INTEGRATED REPORT 2023 CHAPTER 7
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INTEGRATED REPORT 2023

COVER STORY OPEN
  • Tokyo Century Transformation and Sustanable Growth

  • Management Philosophy

  • Tokyo Century’s History

  • Tokyo Century’s Target Portfolio

  • Growth Business Model Transformation and Evolution

  • Security Enhancement of Risk Management

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CHAPTER 1 Message from the President OPEN
CHAPTER 2 Sustainability Management at Tokyo Century OPEN
CHAPTER 3 Medium-Term Management Plan 2027 and Medium- to Long-Term Vision OPEN
CHAPTER 4 Stakeholder Engagement OPEN
CHAPTER 5 Business Model and Growth Strategies by Operating Segment OPEN
CHAPTER 6 Enhancement of Risk Management OPEN
CHAPTER 7 ESG Strategies OPEN
CHAPTER 8 Data Section OPEN

Evolution of Tokyo Century’s Corporate Governance System

ESG STRATEGY

Tokyo Century’s History of Strengthening Its Corporate Governance System to Improve Corporate Value

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.

Tokyo Century’s History of Strengthening Its Corporate Governance System to Improve Corporate Value.

Management Structure

Composition of the Board of Directors (As of June 26, 2023)

Internal Directors

8

Seven men and one woman, for a total of eight.

External Directors

5

Four men and one woman, for a total of five.

External Directors

38%(5)

Ratio of Female Directors

15%(2)

Major Items Raised at Meetings of the Board of Directors in Fiscal 2022

General Management

  • Policies of Medium-Term Management Plan 2027
  • Profit target formulation and progress management
  • Discussions on stock acquisitions and sales and investments exceeding predefined amounts
  • Reports on results of investment management framework monitoring
  • Investor relations activity reports

ESG

  • Evaluation of Board of Directors’ effectiveness and report on evaluation
  • Details of meetings of the Nomination Committee and the Compensation Committee
  • Progress and results of medium- to long-term sustainability management initiatives (Sustainability Road Map)
  • carbon neutrality policy

Other Matters

  • Compliance initiative plans and progress reports
  • Audit plans and implementation reports
  • Risk management reports

Evaluation of the Effectiveness of the Board of Directors and Issues

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.

Important Themes and Evaluation in Fiscal 2022

Medium- to Long-Term Discussions Looking toward 10 to 15 Years in the Future
  • 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.
Risk Management and Group governance
  • 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.

Important Themes for Fiscal 2023

Overall Business Portfolio Structure and Vision

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.

Officer Compensation

Officer Compensation Policies

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.

Overview of Officer Compensation

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.

Officer Compensation Systems
Officer Compensation Systems.
  • 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.

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 2022, the committee met five times.

Major Topics of Discussions

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.

Topics of Reports Submitted in Fiscal 2022

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

Payment of Officer Compensation Amounts

Compensation and Eligible Officers in Fiscal 2022
Compensation and Eligible Officers in Fiscal 2022.
  • 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.

Cross-Shareholdings and 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 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.

Process for Reviewing Holdings

Process for Reviewing Holdings.

Divestitures

(Number of holdings reduced and sales amounts)

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Fiscal 2020 9 holdings ¥2,871 million
Fiscal 2021 4 holdings ¥451 million
Fiscal 2022 15 holdings ¥5,574 million

Protection of Minority Shareholders

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.

Audit System

Objective and Independent Audit System

The Audit Unit has been established as an independent organization under the direct control of the president and is tasked with performing internal audits of Tokyo Century and Group companies. Internal audits are aimed at assuring the appropriateness of the Company’s systems, organizations, and rules; whether all business activities comply with relevant laws and regulations and internal rules; and whether operating processes and the risk management system work appropriately and rationally. Based on these audits, improvements are proposed and advice is provided as necessary. As the Group expands its areas of business, risk profiles are becoming more diversified and complex. Accordingly, Tokyo Century aims to conduct internal audits that are effective as part of a risk-based approach. Timely and appropriate audits are also conducted of companies newly consolidated through investment or acquisition. Through such auditing activities, we strive to enhance the risk management capabilities and improve the corporate value of the Company and Group companies. Annual internal audit plans are reported to the Board of Directors after approval by the president (Management Meeting), and the results of the audits are reported to the president (Management Meeting) and to the Board of Directors.

Audit System for Major Group Companies

The Tokyo Century Group’s Audit System

Major domestic Group companies as well as major overseas Group companies Aviation Capital Group LLC and CSI Leasing, Inc., have in place independent audit units that perform audits at their respective companies. Audit plans and results are reported to the Audit Unit of the Company, which provides instruction and support as necessary. The Audit Unit directly audits subsidiaries that do not have their own auditing functions.

Major domestic Group companies as well as major overseas Group companies Aviation Capital Group LLC and CSI Leasing, Inc., have in place independent audit units that perform audits at their respective companies. Audit plans and results are reported to the Audit Unit of the Company, which provides instruction and support as necessary.

The Audit Unit directly audits subsidiaries that do not have their own auditing functions.

Basic Audit Policies

Reliable Third Line of Defense Supporting Quest for Growth Furnished by Audit Unit

  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

Message from the President of the Audit Unit

Akihiko Okada
Deputy President, Director and Executive Officer
President, Audit Unit

Tokyo Century kicked off Medium-Term Management Plan 2027 in fiscal 2023. This plan calls on us to go beyond simply responding to changes to transform ourselves and become a corporate group that brings about creative change. Robust governance and strong risk management are imperative to accomplishing this objective. I view the Audit Unit as our third line of defense, the last bulwark for governance and risk management. The unit thus has a cornerstone role in supporting the ambitions of the Company. I am therefore committed to offering constructive and accurate improvement proposals and advice to ensure effective risk management.

Investor Relations

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