CORPORATE GOVERNANCE

Our Fundamental Concept ofCorporate GovernanceInitiatives to Strengthen Corporate Governance

As an “energy frontier corporate group” that focuses on natural gas, Tokyo Gas has a management philosophy that aims at
the realization of comfortable lifestyles and environmentallyfriendly cities. We work to ensure continued development
while consistently earning the trust of customers, shareholders, and society. Based on this philosophy, our fundamental
concept of enhancing corporate governance is intended toachieve a continuous increase in our corporate value by
maximizing the value provided to all of our stakeholders.
We are also endeavoring to develop systems and measures
to further augment corporate governance, and are implementing them with a commitment to management legality,
soundness, and transparency. Tokyo Gas continues to emphasize the importance of accurate decision making, clear separation of management functions and executive functions,efficient business operations, strengthening of auditing andmonitoring functions, and clarification of management andexecutive responsibilities.

In accordance with our fundamental concept of corporate
governance, we have implemented the following ongoingmeasures to build an optimal corporate governance system
for the Company and to further strengthen this system.

2002

The number of directors was significantly reduced (from 30 to 15).
Outside directors were invited to join the Board of Directors.
An executive officer system was introduced.
• The term of office for each officer was shortened to one year.
• The Management Ethics Committee, which is chaired by the
President, was established. This committee aims at creating an
open atmosphere in the organization and promoting transparent
management systems, through the discussions relating tocompliance in general.
•••

The Enterprise Risk Management System was introduced.

2003

•

2005

•

2006

・In order to meet the requirements of the Internal Control
Reporting System based on the Financial Instruments andExchange Law, the Internal Control Promotion Committee wasestablished.

2008

•

The Advisory Committee was established to discuss mattersrelating to candidates for director positions, officer remuneration,and other similar issues.
• The officer remuneration system was revised, with principal
measures including the abolition of retirement benefits, theintroduction of a performance-linked remuneration scheme, andthe establishment of share-purchasing guidelines.

The Risk Management Committee was established.
The evaluation related to the internal control reporting system
was completed.
• The IR system was reevaluated, and the IR Department wasestablished. As a result, IR activities were strengthened and therisk management functions that had been dispersed throughout
various departments were combined in the IR Department.
•

Corporate Governance Structure
Customers

Shareholders / Investors

Local Community

General Shareholders’ Meeting
Appointment
Appointment

ReportAdvisory Committee2

MonitorCollaboration

Report submission
Management Ethics Committee

Audit

Collaboration

Internal Audit Dept.

Board of Corporate
Auditors 3

Independent Auditors

Board of Directors1
Inquiry

ReportAppointment

Report submission

AnswerPresident (Corporate
Executive Committee4 )ReportApproval

Deliberation
and report

Settlement and monitor

Report submission

CSR Promotion Committee

Other In-House Committees
Audit

Stakeholders

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Risk Management Committee

Environmental Committee

Strategic Business Units / Support Units(each unit, subsidiaries & affiliates)

1
2
3
4

Customer Satisfaction Promotion Committee

Investment Evaluation Committee

Collaboration

Audit

Safety Committee

General Shareholders’ Meeting

Board of Directors: 11 directors (3 outside directors, and 8 internal directors)
Advisory Committee: 2 outside directors, and 1 outside auditor, Chairman, and President
Board of Corporate Auditors: 5 corporate auditors (3 outside auditors, and 2 internal auditors)
Corporate Executive Committee: President, 2 Executive Vice Presidents, 10 senior executive
officers (3 of the representative directors also serve as President and Executive Vice Presidents.)

Add to agenda and report
Decision and risk monitoring
Tokyo Gas Co., Ltd.

Business Operations

Management Structure
In June 2002, we reduced the number of directors dramatically (from a maximum of 30 to a maximum of 15) so as tostreamline and speed up management decision making. In
order to clarify the separation between management andexecutive functions and to strengthen the decision-making
and management functions of the Board of Directors, we
invited three outside directors, all of whom have extensive
expert knowledge, to join the Board. The outside directors
monitor the appropriateness of management activities in a
flexible and objective manner. We have created a structurethat supports prompt and effective decision making while
maintaining proper management transparency. We have alsoestablished the Advisory Committee to discuss mattersrelating to candidates for director positions, officer remuneration, and other similar issues. This committee is comprised ofoutside directors, outside auditors, and Tokyo Gas directors.
As of the end of June 2009, there were 11 directors.
Tokyo Gas has adopted an executive officer system thatprovides clearly defined accountability. By delegating substantial authority to the executive officers, the system also
supports speedy execution by the executive officers ofoperational matters, based on major business operation plans
and the like determined by the Board of Directors. As of theend of June 2009, there were 23 executive officers.
In addition, to assist the Board of Directors, we have set
up the Corporate Executive Committee as a deliberative body.
It comprises the President, the Executive Vice Presidents, andthe senior executive officers. It deliberates in advance on
agenda items for upcoming meetings of the Board of Directors and on important matters related to management. Afterin-depth discussion at these weekly meetings, the President
makes final decisions on such management issues. In order toestablish clear lines with regard to the directors’ management
accountability and the executive officers’ operational accountability, we have set their respective terms of office at
one year.
The three outside auditors and two corporate auditors
strictly audit the legality and appropriateness of the performance of duties by the directors from a position of complete
independence. Further, they actively make recommendations
at Corporate Executive Committee and Board of Directors toenhance the effectiveness of monitoring.

Internal Control System
Under our internal control system, the Board of Directors,
which includes three independent outside directors, determines the basic policies for the development of the importantbusiness operations plans and the internal control systems
and monitors the performance of the directors. In accordancewith the basic policies determined by the Board, the executive
officers act to carry out business operations as well as todevelop and operate the internal control system. We haveestablished the Corporate Executive Committee as a deliberative body to assist the Board. This body undertakes priordiscussions on the agenda for upcoming meetings of theBoard and deliberates on important matters related to
management.
The five corporate auditors, three of which are outside
auditors, monitor the performance of the directors’ duties.
In addition, the Internal Audit Department, independentlyof business units, monitors the business activities in eachsegment of Tokyo Gas and its consolidated subsidiaries, aswell as the state of the development and operation of internal
control and risk management. To implement specialized
audits efficiently, the Internal Audit Department has developed a structure of four groups, specializing in financial,
operational, information system, and compliance audits. In
April 2009, an internal control group was newly establishedto evaluate the effectiveness of internal control regarding
financial reporting.

Reforming the Remuneration System
In 2005, Tokyo Gas restructured its officer remuneration
system and published details of the new system with the aimof further enhancing management objectivity and transparency as well as clarifying the management responsibility forbusiness performance. The main features of the new system
are as follows:
1. Abolition of retirement benefits
Retirement benefits for directors have been abolished.
Yearly retirement benefits have been integrated intomonthly payments to officers.
2. Introduction of a performance-linked remuneration scheme
A performance-linked remuneration scheme that reflects
Company-wide and divisional performance for the previous
term has been introduced for the monthly payment of
directors who double as executive officers.

Total Remuneration for Directors andCorporate Auditors(Fiscal 2008)
Millions of yen

Thousands of
U.S. dollers

Remuneration for
11 directors

461

4,704

Remuneration for
6 corporate auditors*

106

1,081

Total

567

5,785

*

Including one auditor who retired after the General Shareholders’ Meetingin June, 2008

Compensation for Independent Auditors(Fiscal 2008)
Millions of yen

Thousands of
U.S. dollers

Remuneration forauditing services

307

3,132

Remuneration
for non-auditing services

34

346

Total

341

3,479

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3. Share purchasing guidelines
All directors, excluding outside directors, will acquire Tokyo
Gas shares each month through the Employee Shareholding Association. The amount purchased is determinedaccording to our newly introduced share purchasing
guidelines. The ownership of such shares will be retained
during the terms of office of the directors.

Enterprise Risk Management System
In fiscal 2003, the Group established the Enterprise Risk
Management (ERM) system, which includes risk management
regulations and documented rules concerning major risks that
require management intervention.
The IR Department’s Risk Management Group wasestablished to promote overall risk management, and approximately 100 Risk Management Promotion Officers have been
deployed in Tokyo Gas and its consolidated subsidiaries, andin this way ERM is promoted. Under this risk management
system, every year, we review risks, evaluate fluctuations in
the importance of risks, and assess the implementation andimprovement status of countermeasures. This system facilitates the steady implementation of the ERM-PDCA (Plan-DoCheck-Act) cycle.
Furthermore, in fiscal 2008, the Risk Management
Committee was established to assess, manage, and evaluate
the status and operation of the ERM system and to improve
the level of ERM on a Group-wide basis. This committee
checks the status and operation of the ERM system, including
periodic risk reviews, reports to the Corporate Executive Committee and the Board of Directors, and secures the necessary
approvals.
As a result of the establishment of the ERM system,
we can identify and clarify the most recent major risks,
which reflect changes in the management environment, andwe can provide appropriate disclosure of risk information to
the capital markets and other major stakeholders. Also, as aresult of periodic monitoring through the Corporate Executive Committee and Board of Directors’ meetings, we canimplement appropriate responses to risks that are becoming
more diverse, complex, and advanced.

Crisis Management System
Because the Company provides public services that comprisea lifeline, for many years we have also had a crisis management system that serves as a response system in the eventthat a risk-related event actually occurs. Specifically, we haveformulated Emergency Response Organization Regulations.
In the event of the occurrence of any type of crisis, theEmergency Response Organization responds to the situation
immediately in accordance with the Emergency Response
Organization Regulations. Possible crises include major natural
disasters, such as earthquakes, or production or supply disruptions arising from major accidents at pipelines or terminals,
as well as influenza, terrorism, failures in mission-critical IT
systems, and compliance problems. Moreover, periodic
training is conducted for major risk response measures.

Promoting Compliance
Our stance is reflected in three basic policies calling for thefostering of compliance awareness, the cooperation of each
workplace with compliance efforts based on the Group policy, and the establishment of compliance PDCA cycles.
We have established the Management Ethics Committee,
chaired by the President. This committee discusses at the
management level basic compliance policies and all aspects ofcompliance initiatives by the Group, monitors the implementation of compliance-related measures, and confirms activity
programs from the following year and thereafter. We havealso established the Compliance Department, a specialized
unit that provides leadership in compliance-related activities.
These include development of compliance promotion systems
for each unit, awareness and educational campaigns about
the code of conduct, compliance risk reduction measures,
maintenance of advisory systems, and the distribution of information within and beyond the Tokyo Gas Group companies.
In addition to continuous education about activities
related to our code of conduct revised in 2004, we aremoving forward with a compliance casebook designed for applying the code of conduct to various problems in the workplace, so as to achieve the permeation of compliance.

Major Risks Requiring Management Intervention
Risks associated with accidents,
disasters, etc.

32

Gas resource procurement difficulties, natural disasters, accidents accompanying gas manufacture andsupply, supply impairments, problems in the areas of assurance of gas safety and the quality of gas
appliances and other products, damage due to rumors caused by gas accidents at other firms

Market fluctuation risksMarket price and interest rate fluctuations affecting real estate and financial assets

Risks accompanying
business execution

Risks related to established business (changes in the environment of gas resource procurement, risks
associated with insufficient or excessive recovery of gas resource costs, decrease in gas sales due toclimate change, reduction in existing demand, decrease in demand accompanying intensified competition, delay in the establishment or start of business by new regional energy companies, failure to achieve
technology development goals, changes in laws, regulations, institutions, or national/local energy policy),delayed cultivation of new markets, inability to recover investments

Risks related to information
management and system operation

Leakage of personal information, shutdown or malfunction of mission-critical IT systems, interruption of
telephone service at call centers

Risks related to corporate social
responsibility

Conformance with new environmental regulations, etc., compliance violations, insufficient customer
satisfaction or customer service

Compliance risk countermeasures include internal andexternal advisory systems. By operating these systems effectively, we are endeavoring to ensure that compliance-related
problems are discovered and resolved quickly so that our
corporate self-regulatory processes will continue to function
effectively. Dedicated to auditing the observance of laws,
regulations, and corporate ethics, the Compliance Audit Group
has also been established within the Internal Audit Depart-ment. It has been steadily working to mitigate risks by implementing follow-up audits to verify progress in tackling concerns identified at first auditing.
We monitor the effectiveness of Group compliancepromotion activities by conducting regular complianceawareness surveys of all employees. The results of thesesurveys are reflected in initiatives for the following years.

Compliance Structure
Board of Directors
President

Corporate Auditors

ReportManagement Ethics Committee
ReportChairman: President
Members: Head of divisions / departments, Directors in charge

Internal Audit Dept.

Compliance Dept.
Instruction / report

Support / report

Each division / business unit
Compliance audit (risk understanding)

ReportConsultation / notification

Compliance Committee

Each department of Tokyo Gas

Subsidiaries & affiliates

Report / consultation

Report / consultation

Employee

Enhancement of IR Activities

Group Management Structure

As distinctive characteristics of the IR activities of Tokyo Gas,
our top management diligently participates in our IR activities.
In addition to disclosing a wide range of information, we also
engage in interactive communication with investors. We
believe that through these activities, we can put stock market
expectations and the opinions to good use in the management of the Company and enhance discussion of the thinkingof our management with all of our investors. In so doing, we
eliminate the gap between our true corporate value and themarket assessment of the Company. Based on this belief,
primarily in the period after the announcement of our
financial results, we have been engaged in IR activities
including visits by top management to institutional investors
in Japan and overseas. Briefings and individual meetings arealso used as opportunities for wide-ranging discussions.
Tokyo Gas has always disclosed its short-, medium- andlong-term management targets as well as the specific management strategies and action plans adopted to achieve thesetargets. We have also actively shared information about ourbusiness performance and progress towards goals. Among
our disclosure activities, we will continue to improve andexpand the content of our annual report, investors’ guide,
IR website, and Tokyo Gas Newsletter.

The Tokyo Gas Group currently consists of Tokyo Gas Co.,
Ltd., together with 57 subsidiaries and four equity-method
affiliated companies. With the deregulation of the energy
sector, Tokyo Gas now faces escalating competition fromboth inside and outside the industry. In April 2004, we
introduced the “Strategic Business Unit” (SBU) system,
which is designed to focus all of the resources of the Tokyo
Gas Group on the task of surviving and succeeding in an
increasingly competitive environment. Under this structure,
Tokyo Gas corporate divisions are linked with Group companies to form business units in each business area. The divisions and companies work closely together on tasks ranging
from the formulation of business strategies to the allocationof management resources and the management of operations, all under the responsibility of unit managers. The aimof this cooperative approach is to maximize our Grouppotential and further strengthen our competitiveness.

33

BOARD OF DIRECTORS AND CORPORATE AUDITORS

Director, Chairman

Representative Director, President

Representative Director, Executive Vice President

Norio Ichino

Mitsunori Torihara

Tadaaki Maeda

April 1964
June 2003

April 1967
June 2003

April 1970
April 2004

April 2006
April 2007

Joined the Company
President, Representative Director, andExecutive President
Director and Vice Chairman of the Board
Director and Chairman of the Board

April 2004

April 2006

June 2004

April 2006
April 2007

Joined the Company
Senior Executive Officer, Chief Executive ofEnergy Resources Div. and in charge of Internal
Audit Dept.
Director, Senior Executive Officer, Chief Executiveof Energy Resources Div. and in charge of Internal
Audit Dept.
Representative Director, Executive Vice President
and Chief Executive of Strategic Planning Div.
Representative Director, Executive Vice President,
Chief Executive of Energy Production Div., and in
charge of Environmental Affairs Dept.

Representative Director, Executive Vice President

Director, Senior Executive Officer

Director, Senior Executive Officer

Tsuyoshi Okamoto

Shigeru Muraki

Toshiyuki Kanisawa

April 1970
April 2006

July 1972
April 2006

April 1972
April 2006

April 2007

April 2009

Joined the Company
Director, Senior Executive Officer, Chief
Executive of Corporate Communication Div.
and in charge of Compliance Dept., Internal
Audit Dept.
Representative Director, Executive Vice President,
and in charge of Personnel Dept., Secretary
Dept., General Administration Dept.,
Compliance Dept., and Internal Audit Dept.
Representative Director, Executive Vice President,
and in charge of Personnel Dept., Secretary
Dept., General Administration Dept., andCompliance Dept.

April 2007

June 2007

Joined the Company
Senior Executive Officer and Chief Executive ofTechnology Development Div.
Senior Executive Officer, Chief Executive ofEnergy Solutions Div. and General Manager ofVolume Sales Dept. of Energy Solutions Div.
Director, Senior Executive Officer and Chief
Executive of Energy Solutions Div. and General
Manager of Volume Sales Dept. of Energy
Solution Div.

Director, Senior Executive Officer

Director, Senior Executive Officer

Tsutomu Oya

Michiaki Hirose

April 1975
April 2004

April 1974
April 2008

April 2006
June 200934

Joined the Company
Representative Director, Executive Vice President,
Chief Executive of Strategic Planning Div. and in
charge of Internal Audit Dept. and Compliance
Dept.
Representative Director, Executive Vice President,
Chief Executive of Corporate Communication
Div. and in charge of Compliance Dept.
President, Representative Director, andExecutive President

Joined the Company
Executive Officer, and General Manager ofAir-conditioning and Commercial Customer
Development and Sales Dept. of Energy Sales
and Service Div., and Acting General Manager
of Volume Sales Dept. of Energy Sales andService Div.
Senior Executive Officer and Chief Executive ofEnergy Resources Div.
Director, Senior Executive Officer and Chief
Executive of Energy Resources Div.

April 2009

June 2009

Joined the Company
Senior Executive Officer and in charge ofCorporate Planning Dept., Investor Relations
Dept., Finance & Managerial Accounting Dept, Accounting Dept., Affiliated Companies Dept., and
Gas Industry Privatization Research Project Dept.
Senior Executive Officer and in charge ofCorporate Planning Dept. and AffiliatedCompanies Dept.
Director, Senior Executive Officer and in charge ofCorporate Planning Dept., Corporate Communications Dept., and Affiliated Companies Dept.

April 2007
June 2007
April 2009

Joined the Company
Senior Executive Officer, and Chief Executive ofResidential Sales Div.
Senior Executive Officer, and Chief Executive ofResidential Sales Promotion Div.
Director, Senior Executive Officer, and Chief
Executive of Residential Sales Promotion Div.
Director, Senior Executive Officer, and Chief
Executive of Housing Development Div.

AuditorYasunori Takakuwa

AuditorKunihiro Mori

Outside Auditor

Shoji Mori
(Vice Chairman, Institutefor International SocioEconomics Studies)

Outside Auditor

Yukio Masuda(Standing Consultant,
Mitsubishi Corporation)

Outside Auditor

Masayuki Osawa(Administrative Director of
Yokohama City Silver Human
Resources Center)

MESSAGE FROM OUTSIDE DIRECTORS

Outside Director

Outside Director

Outside Director

Kazumoto Yamamoto

Katsuhiko Honda

Sanae Inada

Current position
June 2005

Current position
June 2007

Current occupation Attorney
June 2007
Director of the Company

Advisor, Asahi Kasei Corporation
Director of the Company

As a nation, Japan has a long history,
traditions, and culture, and companies,
too, have their own histories, traditions,and cultures. As a result, I do not believethat there is any single, fixed way of implementing management and corporate
governance, because management cannot
ignore those distinctive company characteristics. It is important to clarify the purpose of a company’s business activities,
and to search for the style of management
and governance that are best suited tothat purpose. As a company that helps to
support the framework of society, Tokyo
Gas bears an important responsibility tomaintain and expand its business operations over the long term. To do that, however, it is essential that the Company is notcontent with activities intended to simply“support.” Rather, we must implementbold initiatives designed to foster“change” over the long term. The Company faces high expectations in the fields
of energy usage and supply, especially inregard to how they will change the structure of society and what role they will playin that process.

Advisor, Japan Tobacco Inc.
Director of the Company

If we do not fulfill our responsibilities tofour groups of stakeholders—customers,society, investors, and employees—then
we will not be able to achieve our company mission of sustained development.
This is a fundamental element of management that applies to any company, anywhere in the world. Tokyo Gas is a “public
utility” that provides social infrastructure,but I believe that the public interest aspectof a company’s operations is not intrinsic
to the company itself but rather is granted
to the company by the customers who
support it. In the midst of severe changes
in our operating environment, it is important that we continually develop productswith high value added and increase management efficiency, without letting thefact that we are a public utility become an
excuse for avoiding operational reforms.
As an outside director, it is my role tooffer a third-party perspective, reflecting
on whether or not our management isfocused on the groups of stakeholders
I mentioned and offering advice.

President

Mitsunori Torihara

Ensuring that a company’s ongoing management and development is conducted inaccordance with social norms and ethics isthe purpose of corporate governance andcompliance. Tokyo Gas supports the public
interest through the supply of city gas,
and the Company’s managers must set an
example of that conduct. I also think that
top executives should have pride in managing a leading company in the industry,
and they should present a management vision for 10 years into the future. The reason is precisely because we are in an environment of fierce competition among
forms of energy. As a city gas supplier inthe growing Kanto region, Tokyo Gas
meets a substantial part of Japan’s energy
needs. Moreover, the Company has asignificant responsibility to publicly display
an image of the future of energy. As anatural gas pioneer, Tokyo Gas needs tomake full use of the environmental superiority of natural gas. Active discussions areheld at the Company’s Board of Directors
meetings, and I will continue to offer myopinion with an awareness of my role as
an outside director of a company that
supports society.
Executive Officers

Norikazu Hoshino
Dispatched to the Japan Gas Association

Akio Maekawa

Mikio Itazawa

Coordinator, Energy Solution Div.

Chief Executive of Pipeline Network Div.

Koichi Aonuma

Tadaaki Maeda

Hirokazu Hayashi

Chief Executive of Energy Production Div. and in chargeof Environmental Affairs Dept.

Chief Executive of Regional Development Marketing Div.

General Manager, Sales Marketing II Dept.
of Housing Development Div.

Kazuo Yoshino

Yutaka Kunigo

Tsuyoshi Okamoto

In charge of Investor Relations Dept., Finance & Managerial
Accounting Dept., and Accounting Dept.

General Manager, Industrial Gas Sales Dept.
of Energy Solutions Div.

Hisao Watanabe

Masahiro Mikami

Chief Executive of Technology Development Div. andInformation Technology Div.

General Manager, General Administration Dept.

Hiroaki Kubota

Manabu Fukumoto

General Manager, Energy Production Dept.
of Energy Production Div.

Executive Vice Presidents

In charge of Personnel Dept., Secretary Dept., General
Administration Dept., and Compliance Dept.

Senior Executive Officers

Shigeru Muraki
Chief Executive of Energy Solutions Div. and General
Manager of Volume Sales Dept.

Toshiyuki Kanisawa
Chief Executive of Housing Development Div.

Tsutomu Oya
Chief Executive of Energy Resources Div.

Michiaki Hirose
In charge of Corporate Planning Dept., Corporate
Communications Dept., and Affiliated Companies Dept.

In charge of Purchasing Dept., Real Estate Management
Dept., Major Site Development Dept.,
and Internal Audit Dept.

Matsuhiko Hataba
Chief Executive of Residential Sales Promotion Div.

Kenichi Enkaku
Representative Senior Managing Directorof ENERGY ADVANCE Co., Ltd.

Hidefumi Takahashi
General Manager, Kanagawa service branch,
Residential Sales Promotion Div.

Hideaki Obana
General Manager, Corporate Communications Dept.

Hiroaki Kobayashi
General Manager, Customer Safety Dept.
of Residential Sales Promotion Div.

35