GOVERNANCE

Special Report: Dialogue between Outside Directors

We hold more than 30 meetings a year,
including the Audit Committee meetings
and the Audit Committee Membermeetings. I think there are few companies
that take such long time. The Audit
Committee is also working closely withthe audit & supervisory board members
and internal audit divisions of subsidiaries
and thus the Group as a whole has a solidsystem. I feel anew that they have a highlevel of governance awareness.

Further Deepen
Discussions forValue Creation over theMedium to Long Term
IndependentOutsideDirector

SEKI Tadayuki
Chairperson of Audit
Committee

Governance of the Company
Seki: The Company transitioned to a
Company with Three Committees(Nomination, Audit, and RemunerationCommittees) in 2017. Making variousimprovement efforts every year after that,76

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IndependentOutsideDirector

KOIDE Hiroko
Nomination Committee Member
Remuneration Committee Member

they raised the ratio of Outside Directors
to more than 50% this fiscal year. Suchefforts to improve the organizational
structure and meet formal requirements
are important. Essentially, however, I think
it is much more important in terms ofgovernance whether the Board ofDirectors actually functions or the threecommittees of the Company with Three
Committees (Nomination, Audit, andRemuneration Committees) function.
Koide: As for governance, I think how
strongly and seriously the top
management is committed to it will makea difference. In general terms, as theBoard members have different notions, I
think it is quite difficult to close the gap
between them. In the Company, however,I feel the leadership of the top
management makes all follow the same
track.
Seki: I serve on the Audit Committee. TheCompany holds the Audit Committee
Member meetings as well as the Audit
Committee meetings. In the Audit
Committee Member meetings, we more
freely discuss current issues as well as
auditing execution of duties of thePresident and Representative Executive
Officers and other Executive Officers andthe presidents of operating companies.

Koide: I serve on the Nomination
Committee and the Remuneration
Committee. Both meet at least once amonth, 12 times a year, and more if
necessary, though not so frequently as
the Audit Committee. I feel the members’
intention to not formally but really improve
substance from discussions in thecommittee meetings.
With respect to outcome, for example,
the top priority issue of the Nomination
Committee is the management
succession planning and the processfrom a medium- to long-term perspective
has already started. With the help of
external professionals, we are evaluating
managerial talent and interviewing
candidates in various forms to understandtheir personality and way of thinking. By
doing so, we are advancing it.
As for the Remuneration Committee,
I think it has taken some shape byrevising the Officer Remuneration Policy
when the Medium-term Business Plan
was launched last year. And we are
discussing to further improve its
effectiveness by reviewing it toward thenext medium-term plan. I think it has
been said for the past year that our greatchallenge is to integrate Parco in a real
sense. In reorganization including
personnel merger, we should also
overhaul our remuneration system. I feel
we can have such fulfilling discussions byexchanging frank views.
Seki: As for governance, the top
management’s stance would beimportant. I feel the top management isthinking about how they will use Outside
Directors in the right way. In short, they
are not just a token or a form. I think it is
the biggest point.

Koide: I hear there are actually somecompanies whose board members feellike being asked not to say too much in
the Board meetings. The Company’s
Board of Directors discusses with apositive desire to contribute to enhancing
corporate value. I think governance in thatsense functions in a very healthy form. Of
course, when looking at details, there arevarious issues that should be or are being
addressed. However, I think their way ofcreating systems and stance tostrengthen governance are excellent.

Effectiveness ofthe Board of Directors
Seki: Every year an external evaluation
organization evaluates the effectivenessof the Board of Directors. I recognize that
effectiveness evaluation is the process inwhich all Inside and Outside Directors
exchange opinions and share each other’s
issue identification. Major issues raised
last year are the “clarification of the rolesof the holding company” and the“clarification of the roles of the Board ofDirectors.” I think both Outside Directors
and Inside Directors’ stance to resolve
issues through repeated open discussions
and its process are very important andbeneficial.
I think effective evaluation is a tool
essential to the process in which Inside
Directors and Outside Directors do notjust say their opinions one-sidedly but
repeatedly discuss so that they can relyon each other to resolve issues. Also
concerning response to evaluation results,
we can clearly see that the executive sideis very seriously trying to act based on theresults. Annual effective evaluation seems
to help improve the effectiveness of theBoard of Directors.

holding company. However, we can see aform of organization that leads tosuccess. This seems doable but canhardly be done.
Recently, I have had more
opportunities to talk with people who
were transferred to the holding company
from Parco. They are changing to having
a company-wide perspective instead of
Parco’s perspective. I hear some of them
say that they began to see a lot of things
to do. It is wonderful for them to realize
they have a different perspective while
using their past experience. I think it is a
big achievement that the holding
company changed its organization andcould show it in a visible manner. I think it
was very good because based on
effectiveness evaluation, the opinions of
all Directors were reflected andI would like to expect
for the recent
organizational change
conducted withgreat courage as aholding company

Koide: I think major issues identified by
all Outside Directors are the failure tocompartmentalize between the holding
company and operating companies andthe failure to integrate Parco. However, I
think it was excellent to change theorganization with great courage this fiscal
year. I think it caused various frictions toso greatly change the systems andappoint many people from Parco to theINTEGRATED REPORT 2022

77

GOVERNANCE
Special Report: Dialogue between Outside Directors

It is difficult to develop
the currently expected
creativity unless
it is an organization
with diversity

implemented after sharing common
awareness of issues.
Seki: I very much expect them to embody
the primary role of the holding company
here.
Koide: In the recent organizational
reform, some young employees assumed
higher positions. So I think it was also
good in terms of age diversity. There aremany companies that are stuck in aseniority system. Given this situation inJapan, I think it was meaningful that quite
young employees took the top positionsof divisions.
Seki: The Company should not stick toconventional business models in this
rapidly changing society. In order to78

INTEGRATED REPORT 2022

change it, it should be a company inwhich young people and women are more
empowered. This is because more thanhalf of the customers of the Department
Store and Parco are women.

employs different types of people.
The role of the holding company is tocreate the future. They may also have tothink of age diversity such as appointing
more young people.

Koide: In a sense, the Board of Directors
can increase the number of female
members by inviting some from outside.
However, we cannot say the Company
really utilizes women unless the female
employees are promoted from inside. In
this aspect, I still feel incompleteness.
Though there may be a certain number ofwomen in middle management positions,
I am very concerned about the fact that
Executive Officers are all men.

Progress of the medium-term plan

Seki: Creativity is very much expected of
the current Company, which is working tochange itself. I think it is difficult todevelop such creativity unless theCompany is an organization with diversity.
Koide: Development will be limited if all
think the same thing. As diversity alsomeans that different values collide witheach other, it is not so easy, and in fact, itis accompanied by pain. They need tothink it is all right to collide with eachother. They cannot utilize diversity if they
think it is troublesome to disagree witheach other. It is important that all of them
are willing and prepared to duly accept it.
Seki: You mean inclusion, right?
Koide: Exactly. There is no sense ofincreasing the number of women andforeign people simply for form’s sakewithout including diverse people. If people
with various mindsets, at various ages,
and with various backgrounds such as aJapanese individual who grew up
overseas attend a meeting and many ofthem give ideas I would never come up
with, I think new ideas will be triggered bycollision between them.
When I worked for a company in theUnited States, I directly felt that crossborder diversity activates discussion. It
may be difficult to expect such breadth inJapan. However, also in this sense, I feel itwill be difficult for the Company to growfor the future unless it really intentionally

Seki: I understand well that the Companysteadily addresses the plan centered on
three strategies including the Real×
Digital Strategy, the Prime Life Strategy,
and the Developer Strategy in spite of thetough situation of COVID-19. However,what is more important is to change thebusiness portfolio. Specifically, theCompany wants to decrease the revenue
share of the Department Store Businessand the SC Business to around 60% by
2030 from 80% and increase that of theDeveloper Business, the Payment andFinance Business, and Other to 40%.
Despite this, honestly, I cannot see
enough that they gear up for it.
The Developer Business explained its
due medium-term strategy but thePayment and Finance Business has notshown its future to us yet. Furthermore, I
wonder whether having only these twobusinesses is enough. We discussed theexpansion of the Group’s wing several
times in the past, but concerning new
businesses, I am afraid there areextremely few proposals made.
Koide: The main focus of the current
medium-term plan is to return to theprofit level before COVID-19. Though theCompany absolutely needs to achieve it, I
think the medium-term plan they should
really think of is rather what to do afterthat.
When someone mentioned thebusiness portfolio transformation lastyear, there was a saying that they would
study it in the next medium-term plan. I
think it is very dangerous. If they start toconsider a strategy for change after
finishing the three-year medium plan, it
will take another three years before they
can implement it. Recovery may bepossible if they work hard in the scope ofthe current business model, but beyond
that, it is evident that the Company will
not grow unless they do something thatwas not done in the past, including newbusinesses.
We cannot yet see what theCompany wants to be five or ten years
after. The Company name contains theword “retailing.” But I think there aremany ideas and they should clarify it:
whether they will continue to operate
only a retail business, innovate the retailbusiness, expand into different
businesses, develop local areas, or also
undertake manufacturing.
Seki: As for the business portfoliotransformation, I think the Company has
limitations with only current fourbusiness segments. I feel it is difficult todramatically grow though it may maintaina certain level of growth. We havediscussed but specific measures such asincreasing new businesses have notbeen presented.
In my former position, I had theopposite experience. Proposals weremade one after another so that I had toask them not to invest any more.
Compared to it, the Company is quitequiet.
The newly established Business
Portfolio Transformation Promotion
Division is not expected to just switch
the business portfolio because the word“transformation” is used in its name. As
the name shows, I would like them tomake revolutionary proposals.
In that sense, the Company shouldhave more outside contacts. They do notnecessarily have to find new buds andconduct M&A, but how about studying
new initiatives with partners? Particularly,
it is important for corporate divisions tocoordinate internally but they should not
struggle to do that. I think their importantroles are to have outside connections
and keep their antenna high.

increasingly expand. We will not grudge
cooperation. So I hope they will utilize
Outside Directors.

What we as Outside Directors
focus onSeki: Formerly I served as CFO for about
six years and also was responsible for IR.
During my former tenure, I was trainedby institutional investors in Japan andoverseas and sell-side and buy-side
analysts. They always have ashareholder’s perspective, which means
thinking of what to do to improve thecompany, that is, to enhance corporate
value. They gave honest opinions fromthe perspective of not damaging thevalue of the company. When I was told
what I did not want to hear during
dialogue, I always fed it back to themanagement meetings and the board
meetings. Such experience is still
ingrained in myself. When consideringvarious proposals given from theexecutive side, I try to see things fromthe perspective of what the capital
market thinks of this. I think I as an
Outside Director act on this.

key role is to repeatedly ask with a fresh
eye in a sense whether matters taken for
granted in the company are really OK. In
terms of my expertise, the perspective ofcustomers/consumers who are valued
stakeholders is also important. I do not
yet know what the Company will be liketen years after. But as it is a company
with retail at its core, it cannot dobusiness without a consumer
perspective.
In thinking of the future of theDepartment Store and Parco or new
businesses, returning to young
generation’s thoughts about tangible andintangible goods and buying behavior, I
think we need to continue to think ofwhat will be demanded and what value
we will be able to provide. I think it will
be good if I can provide advice from theconsumer perspective so that logic on
the company’s side and the store’s side
will not take too much priority.

Koide: As you said, the perspective ofstakeholders such as shareholders andinvestors is important. I think another

Koide: Simply by receiving referrals tovarious people from the network of
Outside Directors and visiting them, they
will be able to meet a considerable
number of people. At first, I think it will
be good to meet ten people of the typewhom they have never met. Aftermeeting ten people, they will be referred
to other people and the network will

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