1. 05/10/2012
Corporate Governance
- Did TEPCO’s corporate governance
function? -
Corporate Governance
Group 5
1

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Appendix
23

22. Appendix
24

23. Appendix
25

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. Appendix
27