Governance
INTEGRATED REPORT 2024
Evolution of Tokyo Century’s
Corporate Governance System
Governance
- Officer Compensation
- Cross-Shareholdings / Protection of Minority Shareholders
- Messages from New External Directors
Officer Compensation
Officer Compensation System Policies
As part of the officer compensation system, director compensation policies call for the provision of healthy incentives to contribute to the ongoing growth of the Company and frameworks for linking compensation to the medium- to long-term development of its businesses. The system for director compensation is designed to raise directors’ awareness regarding the enhancement of shareholder value by aligning the interests of directors with those of shareholders. Moreover, this system aims to attract outstanding talent in order to allow the Company to recruit and cultivate individuals who can drive the improvement of the Company’s corporate value.
Revision of Officer Compensation System and Goals Thereof
The Company resolved to revise its officer compensation system and to introduce a performance-linked stock compensation plan at the 55th Annual General Meeting of Shareholders on June 24, 2024. The new plan further clarifies how compensation paid to directors and officers is linked to the business performance and stock value of the Company by having them share both the benefits of stock price increases and the risk of stock price declines with shareholders, in order to raise the awareness of directors and officers so they will contribute to improving business performance over the medium to long term and to enhancing corporate value.
Overview of Revision
- Transition from quantitative and qualitative evaluation based on ordinary income when determining performance-based compensation to evaluation based on indicators prescribed by Medium-Term Management Plan 2027
- Abolition of stock options as portion of performance-based compensation and introduction of new Board Benefit Trust-Restricted Stock (BBT-RS) system
- Evaluation under new system in fiscal 2024 and commencement of compensation based on evaluation under new system in fiscal 2025
Officer Compensation System
Discussions by the Compensation Committee
Overview of the Compensation Committee
Tokyo Century has established the Compensation Committee as an advisory body to the Board of Directors in order to ensure the independence of its functions. This committee comprises a majority of external directors designated as independent directors and is chaired by an external director designated as an independent director. The Compensation Committee discusses matters such as compensation amounts, systems, and policies and reports to the Board of Directors on these matters. In fiscal 2023, the committee met five times.
Major Topics of Discussions
As the next step in the reviews of basic compensation amounts for which reports were submitted in fiscal 2022, the Compensation Committee undertook a review of performance-based compensation. This review looked at potential performance indicators and stock-based compensation schemes that could be adopted based on the financial and non-financial targets of the newly launched Medium-Term Management Plan 2027.
Topics of Reports Submitted in Fiscal 2023
The Compensation Committee determined that a scheme for performance-based compensation that was consistent with the Company’s medium- to long-term value creation process was indispensable. Based on this judgment, a report was submitted to the Board of Directors advising that both financial and non-financial indicators be incorporated into the evaluation indicators used when determining performance-based compensation.
Payment of Officer Compensation Amounts
Compensation and Eligible Officers in Fiscal 2023
Notes:
- 1.Stock options provided as stock-based compensation are accounted for under “Non-monetary compensation,” although they constitute performance-based compensation. Accordingly, amounts of stock options provided as stock-based compensation are not included under “Performance-based compensation.”
- 2.The total number of directors and the total number of corporate auditors as of March 31, 2024, were 13 and 4, respectively.
Cross-Shareholdings / Protection of Minority Shareholders
Cross-Shareholdings
The Company holds investment securities for purposes other than pure investment. These securities are the shares of the stock issued by important stakeholders of the Tokyo Century Group, including business partners, shareholders, and borrowers, and are held based on their necessity to the medium- to long-term business activities of the Company.
Policy on the Exercise of Voting Rights
The decision to approve or reject agenda items is made by the division in charge of exercising voting rights (the Corporate Planning Unit) after consultation with the Business Headquarters, Credit Supervision Unit, and other divisions. The Company has also established internal procedures regarding the exercise of voting rights to provide a checklist and clarify the related process. With regard to items that may damage the corporate value of the issuer of the shares or Tokyo Century’s interests as a shareholder, approval or rejection is determined after confirming the content and impact.
Process for Reviewing Holdings
Divestitures (Number of holdings reduces and sales amounts)
Scrollable horizontally
| Number of Holdings Reduced | Sales Amounts (Billions of yen) |
|
|---|---|---|
| FY2019 | 20 | 4.4 |
| FY2020 | 9 | 2.9 |
| FY2021 | 4 | 0.5 |
| FY2022 | 15 | 5.6 |
| FY2023 | 5 | 1.1 |
| 5-year aggregate | 53 | 14.4 |
Protection of Minority Shareholders
ITOCHU Corporation holds 29.99% of the voting rights in Tokyo Century, and the Company is thus an equity-method affiliate of ITOCHU. No officers of ITOCHU hold concurrent positions as officers of the Company. However, ITOCHU has seconded 11 individuals to the Company who have immediately applicable skills necessary for supplementing the Company’s operational execution capabilities (as of April 1, 2024).
The Company engages in business transactions with ITOCHU and ITOCHU Group companies. Negotiations regarding said transactions are conducted with these companies on an individual basis, as would be done with a standard transaction counterparty, and the Company’s own decision criteria are applied to these transactions. Accordingly, ITOCHU does not impose any restrictions on the business activities of the Company, and the Company maintains a certain degree of independence from ITOCHU. We are determined to ensure that this relationship does not threaten the interests of minority shareholders.
Messages from New External Directors
Hiroshi Ogasawara
External Director
Representative Director and Chairman of the Board,
YASKAWA Electric Corporation
In discussions regarding medium- to long-term management and business strategies, I endeavor to provide appropriate advice from my perspective as a manager of a business-to-business manufacturer. I also look to actively take part in discussions on important themes pertaining to Tokyo Century’s TCX concept, such as workstyle reforms and digital transformation strategies. In the manufacturing industry, I have experience managing a global supply chain that spans the entire product life cycle, from development and production to sales and maintenance. This experience is highly applicable to Tokyo Century’s business model focused on asset value.
An important role of an external director is to help bring consistency to a company’s vision. This can entail clarifying the positioning of medium- to long-term management plans and singleyear plans and revising medium- to long-term plans when necessary. Rather than getting deeply involved in the business operation activities of the executive team, I think it is prudent for external directors to focus on verifying whether a company’s businesses are in line with its medium- to long-term management policies and whether adequate progress is being made. It is particularly crucial to monitor operations to ensure that they coincide with a company’s long-term management vision.
Tokyo Century operates in an industry that is different from the one I am familiar with. However, regarding themes applicable to any industry, I will actively highlight the trends seen in the manufacturing industry with the aim of contributing to the reinforcement of Tokyo Century’s operating foundation. I also hope to make proposals that go beyond the traditional boundaries of the Board of Directors in order to contribute to more lively Board meetings.
Koji Fujiwara
External Director
Special Advisor of Mizuho Financial Group, Inc.
The development of human resources who can drive value creation is a theme that Tokyo Century must focus on to guide its management in a favorable direction. Human resources are a very important asset to a company and a fundamental form of capital for management. My experience managing a bank has made me well aware of just how significant the growth of individual employees can be for the growth of a company as a whole. As Tokyo Century turns its attention to the shared goal of contributing to the resolution of social issues, it should also devote efforts to developing a free and open corporate culture that inspires ambition and to fostering well-rounded people with a robust individuality. I am confident that this approach will help Tokyo Century create value as it advocates its “Finance × Services × Business Expertise” concept.
It is also important to engage in exhaustive discussions on overarching themes such as business model and governance reforms. In today’s era of great uncertainty, it is difficult to form a precise image of the future. This is why it is crucial for a company to clearly define its purpose— the raison d’être that is central to its business—and to rebuild its organizations to be more capable of flexibly responding to operating environment changes. As it continues its existing businesses, I think that Tokyo Century should also expand into new fields and encourage flexible decision-making. Together with Tokyo Century’s other external directors, who boast broad-ranging insight, I want to examine whether the Company is sufficiently poised to do this from a variety of perspectives.
I can really get behind the sentiment of Tokyo Century’s corporate slogan of “Solutions to your Pursuits.” In line with this slogan, I will aspire to supply solutions to help advance Tokyo Century in its pursuits. We are currently in a time of great change, and the social issues faced around the world are countless. Tokyo Century is thus pressed to fulfill its mission of helping resolve such issues to become a leading company in terms of its contributions to society. These expectations can also be a great source of motivation. In my capacity as an external director, I will work together with the executive team to support the Board of Directors in effectively exercising its advisory and monitoring functions.