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Finance & Investment
How to Be a Company Society Requires for the Next 100 Years

This post has been translated from Japanese — read the original interview here.

This post has been translated from Japanese — read the original interview here.

“Unless we are a company which is needed by society, we cannot survive. Using our SDGs (Sustainable Development Goals) as a banner, systematically organizing what we have done and what we will be doing will lead to the next 100 years…” The Daiwa Securities Group — a Japanese investment bank and the second-largest securities brokerage — established its SDGs Promotion Committee in February this year; in May, it established its SDGs Promotion Office and made its ‘Passion for SDGs 2018: Daiwa Securities Group SDGs Declaration.

Masahiko Kawamura, Director and Chief researcher at Alterna Research Institute, talked with President Seiji Nakata, who will lead a series of movements and also serve as Chairman of the SDGs Promotion Committee.

With SDGs as the opportunity, we will think about our past and the future

Kawamura: This year, the Daiwa Securities Group is working more actively on the SDGs. Please tell me the background and your aims.

Nakata: Japan has various social issues, such as the declining birth rate and aging population, and the world as a whole also has various challenges to economic growth. One issue shared with the United States and emerging countries is the increasing polarisation of Japanese society.

In Japan, until recently the spread of such disparities was not clear, but in recent years children's poverty problems have been recognized. I was surprised and at the same time very shocked to learn that one in seven children in Japan is living in poverty. Looking to the future of Japan, I became aware of the issues and of the necessity to tackle them now. While I was thinking about this, in 2015 the United Nations adopted the concept of SDGs.

Since we established the Daiwa Securities Foundation in 1994, we have carried out SDG-type efforts such as supporting various good causes, or handling of IFFIm Vaccine Bonds in 2008, without explicitly using the term ‘SDGs.’ In addition, the corporate philosophy we created in 1998 includes the principle, ‘Contributing to Society.’ I realized that we had already been doing the sort of things that lead to SDGs.

Kawamura: When I read your SDGs Declaration in May, I thought that it was tightly constructed according to fit the characteristics and strengths of the financial industry.

Nakata: Yes, you are right. I became president in 2017, the 115th anniversary of the establishment of Daiwa Securities Group. Again, I thought about why it has lasted 115 years. If we were not needed by the world, the company would naturally have been culled. When looking at the future 50-100 years, we cannot survive unless we are needed by society.

So, using SDGs as a banner, I thought that by systematically reflecting on what Daiwa has done, and sorting out what we ought to be doing, will lead to our next 30, 50 and 100 years.

I also had another opportunity to face the SDGs from the front. In our Employees' Union, the younger employees are the main organisers. Last year, when the union ran a questionnaire on members’ interests in society, SDGs emerged in the top position. I think that the current young generation is more conscious of social contributions than previous generations.

Finance, technology and local regeneration

Kawamura: Is there anything you as the President would like proactively to pursue to achieve SDGs?

Nakata: As a securities company, we believe that we should select from the SDGs’ 17 goals those to which we are best suited. These are goals with which we can resonate both directly and indirectly through our core business. For instance, water bonds or green bonds can be realised directly through our core business.

Kawamura: That is, to create a business model that can positively influence and contribute to society.

Nakata: In considering our company's efforts towards our SDGs, we defined three themes: ‘Finance,’ ‘Technology’ and ’Local Regeneration.’ The first, ‘Finance,’ influences our securities business both directly and indirectly.

In the fourth industrial revolution, ‘Technology’ is producing innovations such as AI and FinTech. FinTech in particular is greatly influencing the way we carry out our securities business.

Through FinTech, it is possible to create new economic value by constructing a way of finance, or a new financial structure. It is providing financial services that have never existed before. I believe that we can create a variety of new business models that were not previously possible within the securities industry, and which contribute more to society.

Then there is ‘Local Regeneration.’ The Daiwa Securities Group has branch offices in all prefectures; some of these offices are more than 100 years old. The reason for their longevity is that they coexist with the local economy and the community.

Kawamura: Local regeneration is Japan's biggest challenge over the medium to long term.

Nakata: Until now, we have focused on rich people in rural areas and those who want to operate securities. However, from now on, I would like to contribute to the local economy as much as possible through sponsoring and employee participation in events organised by local people.

As a part of this initiative, since last year we have been supporting the National Sports Festival, a major event in rural areas. This year, we are supporting the 73th National Sports Festival and the 18th National Sports Festival for People with Disabilities, hosted by Fukui prefecture. We will continue to participate in other events that revitalize the provinces.

Child poverty

Kawamura: You have started to address the problem of children's poverty as well. Why?

Nakata: A securities company is also a symbol of the capitalist economy. We generate profits as the benefits of the capitalist economy. On the other hand, the capitalist economy and the market economy can create disparities.

I do not think all of Japan's poverty problems arise from this disparity, but it is part of it. Therefore, spending our profits to tackle the poverty problem caused by the disparity is one way to return wealth to society.

In September 2017, we decided to donate a total of about ¥100 million over five years through the public interest incorporated foundation, Public Resource Foundation. While consulting with the Foundation, in the first round we chose three organizations and gave them ¥3 million each. From now on, we plan to continue with new kinds of efforts.

Kawamura: CSR, CSV and SDGs are considerations of long-term corporate value. Do you agree with ‘backcasting’ — deriving what to do now from thinking about how it should be in the future?

Nakata: The Daiwa Securities Group operates on a three-year, medium-term management plan. This may sound like short term-ism, but our company is obliged to operate in this way because we are a market-based business.

However, the medium-term management plan announced in May this year includes a perspective on what to do in the next three years, looking at what we expect six years after. The medium-term management plan plays an important role in conveying to our employees the direction and vision to which the company is aiming.

Kawamura: The medium-term management plan is to clarify what you want to be. There is an idea of ‘integrated thinking’ that combines financial elements and non-financial elements. What are your thoughts on this?

Nakata: It is mostly non-financial elements that form the financial value. Since securities companies are not producing things, the quality of human resources or the way of thinking is our foundation, and as a result it will create financial value.

I have been explicitly telling my company that ‘Quality is No. 1’ since I became President. I say that quality, which is hard to measure quantifiably, will lead to our financial value in the future.

Customer-oriented KPIs are top of the list

Nakata: For the first time this year, we adopted Customer-oriented KPI as a group numerical target. Our top three KPI are Financial KPI, Performance KPI and Customer-oriented KPI. Since the idea of fiduciary duty became widespread, I totally agree with the FSA, which is trying to evolve customer-oriented business operations to be at the forefront.

Customer-oriented business will become sustainability initiatives at the end. Coexisting with society, it will surely lead to the sustainability and economic value of the Daiwa Securities Group itself. Internally, the employee satisfaction survey has been adopted as its monitoring indicator. Unless employees are satisfied with the company, we cannot provide products and services that satisfy our customers.

Kawamura: Although we have had trustee responsibility in investment in the narrow term, we do not hear the expression Customer-oriented KPI.

Nakata: We also introduced the ‘Daiwa NPS (Net Promoter Score®)’ to measure customer satisfaction. We measure customer satisfaction by using simple questions such as: ‘On a scale of 0–10, how likely is it that you would recommend this company to a friend or colleague?’

For the best result, this effort cannot be rushed, so we set up the NPS® introduction period to take one year. 14-15 of the 117 branches will execute the NPS for about one-and-a-half months at a time. We asked each branch to discuss how they will roll it out within the allocated time. We have appointed nearly 40 full-time staff specifically for this project. It will take one year for all the branches to complete their preparation, and we will roll this out around the next fiscal year.

Kawamura: I think you are taking quite an aggressive approach as a Japanese financial institution. I look forward to seeing the results.