Corporate Governance Structure

Basic Policy

The Bank defines its management philosophy as being “firmly established in the Japanese financial system and truly committed to contributing to the economic and social growth of Japan.” The Aozora Group has developed the “6 Areas of Focus” in its business model by providing differentiated and specialized financial services with the aim of becoming the “Primary Secondary Bank: the partner of choice.”
In the new Mid-term Plan (FY2018-20), Aozora will strive to achieve sustainable growth as the “Primary Secondary Bank: the partner of choice” by further leveraging its core competencies and unique market position relative to that of megabanks and regional financial institutions in order to contribute to the development of Japan’s economy and society.

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

The Bank has established a transparent management framework, and continues to work toward a more transparent corporate governance structure, in light of the requirements of the recent corporate governance reform.

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.

Organization and Structure

Separation of Management and Business Execution

To further enhance efficiency and transparency through the separation of management and business execution, the Bank appoints a number of outside directors to the Board of Directors. Outside directors are independently positioned directors who provide advice and suggestions based on their financial knowledge and experience, as well as their expertise and insight into global executive management. In accordance with the standards set forth by the Tokyo Stock Exchange (TSE), all qualified outside directors are designated as independent directors with the approval of the Board of Directors and are registered with the TSE. The Board of Directors establishes important business policies and oversees the execution of duties by executive officers who are entrusted with daily business operations.

The Management Committee is the highest decision-making body responsible for the execution of daily business operations, and is comprised of executive officers appointed by the Board of Directors. In addition to ensuring a timely decision-making process, the Management Committee holds executive officer meetings to share important information with all of the Bank’s executive officers. The Management Committee also has various sub-committees that assist in the execution of daily business operations.

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 good corporate governance and implementing appropriate and rigorous internal controls, in accordance with the Board-approved “Internal Control Programs.” 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, 2018)

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

Mainly comprised of outside directors, the Nomination and Remuneration Committee recommends candidates to the Board of Directors for Board and Audit and Supervisory Board membership, as well as other important roles. In addition, the Nomination and Remuneration Committee determines the remuneration of directors and executive officers, and makes recommendations to the Audit and Supervisory Board regarding the remuneration of Audit and Supervisory Board members.

Audit and Compliance Committee

The Audit and Compliance Committee comprises outside directors who are responsible for reviewing the adequacy and effectiveness of matters relevant to the establishment of internal control systems including internal and external audits, risk management, compliance, credit audits and the financial reporting process.

Execution of Duties

Management Committee

The Management Committee comprises executive officers (including senior management) 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 FY2017 Purpose
Board of Directors Chairman or President Directors, Audit and Supervisory Board Members 13 meetings Determine management policy, supervise duties of Directors and Executive Officers
Audit and Supervisory Board (ASB) Standing ASB Member ASB Members 16 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 roles to the Board of Directors
Determine remuneration for Directors and important officers, and make recommendations regarding remuneration for Audit and Supervisory Board Members
Audit and Compliance Committee Outside Director Outside Directors 7 meetings Supervise and review internal and external audits, risk management, compliance, credit audits and financial reporting processes
Management Committee President or Deputy President Executive Officers appointed by the Board of Directors 46 meetings Determine important matters related to daily business operations
Name of committee Chaired by Members Meetings Held in FY2017 Purpose
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 17 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 & Business Banking Credit Committee> CCRO President, Deputy President, Executive Officers in charge 47 meetings Approve credit transactions and related business policies
Investment Committee CRO President, Deputy President, Executive Officers in charge 34 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 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, Deputy President, Executive Officers in charge 12 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 13 meetings Review customer protection framework in five areas: customer explanation management, customer support management, customer information management, outsourcing management and conflict of interest management

Responsibilities of the Board of Directors, etc.

Standard for Determining Independence of Outside Directors

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

Aozora works on further enhancing the effectiveness of the Board of Directors through a continuous process (PDCA cycle) of analyzing and evaluating Board effectiveness every 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 Aozora’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 self-evaluations are shared in thorough Board discussions.
In FY2018, the Board assessed that its roles and responsibilities were properly fulfilled under the appropriate framework through active discussions and sharing of ideas. The Board also assessed that overall Board management was suitable and effective.
Going forward, the Bank will strive to strengthen its monitoring and oversight functions through constructive discussions on important issues including management strategies in order to further enhance Board effectiveness by utilizing the Nomination and Remuneration Committee, primarily consisting of outside directors, and the Audit and Compliance Committee, while remaining a company with an Audit and Supervisory Board.

Board of Directors’ 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, remuneration for directors, in principle, consists of base remuneration (fixed remuneration), bonus and equity compensation type stock options for inside directors (full-time directors) and solely of base remuneration (fixed remuneration) for outside directors.

Procedure for Determining Remuneration for Audit and Supervisory Board Members

Remuneration for Audit and Supervisory Board Members consists solely of base remuneration (fixed remuneration) and is determined through deliberation by the Nomination and Remuneration Committee and discussion by the Audit and Supervisory Board based upon 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:233KB)

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