Japanʼ s Stewardship
Code was formulated

2014

2016

2017

●Started to evaluate the Board of Directors●Established the Corporate Governance●Studied an optimal organizational structure●Reviewed criteria for proposals to●Formed the Governance Committee●Started to evaluate managerial talents●The Board of Directors retreat (once a year)●Started to reduce cross-shareholdings

Guidelines

the Board of Directors●Voluntarily applied IFRS●Reviewed criteria for proposals to the Board of Directors●Formulated Officer Remuneration Policy●Added “matters to be consulted” to the Board agenda●Opened the JFR Business Management School

Company with an Audit & Supervisory Board

We are a pure holding company, and in order to speed up
management decisions and clarify management responsibilities,
the authority for execution of business operations of operating
subsidiaries is delegated to respective subsidiaries except for
matters that are important to the Groupʼs management.
Our roles and responsibilities as a pure holding company are
as follows:●To establish a corporate governance system for the Group asa whole;●To plan and draft the Group Vision, the Group Medium-term
Business Plan, and the Group Management Policy, as well as
manage their progress and performance;64●To optimize allocation of the Groupʼs management resources;●To establish a risk management system for the entire Groupand conduct internal audits;●To make decision on important business execution mattersrelated to the management of the Group; and●To advise and approve the management policies and strategies

of each operating company and to supervise and evaluate theirprogress.
We have also established five supervisory units (Management
Strategy Unit, Group Digital Strategy Unit, Financial Strategy Unit,
Human Resources Strategy Unit, and Administration Unit) as ourmanagement organizations. We clarify the roles, responsibilities,
and authorities of each unit to strengthen supervisory functions
and enhance the internal control system of the Group as a whole.

2019

partner based on our policy for the
exercise of voting rights

Company with Three Committees (Nomination, Audit, and Remuneration Committees)

2020●Established the Management Advisory Board●Appointed an Outside Director as the Chairperson of

the Audit Committee●Reviewed criteria for proposals to the Board of Directors●Increased the number of Outside Directors from 5 to 6

2021

●Made Parco a wholly-owned subsidiary●Revised the Remuneration Policy●Established the Governance Committee●Reviewed criteria for proposals to the●Raised the ratio of Outside Directors to 50%●Revised the Remuneration Policy

Board of Directors

Company with Three Committees (Nomination, Audit, and Remuneration Committees)

Governance(oversight) Function

Overview of corporate governance system●Initiatives to strengthen group governance●Revised the Corporate Governance Guidelines●Response to each cross-shareholding

Corporate Governance
Code was revised

Execution Control Function

As a holding company, J. Front Retailing regards the strengthening of corporate
governance–by building and maintaining an internal control system for theentire Group and supervising its operation–as one of the most importantmanagement issues, in order to ensure compliance, transparency, objectivity,and soundness of the management of the Group as a whole and to emphasize
and thoroughly enforce accountability to stakeholders including customers, shareholders, employees, business partners, and local
communities.
In line with this, we have adopted the Company with Three Committees (Nomination, Audit, and Remuneration Committees) system.
The reasons for this are:(2) To clarify authorities and responsibilities in business execution and(1) To strengthen management oversight functions byseparating supervision and execution;
promote flexible management;(3) To improve the transparency and objectivity of(4) To build a globally applicable governance system;
management; andand thereby further strengthen our corporate governance.

2018

Shareholders Meeting
Election/removal
Nomination Committe

Board of Directors
Remuneration Committee

Sustainability
Committee

Oversight

ReportConsultation

Management Strategy Unit

ReportCompliance Committee

President and Representative Executive Officer

Accounting Auditor

Audit Committee

Risk Management Committee

Consultation

Group Management Meeting

Operating Units

Audit

Governance Committee

ReportConsultation

Cooperation/report

Chairperson

Cooperation/
reportCorporate Governance2015

Corporate Governance
Code was revised

Cooperation/
reportGovernance▶Corporate GovernanceCorporate Governance
Code was adopted

Internal Audit Division
Report

Audit
Audit

Audit

Instruction

Group Digital Strategy Unit
Financial Strategy Unit Human Resources Strategy Unit
Companies in the Group

Administration Unit

Integrated Report 2021

65

Governance

Board of Directors(1) Basic roles and responsibilities of the Board of Directors
Directors are appointed and entrusted by our shareholders
to manage the Company and therefore owe fiduciary
responsibility and accountability to the shareholders. Keeping
this in mind and aiming to realize our Group Vision, the Boardof Directors performs the following roles and responsibilities:●To discuss the Group Vision, the Group Medium-term
Business Plan, the Group Management Policy, and otherbasic management policies thoroughly and in a constructive
way, as well as to deliberate on their risk assessments andother matters from various angles and with objectivity, so
as to set a general direction for the Groupʼs management;●To make appropriate decisions on the overall policy andplans related to the Group management based on the
direction mentioned above, and to supervise the progressand results of the said plans;●To develop an environment that facilitates aggressive
management efforts toward achieving discontinuous
growth;●To build and develop an internal control system for theentire Group and supervise its operation;●To supervise conflicts of interest between related parties; and●To supervise the progress of management succession
planning, personnel allocation plans related to managerial
talents, and management training, all of which aredelegated to the Nomination Committee, based on asummary report from the Nomination Committee.
(2) Composition of the Board
Our Board of Directors consists of members in an
appropriate number not exceeding 15, as set forth in the
Articles of Incorporation. As of May 27, 2021, the Board of
Directors had 12 members including six independent Outside
Directors. Their term of office is one year. When nominating
candidates for Directors, we aim to ensure balance anddiversity in composition of the Board, taking into account the
numbers of supervisors and executives or the mix of talentswith experience and expertise in business management.
In the election of Outside Directors, the Company selects,
in light of the independence criteria established by theCompany, candidates who are substantially independent andtherefore unlikely to have any conflicts of interest with ourshareholders.
6 Outside Directors

Woman Woman

6 Inside Directors

Chairperson Woman President and Executive Officerof the Board
Non-executive
Executive

Ratio of Outside Directors 50%
Ratio of non-executive Directors 66%(3) Key issues discussed at Board meetings and efforts
to solve the issues
Against the backdrop of COVID-19 crisis and its huge
impact on our performance, and in consideration of theGroupʼs earning power and financial stability, the Board of
Directors in fiscal 2020 made a decision at its meeting to tackle
the top-priority issue of management restructuring, which
was reflected in the setting of agenda for subsequent Board
meetings. In the course of formulating the Medium-term
Business Plan launched in March 2021, the Board debated on
setting the goal of bringing our performance back to the preCOVID level of fiscal 2019 in fiscal 2023, a final year of thePlan, which would be achieved through a scheme to capitalizeon the Groupʼs strengths across our business sections.
In capitalize on addition to the setting of agenda mentioned
above, various efforts have been made to further facilitate
substantial discussions, such as introducing an issue tracking
sheet and holding regular meetings of chairpersons of theBoard and the three statutory committees.
●FY2021–FY2023 Group Medium-term Business Plan
●Management restructuring●ESG three-year medium-term plan
●Initiatives to strengthen IT governance●Basic policy for developing an internal control system●Shareholder policy and IR activities●Reviewing of reasonableness of cross-held shares

Nomination Committee, Audit Committee,
and Remuneration Committee(1) Nomination Committee
The Nomination Committee consists of three independent
Outside Directors and non-executive Chairperson of theBoard of Directors. To ensure transparency and objectivity,
the Chairperson of the Committee is selected from among
independent Outside Directors. The Nomination Committee
determines the agenda for the election and dismissal of
Directors to be submitted to the Shareholders Meeting andalso the content of reports to be made to the Board of Directors
with respect to the appointment and dismissal of Executive
Officers, including the President and Representative Executive
Officer, the selection and dismissal of the chairpersons andmembers of statutory committees, as well as the succession
plans for the President and Representative Executive Officer
and other management positions.
Outside Directors

Chairperson of
the Committee

Inside Director

Chairperson of
the Board

Half
Majority

Skills matrix (Skills expected of Directors)
NameManagement Strategy Finance
YAMAMOTO Ryoichi○
HAMADA Kazuko
YAGO Natsunosuke○
HAKODA Junya○○
UCHIDA Akira○○
SATO Rieko
SEKI Tadayuki○
KOIDE Hiroko○
YOSHIMOTO Tatsuya○
SAWADA Taro○
MAKIYAMA Kozo○
WAKABAYASHI Hayato○○

66

Marketing HR & Organization Development Legal Affairs & Compliance IT & Digital E: Environment S: Society G: Governance
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<Key agenda items>●Appointment and dismissal of Directors●Selection and dismissal of Representative Executive Officers●Appointment and dismissal of Executive Officers,

assignment and removal of duties●Selection and dismissal of the Chairperson of the Board of●Examination of officer remuneration level, composition,

KPIs, and other aspects using external data, etc.
regarding officer remuneration following
significant changes to the management environment, etc.

●Measures

Fiscal 2020 (March 2020 to February 2021)

Directors●Selection and dismissal of chairpersons and members of

the three statutory committees●Matters related to succession planning(2) Audit Committee
The Audit Committee consists of three independent Outside
Directors and one full-time non-executive Inside Director who iswell-versed in internal matters and is therefore expected to help
in maintaining and improving the accuracy of audits. To ensuretransparency and objectivity, the Chairperson of the Committee
is selected from among independent Outside Directors.
The Audit Committee effectively audits whether theduties of Executive Officers and Directors are executedin compliance with laws, regulations, and the Articles ofIncorporation, with efficiency, and in accordance with our
Basic Mission Statement and Group Vision. The Committee
also provides necessary advice and recommendations, as well
as audits the status of the establishment and operation ofinternal controls, and prepares audit reports. To ensure thereliability of accounting information, the Audit Committee
supervises the Accounting Auditor and determines the detailsof proposals for the election and dismissal of the Accounting
Auditor to be submitted to the Shareholders Meeting.
Outside Directors

Inside Director<Key agenda items>●Formulation of audit policies and audit plans●Internal Audit Divisionʼs reports●Accounting Auditorʼs reports●Preparation of audit findings●Preparation of audit reports(3) Remuneration Committee
The Remuneration Committee consists of three independent
Outside Directors and non-executive Chairperson of theBoard of Directors. To ensure transparency and objectivity,
the Chairperson of the Committee is selected from among
independent Outside Directors.
The Remuneration Committee determines the policy for
deciding individual remuneration, etc. for the Directors andExecutive Officers of the Company and the officers of major
subsidiaries (directors, executive officers, and auditors), andthe content of individual remuneration, etc. of the Directors
and Executive Officers of the Company.

Chairperson of
the Committee

15

14

18

15

Attendance rate of
Inside Directors

100%

100%

100%

100%

Attendance rate of
Outside Directors

98.8%

100%

100%

100%

Average duration of 2 hours and 48
meetings
minutes46 minutes

1 hour and 45
minutes

1 hour and 1
minuteExecutive sessions
Executive sessions are exclusive meetings of independent
Outside Directors for free exchange of opinions and sharing of
information. Participants debate on matters that require theattention of supervisors, such as on issues regarding the Board
meeting or problems to be addressed in order to improve theeffectiveness of the Board, among others (Lead director: Ms.
SATO Rieko, an independent Outside Director). At the requestof the lead director, the President and Representative Executive
Officer and the Chairperson of the Board of Directors also
participate in discussions.
In fiscal 2020, participants led the move to revise the Board
agenda based on the discussion that the Company should, inlight of the impact of COVID-19, give priority to management
restructuring.

Governance Committee

Chairperson of
the Committee

Outside Directors

Board of Directors Nomination Committee Audit Committee Remuneration Committee
Number of meetings

Inside Director

Chairperson of
the Board

It has been some time since we made a transition to a
Company with Three Committees (Nomination, Audit, andRemuneration Committees) in 2017, during which time
Parco Co., Ltd. became our wholly-owned subsidiary and a
new Medium-term Business Plan was developed. In view ofthese and other changes that have taken place, as well as
the issue regarding the gap between the ideal and the realstate of governance that came into light in the effectivenessevaluation of the Board of Directors, we decided that weneeded a platform on which to reexamine our governancesystem and its operational rules, etc. for the Group as a whole.
Consequently, the Governance Committee was established in
October 2020 as an advisory organ of the Board of Directors
tasked to rebuild the Group governance structure that would
support the healthy growth of the whole Group and contributeto enhancing our corporate value in the medium to longterm. The Governance Committee consists of six independent
Outside Directors, Chairperson of the Board of Directors, and
the President and Representative Executive Officer.
In fiscal 2020, the Committee discussed such matters as
the desirable system for the Groupʼs governance, reviewingof criteria for proposals to the Board of Directors aimed ata more speedy decision-making in management, the Boardʼs
approach to sustainability, and skills matrix, among others.

<Key agenda items>

Succession planningmission grade)●Performance targets and evaluation table for bonus●Performance evaluation and individual payment amounts
for bonuses for the previous fiscal year
●Performance evaluation and individual payment amounts
for stock-based remuneration for the previous fiscal year

Selection of the President and Representative Executive
Officer is the most important strategic decision-making
process, so we position the formulation and implementationof succession plans (for the next senior management team)as a matter of particular importance on our management
strategy agenda. When selecting successor candidates,
the Nomination Committee, whose majority are Outside●Whether or not Officer Remuneration Policy requires revision●Levels of individual officersʼ remuneration (base amount byIntegrated Report 2021

67

GovernanceDirectors, deliberates on the evaluation of each candidate,
which is prepared based on internal data and the results ofassessment conducted by a third-party organization. In thisway, the process for selecting successor candidates is madeclear and transparent. Successors are decided by resolutionof the Board of Directors based on the results of deliberation
submitted by the Nomination Committee and with an eye torealizing our Basic Mission Statement and Group Vision.
Regarding the qualities required of successors, ourCorporate Governance Guidelines stipulates the five items
below as “desirable qualities required of JFR managerial
talent,” defining the values, capabilities, and behavioral traits
our officers need to have.
❶Strategic mindset❷Reform-oriented leadership❸Tenacity to achieve results❹Organization development strengths❺Human resource development strengths

The Nomination Committee shares these principles, fixes
its eye on where the Group wants to be in ten years, anddiscusses what the prerequisites would be for our president,
then, so that we have consistent indicators for the evaluationand development of human resources, based on which we
work to train and select our future leaders. Regarding thedismissal of the President and Representative Executive
Officer, the Board of Directors will decide the report submitted
by the Nomination Committee, which the Committee has
prepared̶in light of the set targets, expected outcome, andresulting achievements (i.e., performance for each period,
state of implementation of the strategies, etc.) as well as
the accomplishments of the successor candidates who havebeen selected under the succession plan̶and resolved
after deliberation. The Nomination Committee deliberates
succession plans on a planned and ongoing basis to ensurethat the plans take into account changes in the environmentand circumstances surrounding the Company and theprogress of its strategies. As for other members of the senior
management, the Nomination Committee deliberates andresolves their dismissal as in the case of the President andRepresentative Executive Officer.

Evaluation of the Board of Directors
Based on a preliminary questionnaire, a third-party
organization conducts individual interviews with all
Directors (both Inside and Outside). The Board of Directors
then examines the report on the collected and analyzed
results of the interviews. We believe that after a series ofimprovements made following the past five evaluations, wehave come a long way in establishing a framework for the
Board of Directors and the governance system. In fiscal 2020,
considering that we started off under a new management
team due to the changes of the Board Chairperson and thePresident and Representative Executive Officer, we focused
our evaluation on bringing to light the challenges pertaining
to the Boardʼs deliberations and operation in particular, in
addition to reviewing the state of responses to the issues
pointed out in the previous fiscal year.
[Evaluation items]
Evaluation items are set in light of the roles andresponsibilities of the Board of Directors, in considerationof the balance between regular questions to determine
continuity and new questions, and in a way that the response
can be grasped for each different position such as Inside
Directors, Outside Directors, committee members, etc., andevaluated and analyzed accordingly.
[Key evaluation items for fiscal 2020]●Board of Directorsʼ contribution to the Group as a whole●Board composition

68●State of operation●Content of discussions●Effectiveness of the Nomination, Remuneration, and Audit

Committees●To share awareness of interests with shareholders andheighten awareness of shareholder-focused management;●Enhanced transparency and objectivity in the remuneration
decision process

A total of 37 items〔[Evaluation results and efforts to address the issues]With regard to the sixth evaluation of the Board of
Directors conducted in September and October, 2020, thethird-party organization reported that vigorous discussions
were being conducted from diverse perspectives and withincreased objectivity of its deliberations in the current Board
composition. Meanwhile, the Board of Directors recognized
the need to address the following:●Redefining the roles of the Board●Intensifying discussions on medium- to long-term strategies●Reviewing the Board composition●Strengthening the “Plan” and “Check” functions of the Board●Strengthening the functions of the Nomination Committee
In response to these challenges, in fiscal 2021 we will carryout the following with an eye to improving efficiency of theBoard.
●Review the roles of the Board of Directors, delegate moreauthority to the executives, and thereby speed up decisionmaking in management●With regard to the medium- to long-term growth strategy,
tighten the monitoring of business execution while keeping
in view the state of COVID-19 crisis●Create a Board of Directorsʼ issue tracking sheet to keep
track of the progress on each issue●Review the process for the evaluation of management
team and reinforce collaboration between the Nomination
Committee and the Remuneration Committee

Officer remuneration system
In April 2017, we formulated and announced an
Officer Remuneration Policy, which includes a stock-based
remuneration system for officers in order to steadily implement
the Medium-term Business Plan toward realizing the Group
Vision. Upon formulating the new Medium-term Business
Plan, we reviewed the content and revised it in April 2021.
In conjunction with the revision of the policy, the scopeof stock-based remuneration has been expanded to include
Directors and Executive Officers of the Company, Directors
and Executive Officers of Daimaru Matsuzakaya Department
Stores, a major subsidiary of the Company, as well as
Executive Officers of Parco.
Beginning in fiscal 2020, the Company discloses the amountof each officerʼs remuneration (including the amount received
as remuneration, etc. for an officer of a major consolidated
subsidiary, if any) in the Annual Securities Reports regardlessof whether or not his/her total consolidated remuneration,etc. exceeds 100 million yen.
(1) Basic policies on officer remuneration
Our officer remuneration system is based on the following
basic policies, aiming to realize and promote sustainability
management (pay for purpose). Furthermore, our main
subsidiaries, Daimaru Matsuzakaya Department Stores andParco, have adopted the same basic policies.
●To contribute to the sustainable growth of the Group andthe medium- to long-term improvement of corporate
value, and be consistent with our corporate culture;●A compensation system that encourages professional
managers to carry out their roles (missions) based on the
management strategy;●Remuneration levels that enable us to secure and retain
human resources who have the “desirable managerial
talent qualities” required by the Company;(2) Process for determining remuneration
In order to ensure the appropriateness of the level andamount of remuneration and the transparency of thedecision-making process, the specific remuneration amountis decided by deliberation and resolution of the Remuneration
Committee, which consists of independent Outside Directors
and a Chairperson of the Board of Directors who does not
execute business and is chaired by an independent Outside
Director. Revisions to the officer remuneration system
will be implemented in accordance with the period of theMedium-term Business Plan. However, the level of basic
remuneration will be reviewed if a drastic change in theexternal environment requires a significant revision during the
Medium-term Business Plan period.
[Forfeiture of remuneration] (clawback and malus)
Regarding Executive Officersʼ bonuses and stock-based
remuneration, in the event that a resolution is passed by the
Board of Directors regarding the post-revision of financial
results due to serious accounting errors or improprieties, in theevent that there has been a serious breach of the appointment
contract, etc. between the Company and an officer, or in theevent that an officer has voluntarily retired for his/her own
reasons during his/her term of office against the will of theCompany, the Company may request the forfeiture of the rightto pay or grant remuneration or the refund of remunerationthat has already been paid or granted to the officer.
(3) Remuneration composition for Executive Officers
and non-executive Directors
The remuneration for Executive Officers consists of (a)Executive Officers
Basic remuneration
Bonuses
Performance shares

Proportion of
remuneration by type for Executive【社長】
Officers of each rank
【President】
Bonuses
23.0%

Monetary remuneration
61.5%
Fixed remuneration
38.5%

Performance shares
38.5%
Stock-based remuneration
38.5%

Performance-linked remuneration
61.5%【Executive Officers excluding President】
Basic remuneration
45.4%

Bonuses
27.3%

Monetary remuneration
72.7%
Fixed remuneration
45.4%

based on the individual evaluation, etc. for each fiscal year,
and (c) “performance share (performance-linked stockbased remuneration)” (trust-type stock-based remuneration)linked to the achievement rate of consolidated performance,
etc. as set forth in the Medium-term Business Plan. The
remuneration for non-executive Directors consists of only
fixed remuneration: (a) “basic remuneration” (monetary
remuneration) based on job responsibilities, and (d) “restricted
stock” (trust-type stock-based remuneration) that is not linked
to performance as a stock-based remuneration system.
*Directors and Executive Officers of Daimaru Matsuzakaya Department Stores
and Parco shall have the same remuneration composition as “Executive Officers
excluding President” in the above figure.

(a) Basic remuneration (monetary remuneration)
Basic remuneration is positioned as fixed remunerationand is determined by mission grade for Executive Officers
and by the table for non-executive Directors in accordancewith the size (weight) of each officerʼs responsibilities.
(b) Bonuses (monetary remuneration)
The bonus paid to Executive Officers is a performancelinked remuneration that encourages them to achieve
the goals for each fiscal year, which are milestones in
the Medium-term Business Plan. The performance-linked
remuneration is evaluated based on the quantitativeevaluation of “Annual Financial Targets” and the qualitativeevaluation of “Annual Non-Financial Indicators.”(c) Performance share (performance-linked stock-based
remuneration)
We issue our shares to Executive Officers in conjunction
with the consolidated performance achievement rate set
forth in the Medium-term Business Plan in order to achievesustainable growth of the Group and increase corporate
value over the medium to long term.
Target values and evaluation weights for
performance-linked stock-based remuneration
KPI

Remuneration, etc. for
Executive Officers

Basic remuneration
38.5%“basic remuneration” (monetary remuneration) in accordancewith the mission grade, (b) “bonus” (monetary remuneration)

Performance shares
27.3%
Stock-based
remuneration
27.3%

Performance-linked remuneration
54.6%

Note: The above figure represents the case of a bonus for a standard ranking
where the performance achievement rate for stock-based remuneration
was 100%.
Note: Directors and Executive Officers of Daimaru Matsuzakaya Department
Stores and Parco shall have the same remuneration composition as“Executive Officers excluding President” in the above figure.

Profitability ①
Efficiency
Nonfinancial

Consolidated
operating profit② ROE

Medium- to long-termtargets

Evaluation
weight40.3 billion yen (FY2023)

40%

7% (as of the end of FY2023)

GHG reduction-40% (compared to FY2017)(Scope 1&2) emission
Raising the ratio of women④
26% (as of the end of FY2023)
in management positions
③

40%
10%
10%

Note: KPI stands for Key Performance Indicator.
Note: Short-term targets adopt only ① consolidated operating profit. The
initial forecasts for the fiscal year announced in the Consolidated
Financial Results every April (IFRS basis) are used for the relevant target
value. The target value for FY2021 is 11.0 billion yen.

Calculation method of performance-linked coefficient
Performance achievement rate
200% or more
0% or more but less than 200%
Less than 0%

Performance-linked coefficient2
Actual results Target
0

Image of changes in a performance-linked coefficient
Coefficient
2.0
1.0
0

0%
100%
200% Performance achievement rate
Note: When performance achievement rate is 0, the performance-linked
coefficient is 0 (0%), and when performance achievement rate is 200%
or more, the performance-linked coefficient is 2.0 (200%).

Non-executive Directors
Basic remuneration
Remuneration, etc. fornon-executive Directors
Restricted stock

Integrated Report 2021

69

Governance

60% of the total performance-linked stock-based
remuneration is to be issued in a single issuance at the endof the Medium-term Business Plan, and the remaining 40%
is to be issued annually in order to promote managementfrom the perspective of shareholder.
(d) Restricted stock (non-performance-linked stockbased remuneration)
In order for non-executive Directors to strengthen ouraggressive and defensive governance from a different
standpoint from executives as the representatives of
stakeholders and to engage in management from a
medium- to long-term perspective, we have adopted a
restricted stock system in which our shares are issued in amanner that is not linked to performance, and the sharesare issued upon their retirement from office.

Changes in the number of issues of cross-shareholdings(listed shares excluding deemed holdings)(¥100 mn)(No. of issues)

150

Value on the consolidated
statement of financial
position (market value)
Number of issues held

60

50

41

0

Shareholder return policy

Cross-shareholdings(1) Shareholding policy
The Group does not acquire new shares for crossshareholdings (listed shares to be held for purposes otherthan pure investment, excluding shares in subsidiaries
and associates), in principle. However, this does not apply
to a cross-shareholding arrangement that is deemed
indispensable in driving forward the Groupʼs business

70

2016

2017

2018

20

40

44

2019

2020

10
0

strategy and likely to contribute to improving its corporate
value over the medium to long term through the verificationof the reasonableness of the planned cross-shareholding. For
instance, if a cross-shareholding arrangement is requested tofacilitate local revitalization, it would be possible to acquire
shares after it is fully considered within the executives
whether such arrangement is appropriate from the viewpointof “coexistence with local communities,” which is one of
the materiality issues designed to promote sustainability
management. For the cross-shareholdings that are already in
our possession, we will, as appropriate, cut down on those
whose possession is deemed unreasonable as a result of
verification, after holding negotiations with client companies
and business partners and reaching agreement with them on
the sales method, period, and other conditions.
For unlisted shares, we have continuously examined theappropriateness of their possession within the executives
in view of their potential sell-off and reduction. From thecurrent fiscal year, we will determine if it is reasonable tohold unlisted shares from both qualitative and quantitative
aspects, as with listed shares, and will strengthen efforts to
reduce unlisted shares.
(2) Verifying the reasonableness of cross-shareholdings
Cross-shareholdings are subject to a regular annual
verification for each individual issue by the Board of Directors
from both qualitative and quantitative aspects. Qualitative
verification looks at business strategies, such as securing
supply chains and maintaining smooth and good business

Improvement of Shareholders Meetings
To have a constructive dialogue with our shareholders,
we send out the Notice of Convocation of Shareholders
Meeting early (at least three weeks prior to the day of the
Meeting) and post the content of the Notice of Convocationon the websites of the financial instruments exchange andthe Company as soon as practically possible prior to the dateof issuance of the Notice of Convocation. This will provide
enough time for shareholders to consider as to the exerciseof their voting rights. The Notice of Convocation of the 14th
Shareholders Meeting was disclosed on the websites ofthe financial instruments exchange and the Company fourweeks prior to the day of the meeting, before sending the
Notice of Convocation in written form. For the convenienceof shareholders, including domestic and international
institutional investors, in exercising their voting rights,
we have introduced an online voting system and used anelectronic voting platform. Furthermore, we have the Noticeof Convocation of Shareholders Meeting translated into
English and disclose the translation on our website and theelectronic voting platform so that international shareholders
will be able to properly exercise their voting rights.
Since fiscal 2020, we have encouraged online voting morethan ever before in order to reduce the risk of further spreadof COVID-19 infection which may occur if shareholders visit

Quantitative
verification

Comprehensive
judgement

Reasonable

Continue to holdUnreasonable

the venue of the Shareholders Meeting in person. We also livestreamed sections of the Shareholders Meeting of explaining
about “progress and results” and “issues to be addressed” forshareholders who could not come to the meeting.

Disclosure and IR activities
Based on our Basic Mission Statement that “we aim atdeveloping the Group by contributing to society at large
as a fair and reliable corporation,” we seek to maintainand advance trustworthy relationships with shareholders,investors, and other stakeholders. To this end, we disclose
important information relevant to the Company in an
accurate, clear, fair, timely, and appropriate manner inorder to raise management transparency and deepen
understanding of the Company. This is what we aim forin carrying forward IR activities. We disclose any important
information of the Company which is subject to the Timely
Disclosure Rules via the Tokyo Stock Exchangeʼs TDnet (Timely
Disclosure network) and make its content available on our
website, etc. as soon as possible. For any information which
is not subject to the Timely Disclosure Rules but which we
think will help deepen understanding of the Company, we
try to make such information widely known by posting it on
our website, publicizing Integrated Reports, and by othermeans. We disclose information timely and appropriately byusing TDnet, EDINET, Sustainability Reports, and our website
according to the nature of information to be disclosed. To
ensure the fairness of information disclosure, we prepare
English translations and disclose them for: the Notice ofConvocation of Shareholders Meeting, Integrated Reports,
Annual Securities Reports, timely disclosure information,
financial results information, Sustainability Reports, and our
website. We disclose on our website as soon as possible
presentation videos, materials, and Q&A summary texts forfinancial results and ESG presentations, and Q&A summary
texts for financial results conference calls, both in Japaneseand English. In addition to timely disclosure and informationtransmission at our website, we organize a range of briefings
and meetings and respond to inquiries from shareholders andinvestors on a daily basis, seeking to enhance communication
with them. Opinions and requests from shareholders andinvestors are shared widely among the Company and relevant
companies in the Group and used for reference in corporate
management toward increasing corporate value.

Major dialogue activities with investors in FY2020
Item

Qualitative
verification
To be reduced

Our basic policy aims to offer stable dividends and return
profits to shareholders appropriately with a consolidated
dividend payout ratio of around 30 percent or more, taking
into account profit levels, future capital investments, free
cash flow trends, and other factors while maintaining andtrying to improve financial health. Furthermore, we consider
acquiring treasury stock from time to time in order to improve
capital efficiency and enable agile implementation of capital
policy.

30

23

86

Basic capital policy
We believe that increasing free cash flow and improving
ROE will lead to sustainable growth and the enhancementof corporate value over the medium to long term. To achievethis, we will promote a capital policy that balances the“implementation of strategic investments,” the “enhancementof shareholder returns,” and the “expansion of shareholdersʼ
equity” that takes into account risk preparedness. In addition,
our basic policy is to procure funds through interest-bearing
liabilities by taking into account the ability to generate free
cash flow and the balance of the interest-bearing liabilities.
We aim to create an optimal capital and debt structure thattakes into account funding efficiency and the cost of capital.
In order to improve free cash flow and ROE, it is important
to implement a “business strategy” to increase sales withprofitability and a “financial strategy (including capital policy)”
to increase return on invested capital. At the same time,
we believe it is important to maximize operating profit andcontinuously improve the operating margin by intensively
allocating management resources to strengthening corebusinesses, expanding business domains, and aggressively
developing new businesses.
In addition, as an important financial indicator for therealization of the Group Vision, we focus on ROE for capitalefficiency, consolidated operating profit and ROIC for businessprofitability, free cash flow for profitability and safety, and theratio of equity attributable to owners of parent (equity ratio)
for financial soundness.

40

26

112

99

60
50

48

100

70

relationships with client companies and business partners.
Qualitative verification examines whether the amount ofproceeds from shareholdings, including those from relatedtransactions and dividends, is greater than capital cost.
(3) Policy for exercising voting rights
We determine whether to exercise our voting rights
considering whether such exercise will contribute tosustainable growth and enhancement of the medium- tolong-term corporate value of the company in which we holdthe shares, and of the Group. In particular, we have a policy
on which to base our decisions on the exercise of voting
rights and will take action along this policy across the entire
Group for proposals which are considered highly importantin enhancing corporate governance, such as those on thecorporate governance structure (election of officers) or the
return of profits to shareholders (appropriation of surplus),
and those that may impact shareholder value (adoptionof anti-takeover measures). If necessary, we will also holddialogues with the company in which we hold the shares
before exercising our voting rights.

Remarks

Financial results presentations for institutional investors
and analysts (on financial results and management)

Twice

Videos were streamed on our website in Japanese and English. The summaries
of Q&A sessions on the same days were also posted in Japanese and English.

Financial results conference calls for institutional investors and analysts (Q1, Q3)

Twice

The summaries of Q&A sessions on the same days were posted on our website in Japanese and English.

Small meetings for institutional investors and analysts

12 times

ESG presentations for institutional investors and analysts

Once

Videos were streamed on our website in Japanese and English. The summaries
of Q&A sessions on the same days were also posted in Japanese and English.

Store tours for institutional investors and analysts

Once

A tour of Shinsaibashi PARCO (which opened in November 2020)

Overseas IR

Twice/26 companies

Conducted online

Conferences for international investors organized by securities companies

3 times/17 companies

Conducted online

Individual meetings for institutional investors

137 times

Mostly in the form of conference callIntegrated Report 2021

71

Governance

External evaluation of IR activities

compliance structure (including the formulation of promotion
structures and plans) and oversees the status of operation ona continuous basis, and promotes compliance with laws,
the corporate ethics, and other rules. In case of any material
breach of compliance rules, the Committee sets a policy on
how to respond to such breach.
Any and all matters that are up for debate at either
committee are reported to the Audit Committee on a regularand timely basis.

(1) Risk management
We have a Risk Management Committee to organizationallymanage and deal with risks in general, mostly strategicrisks associated with securing growth opportunities, from acompany-wide perspective. The Committee is chaired by the
President and Representative Executive Officer and comprisedof Senior Executive General Managers, the presidents of major
operating companies, and other members. It identifies andevaluates risks associated with the Group. Decisions made by
the Committee are shared with all divisions of the Company
and Group companies so that risk management efforts will
help enhance corporate value. In fiscal 2020, the Committee
identified “corporate risks” (see page 22) which became thestarting point of the FY2021–FY2023 Group Medium-term
Business Plan, and made the Group risk list covering annual
risks identified based on the corporate risks.

1

Escalating confrontation among major countries, particularly between the US and China

51

Effectiveness of profit management under COVID-19 crisis

2

Restriction on the global flow of people and goods

52

Effectiveness of financing under COVID-19 crisis

3

Economic policy under COVID-19 crisis; response to epidemic and disaster

53

Investigation of optimal capital structure

4

Progress in implementation of new policies aimed at establishing a“new normal,” including accelerated digitalization

54

Abrupt change in exchange rates

55

Fraud or error in financial statements; delay in disclosure

5

Prolongation of the worst post-WWII global recession

56

Asset impairment (including goodwill)

JFR Group Compliance Hotline

6

Easing of overconcentration in Tokyo and its effect on market

57

Response to tax reforms and new accounting standards

7

Increasing risk of burst of asset bubble formed under COVID-19 crisis

We have a whistleblowing system that enables all officers
and employees of the Group and all individuals working at theGroup (including part-time workers and temporary staff fromsuppliers) to notify the Compliance Committee directly of any
compliance issues and seek corrective action. We have points ofcontact for whistleblowers both inside and outside the Company(a corporate lawyer). Regarding this whistleblowing system,
the Groupʼs internal company rules include rigorous provisions
ensuring the protection of the whistleblowerʼs privacy andprohibiting disadvantageous treatment of the whistleblower.
In March 2020, JFR Group Compliance Hotline was registeredas a system conforming to the Consumer Affairs Agencyʼs“Whistleblowing Compliance Management System certification(self-declaration of conformity registration system)” (WCMS
certification) standards. The registration was renewed in March
2021.

8

Fluctuation of inbound market driven by external factors

9Expansion of overseas revenue mainly through cross-border e-commerce

58

Normalization of natural disasters

10

Increasing risk of financial crisis as a result of COVID-19 pandemic

59

Spreading of epidemic and its severity

11

Emergence of the new rich

60

Stores and offices hit by disasters; breakdown of infrastructure

12

Loss of job or decrease in income under COVID-19 crisis

61

13

Continuing trend of less children and smaller population

Environmental disasters caused by the leakage ofhazardous matters, etc.

1462

Acceleration of aging; longer life

Accidents or equipment failure such as fire or electric leakage

15

Reversal of population movement, from Tokyoʼs city center to local regions

63

Injury or accident (as either offender or victim); healthdamage such as food poisoning

16

Sign of change in family structure represented by slowdown of growth for one-personhousehold64

Increasing system failure and unauthorized accessthrough cyber attack

17

Emergence of a new type of consumption focusing on self-fulfillment
and intangible values

65

Troubles with system managed by third party

66

Shortfall and delay in Business Continuity Management (BCM)

67

Inadequate public relations management underemergency situation

Types of reports

Strategy risk

(No. of reports)
40

5
30

6
20

10

5

21

(2) Compliance
We have a Compliance Committee (whose members
include a corporate lawyer) to ensure proper handling of issues
on the Groupʼs compliance management. The Committee ischaired by the President and Representative Executive Officer.
Working closely with the divisions in charge of promotionof compliance, the Committee builds the foundation of the

9
8

10

8
0

2017

6
2018

10

10

2019

Labor affairs
Harassment
Breach of rules

2020

Integrated Report 2021 on our website
https://www.j-front-retailing.com/ir/library/annual.php

Risk management and compliance structure
Board of Directors

President and Representative Executive Officer

Audit Committee

Audit

Internal Audit Division

Instructions/reports
Compliance Committee

Instructions/reports

Instructions/reports
Cooperation
Management Planning Division
Legal Division(responsible for internal control/risk)(responsible for the Group compliance)

JFR Group Compliance Hotline
Contact: In-house/corporate lawyer

Whistleblowing reports/answers

The Group companies

Risk Management Committee

18

Growth in premium-item consumption

19

Expansion of consumer activity combining online and real-world purchases

20

Increase in environmentally and socially conscious consumption

68

Insufficient or lack of risk management documents

21

Reform of existing businesses through good use of technology

69

Substandard safety management of building and equipment

22

Sophistication of marketing with effective use of data

23

Rapid increase of cashless payment

24

Advancement of digitalization of operations

70

25

Development of sharing economy

Lack of proper labor management such as employee
health management (including non-Japaneseand handicapped employees)

26

Emergence of new business model that poses threat to existing businesses

71

27

Emergence of new market triggered by COVID-19 crisis

Inappropriate employment, subcontracting, outsourcing,
and worker dispatch

28

Acceleration of industry realignment

72

29

Increasing cross-industry mergers & acquisitions or alliance

Faulty management of funds for retirement moneyor pension

30

Vulnerability of existing business model73

Connection with antisocial forces; involvement inunlawful business or trade31

Loss of existing supplier or strategy change at existing supplier74

Non-compliance with subcontract law or antimonopoly law

32

Demonstration of truly customer-oriented practices

75

Fraudulent acts by executives or employees

33

Dependence on specific market or supplier

76

34

Appropriateness of judgment for strategic investment or revitalizationof or withdrawal from unprofitable businessLeakage of personal information, confidential information,or insider information

77

Poor compliance mindset, including erosion of moral values

35

Analysis and reconstruction of business portfolio

36

Sharing of corporate philosophy, vision, and purpose (reason d'etre)78

Non-compliance with reporting line for matters related tocompliance37

Development of overseas strategy based on shrinking domestic market

79

38

Paradigm shift in work style and organizational structure

Lack of quality management for products and services andinsufficient control of procurement costs

39

Acceleration of open innovation

80

Inadequate outsourcing management40

Acquisition, development, deployment, and use of strategically-fit expert talent

81

Shortcomings in contract management

41

Sound organizational climate

82

Bankruptcy or default of supplier or customer

42

Demand for corporate value enhancement through CSV

43

Response management for environmental issues

44

Response management for social issues

45

Sustainability of the supply chain

46

Progress in corporate governance reform47

Establishment, management, and adequate assessment of internal
control (company law and J-SOX)

48

Steady execution and review of risk management process49

Effectiveness of IR/SR activities

50

Effectiveness of public relations activities

Operation risk

14

Hazard risk

Risk management and compliance

The Group risk list
Finance risk

We were granted the Best IR Award of the 2020 IRAward program (organized by the Japan Investor Relations
Association). It was the second time that we received theBest IR Award after 2016. In addition, our Integrated Report2020 for theprevious fiscal
year received
theSpecialAward of the
23rd NIKKEIAnnual ReportAwards 2020
organized by
Nikkei Inc.

Workers including those from suppliers

72

Integrated Report 2021

73