CFO Webinar 2021 December

-Introduction-

The event started off discussing the landscape of eSignatures in Japan. Organizations are accelerating their adoption of eSignatures as Japan shifts towards using electronic documentation. We asked the participants the question, “Is your organization currently using digital contracts and eSignatures?” at the beginning of the session. 17% answered that they had already implemented it before COVID-19, 50% had implemented it as a result of COVID-19, and 33% were considering it or preparing for its implementation. No participants answered, ”No, we are not considering it at all”. This shows the significance of the ‘paperless’ trend, highlighting the necessity for organizations to implement solutions for digital preservation and eSignatures.

1. What is a digital contract?

Pankaj Arjunwadkar, a partner of Deloitte Tohmatsu Consulting LLC and the Foreign Company CFO Program Leader in Japan shared his insights on this topic. A digital contract is an electronic document used to represent an agreement between partner organizations carrying out business, and it describes the details of the supply and the consumption of services within a business process. There is a need to replace traditional “Hankos” (name stamps) with eSignatures to verify and authenticate digital contracts. Furthermore, the difference between traditional contracts and digital contracts was covered in terms of identification, security, remittance and storage.

Naturally, the catalyst for this change is COVID-19. It has had a significant impact on the push for paperless and more flexible working environments. In a research survey, 72% indicated the fact that “documents are not digitized” as the main limitation when shifting to a remote working environment (multiple choice question). Research shows that companies are recently rapidly tackling this limitation by implementing digital contracting solutions. In 2015, only 55% of companies had responded as “implemented digital contracts”, ”not currently using digital contracts but considering it”, or “preparing to implement it”, whilst by 2021 this proportion had increased to 85%.

Japan has a long history of using Hankos, they were introduced to Japan via China through the Silk Road. Their initial purpose was only that of an artistic artifact (pre-Hanko period until CE 220), but by the Meiji period (1868) the Hanko was used widely by the general population in the same way we do today. The unique stamp that is used in place of the western signature has often been deemed an inefficient custom, but it has persisted as a result of its deeply ingrained history in the Japanese culture. Thus the current shift towards changing regulations surrounding the Hanko can be an emotional topic for some Japanese people.
 

2. The Japanese landscape: How is the government’s policy shifting?

In 2020, as a result of COVID-19, the Japanese government has announced administrative reforms to push contract digitalization, and drastic changes have been made in the last 2 years with regard to the use of digital contracts and eSignatures. As long as requirements are met, digital contracts and eSignatures are as legally enforceable as paper-based contracts except in the case of a) litigation related documents, b) lease agreements and c) tenant agreements.

The 2021 Japanese tax reform also includes several items intended to further promote digitalization. Now that the tax reform has gone into effect:

• All electronic transaction records must be stored electronically. Failure to do so may result in the revocation of approval for tax consolidation etc.
• Certain requirements related to the search function, authenticity, and timestamping were eased enabling taxpayers to more easily store documents digitally
• Taxpayers no longer need to apply and receive approval from the tax office to begin storing documents electronically

The Japanese government has also launched a working group to discuss and envision trust services. They recognize the need for e-seal, e-delivery and timestamps, and are working towards providing a holistic framework similar to that of the EU. The EU has more advanced laws regarding eSignatures, eDelivery, eSeals, website authentication and timestamps, while Japan only has laws for eSignatures.
 

3. The Japanese landscape: What are the benefits?

Marina Yoshimoto, a manager of Deloitte Tohmatsu Consulting LLC, explained the benefits of implementing digital contracts and eSignatures. Despite challenges in implementation such as internal co-ordination of changing business processes etc., one can anticipate many benefits in terms of governance, cost and efficiency.

1. Improved Governance

• Strengthening of business continuity plans

- Digital: contracts can improve BCP, as there will no longer be paper-based contractual documents that are susceptible to natural disasters

• Strengthening of compliance and error prevention measures

- eSignatures and timestamps cannot be easily duplicated

- The process of signing a contract is easier to see, which reduces the risk of contract omissions or renewal/cancellation issues

-  One can easily restrict access to electronic contracts thus reducing the likelihood of security breaches.

2. Reduced Costs

• Reduction of stamp duties

- Paper-based contracts require revenue stamps which are not required for some digital contracts

• Reduction of labor costs

- Labor costs of preparing paper-based contracts can be reduced (printing, mailing, binding, filing, searching, etc.)

• Reduction of delivery and storage costs

- Paper-based contracts incur costs such as those for printing, binding, and mailing

- Paper-based contracts require storage space, such as warehouses

3. Increased Efficiency

• Streamlining of contract operations

- Minimize contract procedures by automatically incorporating customer information, contractual templates etc. into the solution

- Contracts are updated in a timely manner without delays resulting from mailing hard copy contracts

• Value-added analytics

- Allows for advanced analytics on business terms and conditions (NLG, NLP, etc.)

• Establishment of a better remote work
  environment (a “paperless office”)

- Expense application/approval/payment processes can be completed remotely

- Minimize the frequency of collecting/delivering receipts

4. The Japanese landscape: Who can help?

There are 3 main vendors in the Japanese market who can help organizations implement digital contracts and eSignatures

1. DocuSign provides a service platform which has the highest global market share due to its user-friendly interface and security qualifications. The platform is easy to adopt and allows companies to start using the platform within minutes.
2.  Adobe Sign offers a fast and secure signing workflow, which can be done from anywhere and on any device. Signers can view documents in a browser or mobile app highlighting its ease and speed of usage.
3. CLOUDSIGN specializes in adhering to local regulations in terms of development and ongoing support. The platform also includes functionalities such as the use of AI to automatically fill in documentation
    

5. In closing – solution: How can it be done?

Marina concluded by detailing the solution implementation process and showcasing a successful use case in Japan. Companies are recommended to not only incrementally implement digital contracting solutions, but also to integrate them with existing systems such as sales management systems and purchasing systems.
Integration to existing systems allows companies to further maximize the value of these solutions by streamlining the overall contracting process; benefits include the incorporation of existing contract templates, automatically inputting customer information from the customer master data, allowing for ease of advanced analytics on business terms / pricing etc. Deloitte offers holistic, end-to-end support from the process & policy design phases to the tool selection and implementation phases.