Ｊ．フロント　リテイリング（3086） – [Delayed] Corporate Governance Report

Corporate Governance ReportMay 27, 2022J. FRONT RETAILING Co., Ltd.Representative: YOSHIMOTO Tatsuya,President and Representative ExecutiveOfficerInquiries: INAGAMI Hajime, Senior GeneralManager of Investor Relations PromotionDivision, Financial Strategy Unit(TEL: +81-3-6895-0178 (from overseas))Securities Code: 3086,Tokyo Stock Exchange and Nagoya StockExchangehttps://www.j-front-retailing.com/english/The corporate governance of J. FRONT RETAILING Co., Ltd. (the “Company”) is described below.I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and OtherBasic Information1. Basic ViewsThe Company has established Corporate Governance Guidelines (the “Guidelines”) that set out the roleof corporate governance in the Company and its subsidiaries (the “JFR Group”). The aims of the Guidelinesare to realize our best possible corporate governance practices in order to ensure the sustainable growth ofthe JFR Group and increase corporate value over the medium to long term.The Company believes that ensuring sustainable growth of the JFR Group and increasing corporate valueover the medium to long term is paramount to realizing the ideals of the Group Philosophy. Accordingly, therole of corporate governance must be to help enable us to realize the ideals of the Group Philosophy. TheCompany assumes responsibility as a holding company for ensuring managerial transparency, soundnessand compliance centered on corporate governance of the JFR Group, with the aim of realizing the ideals ofthe Group Philosophy.governance.In addition, the Company has adopted the organizational structure of a company with three committees(nomination, audit and remuneration committees), and been working to further strengthen the corporateFor “Basic Ideas on Corporate Governance,” please refer to “Chapter 1. General Provisions” of theGuidelines appended to this report.- 1 -In order to achieve the Group Vision, the Company established the Group Medium-term Business Plan, athree-year plan covering the period FY2021-FY2023. For details, please refer to the following page on ourwebsite.(https://www.j-front-retailing.com/_data/news/210413_midtermplan_E.pdf)The Company’s basic vision, Group Philosophy and policy, etc. are described below.We aim at providing high quality products and services that meet the changing times and satisfyingcustomers beyond their expectations. We aim at developing the Group by making a broad contribution to“Service before profit”“Abjure all evil and practice all good”society as a fair and trusted business entity.Create and Bring to Life “New Happiness”happiness in life”“With people, with local communities, with environment to realize a sustainable society and newWith an aim to ensure sustainable growth of the JFR Group and increase corporate value over themedium to long term (realize the ideals of the Group Philosophy), the Company will work to ensuremanagerial transparency, soundness, and compliance of the entire Group.“Producing fulfilling lifestyles and unique urban development in coexistence with local communities” (The ideas that motivate us)“Create the future”“Act on courage not fear”“Embrace new ideas”“Think for yourself when taking action”“Act sensibly and honestly”- 2 –(Customers)We are committed to providing genuine satisfaction captivating customers by offering(Shareholders)We are committed to increasing corporate value over the long term by practicing highlyprofitable and highly efficient management.(Business partners) We are committed to building the relations of trust by working hard together and aim tonew value.grow together.(Employees)We are committed to ensuring rewarding workplace environments where employees’performance and contributions are evaluated fairly and they can demonstrate theirabilities, achieve growth, and have job satisfaction.(Communities) We are committed to contributing to the development of the communities as well aspromoting environmentally friendly business activities as a good corporate citizen.【Reasons for Non-compliance with the Principles of the Corporate Governance Code】UpdateThe Company has implemented all of the principles of the Corporate Governance Code (revised on June11, 2021) except for the content regarding the hiring of foreign nationals and mid-career employees of【Supplementary Principle 2-4-1】 and the content regarding investmentin intellectual property in【Supplementary Principles 3-1-3 and 4-2-2】. The reasons for non-compliance with these contents are asfollows.in 【Principle 2-4】.【Supplementary Principle 2-4-1】 Views on Ensuring Diversity in Core Human ResourcesThe Company’s views on ensuring diversity in the promotion to core human resources, etc. are as statedAs a voluntary and measurable goal, the Company has set the target ratio of women in managementpositions for FY2023 at 26% in the entire Group in the Medium-term Business Plan from the perspective ofencouragement of active participation of women, and been striving to achieve this goal.On the other hand, targets have not been set for foreign nationals and mid-career hires, largely because theCompany hires a certain number of foreign nationals each year, but it has become increasingly difficult torecruit foreign nationals due to intensifying competition in the job market and other factors, and theCompany responds to the need to execute strategies with regard to mid-career hires as appropriate. When itis considered necessary to recruit a fixed number of foreign nationals and mid-career hires in the future, theCompany will consider setting targets.【Supplementary Principles 3-1-3 and 4-2-2】 Initiatives on Investment in Intellectual Property, etc.The Company’s initiatives on sustainability, investments in human capital, and initiatives on its businessportfolio are as described below.The Company has intangible assets such as its brands, expertise, customer networks, and organization- 3 -capabilities, and recognizes that these are the source of its corporate competitive capabilities. Lookingahead, the Company will organize and disclose the details of its allocation of resources and initiatives suchas investments that promote sustainable growth and medium- to long-term increase in corporate value withregard to its intellectual property, which is the Company’s value and strength.[Disclosure Based on the Principles of the Corporate Governance Code]UpdateRather than disclosing only the matters mandated under the Corporate Governance Code and theprinciples for companies listed on the Prime Market, the Company believes that disclosing the principlesthat the Company considers it necessary to disclose in the main part leads to the promotion of constructivedialogue with shareholders and investors, and discloses them below.【Supplementary Principle 1-2-4】 Establishment of an Environment for Exercise of Voting Rights at theShareholders MeetingThe Company endeavors to develop an environment at its Shareholders Meetings, which is its highestdecision-making body, and enables its shareholders to appropriately exercise their voting rights and otherrights of shareholders, as described below.(i) We give consideration to ensuring time for audits in the course of setting dates on whichShareholders Meetings are to be held and schedules otherwise in relation to Shareholders Meetings.(ii) We ensure that there is adequate time for our shareholders to consider matters with respect to whichthey will exercise their voting rights. To that end, we send convocation notices as early as possible(with the aim of doing so at least three weeks prior to the date on which a Shareholders Meeting is tobe held) and at the same time we submit such content to financial instruments exchanges and post itto the Company’s website as early as practicably possible before sending out convocation notices.(iii) We upgrade the content of our convocation notices (containing sections that include the businessreport, financial statements, and reference materials for Shareholders Meeting) in a manner thatprovides our shareholders with a deeper understanding of the JFR Group and enables them to makeappropriate decisions when exercising their voting rights. We also prepare English translations of ourconvocation notices and make them available so that our overseas investors are able to properlyexercise their voting rights.(iv) We give consideration to ensuring that our shareholders are able to conveniently exercise their votingrights, including domestic and overseas institutional investors. To that end, we have adopted onlineand other means of exercising voting rights and otherwise use an electronic platform for exercisingvoting rights.(v) We act appropriately with respect to substantively ensuring that shareholders are able to exercisetheir rights to make proposals and other minority shareholder rights. Moreover, our Articles ofIncorporation stipulate that a shareholder may exercise his or her voting rights by proxy uponcompleting the necessary procedures when a beneficial shareholder has filed to exercise rights as ashareholder beforehand.- 4 -(vi) We strive to ensure that all shareholders, including those who reside in distant locations, haveopportunities to participate in or listen to Shareholders Meetings through means such as livestreaming of Shareholders Meetings and accepting questions in advance on the Company’s website.【Principle 1-3】 Basic Capital Policy[Basic Capital Policy]The Company believes that any increase in free cash flow and improvement in ROE should help to ensureits sustainable growth and increase corporate value over the medium to long term.To such ends, in consideration of the business environment and measures for addressing risks, theCompany promotes a capital policy that takes a balanced approach to undertaking strategic investment,enhancing shareholder returns, and expanding net worth.Moreover, in procuring funds through interest-bearing liabilities, we aim to achieve an optimal structureof debt to equity in a manner cognizant of our funding efficiency and cost of capital, carried out on the basisof having taken into consideration our capacity for generating free cash flows and our balance ofinterest-bearing liabilities.A business strategy where higher sales are accompanied by profits and a financial strategy (encompassingthe capital policy) that heightens profitability of invested capital are essential elements with respect toimproving free cash flows and ROE. In addition, we believe it is crucial that we achieve maximization ofthe operating profit and sustainable improvement of the operating profit margin by strengthening our corebusinesses and concentrating management resources on initiatives such as business field expansion andactive development of new businesses.In monitoring our key financial indicators used in achieving objectives of the Medium-term BusinessPlan, we focus primarily on ROE for capital efficiency, consolidated operating profit and ROIC for businessprofitability, free cash flows for profitability and stability, and ratio of equity attributable to owners of parentto total assets (equity ratio) for financial soundness.[Promoting Management that Recognizes the Cost of Capital]The JFR Group aims to continually achieve a consolidated ROE of 8% or more. Our reasons for settingthe target as 8% is based on our recognition that it is important that ROE exceeds the yields expected byshareholders and investors, in other words the Company’s cost of equity.The cost of equity is calculated at about 6% as of February 28, 2022, but it is speculated to shift withinthe range of 6–7% over the medium to long term. For this reason, the Company believes that what isrequired of it is to stably achieve an ROE of a level 8% or more, that exceeds the cost of equity.Furthermore, with regard to the WACC (weighted average cost of capital), as of February 28, 2022 it isslightly above 3%, but in addition to recognizing a level of roughly 5% for the Group as a whole over themedium to long term, we have ascertained the WACC of each of the main operating companies includingthe Department Store Business, the SC (Shopping Center) Business, the Developer Business, and thePayment and Finance Business.Looking forward, while working to achieve reform of the business portfolio over the medium to long- 5 -term, the Company is looking to implement management practices that pay attention to capital efficiencyand aims to improve corporate value by setting ROIC targets for each business segment and achieving thosetargets.In addition, while striving to reduce the shareholders and investors’ concerns about business risks throughan appropriate level of information disclosure, we are pushing forward with reducing capital costs bypursuing an optimal investment structure.[Shareholder Return Policy]The Company’s basic policy is to appropriately return profits. Hence, while maintaining and enhancing itssound financial standing, the Company strives to provide stable dividends and target a consolidated dividendpayout ratio of no less than 30%, taking profit levels, future capital investment, free cash flow trends andother such factors into consideration. The Company also gives consideration to the option of purchasing itsown shares as appropriate,in accordance with aims thatinclude improving capital efficiency andimplementing a flexible capital policy.Shareholder Interests][Respecting Rights of Shareholders in Cases Where Implementing Capital Policy Could Potentially HarmThe Company will take steps to ensure that interests of its existing shareholders are not unduly harmedshould it engage in a management buyout or a large capital increase by means of third-party allotment ofshares or should it otherwise implement capital policy that will bring about a change of controlling interestsor a substantial dilution of shares. Accordingly, the Company will carefully consider the necessity andrationality of any such initiative at a meeting of the Board of Directors whose attendance shall include itsOutside Directors who maintain a high degree of independence and consequently are not susceptible toconflicts of interest involving the Company’s shareholders. Furthermore, the Company will fully explainsuch matters to the shareholders and will otherwise ensure that all necessary and proper procedures arefollowed.In FY2021, the Company implemented the following measures in accordance with the aforementionedpolicy, and it achieved an ROE of 1.2%.・ Undertaking strategic investmentFor the undertaking strategic investment, please refer to the notice of convocation of theshareholders meeting (business report).Notice of Convocation of the 15th Annual Shareholders Meeting (Year Ended February 28,2022) (on pages 35 to 39)・ Shareholder returns(https://www.j-front-retailing.com/english/ir/stock/pdf/220428_Notice_of_Convocation_E.pdf)For the year ended February 28, 2022, the Company provided an annual dividend from surplusof 29 yen per share with the addition of an interim dividend.・ Expanding net worthThe total amount of interest-bearing debt was approximately 502,100 million yen as of February- 6 -28, 2022, down by approximately 60,700 million yen compared to February 28, 2021 (the totalamount of interest-bearing debt excluding lease liabilities was 317,700 million yen, down byapproximately 42,200 million yen compared to February 28, 2021) (the Company repaid part of thecash on hand procured FY2020 as preparation in case of a shortage of funds resulting from theimpact of novel coronavirus disease (COVID-19)). The interest-bearing debt to equity ratio was1.43 times, and the ratio of equity attributable to owners of parent to total assets (equity ratio) was29.4% for an increase of 1.5 percentage points compared to February 28, 2021.・ Business portfolio and investment planThe Company will generate operating cash flow of 190,000 million yen or more over the threeyears of the Medium-term Business Plan, 90,000 million yen of which will be injected into thecapital and growth investments. Basically capital investments in store refurbishments, etc. aremade within the range of depreciation, and growth investments are allocated to higher-priorityprojects to be carried out such as developer strategy.* We have adopted the International Financial Reporting Standards (IFRS) since FY2017.* From FY2021, the Group has changed its business segments to four business segments: theDepartment Store Business, the SC Business, the Developer Business, and the Payment andFinance Business.* Please refer to the following pages of the Company’s website as well.(https://www.j-front-retailing.com/_data/news/210413_midtermplan_E.pdf)【Principle 1-4, Supplementary Principle 1-4-2】 Cross-shareholdings[Policy on Cross-shareholdings]In principle, the JFR Group will not newly acquire cross-shareholdings (cross-shareholdings are holdingsof listed and unlisted shares other than those of subsidiaries and associates which are not held for pureinvestment purposes). However, this does not apply to shares where it has been recognized that they arenecessary for the promotion of the JFR Group’s business strategy, and that the holding of such shares willcontribute to the increase of corporate value in the medium to long term through the validation of rationalefor holding them. For example, in the case where we were requested to hold shares for the purpose ofregional revitalization, from the perspective of initiatives for “coexistence with local communities,” which isone of the materiality issues for promotion of sustainability management, we would consider holding suchshares upon sufficient examination of the suitability of holding them by the executive team, and might holdthem.Among the shares already held by the Company, for listed shares (including retirement benefit trustshares) for which there is judged to be no rationale for holding upon validation, the Group will negotiatewith companies whose shares we hold, and appropriately reduce listed shares that are already held uponreaching a consensus regarding sale method, period, etc. For unlisted shares, the Company’s executivemanagement discussed whether or not to continue holding them, with a view to selling and reducingholdings. However, from FY2021, we will confirm the suitability of holding all shares, in the same way as- 7 -listed shares, from both qualitative and quantitative aspects, and strengthen our initiatives towards reducingholdings.[Validation of Rationale]Every year, the Board of Directors validates the rationale of holding individual issues from bothquantitative and qualitative perspectives. The qualitative perspective relates to business strategies such asmaintaining harmonious and favorable business relationships with companies with which the Companymakes up a community, corporate customers and business partners, and securing supply chains. Thequantitative perspective relates to whether profitability by holding shares, including related trading profitsand dividends, exceed capital costs, etc.As a result, the JFR Group maintained cross-shareholdings in 163 issues as of February 28, 2022 (ofwhich 21 are listed issues, and a decrease of 2 issues compared with February 28, 2021).* For details of the process and schedule for the validation of the rationale of holdings, and changes inthe number of issues held, please refer to “The Company’s Cross-Shareholdings,” appended to thisreport.[Policy on Exercising Voting Rights Regarding Cross-shareholdings]Decisionsare madefrom both ofthefollowing two perspectives: weconsider whethercross-shareholdings contribute to improving the sustainable growth and the corporate value over themedium to long term of the company whose shares are held; we consider whether the cross-shareholdingscontribute to improving the JFR Group’s sustainable growth and corporate value over the medium to longterm. Specifically, in regard to proposals that we consider to be of high priority with respect to strengtheningcorporate governance, such as proposals relating to the corporate governance system (selection of companyofficers), proposals relating to shareholder return (appropriation of surplus), and proposals that have aneffect on shareholder value (introduction of takeover defense measures), we establish policies upon which tobase judgment of our exercise of voting rights, and acting as the JFR Group as a whole, we take a responsethat is in line with such policies. We engage in dialogue with companies whose shares we hold if necessarywhen we exercise voting rights.[Other Shareholdings]pages 90 to 99). * Japanese versionFor retirement benefit trust shares, please refer to the Annual Securities Report for the 15th fiscal year (on（https://www.j-front-retailing.com/_data_json/news/_upload/15th_AnnualSecuritiesReport_J.pdf）【Supplementary Principle 1-4-1】 Handling of Requests from Holders of Cross-held Shares Regarding theSale of JFR SharesIn case a shareholder who holds JFR shares for the purpose of cross-shareholding indicates intention tosell JFR shares, the Company will never conduct activities to hinder the sale of cross-held shares by- 8 -implying a reduction of business transaction, etc., and will appropriately handle the sale, etc.【Principle 1-7】 Related Party TransactionsFor the procedure, etc. for related party transactions, please refer to “5. Related Party Transactions” in“Chapter 2. Relationship with Stakeholders” of the Guidelines.【Principles 2, 2-3, Supplementary Principles 2-3-1, 3-1-3, 4-2-2】 Efforts for SustainabilityThe Company believes it is important, in contributing to sustainable society as a member of society andalso in the sustainable growth of the JFR Group and increase of its corporate value over the medium to longterm, to address sustainability issues, such as taking care of climate change and other global environmentalissues, respect of human rights, fair and appropriate treatment of the workforce including caring for theirhealth and working environment, fair and reasonable transactions with suppliers, and crisis management fornatural disasters.for action.To handle these issues, the Company has set out its fundamental approach to sustainability, focused on itscorporate credo, basic philosophy and Group Vision in the form of the Sustainability Policy and hasidentified the following seven important issues (hereinafter referred to as “materiality issues”) to prioritizeWhile clarifying opportunities and threats of risks for each materiality issue, the Company will assertivelyand actively confront these issues through its business activities and strike a balance between social valueand economic value based on trusting relationships with customers, shareholders, business partners,employees and stakeholders in communities to advance sustainability management.・Realization of decarbonized society・Promotion of circular economy・Management of the entire supply chain・Coexistence with local communities・Realization of customers’ healthy/safe/secure life・Promotion of diversity & inclusion・Realization of work-life integration* For details on the JFR Group’s efforts for sustainability, please see below. Upon disclosure, theCompany refers to the GRI, SASB Standards, Guidance for Collaborative Value Creation, and TCFDas guidelines.・Annual Securities Report for the 15th fiscal year (on pages 30 to 43) * Japanese version(https://www.j-front-retailing.com/_data_json/news/_upload/15th_AnnualSecuritiesReport_J.pdf)・Integrated Report 2021 (on pages 52 to 63)(https://www.j-front-retailing.com/english/ir/library/annual.php)・Sustainability Report 2021- 9 -(https://www.j-front-retailing.com/english/ir/library/sustainability.php)・Website(https://www.j-front-retailing.com/english/sustainability/sustainability.php)[Sustainability Committee]The Company has set up the “Sustainability Committee” chaired by the President and RepresentativeExecutive Officer in order to promote sustainability management across the Group in a cross-organizationalmanner. The Company has a system in place where the committee formulates action plans for the JFRGroup’s efforts for sustainability, monitors the progress, and reports details of its deliberations to the Boardof Directors.[Roles and Responsibilities of the Board of Directors for Efforts for Sustainability]The Board of Directors deliberates over and determines important matters on sustainability of theCompany such as the Sustainability Policy and materiality issues, and oversees the progress and results ofthe efforts to promote sustainability management.[Disclosure Based on the TCFD Framework]Because the Company recognizes that risks and opportunities associated with climate change have asignificant impact on its business strategies, realization of decarbonized society has been positioned as thehighest priority issue.In May 2019, the Company endorsed the final report of the “Task Force on Climate-related FinancialDisclosures (TCFD)” set up by the Financial Stability Board (FSB) (TCFD recommendations). TheCompany will promote company-wide initiatives for achieving medium-to long-term targets andsustainable growth looking ahead to 2030 and 2050 to move toward the realization of a decarbonizedsociety by utilizing the TCFD recommendations as guidelines to validate the appropriateness of its actionson climate change. Moreover, in collaboration with companies and financial institutions which haveendorsed the TCFD recommendations, the Company will work to further enhance information disclosuresbased on the four information disclosure items required: (i) Governance, (ii) Risk management, (iii)Strategy, and (iv) Metrics and targets.* For information disclosures based on the TCFD recommendations, please see below.・Annual Securities Report for the 15th fiscal year (on pages 30 to 43) * Japanese version(https://www.j-front-retailing.com/_data_json/news/_upload/15th_AnnualSecuritiesReport_J.pdf)・Integrated Report 2021 (on pages 54 to 55)(http://data.j-front-retailing.com/ir/library/pdf/annual/2021/J_FRONT_2021_E.pdf)・Sustainability Report 2021 (on pages 19 to 24)(https://www.j-front-retailing.com/ir/library/pdf/sustainability/2021/J_FRONT_2021_E_19-24.pdf)・Website- 10 -(https://www.j-front-retailing.com/english/sustainability/low-carbon/low-carbon06.php)【Principle 2-4, Supplementary Principle 2-4-1】 Ensuring Diversity, Including Active Participation ofWomenThe Company recognizes that diversity of human resources is the source of competitiveness of acompany, and considers it important to create new value with the combination of different elements obtainedby exchanging a variety of personnel’s opinions. In addition, we have set “promotion of diversity &inclusion” as one of the areas of materiality (important issues) to be prioritized for sustainable growth of thecompany and realization of a sustainable society. By setting medium- to long-term goals and implementingspecific measures, we aim to realize a company that respects and embraces diversity.As its human resource development policy to ensure diversity in human resources, the Companyprofesses itself a People Development Company and aims to face each and every one of them and establisha human resources portfolio supporting execution of its strategies.As its internal environment development policy, the Company will promote unified management ofinformation on human resources by building a talent management system and other means.[Active Participation of Women]Under the structure of the Board of Directors, the Company has appointed ten Directors including threefemale Directors. The Company is taking various measures including the “JFR Juku (tutoring school) forWomen,” a selective training program offered to help employees with young children improve motivationand change the way they think, and the “Mother Recruitment” program that aims to extensively hire externalpersonnel wishing to further fulfill their lives by achieving a better balance between child care and work. Inaddition, the Company is continuously working on the development and enhancement of female-friendlyFor female employees in leadership positions, please refer to the following page on our website.(https://www.j-front-retailing.com/english/sustainability/diversity/diversity01.php)workplace systems.[Disabled Persons]Because we recognize that employment of people with disabilities is one of the social responsibilities thatcompanies should fulfill from the perspective of sustainability management, we aim to secure a stable workenvironment for people with disabilities, and to create a workplace where they can be motivated to use theirabilities. “JFR Create Co., Ltd.” was established and the company was certified as a Special SubsidiaryCompany under the law in September 2017.In addition, each operating company within the Group is working on its own initiatives for recruitment ofpeople with disabilities to achieve the goals that have been set for it in the medium to long term.[Appointment of External Human Resources]We will widely appoint, from outside the Company, managerial talent to secure strategy promotion speedin specific fields such as ICT Strategy and Credit Card and Finance Businesses, and human resources withadvanced expertise and rich careers that we do not have in-house at present, and arrange flexibly to- 11 -strengthen strategy execution.【Principle 2-6】 Roles of Corporate Pension Funds as Asset OwnerUnder the pension plan for Daimaru Matsuzakaya Department Stores Co. Ltd., a main operating companyof the Group, investments are made through appropriate asset diversification and allocation to ensurelong-term returns in line with the asset investment objective of ensuring the stable sources of future benefits.The Company has formulated its asset investment policy on the selection of an investment managementorganization and a fund, and strictly reviews the management details, social assessments, investmentexperiences and results, legal compliance system, etc., based on assessments made by assessment agencieswith a good reputation. The Company also monitors whether the said organization exercises voting rights,etc., in an appropriate manner. In addition, the Company carefully selects suitable personnel, and especiallywhen replacing Investment Management Directors, it lets them acquire necessary working knowledge byhaving them attend various seminars (e.g., the seminar for newly appointed Investment ManagementDirectors sponsored by the Pension Fund Association, seminars offered by financial institutions conductingoperational management of pension plans, and seminars offered by investment institutions) at the time ofnew appointment.【Principle 3-1(i)】 Corporate Goals, Management Strategies, and Business PlansPlease refer to the following pages of the Company’s website.・Corporate credo, basic philosophy, Group Vision, etc.(https://www.j-front-retailing.com/english/company/company.php)・Group Management Policy(https://www.j-front-retailing.com/english/ir/policy/policy.php)・Group Medium-term Business Plan(https://www.j-front-retailing.com/_data/news/210413_midtermplan_E.pdf)【Principle 3-1(ii)】 Basic Views and Policies on Corporate GovernanceFor basic views on corporate governance, please refer to “Chapter 1. General Provisions,” and for basicpolicies on corporate governance, please refer to “Chapter 2. Relationship with Stakeholders,” “Chapter 3.Information Disclosure” and “Chapter 4. Roles and Responsibilities of the Board of Directors, etc.” of theGuidelines.【Principles 3-1(iii), 4-2, Supplementary Principle 4-2-1 】 Policy and Procedures for DeterminingRemuneration for Directors, and Executive OfficersIn order to facilitate the steady execution of the Medium-term Business Plan, the Company formulated anew “Officer Remuneration Policy,” which included the introduction of a stock-based remuneration systemfor officers. However, in conjunction with establishing the Medium-term Business Plan that was started inFY2021, the Company changed parts of the system design in April 2021 to provide a function as an- 12 -incentive for achieving and promoting sustainability management. Furthermore,in March 2022,theCompany added eligible personnel for the mission grade system, changed the evaluation weighting ofbonuses, and reviewed the content of disclosure regarding the activities of the Remuneration Committee.For details of the revised Officer Remuneration Policy, please refer to the following page on our website.(https://www.j-front-retailing.com/_data/news/210413_remunerationpolicy_E.pdf)【 Principles 3-1(iv), 4-3, Supplementary Principle 4-3-1 】 Policy and Procedures for Nominating,Appointing and Dismissing Candidates for Directors and Executive OfficersFor the policy on nominating and appointing the Company’s Directors and Executive Officers and themain operating companies’ Directors and Executive Officers, please refer to “3. Directors and ExecutiveOfficers” in “Chapter 4. Roles and Responsibilities of the Board of Directors, etc.” and “4. HumanResources and Remuneration and Other Matters Involving Directors and Executive Officers, (1) Proceduresfor Nominating and Appointing Directors and Executive Officers, and Disclosure in That Regard” in“Chapter 4. Roles and Responsibilities of the Board of Directors, etc.” of the Guidelines.A proposal on the appointment or dismissal of Directors is discussed and determined by the NominationCommittee and then resolved at a shareholders meeting. For the appointment or dismissal, and thedelegation or suspension, of duties of the Company’s President and Representative Executive Officer andExecutive Officers, and the appointment and dismissal of the chairpersons and members of the threecommittees (Nomination, Remuneration, and Audit Committees), the Nomination Committee discussesthem at the request of the Board of Directors and the results are submitted and resolved at Board ofDirectors meetings.【Principle 3-1(v)】 Reasons for the Nominations of Candidates for DirectorsFor reasons for the nomination of candidates for Directors, please refer to the Notice of Convocation ofShareholders Meeting (Reference Materials for Shareholders Meeting).Notice of Convocation of the 15th Annual Shareholders Meeting (Year Ended February 28, 2022) (onpages 9 to 21)(https://www.j-front-retailing.com/english/ir/stock/pdf/220428_Notice_of_Convocation_E.pdf)【Supplementary Principle 3-1-1】 Disclosure of Value-added Information for UsersFor our views on information disclosure, please refer to “3. Basic Ideas on Corporate Governance, (3)Information Disclosure” in “Chapter 1. General Provisions” and “1. Constructive Dialogue withShareholders and Investors, (1) IR Policy” in “Chapter 3. Information Disclosure” of the Guidelines.【Principle 3-1-2】 Information Disclosure (Disclosure and Provision in English)The Company releases information in a timely and appropriate manner by making use of the TDnet andEDINET platforms, the Company’s website and other means in line with the attributes of the informationbeing disclosed. Moreover, to ensure that we disclose information in an impartial manner, we prepare and- 13 -release English translations of our convocation notices for Shareholders Meetings, annual securities reports,integrated reports, timely disclosure information, financial information and sustainability reports.【Principle 4-1】 Roles and Responsibilities of the Board of DirectorsFor the roles and responsibilities of the Board of Directors, please refer to “3. Basic Ideas on CorporateGovernance, (4) Roles and Responsibilities of the Board of Directors, etc.” in “Chapter 1. GeneralProvisions” of the Guidelines.【Supplementary Principle 4-1-1】 Scope of the Matters Delegated to the Management TeamFor the policy on the scope of the matters delegated to the President and Representative Executive Officerand Executive Officers (the “Management Team”), please refer to “1. Approach to Allocating Authority” in“Chapter 4. Roles and Responsibilities of the Board of Directors, etc.” of the Guidelines.【Supplementary Principle 4-1-2】 Best Efforts toward Realization of the Medium-term Business PlanFor the roles and responsibilities of the Board of Directors to realize the Medium-term Business Plan,please refer to “3. Basic Ideas on Corporate Governance, (4) Roles and Responsibilities of the Board ofDirectors, etc.” in “Chapter 1. General Provisions” of the Guidelines.In the Medium-term Business Plan, which started in FY2021,the Group aims to return to thepre-COVID-19 pandemic level of operational results reached in FY2019 in FY2023, the final fiscal year ofthe business plan, while realizing achievements by demonstrating the Group’s strengths between businessesin a cross-organizational manner. In light of this, for FY2022, which is the initial year under the newMedium-term Business Plan, the Group will double down on initiatives for management structural reform inorder to ride out the COVID-19 pandemic, while working to achieve a recovery in the profit of the operatingcompanies and to create a footing that will lead to the achievement of the FY2023 targets and regrowth inand after FY2024.The Board of Directors will hold discussions designed to improve the monitoring function and the qualityof strategies executed from the perspective of stakeholders in order to contribute to the realization of theGroup Vision and greater corporate value.【Supplementary Principles 4-1-3, 4-3-2, 4-3-3】 Succession Planning[Selection of President and Representative Executive Officer]Selection of the President and Representative Executive Officer is a critical aspect of strategicdecision-making, and accordingly the Company regards drawing up and implementation of plans regardingsuccessors as matters of particular importance in terms of management strategy.The Company ensures clarity,transparency and objectivity in the process of selecting successorcandidates through repeated deliberations conducted by the Nomination Committee, which consists of three(3) independent Outside Directors and the chairperson of the Board of Directors, who is a non-executiveDirector elected from inside the Company.- 14 -The Board of Directors focuses on realizing the basic philosophy and the Group Vision, selects thePresident and Representative Executive Officer, and plays a supervisory role based on proposals receivedfrom the Nomination Committee.[Dismissal of President and Representative Executive Officer]A proposal for dismissal of the President and Representative Executive Officer is discussed anddetermined by the Board of Directors after being discussed and resolved by the Nomination Committeebased on the goals set, expected and actual results (e.g., annual performance and strategy execution status),and the status of performance of duties, achieved by successor candidates who are selected under thesuccession plan made by the Nomination Committee.[The Qualities Required of Successors]For the President and Representative Executive Officer of the JFR Group and parties who assumemanagement of the JFR Group, the Company clearly defines the necessary values, capabilities, andbehavioral traits in the form of qualities required of a corporate officer in the Guidelines under “Desirablequalities required of the JFR Group managerial talent” and “Discernible capabilities required of JFR’sPresident and Representative Executive Officer” in accordance with the basic philosophy and Group Vision.For “Desirable qualities required of the JFR Group managerial talent” and “Discernible capabilitiesrequired of JFR’s President and Representative Executive Officer,” please refer to “3. Directors andExecutive Officers” in “Chapter 4. Roles and Responsibilities of the Board of Directors, etc.” of theGuidelines appended at the end of this report.【Principle 4-14, Supplementary Principles 4-14-1, 4-14-2】 TrainingThe Company continuously provides opportunities to Directors and Executive Officers of the Companyand Directors, Audit & Supervisory Board Members and Executive Officers of the main operatingcompanies, to acquire and update knowledge, etc. they need to fulfill their roles and responsibilities withrespect to oversight, auditing, business execution and other tasks.[Internal Directors and Executive Officers of the Company and Directors, Audit & Supervisory BoardMembers and Executive Officers of the Main Operating Companies]The Company also provides with useful information, etc. about corporate governance, compliance, andGroup management. Furthermore, based on the result of the evaluation on managerial talent by thethird-party organization, the Company sets and conducts training plans such as coaching which leads to themanifestation of achievement expected to each individual.[Candidates for Management Personnel, Including Executive Officers]The Company helps the top management share awareness of problems and enhances ingenuity in carryingout the Medium-term Business Plan and undertakes “JFR Management Juku (tutoring school),” where thePresident and Representative Executive Officer serves as the principal of the Juku. External consultantsdeliver lectures to allow attendees the opportunity to consider not only the Medium-term Business Plan, but- 15 -also a vision of the Group 10 years from now, from the management perspective. Presentations are alsomade directly to the President and Representative Executive Officer, and evaluated accordingly. ThePresident and Representative Executive Officer attends all day long every time it is held. In addition, theCompany lets them prepare new business plans, etc., to prevent them from being only engaged in classroomWe arrange briefings, when Outside Directors are appointed as well as on a continuous and regular basis,providing details on the basic philosophy, Group Vision, Group Medium-term Business Plan and GroupAnnual Management Policy, and also featuring content that includes details of the JFR Group operations, itsperformance, financial standing and operational status.【Principles 4-2, 4-3, Supplementary Principles 4-3-4, 4-13-3】 Establishment of Company-Wide Risklearning.[Outside Directors]Management System[Risk Management]The Group defines risk as “uncertainties that have both potential positive and negative sides that couldhave an impact on the achievement of targets by a company.” The Company has positioned riskmanagement as “activity that increases corporate value by managing risks by reasonable and optimalmethods from a company-wide perspective” to achieve sustainable corporate growth by addressing thepositive side and the negative side of risk properly.The Company has positioned “corporate risk” as an extremely important priority for the management ofthe Group in the medium term, and it forms the original basis for the Group Medium-term Business Plan.Moreover, the risks for the year that were identified in discussions on corporate risks were compiled in theJFR Group Risk List, and each item was assessed and given a priority level using the “risk map,” andcountermeasures were implemented.(on pages 15 to 43).lines.divisions.For details of business and other risks, please refer to the Annual Securities Report for the 15th fiscal year（https://www.j-front-retailing.com/_data_json/news/_upload/15th_AnnualSecuritiesReport_J.pdf）Furthermore, in order to effectively perform risk management, we have established the following three(i) First line: Operating divisions such as business subsidiaries. These divisions identify risks and takethe necessary measures on their own.(ii) Second line: The holding company’s divisions. Each division provides support, guidance andmonitoring regarding risk management from a perspective which is independent of the operating(iii) Third line: The Internal Audit Division. This division oversees the validity of the risk managementfunctions and the internal control system from a perspective which is independent of the operating- 16 -divisions and each division of a holding company.In addition, the Company has established the Risk Management Committee as an advisory body to thePresident and Representative Executive Officer. The committee discusses important matters, including riskidentification and evaluation, and determination of risks to be reflected in strategies, and utilizes riskmanagement for management decision-making.The committee also reports details of its deliberations to the Board of Directors in a timely manner.[Internal Control System]The Company has established the Policy on Developing Internal Control Systems with the aim ofensuring that overall operations of the JFR Group are performed legally and appropriately. Accordingly, wetake steps to facilitate the JFR Group’s sustainable growth and increase corporate value over the medium tolong term through specific initiatives geared toward promoting the policy.With regard to internal controls over financial reporting,the Company and operating subsidiariesmaintain and operate internal systems to ensure the reliability of financial reporting in line with theFinancial Instruments and Exchange Act and various associated laws and regulations.[Compliance]The Company has established the Compliance Committee, whose membership includes corporatelawyers, as an advisory body to the President and Representative Executive Officer for the purpose ofaddressing issues of JFR Group compliance practices including anti-corruption.The Compliance Committee continuously oversees development of the foundations of compliance systemand the status of implementation through enhanced collaboration with departments in charge of promotingcompliance of each Group company, and promotes compliance with laws and regulations, corporate ethics,and other such standards.It also draws up a policy for addressing matters involving seriouscompliance-related violations.The committee also reports details of its deliberations to the Audit Committee in a timely manner.In addition, the Company has established a dual-reporting line where the Internal Audit Division reportsto the President and Representative Executive Officer and at the same time to the Audit Committee in orderfor the Board of Directors to fulfill its function.【Principles 4-6, 4-8】 Management Supervision and Execution, Effective Use of Independent OutsideDirectorsThe basic views of the Company under the corporate governance structure with three committees are thatindependent Outside Directors must constitute a majority. By doing so, the Company aims to separatesupervision and execution, ensure the effectiveness of the Board of Directors’ discussions, and maintain andimprove transparency and objectivity.- 17 -Ten (10) Directors(Breakdown)Six (6) independent Outside Directors (Three of whom are chairpersons of NominationCommittee, Audit Committee and Remuneration Committee)Two (2) internal Directors who do not execute business (One of whom is a chairpersonof the Board of Directors)Two (2) Executive DirectorsOne internal Director who does not execute business, and is well informed about internal informationbecause of their extensive business experience in businesses of the JFR Group companies, fulfills his/herrole as chairperson of the Board of Directors, and six independent Outside Directors, who have extensiveexternal management experience or in-depth knowledge in specialized areas, fulfilltheir roles aschairperson of the Nomination, Remuneration and Audit Committee, or members of any of the threecommittees, so that the effectiveness of independent and objective management supervision can be ensured.In addition, at the Company, periodic one-on-one meetings are held between the chairperson of the Board ofDirectors and each of the chairpersons of the three committees in an effort to have the Board of Directorsand the committees function effectively as one system.Furthermore, the Company organizes “executive sessions” that allow free discussion and exchanges ofviews among independent Outside Directors. It is held as a meeting of only independent Outside Directorsafter the conclusion of the meeting of the Board of Directors, etc., and discusses issues that need to bewatched from a position of oversight, such as issues in the Board of Directors and issues for improvingeffectiveness (The lead director is independent Outside Director SATO Rieko.) At the request of the leaddirector, the President and Representative Executive Officer and the chairperson of the Board of Directorsmay also participate in discussions.【Principles 4-7, 4-10】 System to Ensure the Effectiveness of the Oversight Function of the Board ofDirectorsThe Company has adopted the “company with three committees” structure, establishing threecommittees–the Nomination, Audit, and Remuneration Committees–each comprising a majority ofindependent Outside Directors. It has also adopted Board of Directors composition with a majority ofindependent Outside Directors, and independent Outside Directors are elected to chair each committee. Inaddition, the Company holds executive sessions only involving independent Outside Directors, among otherinitiatives in order to ensure the effectiveness of the Board of Directors supervisory function.With regard to the status of the oversight function, issues are periodically identified through evaluationsof the effectiveness of the Board of Directors, and the Company responds appropriately.【Principle 4-9】 Criteria for Determining Independence of Outside DirectorsFor the criteria for determining independence of Outside Directors, please refer to “5. Criteria forDetermining Independence of Outside Directors” in “Chapter 4. Roles and Responsibilities of the Board ofDirectors, etc.” of the Guidelines.- 18 -The Company has registered all six Outside Directors as independent officers as stipulated by thefinancial instruments exchanges.【Principle 4-11, Supplementary Principle 4-11-1】 Ensuring Diversity in the Board of DirectorsFrom the standpoint of separating supervision and execution and ensuring the effectiveness of the Boardof Directors’ discussions, the Board of Directors of the Company is to be composed of an appropriatenumber of Directors, but no more than eleven (11), as stipulated in the Articles of Incorporation (one-yearterms of office), and the composition is such that at least half of the total are independent Outside Directorswho are not susceptible to conflicts of interest involving the Company’s shareholders In addition, we takesteps to ensure diversity including gender upon giving consideration to bringing about a balance ofknowledge, experience and abilities required of the Board of Directors as a whole, and disclose acombination of skills, etc. possessed by Directors (skill matrix).In selecting candidates for the Board of Directors, the Board of Directors shall consist of personnel withexperience and knowledge necessary to appropriately oversee the promotion of sustainability management(execution of business strategies aimed at resolving the seven materialities) in order to allow the Board ofDirectors to effectively fulfill its roles and responsibilities. In selecting candidates for Outside Director, theCompany selects persons from the point of view of Board diversity who have experience as managers notonly in the retailing industry that forms the core of the Company’s business but in manufacturing and othernon-retail industries, and who have expertise in legal and other fields, a marketing perspective, andextensive experience related to finance and accounting. With regard to candidates for non-executive InsideDirector, wide-ranging practical experience within the Group and knowledge in fields such as auditing aresought by the Company. As for candidates for executive Director, the Company has selected a personresponsible for the Financial Department whose high level of knowledge will facilitate the execution of thestrategic financial policies demanded by our shareholders and investors, as well as by the President andRepresentative Executive Officer of the Company.For the composition of the Company’s Board of Directors, please refer to “2. Matters on Functions ofBusiness Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of CurrentCorporate Governance System)” in Chapter II of this report.The nine skills established as requirements that the Company expects of Directors are as follows:ⅳ Management strategy: The Company appoints Directors who have management experience as well as knowledge and experience related to management strategy, such as making strategy proposals thatlead to the increase of corporate value, formulating methods to identify issues for the formulation ofthe Medium-term Business Plan, etc.ⅳ Finance: The Company appoints Directors who have extensive knowledge and experience related to – 19 -finance and accounting, and knowledge and experience in the field of finance, such as increasingcorporate value through the establishment of a strong financial base and making cost-consciousfinancial strategy proposals.ⅳ Marketing: The Company appoints Directors who have a wealth of knowledge and experience in activities that bring about customer satisfaction and continual improvement in corporate valuethrough discovering customer problems, creating products and services to solve those problems,communicating information and offering added value.ⅳ Human resources and organization development: The Company appoints Directors who have extensive knowledge and experience that lead to improvement of corporate value over the medium-to long-term, through bringing out the maximum value of human resources and contributing toorganization development, including the promotion of diversity.ⅳ Legal affairs and compliance: Recognizing that legal and appropriate execution of corporate managementis the basis sustainable improvement of corporate value,the Company appointsDirectors who have high-level and expert knowledge in corporate law and knowledge and experiencein promoting compliance management.ⅳ IT and digital: The Company appoints Directors capable of grasping the latest trends in IT and providing, from the customers’ perspective, supervision of ICT application assistance and newbusiness development for the purpose of realizing the promotion of the digital transformation ofexisting businesses.ⅳ Environment: The Company appoints Directors capable of providing appropriate supervision of specific action plans, regular reviews and the status of initiatives for continualimprovementregarding responses to environmental plans, including the setting of medium to long-term targets forsolving environmental problems through business activities.ⅳ Society: The Company appoints Directors capable of providing supervision of initiatives for co-existence with local communities, and initiatives concerning respect of human rights andconsideration for working environments in business activities.ⅳ Governance: Recognizing the establishment of appropriate governance systems is the basis for sustainable improvement of corporate value, the Company appoints Directors who have extensiveknowledge and experience in corporate governance aimed at improving the effectiveness of thesupervisory functions of the Board of DirectorsFor the skill matrix table, please refer to the following page on our website.(https://www.j-front-retailing.com/english/company/governance/governance02.php)- 20 -【Supplementary Principle 4-11-2】 Concurrent Holding of PositionsFor concurrent holding of officers positions at other listed companies by Directors of the Company,please refer to the Notice of Convocation of Shareholders Meeting (Business Report, Reference Materialsfor Shareholders Meeting).pages 9 to 22)Notice of Convocation of the 15th Annual Shareholders Meeting (Year Ended February 28, 2022) (on(https://www.j-front-retailing.com/english/ir/stock/pdf/220428_Notice_of_Convocation_E.pdf)【Supplementary Principle 4-11-3】 Evaluation of the Effectiveness of the Board of DirectorsThe Company’s evaluation of the effectiveness of the Board of Directors by a third-party organization hasbeen conducted annually since 2015.[Items Evaluated]There were about 40 items, including: (i) The Board of Directors’ contribution to the entire Group, (ii) theBoard of Directors’ composition, (iii) its operational status, (iv) the content of deliberations, and (v) theeffectiveness of activities of the Nomination, Remuneration and Audit Committees.[Evaluation Methodology]The method used was based on a questionnaire distributed beforehand, after which “individualinterviews” (Note) conducted by the third-party organization, the results of which were collated andanalyzed in the form of a report, which was then deliberated by the Board of Directors.(Note) “Individual interviews”Based on the results of the questionnaire, individual hour-long interviews were conducted by thethird-party organization in which all Directors (both Internal and Outside) were inquired about theirviews and awareness of issues in response to various questions concerning the Board of Directors.The results of the interviews are leading to the solving of issues at the Board of Directors.[Evaluation Results and Issues, etc.]In the previous six occasions of evaluation,the results clarified issues to be addressed such asstrengthening discussions of important proposals and reviewing the composition of the Board of Directors.Improvement initiatives are strengthening the oversight function through our efforts such as increase in theratio of Outside Directors, reinforcement of agenda setting, and enhancement of deliberations.In the seventh evaluation of the effectiveness of the Board of Directors, conducted between Septemberand October 2021, it was reported by the third-party organization that under the current composition of theBoard of Directors, its deliberations have become more objective, and that lively discussions take placefrom multiple perspectives. The following issues with the Board of Directors were also recognized.• Clarification of roles of the holding company and its Board of Directors• Concentration on strategic important proposals and discussions at the Board of Directors meetings• Reviewing the composition of the Board of Directors• Further strengthening of the functions of the Board of Directors Secretariat- 21 -In response to these issues, the following initiatives will be implemented during FY2022 to improve theeffectiveness of the Board of Directors.・We will articulate the holding company’s roles in the FY2022 Group Management Policy andstrengthen the function of planning to facilitate strategy implementation.・A majority of members of the Board of Directors shall be independent Outside Directors to ensureeven greater effectiveness with respect to its discussions.• The holding company’s Board of Directors strengthens the monitoring function for progress of theMedium-term Business Plan and PMI.• The Board of Directors Secretariat aims to strengthen communication with the Management Teamand to set proposals based on management issues more than has been done previously.• The Board of Directors Secretariat does follow-ups so that the execution can sufficiently enhanceconsideration of and response to challenges presented at the Board of Directors meetings.【Principle 5-1, Supplementary Principle 5-1-1】 Policy on Constructive Dialogue with Shareholders[IR Policy]Company.Under the basic philosophy that “we aim at developing the Group by making a broad contribution tosociety as a fair and trusted business entity,” the Company promotes IR activities for the purpose ofmaintaining and developing relations of trust with stakeholders including shareholders and investors. Byaccurately and plainly disclosing important information about the Company in a fair, timely and appropriatemanner, we aim to improve managementtransparency and help stakeholders better understand the[Information Disclosure to Enhance Dialogues]From financial results briefings for the year ended February 29, 2016, the Company has prepared a FactBook to act as supplementary meeting material containing tables and graphs depicting secular trends withrespect to major financial indicators and other management benchmarks, and has otherwise taken steps tofurther enhance communications with shareholders and other investors.In addition, the Company released an integrated report in FY2017 that is replete with non-financialinformation. Included at the beginning of this report are the details of the Company’s value creation process.This process is the means by which the Company aims to make effective and efficient use of its “sixcapitals” (financial capital, manufactured capital, intellectual capital, human capital, social and relationshipcapital, and natural capital) to circulate the Group’s business model. In so doing, it aimed to create, as apublic entity of society, new values with which its various stakeholders empathize.For the integrated report, please refer to the following page on our website.(https://www.j-front-retailing.com/english/ir/library/annual.php)For Fact Book, please refer to the following page on our website.(https://www.j-front-retailing.com/_data_json/news/_upload/2202_4Q_FACTBOOK.pdf)- 22 -[Promoting Constructive Dialogue]If a shareholder or investor makes a request to engage in constructive dialogue with the Company, eitherthe President or another Director (including Outside Directors), Executive Officers, or a division in chargeof IR will properly respond, upon taking into consideration the intent and aims of the request.For details of constructive dialogue with shareholders and investors, please refer to “Chapter 3.Information Disclosure” of the Guidelines.【Principle 5-2, Supplementary Principles 3-1-3, 4-2-2】 Investment in Human CapitalAiming to realize itself as a “Human Resource Development Company,” the Company believes it ishuman resources only that can open the way to the future in a highly uncertain environment, and haspositioned human resources as the most important capital. For this, the Company sets human resourcestrategy as an important management strategy, and faces each of its employees and promotes sophisticationof human resource management centered on human resource development to maximize human resourcestrengths from a medium- to long-term perspective.The Company’s approach to its various human resource systems is to promote the development ofpersonnel not according to a job-oriented paradigm where emphasis is on a vocational credential systemincluding length of service and an evaluation philosophy based on work achievements, but by practicing,particularly for junior and mid-career employees, a policy of assigning the right person to the right placewith a mind to future potential through various assessment of “human resource strengths” of an individualwhile also giving importance to their accomplishments.The Company considers an individual’s “human resource strengths” based on their value as a humanresource (commitment, motivation, academic strengths, innovativeness and creativity, power of