Conversation Between Outside Directors

In fiscal 2017, JGC returned to profit after a net loss in the previous fiscal year. There are also emerging signs of a recovery in the plant facility market.
Against that backdrop, outside directors Shigeru Endo and Masayuki Matsushima evaluate JGC's business results and corporate governance in the past year and discuss issues that need to be tackled to ensure sustained growth.

In June 2017, Tadashi Ishizuka was appointed President and COO with the key mission of turning round the EPC business. Since then, the Company has implemented a range of measures to achieve that goal. How well has JGC done in the past year?

It was a solid first year for the new President. His focus on tighter management bodes well for the future.

Endo
In the year since he was appointed President to tackle JGC's losses in fiscal 2016, Tadashi Ishizuka has made steady progress, announcing a string of concrete initiatives to address issues that caused the losses. The Company has also moved quickly to implement those initiatives. That helped JGC move back into profit in fiscal 2017.
Amid a recovery in the plant facility market, JGC secured an order for a major LNG plant in Canada in early fiscal 2018. In the last year, Mr. Ishizuka has also been focusing on tighter project management, which is extremely important for JGC right now. Signs of that approach are already appearing, but I hope to see even clearer evidence of tighter management in the project implementation process and in project outcomes.
Matsu-
shima

I'm sure Mr. Ishizuka faced plenty of challenges in his first year as President, but I think he has made a good start. Positive signs started to emerge in fiscal 2017 results, but I expect to see even clearer signs as the Company pushes ahead with his initiatives.
JGC has decided to refocus its energies on its core EPC business. In line with that policy, assets accumulated through business investments, which had become an area of concern, have been streamlined, and the Group's structure and thinking is increasingly EPC-oriented. That process has only just begun, but I think Mr. Ishizuka has made a very strong start in his first year.

What is your view on the new tighter approach to project management, and are there any comments by Mr. Ishizuka during board meetings that left a strong impression?

Mr. Ishizuka is a man of action. He is focusing on restoring JGC's earnings capabilities and technical skills.

Endo

I understand that Mr. Ishizuka has been talking to many mid-career and younger employees as part of his efforts to change JGC's approach.
He's held face-to-face meetings with around 400 employees, providing an excellent opportunity to communicate his strategy and talking directly to employees. That personal approach speaks volumes about Mr. Ishizuka's character.
My long-held view is that JGC needs to increase its earnings capabilities. From that perspective, I give high marks to Mr. Ishizuka for the way he has been personally approaching clients to highlight JGC's technical superiority in the plant facility market. When a new project order was reported to the board, I asked Mr. Ishizuka why the client selected JGC. His answer was very clear - technical skills and expertise made all the difference. The way he has been encouraging JGC to emphasize its technical strengths to increase earnings capabilities left a strong impression on me.

Matsu-
shima
After listening to Mr. Ishizuka's remarks at board meetings, my overriding impression is that he's a man of action - somebody who backs up his words with meaningful actions. That type of strong leadership is also having a positive impact on employees working around him.
In meetings with project leaders, he often asks them where the risk is in their projects and what they are doing to manage that risk. With the recent major LNG plant order in Canada, it's very clear to me that Mr. Ishizuka is doing everything in his power to make sure we don't take our eye off the ball and complete the project successfully.
He is adept at seeing to the heart of any issue, which helps him develop and implement measures in the right sequence and timing to solve any problems. In fiscal 2017, JGC focused first on rebuilding the Group's earnings capabilities. In the next two years, I hope we can build on that progress and address longer-term issues, such as improving personnel training and reinforcing our technical skills.

Over the last year, JGC steadily strengthened corporate governance to support the Group's sustained growth and development. What is your take on those efforts?

JGC has taken some pragmatic steps to improve corporate governance.

Endo
JGC, like many companies, is strengthening corporate governance as a natural part of supporting sustained growth and increasing corporate value. I support the various steps JGC is taking to make the Board of Directors more effective, as well as broader efforts to upgrade corporate governance on an ongoing basis.
Meanwhile, to remain a truly global company, JGC also has to focus on creating a business model that can address the needs of emerging economies, such as tackling environmental issues and transferring technologies, given rising international interest in ESG and the sustainable development goals (SDGs).
Those are areas where we can leverage our strengths as an engineering company and play a meaningful role by providing value to society.
Matsu-
shima
JGC made some good improvements to corporate governance in fiscal 2017, such as enhancing reporting to the Board of Directors and giving outside directors and outside auditors more opportunities to observe EPC projects overseas. The role of outside directors is to provide oversight and advice to the board from an outside perspective. However, I think we should be involved more in tackling the Group's longer-term challenges, which would contribute to JGC's corporate value, rather than focusing on short-term management issues. I hope more proposals related to the Group's long-term strategic direction and vision are referred to the board so that outside directors can also play a part in the discussions.

Please tell us about your visit to the Ichthys LNG Project construction site in Australia in fiscal 2017.

The scale of the construction site and plant facilities is incredible.

Endo
In short, the visit was inspiring. Motivation was high among onsite staff, with young JGC employees doing an excellent job of running large morning meetings involving many site workers. In Darwin, workers are responsible for connecting modules made by yards in China, Thailand and other countries to tolerances of 1 millimeter. Seeing the high level of sophistication and skills with my own eyes was a revelation.
Matsu-
shima
I was amazed by the scale of the construction site and plant facilities. When we met JGC's onsite project team leader, he was working extremely hard to complete the facilities while keeping on top of numerous elements of the project. The team leader's role is to generate profits from the project by responding to any unexpected event and managing numerous resources, including the assets of equipment manufacturers and subcontractors. Seeing first-hand the challenges that staff face onsite brought home to me the complexity and social significance of JGC's EPC business.
JGC's outside directors and outside auditors attend a project briefing by onsite staff

The EPC market is picking up again amid signs of a recovery in capital investment by state-run oil companies and oil majors. Against that backdrop, what issues does JGC need to address to maintain growth over the medium and long term?

We need resilience and business acumen to sustain long-term growth.

Endo
We live in uncertain times. When we look back on 2018, I think we will see it as only the first step on the road to recovery.
To remain competitive amid widespread uncertainty in the international community, we have to make our organization more resilient. We will no doubt make mistakes or take a tumble, but we have to strengthen our ability to bounce back and recover from any setbacks by improving our project management skills, technical expertise and workforce skills. Increasing the resilience of our employees is vital to strengthening our workforce.
Advances in AI and IoT are not only changing the way we work, but also raising questions about what it means to be a true professional in our industry. These are questions that we need to seriously consider as a company.
Matsu-
shima
As a company active in the global market, we need to raise our game in two key areas. The first is business acumen. To reliably deliver projects in today's highly uncertain and fluid international business environment, we have to do more than simply avoid risk. JGC needs to improve its business acumen to understand country risk and a whole host of other risks. That means carefully analyzing what type of risks our business faces and where those risks are likely to come from as part of the risk management process.
The second is multifaceted thinking. Today's world maps are largely based on the 16th century Mercator projection, but looking at the world using satellite imagery and other modern viewpoints shows more clearly that around 70 % of the earth's surface is covered by ocean. That hints at the opportunities in the offshore space - a potentially vast market for JGC. And just as our concept of time in Japan differs to the way it is perceived in other countries and regions, there are contrasting viewpoints in the plant sector about the outlook for the oil and gas sector. Some say the oil and gas era is over, while others say there are still major opportunities for growth, spurred by rising demand for natural gas. In short, JGC has to be less myopic - and I include myself in that - and use a multifaceted approach to tackle issues in its business.
Endo
JGC is anchored by a workforce of highly capable people. They are our greatest strength.
The plant facility market is on track for recovery, but we have to consistently put the highest priority on training personnel, whatever the conditions in the market. As an outside director, I plan to make my views clear on how JGC should improve the mindset and actions of its employees.
Matsu-
shima
I believe one of my jobs as an outside director is to give JGC's executives and employees a fresh perspective by introducing different opinions from outside the company. Most of all, I intend to actively give advice to the board about how I think JGC should sustain growth over the medium and long term.