Independent Outside Director Interview

Progress management of PMI has been the most critical issue for the Board of Directors since the business integration in March 2021. I have received reports on the overall progress of the PMI at the meetings of the Board of Directors and the Top Management Committee, where I attend as a full-time Audit and Supervisory Committee Member, and have discussed and confirmed the status of the PMI. I have also engaged in more in-depth reporting and discussions on strategic themes such as medium-term management plans and global expansion. Looking back on these past two years, however, we must admit that PMI has not progressed at the initially anticipated speed.

In part, this was due to the increasingly stringent public scrutiny of GAFAM and other digital platform operators, which required us to be more prudent in our business development. At the time of the business integration, we planned to allocate 70% of our efforts to “proactive” actions and 30% to “defensive” actions. Subsequently, the importance of data governance as a digital platform operator increased significantly, and we had to spend more effort on "defensive" actions than we had anticipated.

The basic policy of the said business integration was equality between LINE Corporation (“LINE”) and Yahoo Japan Corporation (“Yahoo Japan”). Thus, the two companies were positioned equally under Z Holdings Corporation, and this became an obstacle to swift business development. In the early days of the integration, this structure was based on the idea that it was important for the two companies with different histories and corporate cultures to deepen mutual understanding while capitalizing on the strengths of both companies. Indeed, I feel that over these two and a half years, both companies deepened the understanding of each other.

On the other hand, when making important decisions, it was necessary for each company to pass a resolution which had to be approved by Z Holdings Corporation. There were also two CEOs and two CTOs, which must have created some hesitance toward one another. These made swift decision-making and execution structurally difficult.

This structural issue drove the management to decide on a merger/reorganization of the Group’s five main companies, including Z Holdings Corporation, LINE, and Yahoo Japan. Under the new structure, I will monitor the Group so that it will meet the expectations of various stakeholders, including customers, business partners, society, and shareholders through synergy generations and prompt provision of attractive products and services as the business environment undergoes drastic changes.

After the integration with LINE in March 2021, the business environment was favorable until the first half of FY2021, with our earnings and share price remaining strong. However, the environment changed drastically at the end of the year. With share prices continuously declining for growth stocks, global IT giants such as GAFAM announced layoffs and other responses. Furthermore, Russia invaded Ukraine in February 2022, which had a significant negative impact on the global economy. These put a brake on the growth of the advertising market, resulting in sluggish earnings growth of LINE and Yahoo Japan, for which the advertising business is an important source of revenue.

These changes in the economic environment triggered intensive discussions by the executive directors from around autumn 2022. We, independent outside directors, received progress reports on the discussions, mainly at board meetings, and made inquiries and gave opinions to the executive directors as needed. We also discussed at the meetings of the Audit and Supervisory Committee, the Nominating and Remuneration Committee, and the Governance Committee, in addition to the board meetings.

Following these discussions, we concluded that the organizational structure should be made as simple as possible to increase the speed of business management and decided to abolish the Co-CEO system and clarify authority and responsibilities. Furthermore, if companies such as LINE and Yahoo Japan continued to exist as two separate companies, it would inevitably lead to differences in positions and barriers in awareness. Therefore, we decided to integrate the five main companies, including Z Holdings, LINE, and Yahoo Japan, into a single corporate entity and introduce a company structure for each product and service.

As the employees who used to belong to different companies become the employees of LY Corporation, and similar products and services come under the control of their respective product/service companies, we can expect an integration of knowledge and acceleration of decision-making. We also withdrew the JPY390.0 billion adjusted EBITDA target based on the judgment that it was unrealistic given the current business environment.

Previously, the Board of Directors of Z Holdings Corporation consisted of ten directors: three from LINE, three from Yahoo Japan, and four outside directors. At LY Corporation, launched in October 2023, we decided to reduce the number of directors to seven: four internal and three outside directors. This was also aimed at expediting decision-making and enhancing the execution capabilities of the management.

Although the Board of Directors has been streamlined, LY Corporation is a giant enterprise from inception as it is born from a merger of two leading IT companies in Japan. It is essential to strengthen organizational audits, mainly by the Audit and Supervisory Committee, to ensure thorough governance.

Since immediately after the business integration with LINE Corporation in 2021, the Company has been diligently working on strengthening and enhancing the Group's organizational audit system. This includes close collaboration between the full-time Audit and Supervisory Committee member of the Company and the full-time auditors of key Group subsidiaries, as well as enrichment of our internal audit framework. After the Group restructuring including mergers involving LINE Corporation and Yahoo Japan Corporation, the full-time auditors of both companies have remained as senior advisors to support the Audit and Supervisory Committee members after the restructuring. They also serve as corporate auditors for critical Group companies in areas such as finance and global operations. Furthermore, we have also appointed officers with experience in corporate administration, such as in the area of personnel, to serve as corporate auditors for Group companies with the aim of strengthening the audit system led by the Audit and Supervisory Committee members and corporate auditors of the Group.

Amidst this significant transformation brought about by the Group's restructuring, we are committed to enhancing the coordination between the Audit and Supervisory Committee members, corporate auditors, internal auditors, and accounting auditors to ensure the accurate execution of our Company's audits.

For the Company to achieve its FY2023 earnings targets amid a challenging business environment, we must carry out painful reforms, such as business consolidation. We have already decided to cancel the launch of LINE’s new bank and to withdraw from LINE Securities Corporation's securities business. For the top management to take the initiative in demonstrating their commitment to such severe reforms, the executive directors proposed to relinquish their stock-based remuneration for FY2023. Discussions were held at the Nominating and Remuneration Committee following this request.

Some said there was no need to reduce the FY2023 stock-based remuneration to zero, since the initial targets were achieved in FY2021, and a certain level of results were also delivered in FY2022 despite a challenging environment. However, we ultimately decided to respect the strong will of the executive directors to “discipline” themselves. At the same time, a resolution was passed at the Audit and Supervisory Committee not to grant restricted stock units for FY2023 to outside directors who are Audit and Supervisory Committee members in a show of will of the management to work together to accomplish the severe reforms.

The most important point of the board effectiveness assessment is whether the board can oversee the progress of PMI. This will remain unchanged for the time being, even after the launch of LY Corporation. As I mentioned at the beginning, it is crucial to continue examining matters such as “whether the overall progress of PMI and key issues of the time are included in the agenda” and “what kind of discussions were held on those issues and what decisions were made by the Board of Directors.”

Another essential matter is strengthening the dialogues with shareholders and investors as well as feedback to the Board of Directors. Since the business integration in 2021, we have announced various business plans. However, the actual progress of these plans were unclear to the shareholders and investors, except for the plans that have materialized. Hence, they were not reflected in the share price. You cannot build a relationship of trust with the capital market unless you make an effort to gain understanding through dialogues. It is also vital to give feedback of the voices and requests of stakeholders captured through the dialogues to the board and reflect them into business management. Thus, whether there is constructive communication with the capital market is also one of the key points of board effectiveness assessment.

The Company aims to achieve further significant growth through the Group reorganization. As independent outside director, my role is to contribute to LY Corporation’s sustainable growth and increase in corporate value by monitoring the Company’s business operations and offering advice and proposals from the perspectives of minority shareholders and the society. I will be dedicated to continuing to fulfill this role.

As Audit and Supervisory Committee member, I will continue to work to develop the Group’s organizational audit system. Whether in sports or corporate management, the defensive system must be strong in order to make bold and proactive moves. To enable the executive management to take proactive measures without any reserve, I intend to create a mechanism like a safety device that will prevent serious problems from arising and immediately sound an alarm when they occur.

Finally, I want to reiterate that I believe human resources are the most crucial assets of a company and that I place emphasis on whether all employees of the Group can remain motivated and enthusiastic. What I have felt over the past four years through my contact with various employees is that the employees of the Company are all very diligent and hard-working. I am a fan of the Company’s products and services, but more than that, I am attracted to its employees. I will work to make LY Corporation an even better company by maximizing the strengths of its human resources.