Interview with Outside Directors

Moving away from l conventional Board of Directors to substantive discussions

FUMA : To ensure the company's sustainable growth and earn the trust of stakeholders, the Corporate Governance Code requires that the Board of Directors perform its functions to the fullest. ZOZO has strengthened its governance structure in recent years. What changes have you seen in the Board of Directors?

UTSUNOMIYA : I am a lawyer by profession and have served as an Outside Audit and Supervisory Board member (part-time) of ZOZO since 2012, and was appointed as an Outside Director, Audit and Supervisory Committee member at the 25th Ordinary General Meeting of Shareholders (held in June 2023).

In the past, board meetings were more of a conventional resolution rather than an in-depth discussion of strategy. However the meetings are more open and open, with both Directors and Outside Directors freely expressing their opinions from their respective standpoints today.

As an outside director, I am in a position where I must also have the perspectives of investors and society. Since I have been involved with ZOZO for a long time, I myself am attached to the company and its staff, but that is why I must also express my harsh opinions. As a lawyer, it is natural to avoid legal risks, but I recognize that my role is to notice points that might be overlooked in internal discussions alone and make recommendations to the company.

KANSAI : It has been a year since I assumed the position of Outside Director in June 2023, and I have realized the discussions are very active.

Based on my own experience as an engineer and manager, I try to be objective in my comments from the perspective of the quality of the service itself, why the service is being launched, and what impact it will ultimately have on users.

After the regular monthly Board of Directors, there is a "Strategy Review Meeting" where directors discuss corporate operations for about an hour. Outside directors can also propose topics for discussion, which range from governance and marketing to the SDGs.

I had always been a heavy user of "ZOZOTOWN" and had long felt ZOZO's strong commitment and culture that is embedded in the service. Since assuming the position of outside director, that feeling has become even stronger.

On the other hand, if we love our existing services and organizations too much, it will be difficult to innovate and we may end up shrinking. Diverse perspectives and lively discussions are essential to bring about change, and I try to be proactive in speaking up.

FUMA : Innovation is also important for the sustainable growth of a company. I am involved with ZOZO as a sustainability advisor, and I also serve as an outside director for several companies. A decade ago, board meetings generally consisted of a casual go through of the agenda, followed by a show of hands at the end of the meeting. I feel the will to make better management decisions through a lively exchange of opinions, rather than a conventional meeting.

Diversity on the Board of Directors Makes the Organization Stronger

FUMA : The Corporate Governance Code also calls for diversity in the fulfillment of the responsibilities of the Board of Directors, and ZOZO had one female director and four female outside directors appointed at the General Meeting of Shareholders in June 2023, bringing the percentage of female directors to 45.5% (5 out of 11).

UTSUNOMIYA : I feel that the diversity of the Board of Directors has allowed for a variety of opinions to be expressed and discussions to deepen.

For example, I was aware that I was one of the few female board members, so I sometimes expressed my opinions about services as a user, even though it was outside my area of expertise, but I was not aware of the specific impact of the lack of women on the board. However, as the number of women on the Board of Directors increased, I realized that there are several people who have similar opinions, and I feel that my opinions are now being reflected not merely from my own perspective, but from women's perspective.

KANSAI : I myself was not particularly conscious of being a woman, but considering that 70% of "ZOZOTOWN" users are women, I think it is natural to have women in the places where services are developed and management policies are decided.

People who like cosmetics want to "try different products before deciding" and "compare colors" before buying. Understanding such psychology and behavior is also important in service development and marketing.

UTSUNOMIYA : I believe that the organization and governance have been strengthened not only by gender diversity, but also by the fact that we have more directors with diverse skills and expertise in e-commerce, marketing, sustainability, and other areas.

While I speak as a legal expert, I used to sometimes wonder how much I should go into matters outside my area of expertise. Now that we have directors who are experts in their respective fields, we are able to have more specific and constructive discussions.

Improvements based on evaluation of board effectiveness

FUMA : Are there any challenges in strengthening governance. Is access to internal information sufficient for participation in Board of Directors and Management Meetings?

KANSAI : At the beginning of my tenure, there was little onboarding (training for new members to the organization), so there were some things I did not understand, such as basic knowledge and internal terminology.

Now it has improved, and in addition to onboarding, I have been invited to meetings on the executive side, I have been given a tour of the logistics center "ZOZOBASE", and have had many opportunities to learn more about ZOZO.

I can browse internal communication tools, including a channel on the company's SNS where employees send each other messages of gratitude for their daily work, and I feel a culture of mutual praise and a corporate culture that allows free discussion.

If there is an issue, it would be even better if there is an opportunity to share the progress of what was discussed at the Board of Directors and what the final results are.

UTSUNOMIYA : Questionnaires and hearings of Board of Directors effectiveness evaluation show that the board is making good improvements on what I have told them.

For example, I once suggested that there might be some topics that should be fixed points of discussion, such as governance structure and investor perspectives. Subsequently, such an agenda was established at a meeting of directors, allowing for more substantive discussions.

FUMA : ZOZO became a consolidated subsidiary of LY Corporation (formerly Z Holdings Corporation) in 2019, but remains listed. In parent-subsidiary listings, there are concerns about conflicts of interest between major shareholders and minority shareholders.

UTSUNOMIYA : With regard to the protection of minority shareholders, ZOZO has established "Rules for Maintaining Fairness in Transactions with the Parent Company's Group" and operates in accordance with these rules.

I believe this acquisition has resulted in a synergistic effect: ZOZO began operating "ZOZOTOWN" in 2004 and has grown the business on its own. It is a so-called "A self-made" organization.

On the other hand, ZOZO became a group company of LY Corporation, and two powerful people, Mr. KAWABE Kentaro (*1), who was the representative of Z Holdings Corporation at that time and has extensive experience in management and the Internet service industry, and Mr. OZAWA Takao (*2), who has extensive experience in launching new businesses and acquiring companies, became ZOZO's directors., both of whom have extensive management and Internet service industry experience, and Mr. Takao Ozawa,who has extensive experience in new business startups and acquisitions.

(*1) June 2023: Retired as director of ZOZO, Inc.
(*2) June 2024: Retired as director of ZOZO, Inc.

Break out of the norm and innovate

FUMA : For ZOZO to grow sustainably, I believe it is becoming increasingly important to manage the company from a medium to long term perspective.

UTSUNOMIYA : We recently had a meeting to discuss the future of ZOZO, and even among the three internal directors, the future vision they envisioned was not exactly the same, although there were overlapping areas. I think it is the role of the Board of Directors to present a vision for ZOZO's future, while incorporating the diverse knowledge of the outside directors.

KANSAI : Considering the future of ZOZO, as someone who thinks from the user's perspective, I would like to see ZOZO place importance on dialogue with its users.

While there is a facility where users can be heard directly, such as "niaulab by ZOZO", the ultimate personalized-styling service in Omotesando, Tokyo, ZOZO's users are located not only in urban areas but also in many rural areas. Data also show that products in the affordable price range are selling well.

We feel that we need to gain a deeper understanding of the overall lifestyle of our main users, such as what they need help with in their daily lives, what kind of time schedule they live on, and what criteria they use to choose products.

With regard to the compensation system for Board of Directors, we believe that it is not only performance-linked but also incorporates ESG factors, making it easier to manage the company from a medium to long term perspective.

FUMA : Materiality identification is the process of taking a bird's-eye view of the long-term themes that are important to a company. By taking a long-term perspective, not only on immediate management issues, it becomes possible to boldly invest management resources in innovation.

KANSAI : Repeatedly improving an existing business will not lead to significant growth. Somewhere along the line, we need to step outside the box.

For example, LY Corporation invested heavily to enter the e-money business and launched "PayPay", a cashless payment service. This decision has supported the current growth of LY Corporation.

ZOZO also needs to create disruptive innovations that break with conventional wisdom.

ZOZO has many talented employees. I would like to contribute to the creation of an environment and structure that will enable them to pour their talents and passion into creating new businesses.

FUMA : So far, our discussion has focused on offensive governance, but defensive governance, such as risk management and compliance, is also important. It is important to be willing to take risks and take on challenges, but at the same time, it is necessary to identify critical risks and consider countermeasures.

UTSUNOMIYA : Risk management and compliance have been regularly discussed at the Board of Directors. Even if it is not on the agenda, if we ask a question, we receive an answer, and the status of the response is always shared with us.

The Audit and Supervisory Committee also checks every detail. With the participation of new members, we have been able to point out more issues from new perspectives, and I feel that our system has been further strengthened.

KANSAI : ZOZO has a large number of users, so we must always be aware of the fact that we are an easy target for cyber attacks. At management meetings, we also check KPIs related to system failures, and I feel that we have a high awareness of crisis management.

FUMA : Listening to you two, I got the impression that ZOZO's Board of Directors and Management Meetings are open for discussion. There is also a sense of speed with which opinions and suggestions from outside directors are taken seriously and improvements are made.

In order for ZOZO to grow further in the future, it is important to deepen discussions with a medium to long　term perspective, including outside directors. Many stakeholders have high expectations for ZOZO's future. Of course, I want to see growth in existing businesses, but I also want ZOZO to show us what kind of future it intends to envision.

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