J Front Retailing : Corporate Governance Report 　(567.4 KB)

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Corporate Governance Report

Last Update: February, 1, 2016

J. FRONT RETAILING Co., Ltd.

Representative: Ryoichi Yamamoto, President Inquiries: Takayuki Makita, Senior General Manager of Corporate Governance Promotion,

Management Strategy Unit

(TEL: +81-3-6895-0178 (from overseas)) Securities Code: 3086, First Section of the Tokyo Stock Exchange and Nagoya Stock Exchange

http://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 Other Basic Information

1. Basic Views

   
   

   The Company has established Corporate Governance Guidelines (the "Guidelines") that set out the role of corporate governance in the Company and its subsidiaries (the "JFR Group"). The aims of the Guidelines are to realize our best possible corporate governance practices in order to ensure the sustainable growth of the JFR Group and increase corporate value over the medium to long term.

   For "Basic Ideas on Corporate Governance," please refer to "Chapter 1. General Provisions" of the

   Guidelines appended at the end of this report.

   
   

   
   

   [Reasons for Non-compliance with the Principles of the Corporate Governance Code]

   
   

   Recognizing the need to carry out all of each principle of the Corporate Governance Code in order to achieve the sustainable growth of the JFR Group and increase corporate value over the medium to long term, the Company has begun taking initiatives to implement all of each principle.

   
   

   Based on the "comply or explain" rule, the Code requiring disclosure in this column is limited to the following:

   
   

   • Any principles that are currently not implemented

   
   

   The Company, however, discloses the following matters in recognition that the disclosure ("comply and

   explain") leads to promoting constructive dialogue with shareholders and investors.

   
   

   • Principles that are currently implemented but for which the Company only recently began the initiatives for the implementation.

   • Principles for which policies, ideas, etc. have been in place by convention but have not been explicitly

     stated or announced.

   • Principles that have been implemented conventionally but for which the Company considers further enhancement of substance is necessary.

【Supplementary Principle 1-1-1】 Analysis of Voting Results

The Company will analyze causes of opposition in situations where substantial numbers of voting rights have been exercised in opposition to a Shareholders Meeting proposal made by the Company, taking into consideration factors such as the content of the proposal, resolution requirements, the proposal in comparison with similar proposals made in the past, and the percentage of voting rights exercised. Upon so doing, the Company will then respond by engaging in dialogue with shareholders and otherwise taking action deemed necessary, and will otherwise act on its findings by reviewing content of the subsequent fiscal year Shareholders Meeting proposal.

【Supplementary Principle 1-2-1】 Content of Convocation Notices

We upgrade the content of our convocation notices in a manner that provides our shareholders with a deeper understanding of the JFR Group and enables them to make appropriate decisions when exercising their voting rights. Specifically, in addition to reporting the consolidated results of the fiscal year under review, which are past events, information such as the management policy, medium-term business plan and strategies of the JFR Group will be included.

【Supplementary Principle 1-2-5】 Participation of Beneficial Shareholders in Shareholders Meetings

When a beneficial shareholder has filed to exercise rights as a shareholder beforehand, we take steps to ensure that such rights may be exercised upon consulting with relevant parties including the trust bank acting as nominal shareholder and the Company's share transfer agent.

【Principles 1-3, 5-2】 Basic Capital Policy

The Company believes that any increase in free cash flow and improvement in ROE should help to ensure its sustainable growth and increase corporate value over the medium to long term. To such ends, the Company promotes a capital policy that takes a balanced approach to undertaking strategic investment, enhancing shareholder returns, and expanding net worth being equipped to address risks.

Moreover, in procuring funds through interest-bearing debt we aim to achieve an optimal structure of debt to equity in a manner cognizant of our funding efficiency and cost of capital, carried out on the basis of having taken into consideration our capacity for generating free cash flows and our balance of interest-bearing

debt.

A business strategy where higher sales are accompanied by profits and a financial strategy (encompassing the capital policy) that heightens profitability of invested capital are essential elements with respect to improving free cash flows and ROE. In addition, we believe it is crucial that we maximize our operating income and continually improve our operating margin by strengthening our core businesses and concentrating management resources on initiatives such as business field expansion and active development of new businesses.

【Principle 1-4】 Cross-shareholdings

1. Policy on Cross-shareholdings

   The JFR Group reduces its cross-shareholdings as appropriate considering the market environment, share price trends and other such factors (cross-shareholdings are holdings of listed shares other than those of subsidiaries and associates which are not held for pure investment purposes). However, this does not apply to shares with respect to which rationale for such holdings has been verified by means of validation as described below.

   
   

2. Validation of Rationale for Cross-shareholdings

   The Board of Directors validates the rationale for the JFR Group to maintain its major cross-shareholdings on a yearly basis from both qualitative and quantitative perspectives. From a qualitative perspective, the Board of Directors considers such business strategies as maintaining harmonious and favorable business relationships with corporate customers and business partners and securing supply chains, and from a quantitative perspective, it considers dividend income and other economic rationale.

   
   

3. Policy on Exercising Voting Rights Regarding Cross-shareholdings

Decisions with respect to voting on matters regarding cross-shareholdings are made from both of the following two perspectives: (1) we consider whether cross-shareholdings contribute to improving the sustainable growth and the corporate value over the medium to long term of the company whose shares are held; (2) we consider whether the cross-shareholdings contribute to improving the JFR Group's sustainable growth and corporate value over the medium to long term. When necessary, we also consider the possibility of engaging in dialogue with companies whose shares are held when exercising voting rights.

【Principle 2-3, Supplementary Principle 2-3-1】 Sustainability

With the aim of ensuring sustainable growth of the JFR Group and increasing corporate value over the medium to long term, the JFR Group makes efforts to build and deepen relationships of trust with all stakeholders (customers, shareholders, business partners, employees, local communities, etc.) through various corporate activities based on the Group Philosophy and

takes proactive steps in dealing with social and environmental issues and challenging issues relating to sustainability.

In order to further contribute to the development of local communities as a good corporate citizen, the JFR Group formulates policies on sustainability centered on providing safe and secure products and services and promoting to create a safe and secure store environment, contributing to the development of a recycling-oriented society and pursuing activities that support the next generation and women. After formulating these policies, we will take initiatives to tackle these issues based on our policies.

【Principle 3-1(iii), Supplementary Principle 4-2-1】 Policy and Procedures for Determining Remuneration for Directors and Executive Officers

1. Policy on Determining Remuneration for Directors, Audit & Supervisory Board Members and Executive Officers

   Currently, remuneration of the Company's Directors, Audit & Supervisory Board Members and Executive Officers is monetary-based and consists of monthly compensation and executive bonuses which is tied to results and success in accordance with each year's business performance.

   To help the JFR Group achieve sustainable growth and increase corporate value over the medium to long term, we are now considering the possibility of revamping the aforementioned policy on determining remuneration based on perspectives that include:

2. Increasing the proportion of performance-based remuneration in terms of total remuneration in order to provide incentives for accomplishing objectives of management strategies and business plans, and achieving targets with respect to corporate performance;

3. Introducing remuneration based on medium- to long-term performance with the aim of increasing corporate value over the medium to long term;

4. Validating the adequacy of remuneration levels (including industry and employee salary level comparisons)

5. Devising optimal compensation balances such as between fixed and performance-based remuneration, and monetary-based and stock-based remuneration; and

6. Developing a uniform fixed-remuneration scheme covering Outside Directors and Audit & Supervisory Board Members (both outside and internal).

   
   

7. Procedures for Determining Remuneration for Directors, Audit & Supervisory Board Members and Executive Officers

The total monthly remuneration amount for the Company's Directors and Audit & Supervisory Board Members is limited to that set upon passage of a resolution of a Shareholders Meeting, and the total amount of bonuses to officers for the fiscal year is that set upon passage of a resolution of an Annual Shareholders Meeting held every fiscal year.

The specific amounts of remuneration paid to respective Directors and Executive Officers are set based on