Tepco coporate governance_final

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Tepco coporate governance_final

  1. 1. 05/10/2012 Corporate Governance - Did TEPCO’s corporate governance function? - Corporate Governance Group 5 1
  2. 2. 0. Outline  Background  What happened in TEPCO after 311?  Objectives  Why did we choose TEPCO incident as a case?  What would we like to clarify?  Problems of the past corporate governance  What were likely to be problems?  The changes after the incident  What changed?  How is the structure of present corporate governance?  How to evaluate  Would we like to invest as a fund manager? 2
  3. 3. 1. Background  Company profile  Tokyo Electric Power Co., Ltd.  TEPCO is the biggest electric company  Founded in 1951  # of Employees is 38,701 (as of March, 2012)  Revenue: 5,349 billion yen (FY2011) 5,016 billion yen (FY2009)  Net profit: -781 billion yen (FY2011) 133 billion yen (FY2009) 3
  4. 4. 1. Background  What happened in TEPCO after 311? The disaster on 311 The highest Tsunami to Fukushima Referred to Japan Meteorological Agency 4 Nuclear power plant down!
  5. 5. 1. Background  What happened in TEPCO after 311?  It is said that disaster was caused by human error with no pre-disaster efforts  Then… Responsibility to electric supply Much compensations Import of the expensive fuels 51% of Input of public fund Bankruptcy 5
  6. 6. 2. Objectives  What is the problem of this incident?  This incident has the complex problem  Many causes to bankrupt of TEPCO TEPCO Plant protection action Corporate governance NATURAL DISASTER Tsunami / Earthquake GOVERNMENT Supervision TEPCO Clarify the problems by focusing on corporate governance and evaluate the updated structure 6
  7. 7. 3. Problems of the past corporate governance  The past corporate governance Ownership Board Committees Referred to Financial report FY2009 7 Internal Auditors External Auditors
  8. 8. 3. Problems of the past corporate governance  The past corporate governance Board of director Board Members 20 [Internal] 18 [External] 2 Tomijiro Tomita, Daiichi life insurance Yasushi Aomori, MEIJI University One tier structure, the chair is president Monthly board of directors meeting & extraordinary meeting 8
  9. 9. 3. Problems of the past corporate governance  The past corporate governance Auditor system Auditors 7 [Internal] 3 [External] 4 Sadayuki Hayashi, ex. Advisor to the Ministry of Foreign Affairs of Japan (MOFA) Koichi Takatsu, Layer Hiroshi Komiyama, ex. Chancellor of the university of Tokyo Kazuko Oya, Shiseido 9
  10. 10. 3. Problems of the past corporate governance  The past corporate governance Main part of committees Remuneration Internal control CSR, Human rights Remuneration of internal board members 900 800 700 bonus remuneration 62 125 0 600 500 62 0 0 160 140 0 120 bonus remuneration 12 0 300 477 669 654 648 698 700 60 460 0 100 170 40 20 0 0 10 0 12 0 80 661 0 12 100 62 400 200 Remuneration of internal auditors 180 148 119 104 155 133 0 98 98 141 0 39
  11. 11. 3. Problems of the past corporate governance  The past corporate governance Ownership structure Very dispersed Top share : Japan Trustee Services Bank, Ltd. (4.47%) 4% 4% 4% 4% 3% 3% 2% 1% 1% 1% 73% Stock share of foreigner: 17% 11 Japan trusty service Daiichi insurance Nihon insurance Japan master trust Tokyo Metropolitan Mitsui Sumitomo bank Mizuho bank Inside Japan trusty service Mitsubishi UFJ bank others
  12. 12. 3. Problems of the past corporate governance  The past corporate governance  TEPCO said Board with committee & auditor system…  enhances Smart discussion from a neutral standpoint of view  drives adequate supervision  organizes managing directors meeting & other meetings  promotes framework of quick decision-making  enterprises project management and maintains a stable supply of electric power: internal control, CRS, system security  enrolls internal audit system: Quality and Safety Systems  establishes nuclear safety quality assurance meeting Perfect? 12
  13. 13. 3. Problems of the past corporate governance  Problems of the past CG were… no diversified members, especially no outside views to corporate governance merely comprised members from TEPCO employees to be monopolist without the supervision from product markets and public The checking function had not worked… 13
  14. 14. 4. The changes after the incident  The changes of CG structure TEPCO recruited many of outside members for its governance. Before After Shareholder’s meeting Board of Directors Shareholder’s meeting Board of Directors Committee Internal Auditors Outside Auditors Operating Officers Operating Officers Internal 15 External
  15. 15. 4. The changes after the incident  The changes of structure of CG 2-tier Background of Outside Board Members Chair SHIMOKOUBE Kazuhiko Lawyer Audit & compensation committee 2 Advisor , JFE Holdings SUDO Fumio Nominating committee 3 Representative Director & President, Innovation Network Corporation NOUMI Kimikazu Compensation committee 4 CEO of Mitsubishi chemical holdings KOBAYASHI Yoshimitsu Compensation committee 5 Chartered Public Accountant (CPA) KASHIYA Toshio Audit committee 6 CEO of Living life (LIXIL) FUJIMORI Yoshiaki Compensation committee Background of Outside Auditors TAKATSU Kouichi Lawyer KOMIYAMA Hiroshi Outside board member , JX Holdings OHYA Kazuko Special Adviser, SHISEIDO 16
  16. 16. 4. The changes after the incident  The changes of structure of CG Compensation for board members 2011 900 800 Remuneration of bonus Total Detail (Million Yen) internal board members 700 (Million Yen) remuneration 62 Board member 600 170 125 Basement 0 0 170 39 47 Auditor 500 Outsider 400 62 62 661 300 200 100 0 17 477 0 Number of members Bonus 0 - 5 47 654 19 39 669 - 6 648 698 700 460 0 170
  17. 17. 4. The changes after the incident  Other important changes : a lot of business alliances  They will not consider only companies with committees but also business partners  The new structure of corporate governance for TEPCO from the point of business partners’ view Referred to Yomiuri 18
  18. 18. 5. How to evaluate  Key criteria observation Item Structure Detail Transit over to a “In-house Company System (Committee System)” Introduce a governance system with a majority of its board members from outside ✔ Tire Separation of management and owner to be 2-tier ✔ Transparency Total compensation for board members and auditors is open to public △ Supervision The strict supervision from business partners and public by starting alliance business ✔ They obviously changed to be a company with good governance! Would you like to invest in TEPCO? 19
  19. 19. 5. How to evaluate  Key criteria observation stock price 2400 128 2010 2011 2012 TEPCO estimated and recorded as an expense compensation for nuclear damages in an amount totaling 2.5 trillion. Not invest in TEPCO at this moment. 20 Keep watching its change.
  20. 20. Thank you for your attention. References          Tokyo Electric Power Company (2012). Financial report FY 2011 Tokyo Electric Power Company (2012). Annual report FY 2011 Tokyo Electric Power Company (2010). Financial report FY 2009 Forbes (2011). Did management problems at TEPCO cause Japan’s $15B radiation leak? Bob T. and Chris M. (2011). Tokyo Electric Power and the disaster at Fukushima Daiichi The Wall Street Journal (2011). The Fukushima Warning, Mismanagement at TEPCO is a symptom of deeper governance problems in corporate Japan Japan Center for Economic Research (2011). Crisis offers change to cure economic ills GMI Ratings (2011). Japan in focus: Why risk management matters Yomiuri Shimbun (2012). Tokyo Gas eyes electricity business / Tie-up with TEPCO to rebuild thermal plants signals newcomers' entry into market 21
  21. 21. Appendix 23
  22. 22. Appendix 24
  23. 23. Appendix 25
  24. 24. Appendix  3) Optimal Leveraging of Present Management Resources  Increasing the quality of Power Grids (smart meter installations) and establishing an environment that provides new business opportunities to various industrial players.  The promotion of know-how in the areas of construction/operations of high efficient power units and high quality grid management has been at a standstill.  Global Business Development with other Partners.  4) A New Mindset  “Reluctance to Seek Outside Support”, “Over-sectionalism”, “Lack of Transparency” and “Unwillingness to Compete”, etc.  It is of utmost importance that each employee adopts the new mindset so that all efforts will be harmonized and the quality of human resources will be enhanced. 26
  25. 25. Appendix 27

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