The Weight of the Phrase “Did Not Seek to Know”
An article in Nikkei Business, covering the Nidec accounting scandal, quotes a lawyer’s statement. It condemns the heavy responsibility of outside directors who “did not seek to know.”
This phrase, “did not seek to know,” indicates a fundamental flaw in governance design that goes beyond mere “lack of knowledge.” It signifies that the “mechanism” of the board of directors did not function as designed. The appointment of outside directors became an end in itself, without designing the mechanisms for those individuals to “know.” A major corporation’s case vividly reflects the dangers of superficial, form-only governance enhancement—a pitfall many SMEs are prone to.
As another Nikkei article points out, the issue is that “outside directors alone are insufficient.” Behind the chain of governance failures from Toshiba to Nidec lies a common challenge: how to design the “effectiveness” of the board of directors.
The Board is Not a “Device for Receiving Information”
Many companies, especially SMEs with limited board experience, misunderstand the board as a “place to receive reports from management.” Materials are distributed in advance, followed by explanations and approvals on the day. This leaves almost no room for outside directors to “seek to know.” Information flows one way, Q&A time is limited, and the meeting ends before substantive discussion can occur.
A truly functional board must be a “device for proactively drawing out information.” It is this design that determines a board’s effectiveness.
The Reality of “Utilizing Outside Directors” Faced by SMEs
I often hear the following from SME executives I support: “We brought on an outside director, but they don’t really speak their mind,” or “They know the industry well, but I don’t feel they look deeply into our company’s detailed numbers.” This is usually not a problem with the individual outside director’s qualities, but rather stems from “the lack of a designed environment for them to function.”
As noted in an article by Rodo Shinbun, governance is not a cost but an investment in enhancing corporate value. However, if that investment becomes a mere formality, it ends up as just a cost. To realize a return on this investment, meticulous design is necessary.
Three Design Points to Enable “Knowing”
So, how can SMEs, with their limited resources, design mechanisms that enable board members, including outside directors, to “seek to know” and actually “know”? Here are three concrete, effective design points from practical experience.
1. The Rule of Pre-sharing a “Question List”
One of the simplest and most effective methods is introducing this rule. When distributing board meeting materials, management (typically the representative director) includes a self-prepared list of 3-5 items: “Points I think the board should discuss regarding this proposal.”
For example, for a “New Business Entry” proposal, the list might include: “① Our company’s greatest competitive advantage in the target market, ② The most optimistic/pessimistic scenarios for initial investment recovery, ③ Countermeasures against resource-drain risks from existing operations.”
The purpose of this list is not to provide answers, but to align the focus of discussion and clearly provide an entry point for outside directors to “know.” Outside directors can use this list as a starting point to delve deeper into their own questions. For management, it clarifies what needs explanation, thereby improving preparation quality.
2. Designing Access Rights to the “Story Behind the Numbers”
The background to outside directors “not seeking to know” may be the lack of a formal route to access raw numbers or frontline voices. Being shown only KPI materials curated by management makes the underlying “why” invisible.
The design here is to grant “limited direct access rights.” For instance, establish an opportunity once per quarter for outside directors to have a roughly 30-minute exchange with the accounting manager or key division heads, without management intermediation. Alternatively, grant “read-only” system access to key management accounting data (e.g., divisional P&L, project profitability).
Of course, the scope of information and handling rules must be strictly defined. However, institutionally guaranteeing opportunities to接触 unfiltered information encourages the motivation to “seek to know” and enables deeper insight.
3. Mandating “Counter-Scenarios” for Risk Discussion
As an article in The Nikkan Kogyo Shimbun titled “The New Era of Risk Governance for Boards” suggests, risk response is a core board function. Yet, many boards tend to merely list risk factors of proposed plans.
A design to enhance effectiveness is to mandate the creation and presentation of a “counter-scenario” for important management decision proposals. This means putting on the table for discussion not only “the risks if we adopt Plan A (the proposal),” but also “the risks and opportunity costs if we do NOT adopt Plan A.”
This design shifts the discussion from a binary “do/don’t do” opposition back to the board’s original function: “comparing multiple options.” Outside directors can then engage not as mere “critics” pointing out plan flaws, but as “co-designers” comparing options from different perspectives.
Design Moves People, People Leverage Design
The Nidec case teaches us that even appointing excellent individuals as outside directors is futile without designing the “forum” that enables them to exercise their abilities. Conversely, a properly designed “forum” amplifies the capabilities of the individuals acting within it and enhances the quality of the organization’s overall decision-making.
Governance is precisely this technology of designing the “forum.” Appointing outside directors is only one part of that design.
The First Step Starting Tomorrow: A “Questions” Section in Board Minutes
If you have doubts about your board’s effectiveness, I recommend first changing the format of your board minutes. Add a new section at the end titled “Key Questions Raised (Unresolved Issues) in This Session.”
This differs from simply recording “Q&A.” It involves management and directors jointly listing points where data was insufficient or uncertainty was high during the discussion, and issues that should be investigated before the next meeting. This list becomes material for the next meeting’s proposals or “question list.”
This small design change can be the first step in transforming the board from a “forum for reporting and approval” to a “forum for discovering issues and continuous examination.” Outside directors gain concrete clues to “seek to know,” and management opens a path to utilizing the board not as a mere rubber stamp, but as a valuable thinking partner.
Conclusion: Governance is the Overarching Design of Talent Management
The problem of the outside director who “did not seek to know” is, ultimately, a talent management issue. What authority and information to grant, what outcomes (deep discussion and proper oversight) to expect, and what processes to design to achieve them. This is a critical management challenge for executives.
Even in an era discussing the systemic risks of AI (Nikkei), final judgment and responsibility lie with human directors. Technology may be a tool to visualize risk, but it is the human board that confronts and chooses among risks.
We urge SME executives to adopt the perspective of redesigning their board as a “device where the best talent gathers to produce the best judgments.” This is not mere compliance, but one of the most crucial management investments that becomes a source of competitiveness.
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