a stable society. A kind of virtuous cycle can be formed as Mizuho provides services and shares knowledge, in addition to finance, through a range of channels.
We are not only providing funding, products, and services but also support with a human touch. We also facilitate corporate networking, including assisting innovative startups and providing business matching, which is one aspect of our “Open & Connected” action principle. Using the channels and networks we have formed from financial transactions, we support clients’ new business development, as you mentioned, and this in turn plays a role in job creation within society. Our role is to be a supportive presence for our clients and society from multiple angles based on our trustworthiness and reliability.
From the perspective of ensuring that Mizuho remains just such a presence, the issues brought to the forefront by the recent IT system failures are important to address. Apart from IT related issues, what I feel is that the organization has yet to fully utilize the diversity of its people. I am not referring only to diversity in terms of gender, nationality, or similar but also to the unique qualities of each individual, their areas of specialty versus areas of inexperience, or in other words diversity of perspective. I believe that Mizuho is strong when everyone is working together towards a shared objective. However, when something irregular occurs, Mizuho is weak when it comes to exercising the capabilities of the organization by ensuring each individual looks at the issue from different angles and acts independently. Of course, this is not something that can be completely changed within a year or two. It is necessary to steadily and repeatedly affirm the need for change within the organization as well as to make it a habit for executive management to always consider how meaning can change when something is viewed from a different angle. Mizuho has many strengths, including in non-financial areas, and whether these strengths are put into practice depends on the capabilities of its people. Leveraging Mizuho's diversity will surely draw out the organization's strengths.
I strongly feel that we must reflect on the lessons learned from the IT system failures and become a more robust and resilient organization so that in the future our customers, the public, and our employees will look back on this moment as a catalyst which transformed Mizuho. To realize this, the basic foundation for our efforts is to enhance our people and organization, and diversity in the broader sense is a necessary part of this. As we move forward with a range of initiatives, with the aim of better understanding our customers and society we will seek to proactively develop a broader perspective of our ways of doing things and our role, in part through utilizing externally hired talent and enabling each individual to consider a range of perspectives and to move in the directions that seem most promising. As for our objectives in terms of diversity, there is no single answer and it is not something executive management can simply give orders on. We will create a variety of frameworks enabling executive management to encourage and support the efforts of each member of the organization. As a result, all employees will be able to take the initiative, further align themselves with our customers and society, adopt a more positive approach, and move forward with confidence and pride. Together, executive management and employees can foster this kind of organization and corporate culture.
What is important is that each employee is motivated day-to-day, in a certain sense, simply by enjoying their jobs. There are many potential sources for this enjoyment―being thanked by a customer, being the one to solve an issue that everyone was struggling with, or feeling the value that one brings to the organization, which creates confidence. And when members of the organization are enjoying themselves, customers will feel this enthusiasm too. What is important is to create an environment where being a part of this company is enjoyable and each individual can consider how to approach their work in a way that makes it enjoyable. I believe this can be a catalyst for transforming the organization. I hope you will foster that kind of environment.
There are many such initiatives we would like to implement going forward. As you said, the organization and its people, as well as corporate culture, are things that cannot change overnight, but encouraging confidence and fostering enjoyment, as well as diverse perspectives and a willingness to see things from a different angle, these are changes that I will work to effect within the organization.
Achieving continuous growth
Mizuho's strategies and its ability to realize them as well as its financial situation are both at a level where we can hold a certain degree of confidence. Its central role in society has become clearer as a result of the pandemic. The areas where Mizuho still has work to do and must make a greater effort have also become clearer following the series of IT system failures. If consistent progress can be made in regards to these three areas, I believe that Mizuho can truly become stronger as an organization as well as in terms of its business model.
In the remaining three years of the 5-Year Business Plan, enhancing the organization and its people must be a priority, in addition to achieving financial performance goals. By facing and overcoming this challenge, Mizuho can build a truly robust foundation for the years beyond the end of the current business plan. 2021 will be the year to prove this. In terms of Mizuho's social mission, amidst the pandemic we are not only being tested in terms of financial capabilities but also on whether our services are truly useful to society. The remaining three years of the 5-Year Business Plan will surely be very challenging and a crucial juncture for Mizuho, but also a period with a lot to look forward to.
In order to achieve continued growth within the current environment, we must ensure a win-win relationship with our stakeholders. To accomplish this, we not only need to become stronger from a fiscal perspective but also enhance and fully draw on our financial and non-financial capabilities through our expanding role in society. In doing so, we can deliver benefits to our stakeholders as embodied in the name “Mizuho” and its original meaning. We need to reconsider the role we have fulfilled thus far and concretely determine what we want to achieve going forward. In step with our customers, society, and our employees, we can work towards future continuous growth. Thank you for taking the time to share your thoughts with me today.