GOVERNANCE

Corporate GovernanceCorporate Governance
J. Front Retailing, which is a holding company, ensures thetransparency, soundness, and legal compliance of the
management of the entire Group, acting as the central focus ofgovernance for the Group, to realize the Group Mission Statement.
We strive to build trusting relationships with stakeholders(customers, shareholders, business partners, employees, andlocal communities) by means including strengthening of
information disclosure. And indicating the overall direction that
the Group management is to take and building and developing
internal control systems, and strengthening corporate governanceby overseeing the operational status of such systems are placedat the top of the management agenda.
We have adopted a "Company with Three Committees(Nomination, Audit and Remuneration Committees)" system tofurther strengthen corporate governance by:(i) Strengthening the management oversight function by
separating oversight from execution;(ii) Clarifying authorities and responsibilities in business execution
and promoting flexible management;(iii) Improving the transparency and objectivity of management;
and(iv) B uilding a globally applicable governance system.
With the aim of further strengthening the oversight function
by separating it from business execution, we amended the
Articles of Incorporation to reduce the number of Directors from“15 or fewer” to “11 or fewer” to optimize the number of Directors
at the Annual Shareholders Meeting held in May 2022.

Overview of corporate governance system

We are a holding company, and in order to speed up management
decisions and clarify management responsibilities, the authority
for execution of business operations of operating subsidiaries isdelegated to respective operating subsidiaries except for mattersthat affect the Group’s management.

We have also established six supervisory units (theManagement Strategy Unit, the Group Digital Strategy Unit, theGroup System Unit, the Financial Strategy Unit, the Human
Resources Strategy Unit, and the 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.

Corporate governance system diagram
Shareholders Meeting
ReportElection/removal

Bord of Directors

Oversight

Executive
sessionAudit

Directors
Nomination
Committee

ReportRemuneration
Committee

Audit Committee

ReportAccounting Auditor

Evaluation

Cooperation
Oversight
Consultation

Risk Management
Committee

Consultation

Execution

Sustainability
Committee

Audit

ReportPresident and Representative
Executive Officer

ReportExecutive Officers

ReportConsultation
ReportReportOur roles and responsibilities as a holding company are as
follows:
To plan, formulate, and penetrate the Group Vision, the Group
Medium-term Business Plan, and the Group Management Policy
for the fiscal year and to track the progress and results thereof;To set the business domains of the Group;
Business portfolio management (optimal allocation ofmanagement resources);To generate synergies between businesses;
To establish the Group-wide risk management system;
Organization design and operation of the entire Group;Human resource management of the entire Group;
Management of shareholders;To establish corporate governance practices for the entire
Group;
To makes decisions on important matters of business execution
relating to the management of the Group; andTo provide advice and approval for management policy andmanagement strategy of respective operating subsidiaries andto oversee and evaluate the progress thereof.

Cooperation

Compliance Committee

Instruction

Internal Audit Division

Group Management Meeting
Audit

Each execution division

Audit

Board of Directors(1) Roles and responsibilities of the Board of Directors
Directors are appointed and entrusted by our shareholders tomanage the Company and therefore owe fiduciary responsibility
and accountability to the shareholders. Keeping this in mind andaiming to realize the Group Vision, the Board of Directors
performs the following roles and responsibilities:
To indicate the overall direction that the Group management is
to take, by engaging in constructive discussions with respect to
the Group Vision, the Sustainability Policy, the Group Mediumterm Business Plan, the Group Management Policy for the fiscal
year, and other fundamental management policies and carryingout multifaceted and objective deliberations that include

evaluation of risks with respect to the aforementioned;
To appropriately make decisions in terms of overall policy andplans pertaining to the Group management based on the
direction noted above and to oversee the progress and results ofthe plans;To develop an environment conducive to encouraging offenseoriented management geared to achieving discontinuous
growth;To take steps to build and develop internal control systems of
the Group overall and to oversee the operational status of such
systems;
To oversee conflicts of interest between related parties; andBased on summary reports furnished by the Nomination
Committee, to oversee the progress of the President andRepresentative Executive Officer succession planning, personnel
assignment plans pertaining to managerial talent, and Executive
Officer training, about which the Nomination Committee wasconsulted.
(2) Composition of the Board of Directors
6 Outside Directors

Woman Woman

4 Inside Directors

Woman
Non-executive

Executive

Ratio of Outside Directors 60%
Ratio offemale Directors 30%

In selecting candidates for Director, the Board of Directors shallconsist of personnel with experience and knowledge necessary toappropriately oversee the promotion of sustainability
management (execution of business strategies aimed at resolving
the seven materialities) in order for the Board of Directors toeffectively fulfill its roles and responsibilities. In selecting
candidates for Outside Director, the Company selects persons
who maintain a high degree of independence in light of the
independence criteria established by the Company, and from thepoint of view of Board diversity, who have experience as managers
not only in the retail industry that is the core business of theGroup but in non-retail industries, or who have expertise in legal

History of the Company’s corporate governanceJapan’s Stewardship Codewas formulated

2014

Corporate Governance Codewas adopted

2015

2016
 tarted to evaluate
S
the Board of Directors
Established the Corporate
Governance GuidelinesFormed the GovernanceCommittee
Started to evaluate
managerial talents

Company with an Audit &Supervisory Board

66

INTEGRATED REPORT 2022

Corporate Governance
Code was revised

2017
 tudied an optimal
Sorganizational structure
Reviewed criteria for proposals
to the Board of Directors
The Board of Directors retreat(once a year)
Started to reduce crossshareholdings

2018 oluntarily applied IFRSVReviewed criteria for proposals to
the Board of Directors
Formulated Officer Remuneration Policy
Added “matters to be consulted” tothe Board agenda
Opened the JFR Business Management
SchoolCorporate Governance
Code was revised

2019Initiatives to strengthen group
governanceRevised the Corporate Governance
Guidelines
Response to each cross-shareholding
partner based on our policy for the
exercise of voting rights

Company with Three Committees(Nomination, Audit, and Remuneration Committees)2020
 stablished the Management
E
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 62021
 ade Parco a wholly-ownedMsubsidiaryRevised the Remuneration Policy
Established the GovernanceCommittee
Reviewed criteria for proposals to
the Board of Directors

2022
 aised the ratio of Outside
R
Directors to 50%
Revised the Remuneration Policy

 evised the Corporate Governance Guidelines
RRaised the ratio of Outside Directors to morethan 50%Company with Three Committees(Nomination, Audit, and Remuneration Committees)

INTEGRATED REPORT 2022

67

GOVERNANCE
Corporate Governanceand other fields, a marketing perspective, and extensive
experience related to finance and accounting. With regard to
candidates for non-executive Inside Director, the Company
selects persons who have wide-ranging practical experience
within the Group and knowledge in fields such as oversight. As fora candidate for Director who concurrently serves as Executive
Officer, the Company has selected a person responsible for its
financial division whose high level of knowledge will facilitate theexecution of the strategic finance policies demanded byshareholders and investors, as well as by the President andRepresentative Executive Officer.

(3) Major matters discussed at the Board meetings andefforts to solve issues
In fiscal 2021, in consideration of the status of COVID-19 and thefirst year of FY2021 to FY2023 Medium-term Business Plan, theBoard of Directors placed the following items on the agenda anddiscussed them.
We worked to solve issues by managing progress using theissue tracking sheets of the Board of Directors and the Audit
Committee and holding meetings with the Chairperson of Boardof Directors and the chairpersons of three statutory committees.

Skill matrix (Skills expected of Directors)
Management
strategies

Name

Finance

Marketing

Human resource& organization
development

Legal affairs &compliance

IT & digital

E: Environment

S: Society

G: Governance

YAMAMOTO Ryoichi

Major agenda items

	Actions to take considering the status of COVID-19
	Important managerial risks
	Review of strategies for the promotion of the Medium-term
Business Plan	Payment and Finance Business in the Medium-term Business Plan	Progress of initiatives for three strategies in the Medium-term
Business Plan (Developer, Prime Life, and Real×Digital)	ESG initiatives in the Medium-term Business Plan	The Group Management Policy for FY2022
	Amendment of the Corporate Governance Guidelines
	Revision of the Corporate Governance Report	Results of evaluation of the effectiveness of the Board of Directors
	Amendment of the Basic Policy to Build Internal Control System
	Validation of rationale for cross-shareholdings	Matters related to financial results
	Sale of shares of Dimples’ Co., Ltd.

Nomination Committee, Audit Committee, andRemuneration Committee
Committee
Chair

HAMADA Kazuko
YAGO Natsunosuke

OutsideHAKODA Junya
UCHIDA Akira
SATO Rieko
SEKI Tadayuki
KOIDE Hiroko
YOSHIMOTO Tatsuya
WAKABAYASHI Hayato
Management
strategies

The Company appoints Directors who have management experience
as well as knowledge and experience related to management
strategies, such as making strategy proposals that lead to the increaseof corporate value and formulating methods to identify issues for theformulation of the Medium-term Business Plan.

IT & digital

The Company appoints Directors capable of grasping the latest
trends in IT and providing, from the customer perspective,
supervision of ICT application assistance and new businessdevelopment for the purpose of realizing the promotion of thedigital transformation of existing businesses.

Finance

The Company appoints Directors who have extensive knowledge andexperience related to finance and accounting and knowledge andexperience in the field of finance, such as increasing corporate value
through the establishment of a strong financial base and making
capital cost-conscious finance strategy proposals.

E: Environment

The Company appoints Directors capable of providing
appropriate supervision of specific action plans, regular reviews
and the status of initiatives for continual improvement regarding
environmental plans including the setting of medium- tolong-term targets for solving environmental problems throughbusiness activities.

Marketing

The Company appoints Directors who have a wealth of knowledge andexperience in activities that bring about customer satisfaction andcontinual improvement in corporate value through discovering
customer problems, creating products and services to solve those
problems, communicating information, and offering added value.

Human resource &organization
development

The Company appoints Directors who have knowledge and experiencethat lead to improvement of corporate value over the medium to longterm through bringing out the maximum value of human resources andorganization development, including the promotion of diversity.

Legal affairs &compliance

Recognizing that legal and appropriate execution of corporate
management is the basis for sustainable improvement of corporate
value, the Company appoints Directors who have high-level and expert
knowledge in corporate legal affairs and knowledge and experience inpromoting compliance management.

S: Society

The Company appoints Directors capable of providing
appropriate supervision of initiatives for coexistence with local
communities and initiatives concerning respect for human rights
and consideration for working environments in businessactivities.

G: Governance

Recognizing the establishment of appropriate governancesystems is the basis for sustainable improvement of corporate
value, the Company appoints Directors who have knowledge
and experience in corporate governance aimed at improving theeffectiveness of the supervisory function of the Board of
Directors.

Activities of Outside Directors

68

Name

Advice, statements, etc. at the Board of Directors and others

YAGO Natsunosuke

He has contributed to improving the effectiveness of the Board of Directors by providing advice and oversight on the overall management strategy of the holding
company, including the importance of the will and leadership of the Group’s top management, what the Developer Business should aspire to be, and drastic
measures such as restructuring leading to a review of its business foundation. He chairs the Nomination Committee and serves on the Remuneration Committee.

HAKODA Junya

He has contributed to improving the effectiveness of the Board of Directors by providing advice and oversight on the importance of indicators, such as ROIC as thegoal of the Medium-term Business Plan and cash flows at the time of business infrastructure review and segment review, and the creation of a road map formonitoring digital strategies from a comprehensive perspective. He chairs the Audit Committee.

UCHIDA Akira

He has contributed to improving the effectiveness of the Board of Directors by providing advice and oversight on appropriately conveying information to
stakeholders, strengthening collaboration as a holding company in the Group, the need for new businesses when reviewing business portfolios, etc. He chairs the
Remuneration Committee and serves on the Nomination Committee.

SATO Rieko

She has contributed to improving the effectiveness of the Board of Directors by providing advice and oversight from legal perspectives on strengthening measures
as a holding company in the Medium-term Business Plan, the need for measures to increase the speed of digital strategies, formulating concrete proposals in linewith the Group Management Policy for the fiscal year, and on other proposed agenda items. She serves on the Audit Committee.

SEKI Tadayuki

He has contributed to improving the effectiveness of the Board of Directors by providing advice and oversight on the importance of capital cost-conscious financestrategies, the need for an adequate variation in business portfolio in M&A, etc. He serves on the Audit Committee.

KOIDE Hiroko

She has contributed to improving the effectiveness of the Board of Directors by providing advice and oversight on making measures more concrete for the Mediumterm Business Plan, etc. as a holding company, the importance of a marketing-oriented way of thinking, such as identifying targets and needs, analyzing the factors
and providing measures in cases when there are gaps between the targets and the actual results, etc. She serves on the Nomination Committee and theRemuneration Committee.

INTEGRATED REPORT 2022

Major agenda items

	Report of Internal Audit Division on audit plan	Report on the structure of audit & supervisory board members of
the Group companies	Report on the operation of the Basic Policy to Build Internal Control
System and the results of evaluation of internal control over financial
reporting	Report of Accounting Auditor on audit results, audit report	Reappointment of Accounting Auditor	Audit report of audit & supervisory board members of the Group
companies, audit findings of the Audit Committee	Report on management letters of Accounting Auditor	Audit policy and audit plan of the Audit Committee, appointment ofAudit Committee members appointed by the Audit Committee andspecified Audit Committee members
	Report of Accounting Auditor on audit plan, approval for Accounting
Auditor’s remuneration
	Report on Accounting Auditor’s review
	Audit report of Internal Audit Division	Report of the Compliance Committee, report of the Risk Management
Committee
	Criteria for evaluating Accounting Auditor
	Operation of the organizational audit system

InsideDirector
Director
Nomination Committee
The Nomination Committee determines the content of proposals on
the nomination and dismissal of Directors submitted to shareholders
meetings and reports to the Board of Directors regarding thenomination and dismissal of Executive Officers, as well as thechairpersons and members of three statutory committees, and othermatters in response to a consultation by the Board of Directors.

Major agenda items

	Confirmation of the skill matrix
	Election of 12 candidates for Director of the Company
	Nomination of candidates for Executive Officer and Representative
Executive Officer and appointment of Advisors to be proposed to theBoard of Directors
	Nomination of candidates for the Chairperson of Board of Directors andthe chairperson and members of each committee to be proposed to theBoard of Directors
	Executive appointment for Daimaru Matsuzakaya Department Stores
Co. Ltd. and Parco Co., Ltd. and their subsidiaries
	Management structure of each company in the Group	Formulation of the succession plan for President	Criteria for reappointment of Executive Officers
	Reappointment of the President and Representative Executive Officer
and Executive Officers
	Actions taken for issues in evaluation of the effectiveness of the Boardof Directors
	How the Nomination Committee of J. Front Retailing Co., Ltd. should be
involved in appointment of the presidents of major operating companies
Committee
Chair

OutsideInsideDirector
Director
Audit Committee
The Audit Committee effectively audits whether Executive
Officers and Directors execute their duties efficiently incompliance with the laws and the Articles of Incorporation and inaccordance with the Basic Mission Statement of the Company
and the Group Vision and makes necessary advice andrecommendations. It also conducts audits on the construction
and operation of internal control and prepares audit reports. To
ensure the reliability of accounting information, the Audit
Committee also oversees the Accounting Auditor and determines
the content of proposals on the nomination and dismissal of such
Auditor to be submitted for discussion at shareholders meetings.

Committee
Chair

OutsideInsideDirector
Director
Remuneration Committee
The Remuneration Committee determines the policy on deciding
details of the remuneration of individual Directors and Executive
Officers of the Company and officers of the Group’s major
operating subsidiaries (directors, executive officers, and audit &supervisory board members) and details of the remuneration ofindividual Directors and Executive Officers of the Company.

Major agenda items

	Results of the performance assessment sheet, total amount of officer
bonuses, amount of individual officer bonuses, individual remuneration
amount	Review of the Officer Remuneration Policy, revisions of the officer
remuneration system	The performance-linked coefficient and the number of points provided
for a stock-based remuneration system for officers (short-term
performance share)	Revision of the Officer Remuneration Policy and establishment of theofficer remuneration rules
	Review of the rules of the Remuneration Committee	Review of the trust agreement for trust-type stock-based remuneration(overview), review of the share granting rules related to the stock-based
remuneration system (overview)	Disclosure documents on the introduction of a new stock-based
remuneration system, disclosure documents on disposal of treasury
shares by means of third-party allotment in connection with theintroduction of a new stock-based remuneration system	Grading results of mission grades and verification of the process	Verification of the level and composition of officer remuneration using
external data
	Revisions of the officer remuneration system of the Group’s major
subsidiaries
	Mission grades and individual remuneration amountFY2021 (March 2021 to February 2022)
Board ofDirectors
Number ofmeetings
Attendance
Average duration
per meeting

Nomination
Committee
15

16

Audit
Committee

Remuneration
Committee

20

11

100%

100%

100%

100%

2 hours
24 minutes

1 hour10 minutes

1 hour25 minutes

39 minutes

INTEGRATED REPORT 2022

69

GOVERNANCE
Corporate Governance

Executive session

Executive sessions are exclusive meetings of independent Outside
Directors for free exchange of opinions and sharing of information.
Participants debate on matters that require the attention ofsupervisors, such as issues in the Board meeting or problems tobe addressed in order to improve the effectiveness of the Board of
Directors (Lead director is Ms. SATO Rieko, an independent
Outside Director). At the request of the lead director, the President
and Representative Executive Officer and the Chairperson ofBoard of Directors also participate in discussions.

[Qualities required of successors]

For the President and Representative Executive Officer of theGroup and people who assume the management of the Group, theCompany clearly defines the necessary values, capabilities, andbehavioral traits in the form of qualities required of a corporate
officer under the “Desirable qualities required of JFR Groupmanagerial talent” and the “Discernible capabilities required of
JFR President and Representative Executive Officer” in accordancewith the Basic Mission Statement and the Group Vision.
Desirable qualities required of JFR Group managerial talent

Succession planning[Selection of the President and Representative Executive Officer]

Strategic mindset

Reform-oriented leadership

Tenacity to achieve results

Organization development strengths

Selection of the President and Representative Executive Officer isa critical aspect of strategic decision-making, and accordingly theCompany regards drawing up and implementation of succession
plans as matters of particular importance in terms ofmanagement strategy.
The Company ensures clarity, transparency, and objectivity inthe process of selecting successor candidates through repeateddeliberations conducted by the Nomination Committee, which
consists of three independent Outside Directors and the
Chairperson of Board of Directors, who is a non-executive Director
elected from inside the Company.
The Board of Directors focuses on realizing the Basic Mission
Statement and the Group Vision, selects the President andRepresentative Executive Officer, and plays a supervisory role
based on proposals received from the Nomination Committee.

The Nomination Committee will have discussions on succession
planning in a planned and consistent manner in view of changes inenvironments and situations surrounding the Company, the progressof strategies formulated, etc. Election and dismissal of Executive
Officers are deliberated by the Nomination Committee and its
proposals are deliberated and determined by the Board of Directors,
as in the case of the President and Representative Officer.

[Dismissal of the President and Representative Executive Officer]

Evaluation of the effectiveness of the Board of Directors

A proposal for dismissal of the President and Representative
Executive Officer is discussed and determined by the Board of
Directors after being discussed and resolved by the Nomination
Committee based on the goals set, expected and actual results(e.g. annual performance and strategy execution status), and thestatus of performance of duties achieved by successor candidates
who are selected under the succession plan resolved by the
Nomination Committee.

Human resource
development strengths
Discernible capabilities required of JFR President andRepresentative Executive Officer
Capacity to conceive a business vision

Capacity to communicate a vision

Persistence andcapacity to achieve results

Moral character andcharisma

The Company’s evaluation of the effectiveness of the Board of
Directors by a third-party organization has been conductedannually since 2015.
In the seventh evaluation of the effectiveness of the Board of
Directors, conducted between June and October 2021, it wasreported that the function of the Board of Directors has beenstrengthened since 2015 through the efforts such as theorganizational structure change, an increase in the ratio of Outside
Directors, reinforcement of agenda setting, and enforcement of

FY2020Issue

Evaluation

Issue

Action to be taken

 edefining the roles of the Board ofR
Directors
Intensifying discussions on
medium- to long-term strategies
Reviewing the composition of theBoard of Directors
Strengthening the Plan and Check
functions of the Board of Directors
Strengthening the functions of theNomination Committee

 ost of the issues were improved.
M
Redefining the roles of the Board of
Directors remains an issue.

 larifying the roles of the holding
C
company and its Board of Directors
Concentration on strategic
important proposals anddiscussions in the Board meetings
Reviewing the composition of theBoard of Directors
Further strengthening the functionsof the Board of Directors
Secretariat

 e will articulate the holding company’s rolesWin the FY2022 Management Policy andstrengthen the function of planning tofacilitate strategy implementation.
The holding company’s Board of Directors will
strengthen the monitoring function for the
progress of the Medium-term Business Planand PMI.
A majority of members of the Board of
Directors shall be independent Outside
Directors to ensure even greater effectivenesswith respect to its discussion.
The Board of Directors Office will strive tostrengthen communication with the
management team and to set proposals basedon management issues more than before.
The Board of Directors Office will dofollow-ups so that the execution cansufficiently enhance consideration of andresponse to the issues raised by the Board of
Directors.

【Items evaluated】
About 40 items including:○	The Board of Directors’ contribution to theentire Group;○ Composition of the Board of Directors;○ Operational status;○ Content of deliberations; and○	Effectiveness of activities of the Nomination,
Remuneration, and Audit Committees

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FY2021

INTEGRATED REPORT 2022

【Evaluation methodology】○ Advance questionnaire for Directors○	“Individual interviews” conducted by a third-party organization basedon the advance questionnaire (about one hour)○	Direct observation of deliberations by attending the meetings of theBoard of Directors and the committees○ Inspection of discussion materials for the Board of Directors, etc.
↓
Deliberated by the Board of Directors based on the report made bycollating and analyzing the above

deliberations and that many of the issues for fiscal 2020 were
improved. On the other hand, it was evaluated that, of the issues
for fiscal 2020, “redefining the roles of the Board of Directors” still
remains unsolved. At the same time, issues were recognized andthe actions to be taken were confirmed as shown on page 70.

remuneration system will be implemented in accordance with theperiod of the Medium-term Business Plan. However, the level ofbasic remuneration will be reviewed if a drastic change in theexternal environment, etc. requires a significant revision during
the Medium-term Business Plan period.

Officer remuneration system[Forfeiture of remuneration] (clawback and malus)
Regarding Executive Officers’ bonuses and stock-based
remuneration, in the event that a resolution is passed by the Boardof Directors regarding the post-revision of financial results due toserious accounting errors or improprieties, in the event that there
has been a serious breach of the appointment contract, etc.
between the Company and an officer, or in the event that an officer
has voluntarily retired for his/her own reasons during his/her termof office against the will of the Company, the Company may request
the forfeiture of the right to pay or grant remuneration or the refundof remuneration that has already been paid or granted to the officer.

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 Mediumterm 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 scope ofstock-based remuneration has been expanded to include the
Executive Officers of Parco and the Representative Directors of
JFR Card and J. Front Design & Construction as well as the
Directors and Executive Officers of the Company and the Directors
and Executive Officers of Daimaru Matsuzakaya Department
Stores, a major subsidiary of the Company.
Beginning in fiscal 2020, the Company discloses the amount ofeach officer’s remuneration (including the amount received asremuneration, etc. for an officer of a major consolidated subsidiary,
if any) in the Annual Securities Reports regardless of whether or not
his/her total consolidated remuneration, etc. exceeds ¥100 million.
(1) Basic policy on officer remuneration
Our officer remuneration system is based on the following basic
policy, aiming to realize and promote sustainability management(pay for purpose). Furthermore, the same basic policy shall apply
to the Directors and Executive Officers of Daimaru Matsuzakaya
Department Stores and Parco, which are major subsidiaries in theGroup, and the Representative Directors of JFR Card and J. Front
Design & Construction.
To contribute to the sustainable growth of the Group and the
medium- to long-term improvement of corporate value and beconsistent 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 the Company to secure andretain human resources who have the “desirable managerial
talent qualities” required by the Company;
To increase awareness of profits shared with shareholders andawareness of shareholder-focused management; andEnhanced transparency and objectivity in the remuneration
decision process.
(2) Process for determining remuneration
In order to ensure the appropriateness of the level and amount of
remuneration and the transparency of the decision-making
process, the specific remuneration amount is decided byresolution of the Remuneration Committee, which consists of
independent Outside Directors and the Chairperson of Board of
Directors who does not execute business and is chaired by anindependent Outside Director. Revisions to the officer(3) Remuneration composition for Executive Officers andnon-executive Directors
The remuneration for Executive Officers consists of (a) “basic
remuneration” (monetary remuneration) in accordance with themission grade, (b) “bonus” (monetary remuneration) based on theindividual evaluation, etc. for each fiscal year, and (c) “performance
share (performance-linked stock-based 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.
Executive Officers

Basic remuneration

Remuneration, etc.
for Executive Officers

Bonuses
Performance shares

Proportion of remuneration by type for Executive Officers of each rank
[President]
Basic remuneration
38.5%

Bonuses
23.0%

Monetary remuneration
61.5%
Fixed remuneration
38.5%

Performance shares
38.5%
Stock-based remuneration
38.5%

Performance-linked remuneration
38.5%[Executive Officers excluding President]
Basic remuneration
45.4%
Monetary remuneration
72.7%
Fixed remuneration
45.4%

Bonuses
27.3%

Performance shares
27.3%
Stock-based
remuneration 27.3%

Performance-linked remuneration
54.6%

Note: T he above figure represents the case of a bonus for a standard ranking where theperformance achievement rate for stock-based remuneration is 100%.
Note: T he Directors and Executive Officers of Daimaru Matsuzakaya Department Stores andParco and the Representative Directors of JFR Card and J. Front Design & Construction
shall have the same remuneration composition as “Executive Officers excluding
President” in the above figure.

INTEGRATED REPORT 2022

71

GOVERNANCE
Corporate GovernanceTarget values and evaluation weights for performance-linked
stock-based remuneration
Target value for medium
to long term

KPI
Profitability(i) Operating profit

Efficiency(ii) ROE

Nonfinancial

Evaluation
weight40.3 billion (FY2023)

40%

7% (at the end of FY2023)

40%

GHG (Scope 1 and 2)
emissions reduction-40%(vs. FY2017)10%

Raising the share of(iv) women in management
positions26%(at the end of FY2023)

10%

(iii)

Note: KPI stands for Key Performance Indicator.
Note: F or the short term, only (i) consolidated operating profit is adopted. The initial forecasts forthe fiscal year announced in the Consolidated Financial Results every April (IFRS basis) areused for the relevant target value. The target value for FY2022 is ¥21.0 billion.

Method to calculate a performance-linked coefficient
Performance achievement rate

Performance-linked coefficient

200% or more

20% or more but less than 200%

Actual results ÷ Target

Less than 0%0Illustrative graph 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%), andwhen performance achievement rate is 200% or more, the performance-linked coefficientis 2.0 (200%).

Non-executive Directors
Remuneration, etc.
for non-executive Directors

72

INTEGRATED REPORT 2022

Basic remuneration
Restricted stock

be issued annually in order to promote management from theshareholders’ perspective.
(d)	Restricted stock (non-performance-linked stock-based
remuneration)
	In order for non-executive Directors to strengthen our aggressive
and defensive governance from a different standpoint fromexecutives as the representatives of stakeholders and to engage
in management from a medium- to long-term perspective, wehave adopted a restricted stock system in which our shares areissued in a manner that is not linked to performance, and theshares are issued upon their retirement from office.

Basic capital policy

The Company believes that any increase in free cash flow andimprovement in ROE should help to ensure its sustainable growthand increase corporate value over the medium to long term. To
such ends, the Company promotes a capital policy that takes abalanced approach to “undertaking strategic investment,”“enhancing shareholder returns,” and “expanding net worth
being” after taking into consideration the business environmentand risk readiness. Moreover, our basic policy is to procure funds
through interest-bearing liabilities by taking into account theability to generate free cash flow and the balance of the interestbearing liabilities and we aim to achieve an optimal structure ofdebt to equity in a manner cognizant of our funding efficiency andcost of capital. A “business strategy” where higher sales areaccompanied by profits and a “financial strategy (encompassing
the capital policy)” that increases the profitability of invested
capital are essential elements with respect to improving free cash
flows and ROE. In addition, we believe it is important to maximize
operating profit and sustainably improve operating margin bystrengthening our core businesses and concentrating
management resources on initiatives such as business field
expansion and active development of new businesses.
As the key financial indicators for the achievement of theMedium-term Business Plan, 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 the parent (equity ratio)
for financial soundness.

Shareholder return policy

The Company’s basic policy is to appropriately return profits. Hence,
while maintaining and enhancing its sound financial standing, theCompany strives to provide stable dividends and target a
consolidated dividend payout ratio of no less than 30%, taking profit
levels, future capital investment, free cash flow trends, and othersuch factors into consideration. The Company also considers theoption of purchasing its own shares as appropriate in order toimprove capital efficiency and flexibly implement a capital policy.

Cross-shareholdings(1) Holding policy
In principle, the Group will not newly acquire cross-shareholdings(cross-shareholdings are holdings of listed shares other than thoseof subsidiaries and associates which are not held for pure

Changes in the number of issues of cross-shareholdings(listed shares excluding deemed holdings)
Amount recorded on consolidated statement of financial position (market value)
Number of issues held(¥100 million)(Number of issues)

150

60

48
100

41

112

26

23

21

50

40

2017

2018

Qualitative
validation

40

86

0

relationships with corporate customers and business partners andsecuring supply chains. The quantitative perspective relates towhether revenue from holding shares, including related trading
profits and dividends, exceeds capital costs, etc.

2019

44

2020

20

Quantitative
validation

33

2021

To be reduced(a) Basic remuneration (monetary remuneration)
	Basic remuneration is positioned as fixed remuneration and isdetermined by mission grade for Executive Officers and by thetable for non-executive Directors in accordance with the size
(weight) of each officer’s responsibilities.
(b) Bonuses (monetary remuneration)
	The bonus paid to Executive Officers is performance-linked
remuneration that encourages them to achieve the goals foreach fiscal year, which are milestones in the Medium-term
Business Plan. The performance-linked remuneration isevaluated using the “fiscal year’s financial indicators,” serving
as quantitative evaluation, and the “fiscal year’s non-financial
indicators,” which include qualitative evaluation.
(c)	Performance share (performance-linked stock-based
remuneration)
	The Company issues its shares to Executive Officers inconjunction with the consolidated performance achievement
rate set forth in the Medium-term Business Plan in order toachieve sustainable growth of the Group and increase
corporate value over the medium to long term.
		 Sixty percent of the total performance-linked stock-based
remuneration is to be issued in a single issuance at the end of
the Medium-term Business Plan and the remaining 40% is to0Comprehensive
judgement
There isrationale

investment purposes). However, this does not apply to shares
where it has been recognized that they are necessary for thepromotion of the Group’s business strategies and that the holdingof such shares will contribute to the increase of corporate value inthe medium to long term through the validation of rationale forholding them. For example, in the case where we were requested
to hold shares for the purpose of local revitalization, from theperspectives of initiatives for “coexistence with local communities,”
which is one of our materialities for the promotion of sustainability
management, we would consider holding such shares upon
sufficient examination of the suitability of holding them by the
executive team and might hold them. Among the shares alreadyheld by the Company, for listed shares (including retirement
benefit trust shares) for which there is judged to be no rationale
for holding upon validation, we will negotiate with corporate
customers and business partners and appropriately reduce themupon reaching a consensus regarding sale method, period, etc.
For unlisted shares, the executive team discussed whether or
not to continue holding them with a view to selling and reducing
holdings. Since fiscal 2021, we have confirmed the suitability ofholding all shares in the same way as listed shares from both
qualitative and quantitative perspectives and strengthened ourefforts to reduce holdings.
(2) Validation of rationale for holding
Every year, the Board of Directors validates the rationale forholding individual issues from both quantitative and qualitative
perspectives. The qualitative perspective relates to businessstrategies such as maintaining harmonious and favorable business

There isno rationale

Continue to hold(3) Policy on exercising voting rights
We determine whether to exercise our voting rights consideringboth whether such exercise will contribute to the sustainablegrowth and the medium- to long-term enhancement of corporate
value of the company whose shares we hold and whether such
exercise will contribute to the sustainable growth and the mediumto long-term enhancement of corporate value of the Group.
Particularly, in regard to proposals that we consider to be of highpriority with respect to strengthening corporate governance, suchas proposals relating to the corporate governance system(selection of officers), proposals relating to shareholder return(appropriation of surplus), and proposals that have an impact onshareholder value (introduction of takeover defense measures),we will establish policies upon which to base judgment of our
exercise of voting rights, and acting as the Group as a whole, wewill respond to them in line with such policies. We will engage indialogue with companies whose shares we hold if necessary.

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 Convocation on the websites of the financial
instruments exchanges and the Company as soon as practicallypossible prior to the date of sending the Notice of Convocation.
This will provide enough time for shareholders to consider as to theexercise of their voting rights. The Notice of Convocation of the

Major dialogue activities with investors in FY2021
Dialogue opportunity
Financial results presentations for institutional investors
and analysts (Q2, Q4)

No. of times

Remarks

2

Video conferences and conference calls. Videos are available in both Japanese and English on demandon the Company’s website. The summaries of their Q&A sessions are also available in both Japaneseand English.
Conference calls. The summaries of their Q&A sessions are also available in both Japanese and English.

Earnings calls for institutional investors and analysts (Q1, Q3)

2

Small meetings for institutional investors and analysts

12Video conferences and conference calls.

Outside Directors small meeting for institutional investors

1

Video conference.

ESG presentation for institutional investors and analysts

1

Video conference. Outside Director also gave a presentation. Videos are available in both Japanese andEnglish on demand on the Company’s website. The summary of its Q&A session is also available in both
Japanese and English.

Overseas IR

23

Video conferences.

Conferences for institutional investors organized
by securities companies

15

Video conferences.

Meetings for individual institutional investors

120

Mainly conference calls and video conferences.

INTEGRATED REPORT 2022

73

GOVERNANCE
Corporate GovernanceEnglish 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 for financial resultspresentations, business strategy presentations, ESG
presentations, etc. and Q&A summary texts for earnings calls,
both in Japanese and English. In addition to the provision of
information through timely disclosure, our website, and others, weorganize a range of briefings and meetings and respond toinquiries from shareholders and investors on a daily basis, seeking
to enhance communication with them.
Opinions and requests from shareholders and investors areshared widely among the Company and relevant companies in theGroup and used for reference in corporate management toward
increasing corporate value.

we have established the following three lines.
(i)	First line: Business execution divisions such as operating
subsidiaries. These divisions identify risks and take thenecessary measures on their own.
(ii)	Second line: The holding company’s divisions. Each division
provides support, guidance and monitoring regarding risk
management from a perspective which is independent of thebusiness execution divisions.
(iii)	Third line: The Internal Audit Division. This division oversees
the validity of the risk management functions and the internal
control system from a perspective which is independent of thebusiness execution divisions and each division of the holding
company.
While identifying “corporate risks” (see page 30), which areused as starting points for the FY2021 to FY2023 Group Mediumterm Business Plan, the risks for the fiscal year identified from
“corporate risks” are summarized in the JFR Group Risk List.

Disclosure and IR activities

External recognition for IR activities

The Company was awarded the IR Grand Prix at the 2021 IR
Award (organized by the Japan Investor Relations Association). It
was the first time that we received the Grand Prix.

Compliance

Risk management

Risk management and compliance system diagram
Board of Directors

Audit Committee

Types of reports
Internal Audit Division

Breach of rules

Compliance Committee

Cooperation

JFR Group Compliance Hotline
Contact: Internal/corporate lawyer

Legal Division(responsible for the Group compliance)
Report/response

Workers including those from suppliers

74

INTEGRATED REPORT 2022

Labor affairs

50

Instruction/report

The Group companies

Instruction/reportManagement Planning Division(responsible for internal control/risk management)

Harassment(No. of reports)

Consultation/report

Risk Management Committee

We have a whistleblowing system that enables all officers andemployees of the Group and all individuals working for the Group(including part-time workers and temporary staff from suppliers)
to notify the Compliance Committee directly of any complianceissues and seek corrective action. We have points of contact for
whistleblowers both inside and outside (a corporate lawyer) the
Company. Regarding this whistleblowing system, the Group’s
internal company rules include rigorous provisions ensuring theprotection of the whistleblower’s privacy and prohibiting
disadvantageous treatment of the whistleblower.

9

40
30
20
10
0

5
6
14
8

2017

10
8
6

2018

22

Operation risk

President and Representative
Executive Officer

JFR Group Compliance Hotline

Hazard risk

The Group defines risk as “uncertainties that have both potential
positive and negative sides that could have an impact on theachievement of targets by a company.” We have positioned risk
management as the “activity that increases corporate value bymanaging risks by reasonable and optimal methods from a companywide perspective” to achieve sustainable corporate growth byaddressing the positive side and the negative side of risk properly.
The Company has established the Risk Management
Committee as an advisory body to the President andRepresentative Executive Officer. The committee discusses
important matters, including risk identification and evaluation anddetermination of risks to be reflected in strategies, and utilizes risk
management for management decision-making.
The committee also reports details of its deliberations to theBoard of Directors in a timely manner.
Furthermore, in order to effectively perform risk management,

We have a Compliance Committee (whose members include a
corporate lawyer) to ensure proper handling of issues on theGroup’s compliance management. The committee is chaired by
the President and Representative Executive Officer. Working
closely with the divisions in charge of promotion of compliance,
the committee builds the foundation of the compliance structure
and oversees the status of operation on a continuous basis, andpromotes compliance with laws, the corporate ethics, and otherrules. In case of any material breach of compliance rules, thecommittee sets a policy on how to respond to such breach.
Any and all matters discussed by the committee are reported
to the Audit Committee on a regular and timely basis.

Finance risk

Based on the Basic Mission Statement that we aim at developing
the Group by contributing to society at large as a fair and reliablecorporation, we seek to maintain and advance trustworthy
relationships with shareholders, investors, and other stakeholders.
To this end, we disclose important information relevant to theCompany in an accurate, clear, fair, timely, and appropriate mannerin order to raise management transparency and deepen
understanding of the Company. This is what we aim for in carrying
forward IR activities. We disclose any important information of theCompany which is subject to the Timely Disclosure Rules via theTokyo Stock Exchange’s TDnet (Timely Disclosure network) andmake 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 other means. We disclose information timely andappropriately by using TDnet, EDINET, Sustainability Reports, andour website according to the nature of information to be disclosed.
To ensure the fairness of information disclosure, we prepare

JFR Group Risk List

Strategy risk

15th Shareholders Meeting was disclosed on the websites of thefinancial instruments exchanges and the Company four weeks
prior to the day of the meeting, before sending the Notice ofConvocation in written form. For the convenience of shareholders,
including domestic and international institutional investors, in
exercising their voting rights, we have introduced an online voting
system and used an electronic voting platform. Furthermore, wehave the Notice of Convocation of Shareholders Meeting translated
into English and disclose the translation on our website and theelectronic voting platform so that international shareholders will beable to properly exercise their voting rights.
In fiscal 2021, we further encouraged online voting in order tominimize the risk of the spread of COVID-19 infection which may
occur if shareholders visit the venue of the Shareholders Meetingin person. We also livestreamed the sections of the Shareholders
Meeting of explaining about “progress and results” and “issues tobe addressed” as well as its Q&A session for shareholders who
could not come to the meeting.

1

Japanese security environment deteriorated due to tension
between US and China

2

Combination of COVID-19 measures and economic
normalization

3

Emergence of financial crisis and collapse of asset bubble

4

Transformation of existing businesses using technologies

5

Sophistication of marketing with use of data

6

Advancement of cashless payment

7

Streamlining of operations through digitization

8

Demand for corporate value enhancement by realizing CSV

9Communication and dissemination of the Basic Mission
Statement and the Group Vision10

Progress in corporate governance reform

11

Response to environmental issues such as climate change

12

Response to social issues such as human rights violation

13

Paradigm shift in work style and organizational structure

14

Acceleration of open innovation

15

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

16

Engagement with investors through IR/SR activities

17

Effectiveness of public relations activities

18

Increase in ROIC and study on optimal capital structure

19

Fraud or error in financial statements, delay in timely
disclosure

20

Asset impairment and response to tax effect accounting

21

Response to tax reforms and new accounting standards

22

Normalization of natural disasters, buildings hit by disasters,
breakdown of infrastructure

23

Increasing severity and shortening of spread of epidemics

24

Accidents or equipment failure such as fire and electricleakage25

Food poisoning, injury, and accident (as either offender or
victim)26

Substandard safety management of buildings and equipment

27

System failure and unauthorized access through cyberattack

28

Troubles with system managed by third party

29

Shortfall and delay in Business Continuity Management
(BCM)

30

Non-compliance with reporting lines and inadequate public
relations management when important matters happen

31

Lack of proper labor management such as employee healthmanagement (including non-Japanese and disabled
employees)

32

Aggravated operation of retirement benefits and pension
systems

33

Connection with antisocial forces

34

Transactions and operations in non-compliance with laws
and regulations such as the Subcontract Act and theAnti-Monopoly Act

35

Fraudulent or illegal acts by executives and employees
Flaw in compliance system, including deterioration of ethics

36

Improper handling of personal information, leakage ofconfidential information

37

Leakage of insider information

38

Inadequate management of the quality of products andservices and procurement costs

21

5

39

Inadequate outsourcing management

10

10

15

40

Shortcomings in contract management

2019

2020

2021

41

Bankruptcy and default of supplier and customer

9

INTEGRATED REPORT 2022

75