Corporate Governance Structure

Basic Policy

The Bank is firmly established in the Japanese financial system, and the Bank is committed to contributing to the economic and social growth of the country through its business operations. The Bank also reaffirms its commitment to a strong risk management framework and the maintenance of management soundness in order to preserve its financial strength and institutional discipline under a range of future conditions, while providing differentiated and specialized financial services to its customers.

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 towards a more transparent corporate governance structure by focusing on the proper establishment and operation of its governance framework as the primary management initiative.

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 decisionmaking body for the execution of daily business, and comprises members from amongst 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 April 1, 2019)

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, that is mainly comprised of 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 FY2018 Purpose
Board of Directors Chairman or President Directors, Audit and Supervisory Board Members 15 meetings Determine management policy, oversee duties of Directors and Executive Officers
Audit and Supervisory Board (ASB) Standing ASB Member ASB Members 14 meetings Report, discuss and approve important audit-related matters
Nomination and Remuneration Committee Outside Director Directors (Outside Directors comprise majority) 6 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 FY2018 Purpose
Management Committee President or Deputy President Executive Officers appointed by the Board of Directors 50 meetings Determine important matters related to daily business operations
Asset and Liability Committee CFO Chairman, President, Deputy President, Executive Officers in charge 14 meetings Determine important matters regarding asset and liability management
Integrated Risk Committee CRO President, Deputy President, Executive Officers in charge 20 meetings Establish risk management policies, monitor risk management framework, maintain proper internal governance, launch new businesses/products
Credit Committee (Institutional Credit Committee) CCRO President, Deputy President, Executive Officers in charge 76 meetings Approve credit transactions and related business policies
Credit Committee (Allied and Business Banking Credit Committee) CCRO President, Deputy President, Executive Officers in charge 49 meetings Approve credit transactions and related business policies
Investment Committee CRO President, Deputy President, Executive Officers in charge 31 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, Deputy President, Executive Officers in charge 17 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, Deputy President, Executive Officers in charge 11 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 20 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 longterm. 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 mainly comprises 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 four “outside directors’ meetings” throughout FY2018 to allow for the discussion and exchange of views on key business issues, management of the Board and succession of the CEO from an outside perspective.

In FY2018, 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

To achieve Aozora’s management philosophy of being “firmly established in the Japanese financial system” and “truly committed to contributing to the economic and social growth of Japan,” the Bank believes it is necessary to provide an environment (remuneration) that supports the mental well-being of capable employees and fosters high morale, motivation and a sense of pride towards work.
The Bank aims to realize this environment with the implementation of the following basic policy for determining remuneration.

<Basic Policy>

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

2. Remuneration framework appropriately reflecting performance
The Bank’s remuneration framework is structured on the principle of “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 its stakeholders, including shareholders.

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

In accordance with the above basic policy, director remuneration for internal directors consists of a base remuneration (set compensation), bonus (performancebased compensation), and equity compensation type stock options, while director remuneration for outside directors consists solely of a base remuneration (set compensation).Remuneration for executive officers consists of a base remuneration (set compensation), bonus (performancebased compensation), equity compensation type stock options, and retirement allowance.

Procedure for Determining Remuneration for Audit and Supervisory Board Members

Remuneration for Audit and Supervisory Board Members consists solely of base remuneration (set compensation) and is determined by the Audit and Supervisory Board within the maximum amount of remuneration approved by the annual general meeting of shareholders.

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

Aozora aims to strengthen its position as a trusted “Primary Secondary Bank: An Even More Reliable Partner” by further enhancing the “6 Focuses” of the Bank’s differentiated 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 Bank 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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