Corporate Governance Structure

Basic Policy

Aozora has updated its management philosophy consisting of its mission, values, and key priorities that form the basis of its business activities.

Aozora Mission
Contribute to the development of society through the creation of new value-added financial services

Aozora Vision
Adapt to a rapidly changing world while remaining a trusted, valued and specialized financial service provider

Aozora’s Key Priorities

  1. Provide specialized and value-added financial services
  2. Move quickly, while responding patiently and politely
  3. Prioritize teamwork and provide a more comfortable working environment
  4. Respect one’s colleagues and support professional growth of all team members
  5. Learn from the past while adapting to and focusing on the future
  6. Take smart risks in new areas based upon our skills and experience
  7. Actively contribute to the sustainable growth of society

Aozora has established a basic management policy, as well as an overall Group strategy rooted in that basic policy, according to its management philosophy. By working together with all of our Group companies to promote that strategy, Aozora’s aim is to respond to the mandate of our various stakeholders and increase the Aozora Group’s corporate value.

The objective of the Bank’s corporate governance policy is to ensure management discipline and create a framework for enhanced oversight, in order to conduct daily business operations based on the above management philosophy.

For this purpose, the Bank continues to work toward a more transparent corporate governance structure by focusing on the proper establishment and operation of its governance framework as the primary management initiative.

Aozora has submitted a “Corporate Governance Report,” which describes the Bank’s corporate governance structure, to the Tokyo Stock Exchange. The report is available via both the Aozora and Tokyo Stock Exchange websites.

Corporate Governance Report (PDF:543KB)

Organization and Structure

Separation of Management Oversight and Business Execution

Management adheres to the highest standards of compliance in all areas of business execution. Management identifies risks and assesses their potential impact on the Bank’s business, maintaining a strong internal control system that ensures optimal transparency and a framework for effective balancing of risk-return.

In order to improve efficiency through the separation of management oversight and business execution and transparency by establishing an appropriate corporate governance system, the Board of Directors, including multiple outside directors, determines basic management policy and management strategies, and supervises the execution of business operations. Executive officers, including the Representative Directors, conduct daily operations, with authority delegated by the Board of Directors.

The Management Committee is the highest decision-making body for the execution of daily business, and comprises members from among the Executive Officers who are approved and appointed by the Board of Directors. This structure improves the speed of decision-making, while at the same time the Executive Officers’ Meeting, comprising all the Executive Officers, is held in order to share information. Various sub-committees are also established to improve efficiency in the execution of daily business.

Supervision and Management Oversight

The Audit and Supervisory Board (ASB) and its members monitor and verify the execution of director duties, mainly from a legal perspective. Board-level committees, such as the Nomination and Remuneration Committee and the Audit and Compliance Committee, mainly comprise outside directors, and are entrusted by the Board of Directors to perform supplementary supervision and oversight with respect to representative directors and executive officers.

Internal Control Systems

The Aozora Group is committed to developing transparent corporate governance and implementing appropriate and efficient business operations, in accordance with “Internal Control Programs” resolved by the Board of Directors. In addition, the Internal Audit Division, which is independent of all business groups, conducts internal audits, reporting its findings directly to the Chief Executive Officer (CEO) and the Board of Directors.

(As of July 1, 2020)

Audit and Management Oversight

Board of Directors

The Board of Directors establishes important business policy and oversees the execution of duties by executive officers entrusted with daily business operations.

Audit and Supervisory Board

The Audit and Supervisory Board formulates the Bank’s audit policy and plan regarding the execution of duties by directors and executive officers, receives reports on important audit matters and discusses or resolves them as needed.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee, which is comprised of the majority members as outside directors, recommends candidates for Board and ASB members as well as other important employees. In addition, the Nomination and Remuneration Committee determines the remuneration of directors and executive officers, and makes recommendations to the ASB members on their remuneration.

Audit and Compliance Committee

The Audit and Compliance Committee, that comprises outside directors, reviews the adequacy and effectiveness of matters relevant to the establishment of internal control systems including internal and external audits, risk management, compliance and credit audits.

Name of committee Chaired by Members Meetings Held in FY2019 Purpose
Board of Directors Chairman or President Directors, Audit and Supervisory Board Members 14 meetings Determine management policy, oversee duties of Directors and Executive Officers
Audit and Supervisory Board (ASB) Standing ASB Member ASB Members 13 meetings Report, discuss and approve important audit-related matters
Nomination and Remuneration Committee Outside Director Directors (Outside Directors comprise majority) 7 meetings Recommend candidates for Director, Audit and Supervisory Board Member and other important employees to the Board of Directors
Determine remuneration for Directors and important employees, and make recommendations regarding remuneration for Audit and Supervisory Board Members
Audit and Compliance Committee Outside Director Outside Directors 7 meetings Supervise and review the effectiveness and suitability of internal control system construction including internal and external audits, risk management, compliance and credit audits

Execution of Duties

Management Committee

The Management Committee comprises executive officers (including representative directors) specially appointed by the Board of Directors. The Management Committee convenes weekly and determines important matters related to the Bank’s daily operations, in accordance with the policies set forth by the Board. The Management Committee has the following sub-committees to which it delegates authority: ALM Committee, Integrated Risk Committee, Credit Committee, Investment Committee, CAPEX Committee and Customer Protection Committee. Sub-committees have substantive knowledge and experience in various aspects of the Bank’s business operations, as well as sound decision-making capabilities.

Name of committee Chaired by Members Meetings Held in FY2019 Purpose
Management Committee CEO Executive Officers appointed by the Board of Directors 52 meetings Determine important matters related to daily business operations
Asset and Liability Committee CFO Chairman, President, Executive Officers in charge 15 meetings Determine important matters regarding asset and liability management
Integrated Risk Committee CRO President, Executive Officers in charge 11 meetings Establish risk management policies, monitor risk management framework, maintain proper internal governance, launch new businesses/products
Credit Committee (Institutional Credit Committee) CCRO President, Executive Officers in charge 78 meetings Approve credit transactions and related business policies
Credit Committee (Allied and Business Banking Credit Committee) CCRO President, Executive Officers in charge 46 meetings Approve credit transactions and related business policies
Investment Committee CRO President, Executive Officers in charge 30 meetings Approve individual investment transactions, establish appropriate investment policies, ensure accurate understanding of the Bank’s overall investment portfolio, build and maintain a secure and profitable portfolio
CAPEX Committee (approval and management of IT-related proposals) CTO President, Executive Officers in charge 13 meetings Approve and monitor IT projects required to realize Management Committee-approved business plans and strategies
CAPEX Committee (approval and management of facilities-related proposals) Head of Corporate Strategy Unit President, Executive Officers in charge 9 meetings Approve and monitor facilities-related proposals required to realize Management Committee-approved business plans and strategies
Customer Protection Committee Head of Compliance and Governance Unit Executive Officers 19 meetings Review customer protection framework in five areas: customer explanation management, customer support management, customer information management, outsourcing management and conflict of interest management

Board Effectiveness

Standard for Determining Independence of Outside Directors and Outside Audit and Supervisory Board Members

The Bank determines the independence of outside directors and outside Audit and Supervisory Board members in accordance with the standards set forth by the Tokyo Stock Exchange. All qualified outside directors and outside Audit and Supervisory Board members are designated independent.

Analysis and Evaluation of Board Effectiveness

The Bank works to further enhance the effectiveness of its Board of Directors through a continuous process (PDCA cycle) of analyzing and evaluating Board effectiveness each fiscal year as well as considering and providing solutions to new and existing issues. The Board of Directors strives to fulfill its fiduciary duties and accountability to the Bank’s shareholders and performs self-evaluations of Board effectiveness aimed at promoting sustainable growth and enhancing the Bank’s corporate value over the mid- to long-term. The Board continues to assess its management and oversight functions on the basis of the full utilization of directors’ and Audit and Supervisory Board members’ knowledge, expertise and experience, and takes into consideration the views of each Board member. The results of these self-evaluations are shared in thorough Board discussions.

The Board of Directors aims to ensure objectivity and transparency through the Board, which comprises 50% of outside members.

In addition to retaining an Audit and Supervisory Board, the Bank also has a Nomination and Remuneration Committee, which comprises the majority members as outside directors and is also chaired by an outside director, as well as an Audit and Compliance Committee, which comprises only outside directors. Both committees act to complement and check the oversight of executive officers including representative directors.

Moreover, the Bank convened five “outside directors’ meetings” throughout FY2019 to allow for the discussion and exchange of views on key business issues including selection of candidate for the next President and management of the Board from an independent outside director’s perspective. The President and CEO selection process was based on discussions at “outside directors’ meetings,” deliberated at the Nomination and Remuneration Committee and subsequently recommended to and approved by the full Board.

In FY2019, the Board assessed that its roles and responsibilities were properly fulfilled under the aforementioned framework through constructive discussions and exchange of ideas on important issues including business strategy as well as the proper oversight and monitoring of management executives. The Board also assessed that overall Board management was proper and effective.

Going forward, the Bank will strive to make the Board’s roles and responsibilities further effective and proper by utilizing committees under the Board as well as the “outside directors’ meeting.”

Policy and Procedure for Determining Director/Executive Officer Remuneration

In order to pursue our mission to “contribute to the development of society through the creation of new value-added financial services,” the Bank believes it is necessary to provide a setting that encourages high-potential employees to work consistently with high morale, motivation and pride to make sound business decisions.

To this end, the Bank has designed a remuneration system based on the following basic policy.

1. Remuneration framework in line with the Bank’s vision
The Bank aims to build a compensation framework which reflects business performance in line with its objectives and values.

2. Remuneration framework appropriately reflecting the Bank's performance
The Bank’s remuneration framework is based on “Pay for performance” and reflects the Bank’s commitment to sustainable growth, sound risk-taking through appropriate risk management, compliance and customer protection.

3. Remuneration framework serving the interests of stakeholders including shareholders
The Bank will adopt a remuneration framework that is consistent with the values of stakeholders, including shareholders.

4. Remuneration methodology guaranteeing effective governance
In determining remuneration, the Bank will ensure transparency and independence from any specific influences.

Policy on Determination of the Amount or Calculation Method of Remuneration for Directors

The Nomination and Remuneration Committee, which mainly consists of outside directors who are authorized by the Board of Directors, decides on both the directors’ remuneration policy and amounts payable to each director. The Bank pays, in principle, fixed base remuneration, performance-based bonus and equity compensation type stock options to directors (other than outside directors), and only fixed base remuneration to outside directors.

Base Remuneration

Base remuneration comprises fixed amount which is fixed, varies with the type of position (full-time or part-time), job title and responsibility. We use data of an outside specialized agency to check and benchmark whether the level of base remuneration amounts is appropriate before determining it.

Bonus (Performance-Based Remuneration)

The bonus amount is initially set at equivalence of 40% of individual basic remuneration amount (the “Base Bonus Amount”). The Nomination and Remuneration Committee then decides individual amount of bonus (performance-based remuneration) by applying a rate within the pre-determined scope ranging from 0% to 250% of the Base Bonus Amount for every full-time director while considering key indicators of a fiscal year as shown below. Specifically, the Nomination and Remuneration Committee decides a rate and bonus amount by considering the following indicators and the Bank’s performance of a fiscal year.

  • ・Achievement rates of Business Profit and Net Earnings
  • ・Achievement rates of KPI (Key Performance Indicators) such as OHR (Over-head Ratios), ROE (Return on Equity) and ROA(Return on Assets)
  • ・Achievement and maintenance of Capital Adequacy Ratio
  • ・Assessment of undue risk and occurrence of serious compliance incidents
  • ・Implementation/introduction of measures and strategies, including launch of new businesses, from a mid-/long-term viewpoints

Among the above key indicators, achievement rates of Business Profit and Net Earnings are basic indicators on business results. Achievement rates of OHR, ROE and ROA as KPI and Capital Adequacy Ratio are key indicators for the Bank’s Mid-term Business Plan. These achievement rates, therefore, are taken into account as quantitative evaluation indicators to determine bonus amounts. In order to encourage not only enhancement of short-term business performances but also business implementation from mid-/long-term perspectives, factors such as undue risk-taking, making serious compliance violations and implementation/introduction of measures and strategies, including launch of new businesses, from a mid-/long-term viewpoint, are also fully considered as qualitative evaluation indicators.

Targets and results of the indicators related to performance-based remuneration paid in FY2019 are stated below.

Equity Compensation Type Stock Options

The Nomination and Remuneration Committee discussed ratios of cash remuneration and equity compensation type stock options so that the stock options can be one of the proper incentives for sustainable growth, and set the ratio at 25% of the base remuneration amount. The number of options to be granted is determined based on a resolution of the Board of Directors in accordance with the “Equity Compensation Type Stock Options Manual.”

Policy on Determination of ASB Member Remuneration and Calculation

ASB members discuss and determine individual remuneration amounts by considering discussions and proposals made at the Nomination and Remuneration Committee. The Bank pays only fixed base remuneration in accordance with the policy below.

Base Remuneration

Base remuneration amount is fixed, varying with work status (full-time or part-time), assigned audit duties, remuneration for directors, etc. We use data of an outside specialized agency to check whether the level of base remuneration amounts is appropriate before determining it.

Risk Appetite Framework
—Framework for Sustainable Enhancement of Corporate Value over Medium to Long Term—

The Aozora Group is working to promote and strengthen its “6 Areas of Focus” business model. The Bank has developed a diversified portfolio leveraging these six focus business areas, and strives to respond to changes in the business environment including economic, financial and regulatory conditions.

While the banking sector continues to experience significant changes in the operating environment, the Bank remains committed to the sustainable enhancement of its corporate value. In keeping with this commitment, the Bank continues to promote sound risk-taking through proper awareness of the business environment, including potential risks and the implementation of effective risk controls.

The Aozora Group has established a risk appetite framework for business management that clearly identifies the type and level of risks (risk appetite) the Bank takes to achieve its business strategies and financial plan. Going forward, the Bank will make ongoing efforts to further develop its risk appetite framework.

(1) Management Plan

In addition to establishing a mid-term plan that is consistent with the Bank’s risk appetite, the Bank formulates a business plan each fiscal year. These plans underscore the Aozora Group’s appropriate and sound risk-taking activities as well as its proper allocation of management resources.

The management plan is formulated after extensive discussions that take into consideration the expectations of various stakeholders, including customers and shareholders, as well as the operating environment and new business and product ideas. The management plan also reflects the suggestions and advice of outside directors.

(2) Monitoring of Plan Execution

The management plan is executed and monitored under the Bank’s highly transparent and effective corporate governance structure. Information regarding the progress of each plan and the operating environment is shared at each committee meeting, promoting greater collaboration between the Bank’s management and business groups.

In addition, the Risk Appetite Conference convenes once every four interim periods to analyze profitability, level of risk and allocation of management resources. By sharing information on the business environment, the conference supports the formulation and execution of the plan.

Corporate Governance Report

Corporate Governance Report (PDF:543KB)

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