Mitsubishi UFJ Financial : Main Q&A （PDF / 41KB）

Small Meeting with Directors Hirofumi Nomoto and Keiko Honda

Main Q&A

• Q: Given the significant impact of the COVID-19 pandemic on full-year results for fiscal 2020, how would you evaluate the leadership of Group CEO Kamezawa and the management?

• A: Director Nomoto: Hironori Kamezawa became Group CEO in April 2020 and has had an almost flawless start with the domestic businesses. For overseas businesses, we are looking forward to initiatives aimed at reshaping them going forward. Hands-on experience and the ability to get things done are important for reform, and, commendably, CEO Kamezawa has an ample amount of both qualities. Management, including the CEO, values dialogue with employees in Japan and overseas and holds many town hall meetings. This effort to convey management's ideas to more employees is expected to have a transformational effect on corporate culture going forward.

  Director Honda: CEO Kamezawa has a deep understanding of capital markets, collects his own data and takes a clear-eyed approach. In addition, I applaud him for having identified challenges and ranked priorities based on evidence and fact. I was especially impressed by CEO Kamezawa's initiatives for engagement. As essential workers, bank employees needed to maintain deposits, lending, settlement, and other services even amid the pandemic. I think that fostering deeper engagement with employees, including young hires, likely helped motivate employees to work harder.

• Q: What is your view of MUFG's challenges, including the expense ratio and ROE? Also, can you tell me how, as outside directors, you may be involved in the formulation of the next medium-term business plan?

• A: Director Honda: The current business environment is extremely difficult for financial institutions due to such factors as low interest rates around the world, the increasing importance of digital transformation amid the pandemic and the need to address climate change.

  Under the next medium-term business plan, ROE will be one of the most important key performance indicators (KPIs). Immediately after I became a director, to enhance ROE, I

requested staff to make detailed analyses (including the expense ratio, lending spread, and risk asset situation of each business group, which are components of ROE) and compile the results.

In addition, during debates on the plan's formulation, I talked about how MUFG's large deposit balance compared with the other Japanese megabanks is a sign of its "Integrity and Responsibility" and underlies the strength of the Global Market Business Group's treasury profit. Regarding MUFG's profit structure, some people point out the high degree of contribution of equity-method investment gains from Morgan Stanley and the Global Markets Business Group's treasury profit. Equity-method investment gains from Morgan Stanley are the result of investment during the Global Financial Crisis and treasury profits are the results of MUFG's deposit balance, or, in other words, its "Integrity and Responsibility" and the strength of its Global Markets business. The plan is currently being formulated in line with these points, and I am very much looking forward to the next medium-term management plan.

Director Nomoto: I think MUFG's high expense ratio poses a challenge. We need to analyze the reduction in business expenses in fiscal 2020 because, in addition to self-imposed cost controls, expenses fell due to the pandemic. In addition, it has been more than 15 years since the merger of the Mitsubishi Tokyo Financial Group and UFJ Holdings. MUFG needs to thoroughly investigate the fundamental factors behind the high expense ratio, including whether differences in corporate culture or mutual reluctance have hindered efforts to enhance efficiency.

To improve ROE, MUFG will need to both strengthen its earnings power and control costs. Everyone will need to push forward each measure with a sense of ownership, switch from defense to offence in their sales approach, work to increase the added value of operations and strive to raise individual productivity.

In its approach to the formulation of the medium-term business plan this time, the company is not simply accumulating initiatives; rather, top management has begun by sharing their vision of what MUFG is supposed to be and communicating a powerful message targeting each business group. At the same time, outside directors are engaging in discussions on reforming corporate culture, affirming the company's vision and formulating strategies. We will continue working hard to help enhance corporate value in order to ensure that MUFG can "be the world's most trusted financial group".

Q: I would like to ask about the effectiveness of governance. Do you think the Board of

Directors has a system for appropriate oversight and ingenuity to stimulate discussions in pre-briefings and educational sessions, which are sufficient enough? And please tell meabout any challenges that there might be.

A: Director Nomoto: MUFG's governance system is solid. It works to enhance effectiveness and advance the system even further year on year. While there is room for improvement when it comes to narrowing the points of discussion at Board of Directors meetings and clarifying the importance of agenda items, the educational sessions and pre-briefings are very thorough and enable deep discussions in the limited amount of time available. As a "company with three committees," excellent outside directors account for the majority of members on the Board of Directors and there is a lively exchange of opinions leveraging each person's insights and experience. In this and other ways, the Board is properly and sufficiently functioning as an oversight body.

Director Honda: The company has an inclusive Board of Directors, where even I as a new director can offer my frank opinions. Of MUFG's 16 directors, 4 are women and 2 are foreign nationals. Compared with the other Japanese megabanks, the framework of MUFG's board has the most diversity.

In addition, there are training sessions available to new outside directors, helping stimulate debate at Board of Directors meetings.

• Q: Under the next medium-term business plan, I understand that the policy is to promote the integration of the initiatives for helping resolve environmental and social issues and business strategies. What is your assessment of the internal discussions regarding that policy?

• A: Director Honda: Integrating the initiatives for helping resolve those issues and strategies will not be at all easy and I respect management for setting out this ambitious policy. As for environmental initiatives, European banks may be leading the way, but MUFG, as a Japanese bank, has been a true trailblazer, being the first to issue sustainability bonds and offer sustainability-linked loans. However, as I told management, striving to get higher ranks on the League Table for bonds and loans is less important than securing profitability while producing impact on the environment and society and implementing creative measures for the environment and society. Going forward, I am looking forward to MUFG taking a leadership role in asset pricing and setting standards for underwriting and finance in the ESG field.

Q: With 16 members on MUFG's Board of Directors, I think that is too many people. Is there no problem in terms of governance effectiveness?

A: Director Nomoto: In 2015, the company switched to the "company with three committees" structure and outside directors currently account for the majority of the Board of Directors. In addition, of the 9 outside directors, 2 are foreign nationals and 4 are women, demonstrating progress toward diversity. Each committee, including the Nominating and Governance Committee, Compensation Committee and Audit Committee, comprises five to six members, and I myself am on two committees. The committees convene at least once and up to two or three times per month almost every month. The various committees engage in active debate, and I do not think that 16 members on the Board of Directors is too many.

• Q: Director Nomoto, you are a director at four companies, including MUFG. Would you say that you are able to ensure enough time as an outside director at MUFG?

• A: Director Nomoto: Two of the four companies are the group companies of Tokyu Corporation and are within the scope of my regular duty. As an outside director of MUFG, I am able to ensure enough time, including time for pre-meeting research.

• Q: I would like to hear about any instances where, with regard to an agenda item on the executive side, the debate was enhanced when you as an outside director objected, rescinded, or offered an opinion.

• A: Director Nomoto: For important items, such as Mitsubishi UFJ NICOS's system integration plan and MUFG Union Bank's revision of strategies, I engaged in debate in a way evocative of a cross-examination, looking at even the background of the issues. In addition, I did not stop at getting answers to questions from outside directors, I requested that they offer solutions. Such an approach supports active debate that utilizes the insight and experience of each outside director, and, I am glad to say, fosters an awareness that enhances discussions of important challenges.

  Director Honda: Outside directors asking questions and offering advice on improving ROE, often enhance the quality of debate.

Q: I think that MUFG has top-level planning capabilities, management executive capabilities, and the organizational capabilities needed to make reforms, but these strengths are not always reflected in business results. What are your thoughts on this gap between the company's capabilities and its results?