ROE management and the shift to US-style governance (2003)

The company that turned capital efficiency into a form of governance

The heart of this decision was that HOYA carried a management centred on capital efficiency beyond a slogan and all the way down into the form of its governance. In the mid-1990s, pressed on its low ROE by its own US operations, Tetsuo Suzuki moved into a selection-and-concentration of the business, and his successor Hiroshi Suzuki shifted the company to a committee-based structure in 2003, building a board on which outside directors held the majority. ROE as a numerical target, and governance as a mechanism for supervising management — treating the two as a single continuous thing is where this company’s character shows.

That said, a board with a majority of outside directors does not, in itself, guarantee results. Whether the mechanism works depends on the people seated on it and on the substance of the businesses it oversees. In HOYA’s case there was a high-share, high-margin business structure springing from optical glass, and the discipline of reallocating that capital by efficiency meshed with supervision by outside eyes. Japanese companies must change — to that question, which Hiroshi Suzuki repeated again and again, HOYA tried to answer by remodelling the vessel of governance first, and in that respect this decision was an almost too-early move among Japanese firms.