[Financial Results Board Meeting Season] Rethinking Governance for Social Welfare Corporations

Right now, social welfare corporations across the country are entering the season of financial results board meetings.

Approval of financial statements.
Business reports.
Auditor audits.
Convening the board of councilors.
And registration procedures.

For those involved in the management of social welfare corporations, this is likely one of the busiest times of the year.
It is certainly not the time to be posting on note (laughs).

However, precisely because it is this time of year, there is something I would like to reconsider.

Is our board of directors truly functioning as a board of directors?

The misconception that the person in charge is the 'Board Chair'

When talking about the management of social welfare corporations, it is not uncommon for discussions to be based on the premise that
'The Board Chair decides.'

However, the structure under the Social Welfare Act is not like that.
The highest decision-making body of a social welfare corporation is theBoard of Directors.

The 'Board Chair' is selected by theBoard of Directorsand is in a position to represent the corporation, but they are merely an entity that has been delegated a very small portion of authority by the board to execute business.

To put it extremely, the Board Chair is not the 'king' within the corporation.
If one were to dare to apply the term 'king,'
it is not the individual 'Board Chair,'
but the collective body known as the 'Board of Directors' that holds that position.

The board decides, and the board chair executes.
For certain matters, the board chair receives a delegation of authority from the board,
and within that scope, the board chair makes judgments and executes them.

Thinking of it this way, the board chair is not the ruler of the corporation, but the executive responsible for realizing the will of the board.
To use a slightly extreme metaphor, they might be closer to a 'butler' serving the 'king' that is the 'Board of Directors'.

That is how the original structure should be.
I am in the position of board chair, and that is precisely why I often think about this.

An organization where the board chair decides everything may look strong at first glance.
However, if it stops functioning the moment that board chair is gone, it is not a strong organization; it is simply dependent on a specific individual.

That is why I want to aim for an organization that runs even without a board chair.

What changed with the 2017 reform?

In the past, there were limits on the number of staff members who could serve as directors in social welfare corporations.
I believe the background to this was the idea of having mutual checks and balances within the board of directors.

However, the situation changed significantly with the 2017 social welfare corporation system reform.

The establishment of a board of councilors became mandatory for all corporations, and a mechanism was put in place to ensure governance at a layer separate from the board of directors.
As a result, the limit on the number of staff directors was abolished.

This is not just a simple institutional change.
I understand it as a shift in the center of gravity of governance.

Rather than attempting to ensure governance solely through checks by individual directors within the board,

• Board of Councilors

• Auditors

• Accounting Auditors, etc.

it is a shift in thinking toward guaranteeing governance through a structure of control among all bodies within the corporation, including these.

Are external directors truly functioning?

Let us reconsider this here.
What is expected of external directors?
Is it to supervise the board chair and other directors?

I do not think so.
That is fundamentally the role of the auditors.

Directors, whether external or internal, are in a position of responsibility for the corporation's decision-making.

But what is the reality?
Many external directors participate in board meetings with limited time while managing their own primary professions.

Considerable study and time are required to fully understand the systems, accounting, personnel, and facility operations unique to social welfare corporations.
Despite this, director compensation is by no means high.
In fact, it is often close to pro bono.

Of course, there are external directors who fulfill their duties with enthusiasm.
However, in the real world, very few people possess such high levels of expertise while also having that much spare time.

Therefore, when looking at the system as a whole,
"Governance is strengthened if external directors are appointed"
—I feel skeptical about this idea.

What is truly needed is not a title, but functionality, is it not?

Is practical ability not what is needed for the board of directors?

I believe that the board of directors is a place to discuss and decide on important matters for the corporation.

To that end,

• knowing the field,

• understanding finance,

• and understanding personnel matters are essential.

• Understanding the challenges of the business

is necessary.

That is why I believe it is highly significant for staff members with operational responsibilities to participate as board members.

At the very least,
"the board chair explains and other directors merely approve"
is less healthy than a board where
each member explains their area of responsibility, engages in discussion, and poses questions to one another.

The primary role of the board chair is to execute the decisions of the board.
Furthermore, if the discussions of other directors are skewed toward short-term perspectives or internal corporate viewpoints,
potentially leading to a decline in the interests of users or welfare services for the local community,
the chair should encourage corrections based on a long-term perspective.

I believe that is precisely the role of the board chair.

What is important is not whether they are external or internal.
It is whether the board of directors is functioning as the highest decision-making body.

Governance cannot be achieved by the board of directors alone.

Of course, simply composing the board with staff directors does not solve everything.

That is precisely why

• the board of councilors

• the auditors

• the accounting auditors

are important.

In particular, I believe that audits by certified public accountants should be actively utilized.

Accounting audits are not just about balancing numbers.
They are also an opportunity to inspect internal controls and the mechanisms of organizational management itself.

There are many situations where continuous audits by experts lead to more effective governance than simply adding one more external director.

I want to look at function, not form.

I do not mean to deny the value of external directors.
There are certainly corporations where external directors are active.

However,
"we are safe because we have external directors"
is a mindset I find uncomfortable, and if it is recognized that this is hindering the cultivation of a sense of ownership among the staff,
or rather, if it is recognized that this is failing to leverage staff growth, then perhaps it is time to reconsider appointing internal staff as executive directors instead of external directors.

Is the board of directors functioning?
Are the directors truly engaging in discussion?
Is the structure one where only the board chair knows everything?
And, would the organization continue to run if the board chair were no longer there?
Are you running the board meetings with only the board chair?

Aren't these the things we should be asking ourselves?

Now that we are in the season of financial results board meetings, I would like to take this opportunity to rethink the role of the board of directors.