Evolution of Tokyo Century’s Corporate Governance System

Tokyo Century has proceeded to implement various diversity-minded measures to separate the executive function from the oversight function and otherwise strengthen its corporate governance system.

• Management TeamPDF:1,859KB

• Management Structure Comprising Ideal CommitteesPDF:1,859KB

Tokyo Century has established the Board Effectiveness Review Council as an advisory body to the Board of Directors. The council conducts an analysis and review of the effectiveness of the Board of Directors once a year, in principle, on aspects such as the effectiveness of its supervisory functions, status of deliberations, systems, and meeting proceedings, taking into account the selfevaluations submitted by each director.

• Lively discussions are taking place on the Tokyo Century Group’s medium- to long-term vision and management strategies based on the circumstances surrounding the Group and its operating environment.
• Discussions were held as part of the process of formulating Medium-Term Management Plan 2027, which began in fiscal 2023, at meetings of the Board of Directors as well as at free discussion forums arranged as a facet of officer training sessions and on other occasions.

• Improvements with regard to risk management and internal control systems are being seen with each passing year, and discussions are taking place at meetings of the Board of Directors based on appropriate reporting.
• The Investment Management Committee is engaging in brisk discussions while identifying issues, thereby advancing the implementation of investment management frameworks.
• Business expansion and significant losses are creating a need for more rigorous Groupwide management of geopolitical and other risks.

Discussions will be advanced from a medium- to long-term perspective at free discussion and other forums on the overall structure of the Company’s business portfolio and our vision for this portfolio with consideration paid to factors such as allocations of management resources and capital efficiency.

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. Systems for director compensation are designed to raise directors’ awareness regarding the enhancement of shareholder value by aligning the interests of directors with those of shareholders. Moreover, director compensation systems aim 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.

In addition to basic compensation, which is fixed compensation, the Company provides performance-based compensation in the form of bonuses and stock options to contribute to the improvement of overall corporate value and to the maximization of shareholder interests.

• Notes:
• 1.The compensation of external directors consists entirely of basic compensation based on their roles.
• 2.The compensation of corporate auditors consists entirely of basic compensation based on their roles and is set within a limit determined by the corporate auditors.
  The maximum compensation for corporate auditors, as resolved at the Extraordinary General Meeting of Shareholders held on February 25, 2009, is ¥150 million per year.

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 2022, the committee met five times.

The Compensation Committee engages in ongoing discussions on topics such as indicators for evaluating medium- to long-term performance, the introduction of ESG-related indicators, and ideal frameworks for allocating stock-based compensation. Through this process, the committee works to ensure that the Company offers 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.

In fiscal 2022, the Compensation Committee submitted reports to the Board of Directors on its reviews of basic compensation amounts for different ranks.

• 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.Although the total number of directors and the total number of corporate auditors as of March 31, 2023, were 13 and 4, respectively, the above compensation amounts also include payments to four directors and one corporate auditor who retired on June 27, 2022.

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 Group, including business partners, shareholders, and borrowers, and are held based on their necessity to the medium- to long-term business activities of the Group.

ITOCHU Corporation holds 30% 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 12 individuals to the Company who have immediately applicable skills necessary for supplementing the Company’s operational execution capabilities (as of April 1, 2023).

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.

1. 1Identification of latent risks to provide proposals and advice for improving operations and preventing misconduct
2. 2Enhancement of risk identification, analysis, and verification capabilities through ongoing skills improvement by Audit Unit staff
3. 3Support for and coordination among Group companies to strengthen the Groupwide audit system