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 environmentally friendly 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 to achieve a continuous increase in our corporate value by maximizing thevalue 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 tomanagement legality, soundness, and transparency. Tokyo Gas continues to emphasize the importance of accurate and prompt decision making, efficient business operations, strengthening ofauditing and monitoring functions, and clarification of management and executive responsibilities.

Management StructureManagement Structure Designed for Objectivity

deliberates officer compensation in accordance with theCompany’s basic policy (described below).The five corpo-

and Swiftness
Tokyo Gas takes a proactive stance in employing outside
officers. The Company has created a system featuring multiple auditing and supervisory layers in its aim to achieverate auditors, three of whom are outside auditors, proactively
communicate with the Board of Directors and strictly audit
the legality of the performance of duties of the directors.
The Corporate Executive Committee meets once a week,highly objective and transparent governance. In 2002, wereduced the maximum number of directors to raise thespeed and effectiveness of management decision-making.
At the same time, we reinforced and clarified the functionin principle, to deliberate and make decisions on mattersof management importance, ensuring accurate and speedy
decision-making and the effective execution of operations.
The Company employs an executive officer system (withfor supervising business execution by employing independent outside directors (As of June 30, 2011, the Boardof Directors comprised three outside directors and eightinternal directors). The Advisory Committee, established in

24 executive officers as of June 30, 2011), to execute operations in accordance with Board of Directors’ resolutions.
The system is designed to devolve authority and responsibility and foster the rapid execution of operations.

2005, is made up of three internal directors and three representatives from outside directors and outside auditors.
This structure aims to ensure that the selection of director
candidates is fair and appropriate. The committee also

Executive officers report on the status of execution to directors and the Board of Directors, and these bodies supervise
executive officers’ activities on this basis. To clarify the job
responsibilities of directors and executive officers, their

Initiatives to Strengthen Corporate Governance

30

Ensuring sound, transparent management Continuous growth in corporate value

TOKYO GAS ANNUAL REPORT 2011

2000

Management
Strategy

2011

October 2002
Medium-term
management planfor 2003–2007:“Frontier 2007”

January 2006
January 2009
Medium-term management
Medium-term management
plan for 2006–2010: “Creation plan for 2009–2013:
and Cultivation of New“Evolution andNatural Gas Markets”
Advancement of Integrated
Energy Business”
April 2004–
Strategic business unit system(building of group management system,
and maximization of group corporate value)

Organizational
Structure

Management
Structure

Internal
Governance

Information
Disclosure

June 2002–
Management structure reform• Reduction of regular number of directors (from 30 to 15)• Appointment of outside directors• Introduction of executive officer system• One-year term of officeFebruary 2005–
Establishment ofAdvisory Committee(consideration of
director candidates
and officer remuneration)

June 2002–
Reinforcementof internal audit
structure

November 2002–
April 2003–
Reinforcement ofReinforcement of risk
compliance systemmanagement structure• Establishment of Management • Introduction of
Ethics Committee
Enterprise Risk
• Establishment of ComplianceManagement system
Department

June 2001–
Start of overseas
IR activities

April 2003–• Earlier publicationof business results• Introduction ofquarterly disclosure

April 2004–
Consolidated
accounting for
all companies

July 2005–
Publication of
CSR Report

June 2005–
Reform of officer remuneration system• Formulation and disclosure ofbasic policy• Abolition of retirement benefit
system, and other measures

April 2006–
Establishment ofInternal Control
Promotion
Committee

April 2008–• Establishment of Risk
Management Committee

April 2011–
Reassessment of IR organization• Integrate Investor Relations
Dept. into Finance & Managerial
Accounting Dept. (enforcementof our IR activities)

CORPORATE GOVERNANCE

terms of office have been fixed at one year.
To promote transparent management and a flexible andsystem, and compliance audits. In April 2009, an internal
control group was established to evaluate the effective-

open organization, in fiscal 2002, the Company establisheda Management Ethics Committee. We also formed in-housecommittees to address issues that are important from a management perspective, such as compliance, risk management,
customer satisfaction, and safety. This structure facilitates

ness of internal control regarding financial reporting.

the sharing of information within the Group, as well as deliberation of and adjustments to the Group’s overall direction.
Toward an Effective Internal Control Systemtem with the aim of further enhancing management
objectivity and transparency as well as clarifying themanagement responsibility for business performance.
1. Role of executive and remuneration

Under our internal control system, the Board of Directors,
which includes three independent outside directors, determines the basic policies for the development of theimportant business operations plans and the internal con-

The role demanded of executives is to seek to enhanceshort-, medium-, and long-term corporate value, andexecutive remuneration shall serve as an effective
incentive for them to perform that role.

trol systems and monitors the performance of the directors.
In accordance with resolutions by the Board of Directors,
the executive officers act to carry out business operations
as well as to develop and operate the internal control sys-

2. Level of remuneration
The level of executive compensation shall be suitable forthe role, responsibility, and performance of the executive.
3. Performance-linked remuneration schemetem. In addition, we have established the Corporate
Executive Committee as a deliberative body to assist theBoard of Directors. The committee deliberates provisions

The performance-linked remuneration scheme is meant
to firmly motivate the executives to execute management strategies, and is also meant to reflect their per-stemming from Board of Directors resolutions and important management-related issues.
With regard to auditing, in addition to corporate auditors,
the Company has established the Internal Audit Department

formance clearly on their remuneration.
4. Share-purchase guideline
The establishment of the share-purchase guideline ismeant to firmly motivate the executives to reflect theas an internal audit organization. The department monitors
the business activities in each segment of Tokyo Gas andits consolidated subsidiaries, as well as the state of thedevelopment and operation of internal control and risk man-perspective of a shareholder in management andimprove shareholder value over the long term.
5. Assurance of objectivity and transparency
The Company shall assure objectivity and transparency ofagement. To implement specialized audits efficiently, theInternal Audit Department has developed a structure of four

remuneration by establishing the “Advisory Committee” comprising outside directors, outside corporate auditors, and thegroups, specializing in financial, operational, information

Company’s directors to govern the system of remuneration.

Objective and Transparent Officer Remuneration
In fiscal 2005, Tokyo Gas restructured its officer remuneration system and published details of the new sys-

Corporate Governance Structure
Customers

Local Community

Shareholders / Investors

General Shareholders’ Meeting
Appointment
Appointment

AnswerAdvisory Committee*2

ReportBoard of Directors*1

Inquiry
MonitorReport submission

Management Ethics Committee

Collaboration

Collaboration

Internal Audit Dept.

Collaboration

Board of Corporate
Auditors*3

Audit

Independent Auditors

Report submission

ReportPresident(Corporate Executive Committee*4 )Approval

Deliberation
and report

Safety Committee
Customer Satisfaction Promotion Committee
Investment Evaluation Committee
Environmental Committee

Settlement and monitor

CSR Promotion Committee

Report submission

Risk Management Committee
Audit

Other In-House Committees
Audit

Strategic Business Units / Support Units(each unit, subsidiaries and affiliates)
General Shareholders’ Meeting*1 Board of Directors: 11 directors (3 outside directors and 8 internal directors)*2 Advisory Committee: 3 representatives from outside directors and outside auditors, Chairman, and President*3 Board of Corporate Auditors: 5 corporate auditors (3 outside auditors and 2 internal auditors)*4 Corporate Executive Committee: President, 3 Executive Vice Presidents, 9 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

Stakeholders

Tokyo Gas Co., Ltd.

Business Operations

TOKYO GAS ANNUAL REPORT 2011

Appointment

Report31

CORPORATE GOVERNANCE

Total Remuneration for Directors and Corporate Auditors (Fiscal 2010)

Millions of yen
Type of remuneration
Total
remuneration

Remuneration for nine directors (excluding outside directors)¥ 463
Remuneration for two corporate auditors (excluding outside auditors)
74
Remuneration for seven outside officers (outside directors and outside auditors)
64

Thousands of U.S. dollars
Type of remuneration

Base

BonusesTotal
remuneration

¥ 411
74
58

¥ 52
—
6

$ 5,578 $ 4,952
892
892
771
699

Base

Compensation for Independent Auditors (Fiscal 2010)
Remuneration for auditing services
Remuneration for non-auditing services
Total

Bonuses

$ 627
—
72

Millions of yen

Thousands of
U.S. dollars

¥ 273
41
¥ 314

$ 3,289494$ 3,783

Concentrating Group Effort to Survive in the Faceof Competition

fiscal 2008 with the aim of identifying and evaluating progress
regarding the establishment and the operational status of theWith the deregulation of the energy industry, Tokyo Gas now
faces escalating competition from both inside and outside theindustry. In April 2004, we introduced the “Strategic Business
Unit” (SBU) system, which is designed to focus all of the

ERM system, as well as improving the level of Group-wide
ERM. The committee periodically undertakes risk assessments and checks on progress regarding the establishment
and the operational status of the ERM system. It also reports

resources of the Tokyo Gas Group on the task of surviving andsucceeding in an increasingly competitive environment. Under
this structure, Tokyo Gas corporate divisions are linked withGroup companies to form business units in each business area.

to the Corporate Executive Committee and obtains the necessary approvals. Since the start of fiscal 2011, the risk
management function was transferred to the Corporate
Planning Dept., thus creating a framework for implementing

The divisions and companies work closely together on tasks
ranging from the formulation of business strategies to the allocation of management resources and the management ofoperations, all under the responsibility of unit managers. The

unified ERM together with operational management.
Under the new framework, around 120 Risk Management
Promotion Officers have been deployed in the businessdepartments of Tokyo Gas and its consolidated subsidiaries

aim of this cooperative approach is to maximize our Grouppotential and further strengthen our competitiveness.
Risk Management
Enterprise Risk Management System Responds toin order to promote Group-wide ERM. Each year, we assess
risks and the implementation and improvement status ofcountermeasures. This system facilitates the steady implementation of the ERM-PDCA (Plan-Do-Check-Act) cycle.
Building an ERM system enables us to identify and clarify theand Discloses Information on Growing Risks
In fiscal 2003, the Company established a Group-wide
Enterprise Risk Management (ERM) system, which includes

latest major risks arising from changes to the operating environment. It also facilitates appropriate information disclosure
to capital markets and other stakeholders. Regular monitoringrisk management regulations and documented rules concerning major risks that require management intervention.

by the Corporate Executive Committee and the Board of
Directors also allows the best responses to risks, which are

The Risk Management Committee was established in

becoming more diversified, complex, and sophisticated.

TOKYO GAS ANNUAL REPORT 2011

Major Risks Requiring Management Intervention

32

Accidents and disasters

Resource procurement supply interruption risk; Natural disaster risk; City gas and electricity production/supply disruption;
Unprecedented major power outages; Ensuring the safety of city gas and quality problems affecting gas equipment;
Damage due to reputation resulting from city gas accidents caused by other gas companies

Market risksMarket price and interest rate fluctuation risks

Risks accompanying
business execution

Risks faced by existing business (Change in procurement costs; Decline in gas sales volume due to weather fluctuations;
Decline in demand due to intensified competition; Demand risk; Interruption of communication with call centers;
Delay in the development of new technology; and Changes in laws, regulatory systems, or energy policiesof the national governments and local governments); Delayed cultivation of new markets; Inability to recover investments

Risks related
to information management
and system operation

Outflows of personal information; Failure or malfunction of IT backbone systems

Risks related
to corporate social
responsibility

Response to new environmental regulations; Compliance violations; Inadequate customer satisfaction or responses
to customer needs

CORPORATE GOVERNANCE

Crisis Management Responsibility as a Public Company
Because the Company provides public services that com-

ing awareness and educational campaigns about the code of
conduct, compliance risk reduction measures, maintenanceprise a lifeline, for many years, we have also had a crisis
management system that serves as a response system incase a risk-related event actually occurs. Specifically, we
have formulated Emergency Response Organization
Regulations. In case of any type of crisis, the Emergencyof advisory systems, and the broad-based distribution of information within and beyond the Tokyo Gas Group companies.
To cultivate an understanding of compliance, we promotea thorough awareness of ongoing activities related to ourcode of conduct that was revised in 2004. We are also mov-

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

ing forward with a compliance casebook designed for
applying the code of conduct to various problems in theworkplace, so as to achieve the permeation of compliance.
Compliance risk countermeasures include internal anddisruptions arising from major accidents at pipelines or terminals, as well as influenza, terrorism, failures in mission-critical
IT systems, and compliance problems. Periodic training is
conducted in relation to major risk response measures. The

external 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

Company has also formulated a Business Continuity Plan
(BCP), outlining its responses in the event of a major earthquake of the magnitude assumed by Japan’s Cabinet Office,as well as a major accident disrupting power supply and an

effectively. The Compliance Audit Group also works steadily to mitigate risks by implementing follow-up audits to verify
progress in tackling concerns identified at first auditing.
We monitor the effectiveness of Group compliance pro-outbreak of influenza. This plan is in place to reinforce theCompany’s risk management system.

motion activities by conducting regular complianceawareness surveys of all employees. The results of thesesurveys are reflected in initiatives for the following years.

Compliance
Promoting Compliance
Our stance is reflected in three basic policies calling for thefostering of compliance awareness, the cooperation of each

Disclosure
Enhancement of IR Activities
Top management takes an active role in Tokyo Gas IR activi-

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 theties, disclosing such broad-ranging information as management
strategies, progress, and performance and engaging in interactive communication with investors. We believe that
discussing management’s thoughts with investors in this way

management level basic compliance policies and all aspectsof compliance initiatives by the Group, monitors the imple-

can help close the gap between our real corporate value andthe market assessment of the Company. In particular, duringmentation of compliance-related measures, and confirms
activity programs from the following year and thereafter. We
have also established the Compliance Department to leadthe period following the announcement of our financial results,
we engage in IR activities, including visits by top management
to institutional investors in Japan and overseas. Briefings andcompliance-related activities for each unit. These include
development of compliance promotion systems, encourag-individual meetings are also used as opportunities for wideranging discussions.

Compliance Structure
Board of Directors

ReportPresident

Corporate Auditors

ReportReportInternal Audit Dept.

Compliance Dept.
Instruction / report

Each division / business unit

Support / reportCompliance Committee

Each department of Tokyo Gas

Subsidiaries and Affiliates

Compliance audit(risk understanding)

Report / consultation

Consultation / notification

TOKYO GAS ANNUAL REPORT 2011

Management Ethics Committee
Chairman: President
Members: Head of divisions / departments, Directors in charge

Report / consultation

Employee

33

BOARD OF DIRECTORS AND CORPORATE AUDITORSAs of June 29, 2011

Director, Chairman

Mitsunori Torihara

Representative Director Shigeru Muraki

Representative Director Toshiyuki Kanisawa

July 1972 Joined the Company
April 2007 Senior Executive Officer, Chief Executive of Energy Solutions Div.
and General Manager of Volume Sales Dept. of Energy Solutions Div.
June 2007 Director, Senior Executive Officer and Chief Executive of Energy
Solutions Div. and General Manager of Volume Sales Dept. of Energy
Solution Div.
April 2010 Representative Director, Executive Vice President, Chief Executive ofEnergy Solutions Div. and General Manager of Volume Sales Dept. ofEnergy Solution Div.

April 1972 Joined the Company
June 2007 Director, Senior Executive Officer, and Chief Executive of Residential
Sales Promotion Div.
April 2009 Director, Senior Executive Officer, and Chief Executive of Housing
Development Div.
April 2010 Representative Director, Executive Vice President, in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
and Compliance Dept.

Tsutomu Oya

Director

April 1975 Joined the Company
April 2006 Senior Executive Officer and Chief Executive of Energy Resources Div.
June 2009 Director, Senior Executive Officer and Chief Executive of Energy
Resources Div.
April 2010 Director and Chief Executive of Energy Production Div., and in chargeof Environmental Affairs Dept.

Director
TOKYO GAS ANNUAL REPORT 2011

Tsuyoshi Okamoto

April 1970 Joined the Company
April 2007 Representative Director, Executive Vice President, and in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
Compliance Dept., and Internal Audit Dept.
April 2009 Representative Director, Executive Vice President, and in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
and Compliance Dept.
April 2010 President, Representative Director, and Executive President

Director

34

Representative Director, President

April 1967 Joined the Company
April 2004 Representative Director, Executive Vice President,
Chief Executive of Corporate Communication Div.
and in charge of Compliance Dept.
April 2006 President, Representative Director, and Executive President
April 2010 Director and Chairman of the Board

Mikio Itazawa

Director

April 1974 Joined the Company
June 2003 General Manager of West Pipeline Business Dept. of Pipeline andMaintenance Div.
April 2004 Executive Officer and General Manager of Pipeline Dept. of Pipeline
Network Div.
April 2007 Senior Executive Officer and Division Manager of Pipeline Network Div.
June 2010 Director, Senior Executive Officer and Division Manager of Pipeline
Network Div.

Michiaki Hirose

April 1974 Joined the Company
April 2009 Senior Executive Officer and in charge of Corporate Planning Dept.
and Affiliated Companies Dept.
June 2009 Director, Senior Executive Officer and in charge of Corporate
Planning Dept., Corporate Communications Dept., and AffiliatedCompanies Dept.
April 2010 Director, in charge of Corporate Planning Dept., Project Management
Dept., Corporate Communication Dept., and Affiliated Companies Dept.

Kazuo Yoshino

April 1975 Joined the Company
April 2009 Executive Officer and General Manager of Investor Relations Dept.
April 2010 Senior Executive Officer and General Manager of Investor Relations
Dept., and in charge of Finance & Managerial Accounting Dept.,
and Accounting Dept.
April 2011 Senior Executive Officer and Division Manager of Information
Technology Div., and in charge of Finance & Managerial Accounting
Dept. and Accounting Dept.
June 2011 Director, Senior Executive Officer and Division Manager of Information
Technology Div., and in charge of Finance & Managerial Accounting
Dept. and Accounting Dept.

Auditors

Outside Auditors

Kunihiro Mori
Manabu Fukumoto

Shoji Mori
(Director Executive Advisor, Shinkin Central Bank)
Yukio Masuda(Standing Consultant, Mitsubishi Corporation)
Masayuki Osawa (Outside Auditor, PACIFIC CONVENTION PLAZA YOKOHAMA)

BOARD OF DIRECTORS AND CORPORATE AUDITORS

Message from Outside Directors

Outside Director

Katsuhiko Honda

Outside Director

Yukio Sato

Outside Director Ryuichi Tomizawa

Current position
Advisor, Japan Tobacco Inc.
June 2007 Director of the Company

Current position
Vice Chairman, The Japan Institute of International Affairs
June 2010 Director of the Company

Current position
Chairman of the Board, Mitsubishi Chemical Holdings
Corporation
June 2011 Director of the Company

After the earthquake and tsunami in March
2011, Tokyo Gas was able to resume gas
supply in its service area within a week.
Working with other gas companies fromthroughout Japan, we also assisted withthe restoration of gas services in Sendai
and other places outside our service area.
Once again, I realized that Tokyo Gas has
strong capabilities in the field and a highlevel of integrity. I believe that our prompt
action and decisions when confronted withsuch an unprecedented event are valuable
intangible assets.
Tokyo Gas will likely be called upon tobear an even greater responsibility withrespect to the nation’s energy policies. I
hope that our precious human resources
will become the driving force for spontaneous reform—reform that is not driven
by outside forces. I also hope that all
Group employees will stand united as they
strive to deliver more in-depth services,
thereby enhancing our corporate value.
As we work to overcome today’s harsh
operating environment while anticipating
future changes, I will do my best to help
Tokyo Gas achieve sustainable growth.

A public utility such as Tokyo Gas must
work hard to meet the expectations ofcustomers and all citizens by having an
accurate understanding of their needs. All
the members of Tokyo Gas are always
working with a sense of urgency, making
the stable delivery of safe gas to customers their top priority. I believe this contributed to the speedy restoration of gas
services after the Great East Japan
Earthquake. I think we should continueemphasizing this readiness to be closely
involved with the lives of ordinary people.
At the same time, I think it has become
increasingly important that we draw on
the know-how and experience amassed
so far to broaden our activities overseas
and thus ensure the stable supply of
resources. From this standpoint, it isessential for Tokyo Gas to build more overseas links and relationships.

I believe that I can make a useful contribution to the operations of Tokyo Gas bydrawing on my experience in the chemicalindustry, which is not dissimilar to theenergy sector. Today, the Japanese industry faces a period of dramatic restructuring.
From my perspective as a member of thechemical industry, I am able to advise theCompany not only on the future directionof production activities, but also on diverse
energy needs, including compatibility withthe environment and renewable energy.
In my opinion, Tokyo Gas was able torespond successfully, even in the face of theGreat East Japan Earthquake, because it
stood united, backed by a sound risk management strategy that was already preparedfor such an emergency. It is essential thatcompanies throughout Japan reflect on theirown recent experiences and review their crisis management strategies. Tokyo Gas
needs to reduce “unanticipated” events, andplan and prepare so that when an “unanticipated” event happens, it can respond calmly
and appropriately. In this sense, I recognizethat I have a major role to play in supplementing the Company’s internal wisdom with outside eyes, ears, and insights.

Senior Executive
Officers

Tsuyoshi Okamoto
Shigeru Muraki
Toshiyuki Kanisawa
Hirokazu Hayashi
Tsutomu Oya
Michiaki Hirose
Mikio Itazawa
Kazuo Yoshino
Norikazu Hoshino
Hisao Watanabe
Matsuhiko Hataba
Koichi Aonuma
Yutaka Kunigo
Masahiro Mikami

Executive Officers Hiroaki Kubota
Hidefumi Takahashi
Hideaki Obana
Hiroaki Kobayashi
Yoshihiro Tanabe
Fumio Murazeki
Takashi Uchida
Hideaki Arai
Satoru Yasuoka
Masaru Takamatsu

Division Manager of Energy Solution Div., and General Manager of Volume Sales Div.
In charge of Personnel Dept., Secretary Dept., Compliance Dept., and Internal Audit Dept.
Division Manager of Regional Development Marketing Div.
Division Manager of Energy Production Div., and in charge of Environment Dept.
In charge of Corporate Planning Dept., Project Management Dept., Corporate Communication
Dept., and Affiliated Companies Dept.
Division Manager of Pipeline Network Div.
Division Manager of Information Technology Div., and in charge of Finance & Managerial
Accounting Dept. and Accounting Dept.
Dispatched to the Japan Gas Association
Division Manager of Technology Development Div.
Division Manager of Residential Sales Promotion Div.
Division Manager of Housing Development Div.
Division Manager of Energy Resources Div.
In charge of Purchasing Dept., Real Estate Management Dept., Major Site Development Dept.,
and General Administration Dept.
General Manager of Information Technology Application Dept., Information Technology Div.
General Manager of Kanagawa service branch, Residential Sales Promotion Div.
General Manager of Corporate Communications Dept.
General Manager of Customer Safety Dept., Residential Sales Promotion Div.
Deputy Chief Executive of Energy Solution Div. and General Manager of Energy Sales &Service Planning Dept.
General Manager of Residential Sales Planning Dept., Residential Sales Promotion Div.
General Manager of Corporate Planning Dept.
General Manager of Pipeline Dept., Pipeline Network Div.
General Manager of Sales Marketing I Dept., Housing Development Div.
General Manager of LIFEVAL Project Management Dept., Residential Sales Promotion Div.

TOKYO GAS ANNUAL REPORT 2011

Executive Officers
President
Executive Vice
Presidents

35