SustainabilityDialogue between Outside Directors

Remain resolute in the decision to contribute to the development of
a circular society

Furuichi: Daicel has included a great theme in its Long-Term Vision, “Contribute to the development of a circular society.” Few companies have a broad perspective to proudly set such a lofty goal. I think Daicel’s corporate culture is evident in its strong will and decisiveness to face head-on the establishment of a circular society. I also find it remarkable that it is implementing organizational reforms, co-creation with outside partners, and various strategies to achieve this goal.

Asano: As one of its measures, Daicel has elaborated the “Biomass Value Chain concept” to achieve carbon neutrality. I was impressed with the broad concept of a comprehensive cycle that covers not only forestry but also the agriculture and fishing industries. At the same time, aiming at its realization, Daicel has been steadily making efforts to innovate through scientific methods in cooperation with Kanazawa University and Kyoto University. This open innovation relies not only on the Company’s internal resources but also on proactive collaboration with external partners. I believe this shows that the concept is down to earth. Daicel is putting into practice its basic philosophy, “co-creating value.”

Furuichi: Japanese companies tend to stick to closed innovation and consider what they can do based on their own products. On the contrary, Daicel focuses on what society needs. Daicel is confident in co-creation with its partners and clearly explains how to cover its shortcomings. I can see this assures that its concept, or strategy, is down to earth, as you have said. The chemical industry uses reactions between different substances to create new value. Likewise, I hope Daicel works with more and more collaborators through open innovations to enable this to happen.

Asano: In addition, the Mid-Term Management Strategy is highly rational in that it clearly distinguishes business units to be expanded through active investment and ones to be reformed with the option of withdrawal in mind. Making such a clear distinction is usually hard for a manufacturer, but Daicel did it as a result of discussions involving top management, middle management, and even lower levels.

Furuichi: Presenting the portfolio categories with no ambiguity but with a clear message also helps investors. It also helps employees in each business unit, as the clear positioning of their business unit tells them in which direction they should go and allows them to respond to, and prepare for, various possibilities. I thought it was an intelligent way to put forth a business strategy. Now the question is how to carry it out.

Asano: To expand the business in a competitive environment, it is necessary to make ambitious investments with a long-term vision. It also requires collective corporate strength, including research and development, and intellectual property. I see Daicel undertaking with full force and speed the initiatives outlined in its roadmap and the specific measures in each business unit, so I have very high expectations for the Company. I also appreciate the Company’s efforts over the past two years to withdraw from defense-related businesses and reconstruct its inflator business without wasting any time.

An extraordinary chemical manufacturer with solid chemical and
assembly capabilities

Furuichi: Another characteristic of Daicel is that, even when it withdraws from a business, it retains and utilizes the technologies it has developed in that business unit in some way or another. Pyrotechnics, initially a key technology of defense-related business, has been utilized as safety technology for airbags. And now, it leads to new products such as a pyro-fuse for electric vehicles, and Actranza™ lab., a needle-less injector. Daicel’s core technology has been successfully inherited and used to create the next generation of products. I expect that Daicel’s future open innovations will further expand its interaction with people outside the Company and generate new value using the technologies it has been cultivating.

Asano: I agree. I am in the same chemical industry, but even so, I do not consider Daicel an ordinary chemical manufacturer. I think the Company’s core strength is that it has established a globally strong position in producing a series of derivatives from acetic acid, such as acetyl chemicals and cellulose acetate. No other manufacturer in the Japanese chemical industry has such a distinctive chain. The fact that Daicel has had this chain for many years proves that it has been making each of its products to meet social demand. I believe that the accumulation of technologies is one of its strengths. Another strength is that Daicel is good at assembly, such as inflators. This impression became even firmer when I visited the plant. The inflator business cannot be operated only with pyrotechnics. I am sure that Daicel had a hard time commercializing it, but today, it is a major global player in the inflator business.The core technology of Actranza™ lab. is also pyrotechnics, but I think it was Daicel’s assembly technology that made the product possible.

Furuichi: Not only does Daicel develop materials and technologies as a chemical manufacturer, but it also creates devices for their use.

Human-centered management that enables the employees and
the Company to grow together

Asano: Chemical manufacturers, including Daicel, launch one new business after another, but most are downsized or discontinued within a few decades. Consequently, the chemical industry has a history of continuous restructuring. Therefore, chemical manufacturers cannot stay in business without truly valuing people. Daicel is committed to human-centered management. It does not lay off employees from a discontinued business, but rather seeks their agreement on moving to another business so that they can continue to play active parts in Daicel. This is only possible through its management that sincerely cherishes its people. In the chemical industry, companies highly value persons who were in charge of, or involved in a discontinued business as they have faced various challenges . For this reason, Daicel’s human-centered management is a critical stance. I would like the Company to follow it to the letter.

Furuichi: One may likely assume that chemical companies are centered around not humans but technology. Especially since Daicel has developed the DAICEL Production Innovation and the AI-based Autonomous Production System, people may understand these phrases superficially and literally and have the impression that machines are replacing humans. Some may feel it contradictory for such a company to claim that its management is human-centered. However, considering the background that you explained, it became clear to me that, after all, Daicel values people.

Board meeting facilitates lively discussions

Asano: I would like to mention governance. At Daicel’s board meetings, all attendees have frank discussions. I clearly perceive the management’s initiative to draw out the opinions of us, outside directors. Furthermore, the number of outside directors, including women, is significant. I believe the effectiveness of the Board of Directors is high.

Furuichi: That is correct. I was told beforehand that Daicel has a good culture in which everyone in the Company engages in lively discussions. Once a decision is made, they are determined to carry it out. I can see that this culture is manifest also in the board meetings.

Asano：We hope that Daicel maintains such an excellent corporate culture, not only in the board meetings.

Risk taking and risk control

Asano: The principal role of Daicel’s Board of Directors is monitoring. Our role as outside directors is to see how management takes risks, invests in growth, and controls the risks within those investments. Daicel has adopted ROIC as a management indicator. ROIC results from the business decisions made and conducted in the past. Thus, it is important to sharpen management decisions to improve ROIC in three to five years. It is critical to make decisions and develop strategies today with an eye on three, five, and even ten years from now. Existing business will shrink sooner or later, so it is always indispensable to take risks and create new business. From my perspective as a peer, Daicel is a sound risk taker that undertakes new business within the limits of controllable risks. The most recent example of its risk taking is the acquisition of Polyplastics Co., Ltd. as its wholly owned subsidiary. It was amazing that Daicel planned and accomplished such a significant investment promptly without missing the opportunity. The effects of this investment are already visible in the business results. I am looking forward to its future development.

Furuichi: Generally, Japanese companies step on the brakes too much, so I often suggest they take more risks. However, Daicel is taking risks confidently. I will keep a close eye on how each of its businesses is positioned in the overall portfolio, what kind of risk it will take and how much return it will target in five or ten years. Some risks are country risks, such as a Taiwan Contingency or a Nankai Trough earthquake. Management must consider the impact and whether the company’s current capital will suffice. If such a risk is unbearable, they should increase capital slightly or drop higher-risk areas. They should examine the business portfolio in terms of whether they can protect the company in the event of an emergency. It would be too late to act after a contingency occurs. On the contrary, it will be an opportunity if the company is prepared.

Asano: I also believe it better to consider country risks, even though it is impossible to be fully prepared for them.

Corporate value of chemical manufacturers

Furuichi: As I became an outside director of Daicel and became more familiar with its business, I began to wonder if the corporate value of BtoB companies, particularly that of all chemical manufacturers, is fully appreciated. For many people, chemistry is probably difficult to understand. Therefore, I find it necessary to make more effort to communicate its value to the world, in addition to numerical disclosure.

Asano: Although most of the products around us, including smartphones, use materials from chemical manufacturers, it is certainly not well known to ordinary people. I personally believe it is essential to explain it to the employees. In turn, they will tell their families about their company. Then their families will be interested in chemistry.

Furuichi: I agree. We also want students and children to be more curious about chemistry. Certainly, it is important for a chemical manufacturer to benefit society through its products. Still, it is also expected to do that by conveying the attraction and potential of chemistry to the next generation and raising them to be responsible for the future. Daicel has already started such activities. For example, it sends its chemical technicians to schools near plants to teach chemistry. I hope the Company expands these efforts further to develop chemistry-minded human resources with high aspirations to stop global warming.

Asano: I believe chemistry can significantly contribute to building a sustainable society. In recent years, there has been a growing interest in ESG and SDGs, especially in the financial industry. I sense that this is a favorable trend for the chemical industry. As long as this world is in search of invention, discovery, or innovation, the power of chemistry will always be required in that process.