September 27, 2007,08:50 +0900(JST) View from the President’s Office (1)

My main office is located in the Head Office building in Osaka. I want to tell you today about the view from the window of my office.

I have another office in the Tokyo Head Office. I spend a lot of time there, too, so I may be able to tell you some other time about the view I get there.

Now, the Head Office in Osaka is in Yodoyabashi, in the Sumitomo Building, which was built in 1962. The building is adjacent to the Tosabori River, which means that I can enjoy quite a beautiful landscape by glancing out of my window every now and then when I pause from my work.

Site of Yodoya’s mansionThe Yodoyabashi area is named after “Yodoya,” the business concern that was built up in the early 17th century by Jo-an Okamoto, who became Japan’s most successful merchant by trading in timber and rice at the time. His successor, Gento built a bridge, which came to be known as Yodoya-bashi (“bashi” means a bridge in Japanese), for the convenience of those who came to the rice market.

If you think about it, it’s wonderful that such a bridge still remains in Osaka, a 400-year old heritage for posterity, a structure that was created out of a concept of harmony with the local community, a concept known today as CSR.

The Yodoya business was liquidated by the Tokugawa government in the early 18th century because of the dissipate lifestyle of the fifth proprietor. Later, Yodoya’s former top manager started up the business again but at the end of the Edo Period (the middle of 19th century), he sold everything and disappeared. There is an unproven theory that this was what provided the financial backing for the anti-government movement that brought about the Meiji Restoration. Whatever the truth may be, Sumitomo bought the land around this area after the Meiji Emperor came on the throne.

I can look out my window and cast my thoughts on the wealthy merchant who left his name on the bridge and the small street called Yodoya-koji positioned south from there. This is quite a special experience.

Bank of Japan (left) and Osaka City Hall (right)To the right stands Osaka City Hall. Behind it spreads Nakanoshima Park. Although I can’t see them from here, the Central Public Hall, the Osaka Prefectural Nakanoshima Library and the Museum of Oriental Ceramics, Osaka are within a stone’s throw. I told you before that the Ataka Collection at the Museum of Oriental Ceramics, Osaka was donated by the Sumitomo Group. The Nakanoshima Library was also built around 1910 with donations received from the Sumitomo family.

There is a large copper plaque hung in the Central Hall of the Library. It bears a message of congratulations at the opening of the building, written by Kichizaemon Sumitomo (the 15th head of the family business.)

It quotes, “…Those who enter this building should look up and think of the prosperity of the nation, look down and study carefully the wealth of the prefecture, culture themselves, nurture themselves, encounter different theories and make ever-increasing achievements in the future…”

I would like all those who work for Sumitomo to bow their heads and solemnly engrave these words in their mind.

September 25, 2007,08:42 +0900(JST) IR in Europe (2)

The response of investors to our presentation to the IR meeting in Europe was positive. To be honest, I was especially relieved to find that there were no negative comments on VISION 2012 itself.

There is no executive that does not want his company to grow. Top management should clearly state the goal and indicate as openly and clearly as possible the plan for achieving the goal, the significance and targets as well as methods of implementation, evaluation of progress, changes in plan and the final attainment level and assessment. I believe this is the way to win the trust of shareholders and investors. At Sumitomo Electric at least, we undertake IR in such a spirit.

IR necessitates the publication of indicators that serve as various targets. There are some company executives who think that this is an external commitment which holds them totally responsible if the targets cannot be achieved, and therefore withhold information, trying their best not to reveal too much publicly. I think this is wrong.

Naturally, a third party should check whether or not all members of the company concerted their effort to achieve the targets and whether their activities were guided by meticulously planned strategies. However, the results of the endeavor should be assessed with reference to some degree to the business environment and external factors prevailing at the time. The results cannot and should not be assessed by ups and downs of numerical values alone.

Even if utmost effort had been made, if the results are widely off the mark of the published targets, I think what’s needed for us is to be prepared to enter into the stage of “position obligation” that I talked about before.

I made my presentation based on this line of thought. The response I got from the investors was their view that there is no problem at all in Sumitomo Electric’s approach to target-setting for the VISION 2012. I was highly delighted that a positive decision was obtained by and large about the purchase of Sumitomo Electric stocks.

A corporation is an organism that has been accorded the status of an incorporated body: as such, it ideally aims to achieve well-balanced organization and growth.

The basic message of an IR presentation is to say that it is the shareholder who is given the highest priority among all stakeholders.

If we are to debate who a corporation belongs to, evidently it is legally the possession of its shareholders. Meanwhile, a corporation is a public entity. Consequently, it has to distribute its rewards to all stakeholders in a well-balanced way. This is also quite sound reasoning.

It is the duty of top management to run a company in a balanced manner, mindful of everything including adequate dividend payout, sufficient labor distribution, CSR contribution, etc. Still, at an IR presentation, it inevitably becomes shareholder-centered, which makes me feel a little guilty in the light of the concept of providing maximum happiness for the maximum number of people.

What psychological compromise is made by executives who engage in IR?

To carry on as a going concern, perhaps it is better not to have a cut-and-dry, yes/no judgment but leave some room for maneuver depending on circumstances.

September 18, 2007,11:11 +0900(JST) IR in Europe (1)

It's already some time ago, but I'd like to write about the IR activity we carried out in Europe in early July.

The term IR, investor relations, is gradually becoming familiar among the general public. It is no exaggeration to say that conducting IR activities to provide information to prospective equity investors, by different methods and in various styles, is an obligation as we corporations have to procure funds in capital markets.

Sumitomo Electric began holding IR meetings a long time ago, at first mainly for institutional investors, in order to give detailed comments on financial data we report upon the settlement of accounts. Our IR meetings in Japan are held in Tokyo, receiving well over 100 people each time. The contents of the latest meeting are available on Sumitomo Electric's website, on the Investor Relations' pages (New Mid-Term Plan "VISION 2012"). I invite you to visit the pages.

As for our IR efforts outside Japan, once a year each we visit the United States and Europe, where there are many large-scale investors, to do our PR, talk to investors in person and inform them of our situation exactly as it is.

So, in early July, we went to Europe for that purpose: IR, or interviews with investors and information meetings for them. Immediately before the events, an attempted terrorist attack occurred in London, and the security surveillance level in the UK rose to "critical"; I'm sure people concerned were feeling nervous and anxious. Fortunately, our meetings proceeded smoothly as scheduled without a hitch, despite tight security measures in place.

I was very much looking forward to finding out European investors' reaction to our "Vision 2012," which we had just announced. As expected, I received some very astute questions, but all in all, I'm pleased to report that their comments were generally very favorable.

For me, speaking in IR meetings is a truly precious and useful opportunity to work my mind and obtain pointers for sound business administration since I then receive questions and opinions that I rarely receive from within the company.

I used to sell Sumitomo Electric's products as a salesman, and now in IR meetings I explain the company's QCDD from different perspectives to sell our stocks. In a way, I've changed from a salesman of products to that of stocks, which makes me smile a little.

You might think that companies like Sumitomo Electric, which have existed for a long time and aim at long- and medium-term and sustainable growth, despite some ups and downs, have difficulty getting recognized by investors, many of whom often make judgments based on relatively short-term performance. That's not true. In fact, we have the honor of having many recommend us as a top-level company and our stocks worthy of long-term investment. Next time, I'd like to tell you about the reasons for this.

September 13, 2007,11:05 +0900(JST) Prime Minister Abe’s resignation

The other day, during a business trip, I was met with a surprising piece of news: Prime Minister Abe’s resignation. Sensational headlines and titles were seen in newspaper extras, on TV and the Internet. I was, as the people whom I was with then, quite astounded.

Why now? I’m sure all of Japan was asking the same question hearing this news. Despite the Liberal Democratic Party (LDP)’s loss of control over the Upper House following the election, Abe was pushing forward reforms and renewal by reshuffling the Cabinet, regaining points in his approval rating. Despite the scandal leading to Agriculture Minister Takehiko Endo’s resignation and other problems, Abe was showing the people his determination to continue, at least for the time being.

“No sense of responsibility,” “causing nothing but confusion,” “incomprehensible” and “bad timing” are some of the phrases most often used by the public reacting to this news, and I can’t but agree with them. I’m quite disappointed since I had expected quite a lot from Abe a year ago when he made a fresh appearance and assumed the Prime Minister’s office. I had hoped that he would take approaches different from Koizumi’s and set forth and execute a range of effective policy measures. His predecessor Koizumi declared “I’ll destroy the LDP framework” when he’d assumed the Prime Minister’s office and carried out various reforms, and it seems as if the LDP’s election mechanism was also destroyed in the last Upper House election.

Mass media reports that the main reasons for Abe’s resignation were the complicated issue over the proposed extended validity of the Anti-Terrorism Special Measures Law; the refusal by Ichiro Ozawa, leader of the Democratic Party, of a meeting; and Abe’s perception of his own lack of appeal. In any case, the Prime Minister’s general policy speech immediately followed by his declaration of resignation is a singularly unprecedented event, so much so that it’s quite natural if Abe were said to have just given up under the heavy responsibility of his post.

Some opinion leaders have voiced comments, and they are unanimous as to Abe’s detachment from the people’s point of view in his decision making on every issue.

I understand the heavy responsibility, stress and pressure that those at the top must assume. I imagine them to be by far heavier in politics, where you can find people plotting and doing evil, as well as for the prime minister at the top of that world. Nevertheless, any prime minister worth his salt is expected, and required, to be resourceful enough to endure the heavy pressure of the job. In our case, unfortunately, Abe was not able to grasp the situation quickly, plan and take action on time to obtain expected results, and then review the results and move forward with new measures. But still, Abe’s resignation leaves the impression that the country’s major problems left unresolved by generations of government finally burst out and blew him away.

Japan has a mountain of problems yet to be resolved, and there’s no room or time left for our political leaders to be absorbed in an internal power struggle, fighting over who will be Abe’s successor. I hope that a cabinet of best-qualified members will promptly be formed under the strong leadership of a new prime minister to bring the situation back to normalcy and start tackling the issues of national politics.

September 10, 2007,09:21 +0900(JST) “SEQCDD’” and Our Quest for Ever Higher Quality (2)

Nobody can deny the importance of “SEQCDD’,” as written in the first entry (1) of this series. Of these factors, Q, or quality, is one of the most important for the Sumitomo Electric Group, and we constantly work on quality improvement. For example, at the Group’s regular management meetings in which the Group’s business administration is determined, representatives are required to give a detailed monthly report on quality management. It’s not easy to measure quality management by the Group’s different divisions simply based on statistical figures, given the diversity of the Group’s business activities and the products they represent. Nevertheless, since statistics don’t allow for any irregularities in the methods of analysis or definitions of terms, reports are made in such a way that anyone can understand their contents and that no defect-caused losses can be hidden away. Based on the results of these reports, we’ve been intensifying our determination to cut down losses. However, in reality, despite great efforts by all concerned, we haven’t yet arrived at satisfactory levels.

The factors S (safety) and Q (quality) represent our ultimate goals, zero accidents and zero defects. To put it nicely, we’re aiming toward the Absolute, which only God can achieve of course, putting together all our resources and orienting our vector in one clear direction. In this sense, our all-participatory campaign is a tremendous attempt demanding strong will and hard effort driving us as close to the Absolute as possible.

Of course, we will not give up on this attempt, however formidable it might appear. Let’s do our best every day, making things better little by little, today better than yesterday, and tomorrow better than today.

SUMITOMO ELECTRIC President CEO Masayoshi Matsumoto

Born in 1944 in Hyogo Prefecture, Masayoshi Matsumoto joined Sumitomo Electric in 1967. After serving as General Manager of Chubu District Office, Managing Director and Senior Managing Director, he assumed office of President and CEO in June 2004.

His leisure activities include jogging, reading and art appreciation. Also a seasoned athlete, he played baseball in junior high school and practiced judo in senior high school. In university, he threw the javelin competitively and participated in all-Japan inter-university competitions.

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