Values and Vision

Value Creation

Management Strategy

Sustainability

Governance

Data

GovernanceInterview with Outside Directors [Dialogue among Outside Directors][Dialogue among Outside Directors]

The Board of Directors Plays a Major Role
in Enhancing Corporate Value
Independent Outside Director

Independent Outside Director

Independent Outside Director

HAKODA Junya

SATO Rieko

YAGO Natsunosuke

Chairperson of Audit Committee

Member of Audit Committee

Chairperson of Nomination Committee

Evaluation of the Company’s
governancemember of the Audit Committee andthe lead director of the executive
session, which is a gathering of
Outside Directors only, and we holdan executive session once a monthafter the pre-meeting briefing and an
expanded executive session with the
President after the Board meeting.
I think this is a very good initiative
compared to other companies. It is
not a structure under the Companies
Act, but I believe it works well interms of governance.
As Mr. Yago just said, I think
we meet the necessary conditions
for a Company with Three
Committees (Nomination, Audit, andRemuneration Committees). In thesense of moving on to the next step,
we do not pre-determine the agenda
in executive sessions, but rather,
the Outside Directors exchange
opinions without any restrictions on
the issues raised in the pre-meeting
briefing and other related issues
that they think are important on thespot, and provide feedback to the
President on what is necessary.
We take that feedback, recognize

it as it is, and hold extended
executive sessions. In otherwords, we have a mechanism tofeed back the Outside Directors’
awareness of issues directly to the
executive side, and after carefulconsideration by the President, other
Executive Officers may be invited toparticipate, and they may be asked
to return the feedback to us. I havethe impression that communication
between Outside Directors on the
supervisory side and the executiveside has taken a step forward
through executive sessions andextended executive sessions.
In that sense, I think that theexecutive session or the extended
executive session is playing a role
as one of the Phase 2 initiatives that
Mr. Yago mentioned. Of course, thatis not enough, and we need to do
more and more things in the future,but I think it is a progress, a step
forward.

Yago: I think it is safe to say thatour governance has been done
honorably, so to speak, and meetsthe necessary requirements.
However, in order to grow and be
more appreciated by shareholders,
we must fulfill sufficientconditions such as corporate
growth. Shareholders may not
feel comfortable investing in acompany that does not meet thenecessary conditions, so I think
it is important that the Company
has been evaluated as meeting thenecessary conditions. However, weare now entering Phase 2, and it will
be important for us to find a way
to grow the Company and obtain ahigh valuation in the stock market.
That will be our final results, andhow we work toward that goal is thechallenge we will face in the future.
I understand that we are entering aphase of high difficulty.
Sato: In my current role, I am a

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Hakoda: When I talk with people
in other companies and people
involved in governance, I feel thatour governance is highly regarded.
Currently, seven of the 11 Directors
are Outside Directors, which is
close to two-thirds of the Boardof Directors. The composition of
the Board of Directors has become
closer to that of Western boards witha majority of independent outside
directors, and I feel that the Board’s
discussions have deepened evenmore in terms of content. In terms of
Phase 2, I hope that it will be more
appreciated by foreign investors in
the future.
Looking at the changes in market
capitalization, although stock prices
have recently returned due to thepost-COVID-19 era, strictly speaking,they are still in the 300 billion to 400
billion yen range and have not quite
reached the peak over the past 10
years or so, above 500 billion yen.
There are many companies thatare not so large, but are highly
valued by investors and attract
funds, with a market capitalizationof over one trillion yen. I hope thatby going beyond comparisons in
the department store sector andstrongly emphasizing its vision andspecific initiatives for sustainablegrowth, both Japanese and foreign
investors will pay more attention to
the Company.

Evaluation of the effectivenessof the Board of Directors
Ya g o : T h e c u r r e n t l e v e l o feffectiveness evaluation is
a comparison with generalbenchmarks, such as how muchtime was spent, whether that time
was appropriate, and whether thenecessary document information wasprovided in advance, and I think wehave satisfied them. Interviews withindividual Directors have identified
the real challenges that the Board of
Directors faces, but the next stage
is not to compare with benchmarks,
but to uncover the unique challenges
that the Board of Directors faces andto improve its effectiveness. Fixedpoint observation is important, but I
think we are entering a stage where
we are taking a step forward fromthere. However, it is also true that
if everyone does not have the sameawareness, it is difficult to move
forward efficiently.
Sato: I believe our Board of
Directors has an effective approachon a general level. We are a holding
company, and I wonder, in terms ofthe division of roles between theholding company and the operatingcompanies, if we can confirm or
discern what the holding company’s

Board of Directors has to decide,what it has to look at, and to what
extent the operating companies are
empowered to do so. I feel that it will
be a challenge from now on to see
if we ourselves can play our roles
with a clear understanding of theseissues.
As a holding company, I wonder
a little if there is still a lack ofdifferentiation in the way we tell
the operating companies what theyshould do, how much profit theyshould make, and what we will doin return. I believe that this will be
the next step after demonstrating
the general effectiveness andfunctions of the Board of Directors.
I think there is still a lot of room fordiscussion.
Hakoda: Regarding the evaluationof the effectiveness of the Board of
Directors, I think we need to consider
two things: the current evaluation
process and the future issues of

the Board of Directors itself. In thatsense, I think the evaluation process
is very efficient. The members of theBoard of Directors all have their own
opinions and are very outspoken, so
I think the current questionnaires
and interviews should be enough to
get a good grasp of their thoughts.
As for how to change thisapproach and make it better, I haveheard that in the U.K. and the U.S.,
for example, the entire board of
directors is evaluated, then eachcommittee is evaluated, and evenindividual directors are evaluated. In
our case, committee evaluations are
conducted, so in terms of formality,
I think the only thing left is how toevaluate individual Directors.
I think what Ms. Sato mentioned
what to do with the Board of Directors
itself is a very big theme. Recently,
I have been concerned about thefact that we have a pure holding
company structure, and while acompany of a reasonable size canmanage a corporate headquarters, apure holding company of our current
size with a hundred and dozens of
employees seems to have someoverlap in functions with the operatingcompanies. I think it is necessary to
deepen the discussion on the content,
including whether this type of holding
company is appropriate in terms of ourcapabilities.

Progress of the Medium-term
Business Plan
Yago: Mr. Yoshimoto often says,“Move up a gear for change.”
However, we should take seriously

The composition of the Boardof Directors has evolved, andthe content of discussions has
become even deeper.

79Values and Vision

Value Creation

Management Strategy

Sustainability

Governance

Data

GovernanceInterview with Outside Directors [Dialogue among Outside Directors]

the fact that the market sees nofuture for our industry if we continue
to make gradual progress throughimprovement and refinement. We
have to change a lot, and the market
expects us to change a lot. Even
when change begins, it can take aslong as three or five years for themarket to react. Without a significant
change in the shape of our business,
I think we will be buried under the
average expectations for the industry
as a whole.
Hakoda: I think we are making
realistic progress in the directionof our current medium-term plan,but on the other hand, there is thequestion of whether three years
are enough for our medium-term
plan. We have a time-consuming
business such as the Developer
Business, and if we are trying togrow around it, three years may be
a little short. Perhaps, in the span ofmanagement, we need to plan for alonger period of time, like five years
or something. If we are going to lookat the Developer Business, whichaims for significant growth, I think it
will be very important for the Boardof Directors to manage the progressof the plan. In particular, investment
and cash flow. In what plan will wemanage their progress? We need tolook at it over a long span of time,such as five years or so.
Sato: I think it is absolutely
necessary to look at reforms andbusiness changes over a certain
span of time, and we are currently

in a situation where the Group has
Daimaru, Matsuzakaya, Parco, GINZA
SIX, and now we have purchased
XENOZ. I think we have not been able
to explain these five elements to themarket with a story and talk to them
about what dream we have and how
we are going to achieve it.
It may be difficult to come up
with reforms from there, but first ofall, I feel that the stock price does
not rise easily because we do nothave something like the current
strength, such as what story weenvision and how we go from herewith the story. I believe this is one of
the reasons why we have not beenable to differentiate ourselves fromour peers in the capital market andremain mired in the department
store sector.
Hakoda: Although ROIC management
has been adopted in the execution
from the viewpoint of upgradingbusiness management, I have theimpression that ROIC management
has not yet fully understoodwithin the Company. That is really
important and we need to make surethat the Board of Directors, including
executive members, can properly
discuss these issues, because
investment and cash flow are theindicators for our medium- to longterm business.
Our medium- to long-term vision
is to Create and Bring to Life “NewHappiness.” As a message to thecapital market, we need to strongly
emphasize what initiatives we aretaking to realize our vision. As a

It is important to raiseawareness of ROIC
throughout the Group.

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result, if investors are interested
in various figures such as ROE and
ROIC, the stock price and various
other figures will rise.
Ya g o : RO I C m a y n o t b e e a s i l yunderstood by the entire
organization. However, in termsof penetration among employees,
I believe that it is sufficient for
employees to understand the returnon investment capital, in otherwords, how efficiently profits can begenerated using the money raised
through borrowing and equity. I thinkthat if everyone starts to understandthat it is not just a matter of sales
growth, but also of how efficiently
the invested funds are being used,things will gradually change.
I included ROIC as a goal in themedium-term plan at my previous
company, and although it took sometime, the ROIC numbers themselves
have changed significantly. I realizedthat it works if we try it. I believe thatwhen the importance of effective
use of invested funds begins to beunderstood across the board, the wayof thinking will change from what it
has been up to now. The company’s
officer remuneration structure, inwhich stock-based remuneration(performance share) is determined by
ROIC results, was also a major factor.
In the process of bringing ROIC downfrom officers to the managementlevel, everyone naturally gained abetter understanding of what ROIC is
all about.
ROIC by business, as we are trying
to adopt, will be a challenge, but I
think it will be effective in raisingawareness throughout the Group.
Hakoda: I think what you just said
is very important. We see a big
difference in the effect of adoptionof ROIC between the companies thatreflect it in officer remuneration andthose that do not. We need to makesure that executive officers havea sense of how much money they

are spending and how much profit
and cash they are generating intheir respective businesses. I think
it is important to link it to officer
remuneration in some way.
Ya g o : T h e C o m p a n y c u r r e n t l yreflects ROE in officer remuneration,
but not ROIC, and I think we need toconsider whether to use ROIC or to
include something like TSR so thatthe stock market view is reflected in
officer remuneration.

To improve corporate value
over the medium to long term
Yago: The Company has focusedon strengthening governance andcreated appropriate mechanisms,
but the current situation is that the
PBR is one or less, and we are notsufficiently evaluated in the capital
market. The reason why we are notbeing evaluated is simple: we are
not able to talk about our dreams
and hopes for the future, and we are
not able to draw a trajectory toward
our future goals. Companies witha high PBR have high profit levels,of course, but more than that, they
are the companies that give theirshareholders dreams and hopes, andwe need to be aware of this. I think
the roles and responsibilities of theBoard of Directors are very importantin that regard. In reality, it is what theexecutive side does, but one of theroles of the Board of Directors is toprovide guidance or advice on what
they are trying to do. I feel that it isnecessary to strengthen the roles of
the Board of Directors a little more.
To this end, it will be important toconsciously strengthen the roles andresponsibilities of each Director.
Hakoda: The main reason why theinvestment for this medium-term
three-year period is far below theplan is that the Developer Businesshas not progressed as much as
originally planned. From the very

In terms of diversity,
I think it is important to adopt
the perspectives ofyoung people a little more.

beginning, we have stated that theDeveloper Business would be oneof the pillars of our business, so we
had to think more properly about
our investments and put them into
action. In the Developer Business,
if we really try to realize what theexecutive side is thinking now, we
can probably expect to invest 200
billion yen, 300 billion yen, or evenmore over the medium to long term,
and this is a business that will take15 to 20 years to complete.
As we expand the Developer
Business in the future, capitalefficiency may decline, but if we canclearly show the time frame andinvestment return, I believe we will
be able to gain the understanding of
the capital market.
Sato: The Developer Businessis basically about diverting theproperties that we own. My
impression is that other developer
companies renew what they havefound and sell it back to the market,
but we renew or renovate ourproperties in Ikebukuro, Nagoya,
Hakata, etc. to create something
new and put them on the market.
My honest impression is that theDeveloper Business is a little
different.
Yago: Since we have been thinking
about how to use the land weoriginally owned for our own
business, I think we were not awareof how much return we could getfrom our investment, including thevalue of the land we own, as Mr.

Hakoda mentioned earlier. The
strong involvement of the financedivision is indispensable, as we arestarting from a situation where weare asked to come up with cash flow,
investment efficiency, etc., but weare not sure how to think about it.
Sato: When the Developer Businessis viewed from the market, somequestions may arise, such as“Really?” and “How far are they
willing to go?” Speaking of the newinvestment of 90 billion yen, I think
there is a need to show a story or
whatever we will tell about where wewill expand and how we will develop
it from existing commercial field, but
it is undeniable that I feel that suchstory lacks on the executive side.
I personally think that theinvestment in XENOZ is one key
point, but the market should haveexpectations as to what will develop
from there. I think the situation “now”
is that we cannot see that point.
Yago: When thinking about mediumto long-term growth, I always thinkthat “discontinuity” has to come intoplay somewhere. I think that raisingawareness of the importance of this
discontinuity is what is required of
Outside Directors, but I don’t haveany specific ideas. I hope to see a
sense of “flying discontinuously” atleast in the next medium-term plan.

Role to be fulfilledby the Board of Directors
Yago: The functions of the Board of81

Values and Vision

Governance

Hakoda: Diverse human capital is
the basis of our innovation. Forming
this kind of human capital will be thedriving force behind value creation,and I believe that we will be able toexpand the Company in the truests e n s e o f t h e w o r d . U l t i m a t e l y,
I believe that it is important for
employees to be motivated to dotheir jobs and for them to be able
to think out of the box. To thisend, we may have to seriously
consider making the salary structure
more attractive and creating anenvironment where employees canwork with vigor and enthusiasm.
Sato: As for human resources, I havea strong sense that the Company
is composed mainly of people from
Daimaru and Matsuzakaya, bothof which have long histories, but
I would really like to hear fromthe younger generation when weformulate a new medium-term plan.
The aging population and declining
birthrate are inevitable, and theMillennials and Generation Z, whowill be at the center of consumption
in the future, are said to focus onsocial media and not to watch TV orread newspapers very often. I would
like to hear from young people what
we can provide and what kind of82

value we can provide to such people.
Yago: We have brought Parco, acompany with a different culture
from that of the Department Store,
into the Group, but we cannot clearly
see what kind of chemistry is taking
place as a result of this. In otherwords, I am wondering if the cultureof Parco is not being viewed as partof the cultural flow of the Daimaru
and Matsuzakaya department stores.
As a group, I think it would be betterto be conscious of putting the newculture that we have adopted at thecore of the Group, in other words,
wearing the robe of the Parco side bymaking human resource exchanges
and communication more active.
Otherwise, it will be difficult to findsolutions to how newly adopted
things such as CVC and XENOZ canbe used to help shape a new culture
for the entire Group.
Sato: The subscription business“AnotherADdress” is still small,but I think it is a great venture. Itis growing because it is acceptedby consumers, and I think this kindof idea would have been difficult
to come up with from a traditional
retailer. I think it would be good to
ask young people, including people
from Parco, GINZA SIX, and XENOZ,“What are you looking for, in whatform?” in the form of brainstorming.
We a r e t h e S h o w a g e n e r a t i o n ,and we may not have enoughknowledge to offer new values. I
think “discontinuity” is one important
keyword, and we must incorporate
new knowledge to create it. To thisend, I really feel that it is important

Management Strategy

Sustainability

Governance

Data

Message from Newly
Appointed Outside Director

Interview with Outside Directors [Dialogue among Outside Directors]

Directors include both “checking”
and “pushing.” It is fine to keep
things in check as part of theoversight function, but the truth isthat we “want to do something likepush people’s backs.” Nevertheless,the fact that it is difficult to see
the backs to be pushed is a bit
disappointing and unsettling.

Value Creation

to adopt the perspectives of young
people in terms of diversity.
Yago: As Ms. Sato said, it is very
important to talk with people close
to the frontline, including young
people, and while it is necessary for
Outside Directors to take a thirdparty stance, I think it would be good
if we could go inside a little more. It
takes time and effort, but I feel that
if we do not go that far, we will notreach the so-called ideal state of theBoard of Directors that is expectedof us.
I cannot deny that somecompanies don’t like such things,
but I don’t think there will be much
resistance from those around us
when we start doing such things. I
think this is something the Board of
Directors needs to consider. It may
involve how to draw the line as tohow far the roles and responsibilitieso f D i r e c t o r s g o . We m u s t n o t
get too involved and become acomplementary force to the “rulingparty,” so it is difficult to strike abalance between them, but I feelthat we are in a situation where wehave to step in now.
Sato: After all, mutual trust cannot
be created unless communication
is further enhanced. If you are justshown what is there and asked tomake a judgment based on that, it
can be a rather superficial judgment.
I think it is one of the important rolesof a Director to go another half or
one step further and communicate
with the people on the ground whoare doing various things.

Independent Outside Director

KATAYAMA Eiichi
Member of Audit Committee

I could say that I have been alternately
and repeatedly “inside and outside” bychoice in my life. As a member of society,I started out as a securities analyst, andfirst looked at operating companies fromthe capital market side. After studying in
the U.S., I was transferred to the M&A
department, where I was in a position
to look at investors from the side of an
operating company. Then I returned to acompletely different sector analyst.
Having spent most of my career infinance, at some point I began to ask
myself a question, “Am I demanding
from the operating companies
something that the parties involved
have no choice in?” If I went to theoperating company side and lookedat the landscape I had seen from theother side, I would be able to see what
is true. At that time, I happened to havethe opportunity to join Panasonic.
I joined Panasonic as an officer incharge of M&A at the head office. As
there are about 50 business units, I felt
there again that the view from the head
office was definitely not close to thetruth. So I asked the president at thetime to put me in charge of a business
unit. When I served as president of an
operating company, I felt that the joyof success was irreplaceable, so I was
thinking of staying at the operatingcompany, but I was called back to
be responsible for planning at thehead office. In this way, I have beenalternately “inside and outside” andrepeated this many times, and now I
am pushing forward with the executionof our business again.
I value “self-contemplation,” moving
forward while looking at myself as
objectively and directly as possible.
The words that are very important tome are “evolution” and “growth,” andthat may be my way of life. I want to
do a job that I think is better today
than yesterday, and I think I have tokeep evolving in order to feel that way.
In order to evolve, I want to take theopposite position and get closer to theessence of things, that is, the truth,
rather than defending my current job.
I believe that the keywords that makethis possible are “inside and outside.”
I have just been asked to serve as an
Outside Director of the Company, and I
believe that it is meaningful for someone
like me, who is currently on theexecutive side, to become an Outside
Director. In addition, I am the head of abusiness unit, so this would be a veryrare case. If there is something thatthe top management is worried about,
I can share that feeling, and there must
be things that only active managers
can feel. I believe I will be able to set
up a discussion that will allow for more
options on the executive side precisely
because I am involved in businessright now. My theory is that the morechoices you have, the better. When you
don’t have a lot of options, you usually
fail. As an Outside Director, I would
like to contribute to the creation of an
atmosphere conducive to such thinking
and to the generation of concrete ideas.
The Company has the idea of“departing from the department store,”and I understand what it means.
However, on the other hand, there is
no doubt that the Department Storeand the Shopping Center (SC) are ourcore businesses. Both the Developer
Business and the Payment and FinanceBusiness, which we intend to grow in
the future, are meaningful only because
the Department Store Business andthe SC Business are strong. It may betrue that the Department Store willalmost never increase the number ofstores. However, I would like to ask thequestion, “Has the Department Store
really done it all?”I think we should separate thediscussion of our evolution as a groupfrom the fact that there is more to bedone in the Department Store. The
number of businesses for high-income
earners will increase, and I think it isimportant to fight for them, but unless
we change the business to one where
the total number of customers and theabsolute number grows, we will not beable to bring in good human resources
who have dreams. The fact that the
number of department stores cannot
be increased is one thing and the factthat the Department Store does nothave to aim for growth is another, andI think there are still many ways togrow and definitions.
I believe that the most importantpart of the consumer business istransactions. Watches make money
when sold, and paintings may also
make money, but only once in a
lifetime or a few times a year. If werely on them alone, our businesswill not be revitalized. I think that acompany will not be able to evolve andgrow unless it has a business that cansignificantly increase the numbers.
We may need to discuss over thelong term whether the current pureholding company structure is the best
way for the Group to move closer
to such an ideal state. First of all,I believe that we need to make ourinteractions with operating companies
even more dynamic, and I would liketo contribute to realizing that.

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