Resona Group Integrated Report 2024

Reflecting on our past year of discussions since the launch of the current MMP, we have tended to focus on the numerical results compiled by Resona Holdings in connection with its subsidiary bank’s banking operations, rather than overarching subjects affecting the entire Group.

To repay the public funds and effect a revival, Resona implemented a number of reforms. I, like many, consider this to be a unique example of a success story. However, discussions among outside directors and with President Minami to assess what our conventional banking business will look like in the next 10 years have served to revive our sense of crisis regarding the future of this business as well as problems the financial industry as a whole is now confronting.

Fundamentally, although the conventional operations undertaken by the Group banks are integral to Group operations, we will cease to see substantial growth in the banking business if we are content to limit our efforts to building on these existing operations. We would like to regularly address this issue at Board of Directors meetings going forward. In addition, I am keenly aware, as Chairperson, of the need to transform Resona Holdings’ mode of operations, even if only little by little. So, today, I would like to hear what you think about this subject.

Our mission is to enhance the corporate value of the Resona Group. The Long-Term Vision and the Purpose, both of which were established at the start of the MMP, have served as a basis for the Board of Directors’ approach to fulfill the above mission. Although directors, including myself, have engaged in intensive discussions to this end, I think that there remain a number of subjects requiring more in-depth discussion.

All too often after I first assumed the office of Chairperson, I held back when addressing executives, wary of weighing them down and hampering their ability to execute their duties. When a Board of Directors meeting has been convened to examine matters that are currently preoccupying executives—often items related to day-to-day banking operations—topics related to overarching strategies can easily get pushed aside. Moving forward, our discussions need to be looking ahead toward a future beyond the remaining two years of the MMP. Although discussions of this kind may place a lot of the burden of day-to-day operations on executives, I ask them to cooperate so that the Board of Directors can address overarching subjects more in depth.

I think the boards of directors at many companies are facing similar issues regarding the focus of their meetings. Unlike executive meetings, our meetings should emphasize a long-term perspective. This is of particular importance for the Board of Directors because we regularly need to enter into deliberations with an eye to the situation five to 10 years in the future. Moreover, it is essential to leverage a broad perspective. The role of Resona Holdings is to devise ways to realize “Beyond Finance,” an integral component of the Purpose. Accordingly, we need to discuss how to leverage the Group’s strengths and discover business opportunities in fields unfamiliar to it or areas beyond the framework of finance. These are exactly the subjects our Board of Directors is being called upon to address.

With Group banks about to expand into non-banking businesses, Resona Holdings’ role is to consolidate the Group’s overall capabilities in order to enhance corporate value. To this end, we need to determine what our business should look like in the future in the context of realizing “Beyond Finance” in line with the Purpose. In addition, we need to robustly discuss how to allocate management resources across the entire Group to promote business development.

As just mentioned, Resona Holdings should be taking a more clear-cut approach to developing long-term strategies. Although vigorous discussions have been undertaken to address these topics, even though the Board of Directors has determined general direction the Company should take, it has yet to clarify specific goals for the Group and pathways leading to such goals. These goals and pathways must be identified and confirmed by the Board of Directors and reassessed by it on, at minimum, an annual basis in light of the constantly evolving business environment. I also expect that through the confirmation and reassessment processes mentioned above, the Board of Directors could deliberate specific methods for achieving said goals and thereby contribute to the enhancement of the Group’s corporate value.

Over the past year on diverse occasions, I have seen a growing number of people contributing their opinions with regard to the roles to be taken by Resona Holdings’ Board of Directors. Such topics have also been discussed at sessions outside Board of Directors meetings attended by President Minami. I think that, since assuming the office of Chairperson, Director Ike has played a major role in facilitating this trend by sharing his views on issues the Group was confronting.

In addition, in April 2024, Kansai Mirai Financial Group was merged into Resona Holdings. This placed the four banks in parallel under the latter’s direct supervision. As a result, we have been prompted to shift our focus to discussions of how best to configure the Group’s mode of corporate governance and the role Resona Holdings should fulfill. We have yet to reach definitive conclusions and need to continue addressing these matters.

As mentioned by Director Yamauchi, we have yet to clearly identify ideals regarding what the Resona Group should look like. We must ensure that such ideals are robustly discussed at Resona Holdings, including by its executives. This is a major part of our duties as directors.

Having developed a full understanding of Resona’s unique historical background, speaking from my external viewpoint, I now believe that many Group employees are constrained by deep-seated psychological inhibitions amassed in the course of the Resona’s endeavors to complete the repayment of public funds, with the experience of laboring at this monumental task prompting them to keep plugging away until the goal is met. But now, they are expected to take on various challenges in line with the Purpose and the Long-Term Vision. Our mission as directors is, therefore, to help them steadily break free from this mindset.

No matter how much you build on it, the conventional business model will no longer suffice when striving to catch up with changes in society. We need to take a step forward toward a structural and drastic change. Of course, this change will not be accomplished overnight. We need to take a steadfast approach, achieving one small accomplishment after another.

I believe that we should increase the weighting placed on discussions regarding the strategic positioning of various measures now under way and new challenges we are about to take on. I expect that the Group could achieve fresh growth if outside directors were enabled to regularly discuss these matters among themselves and leverage their diverse expertise to this end.

When it comes to enhancing corporate value via the rebalancing of the Group’s business portfolio, appropriate engagement in risk-taking endeavors is imperative. In the aftermath of the injection of public funds, Resona had to be strongly focused on properly managing risks. Despite its unique background, for the Group to improve corporate value, it will be critically important for it to appropriately engage in risk-taking endeavors in light of the radically evolving business environment.

To date, I have offered my opinions regarding the need to develop various frameworks, such as a risk appetite framework, in order to optimize the allocation of management resources. Recently, executives began striving to reorganize and upgrade these frameworks in order to adapt to and accommodate changes. I expect their efforts to pay off. Of course, the Board of Directors needs to discuss how to fully utilize these frameworks going forward. In any case, the commencement of the above efforts can be considered one of the positive results arising from discussions led by Chairperson Ike, who has been acutely aware of various issues the Group is confronting.

In this regard, I feel that we have been moving in the right direction. The Board of Directors has reached a clear conclusion about reorganizing the differing modes of risk-taking endeavors used at various departments in the course of day-to-day operations, based on feedback from executives, looking to unify these modes as part of an overarching strategic planning framework. This suggests, I believe, that executives are acting, in a greater or lesser degree, on conclusions reached by the Board of Directors and opinions contributed by outside directors.

When it comes to governance functions afforded by the Board of Directors, it is important to strike a balance between the “defensive” and “offensive” aspects of governance. However, it is good for the Board to have launched discussions regarding “offensive” governance, transitioning away from the previous focus placed solely on discussions regarding “defensive” governance. At the same time, I feel the lack of my own experience in “offensive” governance and, therefore, need to raise my ability to handle topics in this area.

Although the Board of Directors is certainly moving in the right direction, it has yet to take a deeper look into risks arising from risk aversion. I feel that the Board has many things to deliberate going forward.

Looking at the Audit Committee, I believe that its members need to shift their thinking on how the Company should deal with risks. Risk management is absolutely necessary. However, reports submitted to a committee of this kind will naturally be focused on risk management. For them to properly discuss areas in which the Group should engage in risk-taking endeavors, committee members need to be more conscious of risks arising from risk aversion, just as Director Iwata commented, and address an even broader range of topics. Even in the course of deliberating “defensive” risk management, I would like to facilitate discussions regarding ideals for what the Resona brand should look like, a subject that goes beyond maintaining compliance. This will, I believe, enable committee members to shift their awareness of risk handling.

It is understandable that the Audit Committee tends to take a defensive approach. However, I expect the committee to provide executives with ideas related to “offensive” governance as part of its current engagement with the presidents of subsidiaries, including Group banks. I would urge the committee to do so as this will inspire all of them and, eventually, bring a fresh perspective to topics discussed at the Board of Directors.

Personally, I feel that the focus of discussions at the Board of Directors shifted in various ways over the course of the past two years. I expect Director Iwata to continue to take the lead in discussions by the Nominating Committee when it comes to enabling Resona Holdings to exercise robust governance over the entire Group and the structures that must be built to this end.

Thank you. I am excited to launch discussions regarding topics of this kind before the committee begins to examine the lineup of candidates for officers to be appointed in FY2025.

When I was serving as a Nominating Committee member, I participated in the assessment of each officer. I consider this assessment approach to be extremely beneficial as it enables outside directors to engage with a diverse range of officers, including those representing younger generations, in a way that transcends boundaries. I would also like Ms. Iwata to provide unfettered opinions in her capacity as an outside director in the course of this assessment in order to foster the shared sense of crisis among officers and help them develop an overarching vision for the future of the Group.

Today’s discussions helped me understand that fostering a shared awareness of consolidated management among all Group members is a task to be tackled by the Board as well as by each committee as they take on across-the-board initiatives to expand into new business fields. To facilitate this awareness, in 2023 the Compensation Committee updated compensation systems in place at each Group company by universally incorporating evaluation indicators relative to the Group’s consolidated performance.

On the back of this radically evolving society, we are beginning to see changes in the players in the financial industry. However, entering into fields completely unrelated to conventional banking businesses cannot be considered a realistic choice for the Resona Group. As outside directors, we must engage in ongoing discussions to help the Group identify promising business fields and areas where opportunities abound. Accordingly, our discussions going forward will be centered on topics related to fortifying the Group’s core strength in day-to-day banking operations while seeking out fresh opportunities. We should not only protect this strength but also reinforce it on many fronts.

Because SMEs constitute a supermajority in Japan’s business sector, I believe that, even though the Group itself is a private corporation, its efforts to deliver solutions to them can be considered a kind of public service. If the Group promotes its business model in this area and realizes its potential to the fullest, its corporate value will naturally increase as its role as a financial institution is fulfilled. Going forward, I would like to engage in robust discussions to enable the Group to further promote this business model.

I believe that the creation of value “Beyond Finance” will be a three-layered endeavor. The first layer consists of the further development of the Group’s existing businesses to create new value. This layer constitutes a vast majority. The second layer is the exploration of opportunities in finance-related fields where the Group’s presence is insignificant or even nonexistent. The third and last layer is the exploration of the Group’s possibilities in non-financial fields. However, I believe that none of us are positioned to offer a right answer regarding where to search for such possibilities. In any case, the Group needs to take on these challenging tasks in order to genuinely upgrade its business models while enabling employees to transform their mindset.

We directors are now developing a shared recognition of how the Group will deliver value “Beyond Finance,” even though our individual perception of this subject varied widely when the current management team was initiated. Going forward, I would like to facilitate ongoing discussions with regard to how to improve corporate value. I would also like to ask each committee chairperson to continue working with me to enable Resona Holdings’ Board of Directors to operate more effectively.