Basic Policy to Build Internal Control System
This is a basic policy for J. Front Retailing Co., Ltd. (hereinafter, the “Company”) relating to building an internal control system for legal and appropriate execution of overall business within the Group (meaning the corporate group comprising the Company and its subsidiaries; the same shall apply hereinafter). By specifically promoting this policy, the Group aims to contribute to ensuring the sustainable growth of the Group and increasing corporate value over the medium to long term.
- The Company aims to realize corporate governance that is a structure for transparent, fair, swift and resolute decision-making with due attention to the perspectives of shareholders and also customers, employees and communities in order to ensure the sustainable growth of the Group and increase corporate value over the medium to long term. The Company has therefore adopted the structure of a company with three committees (nomination, audit and remuneration committees) in order to strengthen the oversight function and decision-making function for business execution of the Board of Directors by clearly separating management oversight and execution functions.
- In order to achieve our best possible corporate governance structure, it is important that the President and Representative Executive Officer takes and hedges various risks (uncertainties) within the Group to build an internal control system capable of appropriate and efficient business execution.
- The internal control system is a structure that companies should establish to control internal risks (uncertainties) with a view to realizing corporate sustainable and stable growth. Specifically, the system comprises the following Group management system, risk management system, legal compliance system, internal audit system, and audit committee system.
I. Group Management System
(1) Board of Directors
- The Board of Directors shall perform an oversight function by monitoring Executive Officers’ and Directors’ execution of business.
- The Board of Directors shall discuss and resolve matters defined in the Companies Act and/or the Articles of Incorporation, as well as the Group Vision, the Sustainability Policy, the Group Medium-term Business Plan, overall policy and plan for the Group management, M&As, the Group financing plans, and other individual important matters relating to the Group management. In order to speed up business decisions and execution, the task of determining matters involving business execution other than the above shall be delegated to execution, with the exception of matters which have a material impact on the Group management.
- For monitoring action, decision-making and the like by the Board of Directors, the composition shall be such that a majority of the total are independent Outside Directors who are not susceptible to conflicts of interest involving the Company’s shareholders, from the standpoint of separating supervision and execution and ensuring the effectiveness of the Board of Directors’ discussions.
- To ensure the effectiveness of objective management oversight, in addition to Outside Directors, non-executive Directors elected from inside the Company and who are well informed about internal information shall also be appointed.
- To further strengthen oversight function while conducting smooth operation of the Board of Directors, an Inside Director who does not execute business shall be selected as the Chairperson of Board of Directors.
(2) Management execution framework
- The Company shall clearly separate management oversight and execution and strengthen the Board of Directors’ oversight function while delegating authority to execution to enable swift management decision-making. Meanwhile, execution shall be controlled by having the following framework.
- The execution bodies shall be supervisory units that are optimal for realizing more efficient and swifter strategic execution, and Executive Officers shall be appointed as the heads of the units.
- The Company clarifies the missions of the President and Representative Executive Officer and each supervisory unit. Each division formulates and executes a concrete plan based on the mission, and the roles and operations set forth in the Rules for Division of Organizations and Duties.
- Execution shall formulate the major Group management policies and individual important matters, and oversee business execution of the business subsidiaries. The Board of Directors shall discuss and determine (approve) the suitability of major policies and plans that execution has prepared as well as individual important matters.
- While discussing the overall policy and plan and other matters for the Group management at the Group Management Meeting, the Group Policy Meeting, each segment’s Medium-term Business Plan Progress Meeting, the Affiliated Business Results and Strategy Examination Meeting, etc., participants confirm the progress of management strategies and share information between management, and so forth.
- The Company shall construct systems to raise the overall efficiency of the Group such as the introduction of the Group’s common accounting system in principle and the promotion of centralized management of the Group funds.
- The Company has adopted the International Financial Reporting Standards (hereinafter, “IFRS”) voluntarily in the interest of implementing effective management based on appropriate asset evaluation, applying business management that gives emphasis to the profit of the current period, increasing convenience for overseas investors by improving the international comparability of financial information.
(3) System for promoting internal controls
- Under the direction of the President and Representative Executive Officer, to strengthen internal controls over execution, a division and a responsible person shall be put in charge of internal controls, and shall manage the development and operation of the internal controls under the Companies Act and the internal control system under the Financial Instruments and Exchange Act at the Company and its business subsidiaries.
- The division in charge of internal controls shall coordinate with the Audit Committee, the internal audit division, each supervisory unit, the business subsidiaries, etc. to share information and remedy any deficiencies that occur in the internal controls.
- With regard to internal controls over financial reporting, the Company shall be in compliance with Japan’s Financial Instruments and Exchange Act and other relevant laws and regulations, and an internal company system to ensure the credibility of financial reporting shall be constructed at the Company and its business subsidiaries.
II. Risk Management
- The Company shall establish the Risk Management Committee as an advisory body to the President and Representative Executive Officer with regard to the operation of risk management. The committee is chaired by the President and Representative Executive Officer and comprises Executive Officers and others.
- The Risk Management Committee shall discuss important matters, including risk identification and evaluation, and determination of risks to be reflected in strategies, and utilize risk management for management decision-making. The committee also reports the details of its deliberations to the Board of Directors in a timely manner.
- An officer shall be put in charge of risk management in order to promote the operation of risk management.
In addition, a division and a responsible person shall be put in charge of risk management, and shall provide support, guidance and monitoring regarding risk management at the Company and its business subsidiaries.
- The business subsidiaries shall put divisions and responsible persons in charge of risk management, and shall carry out daily direction of risk management.
- For hazard risks such as large-scale earthquakes, fires and accidents, crisis management shall be conducted by the “Emergency Response Headquarters” headed by the President and Representative Executive Officer.
III. Legal Compliance System
(1) System for promoting compliance
- The Company shall establish the Compliance Committee as an advisory body to the President and Representative Executive Officer regarding the operation of compliance management. The President and Representative Executive Officer shall be its chairperson and the members of the committee shall be a corporate lawyer, Executive Officers and others.
- An officer shall be put in charge of compliance in order to promote the operation of compliance management.
In addition, a division and a responsible person shall be put in charge of compliance, and shall supervise the development and penetration activities of the compliance systems and the status of operation thereof at the Company and its business subsidiaries.
- At the business subsidiaries, divisions and responsible persons shall be put in charge of compliance, and shall carry out daily supervision and direction of business operations that are in accordance with laws and regulations and internal company rules.
- The Compliance Committee shall strengthen cooperation with the division in charge of compliance of each business subsidiary to continuously implement development of the foundation for the compliance system and supervision of the status of operation, and promote compliance with laws and regulations, corporate ethics, etc. In addition, in the case where any material compliance-related matter occurs, the committee shall develop measures to take, etc. The committee also reports the details of its deliberations to the Audit Committee in a timely manner.
(2) Whistle-blowing system
- The Company shall establish the “JFR Group Compliance Hotline” as the whistle-blowing system of the Group that also has a point of contact outside the Group (a corporate lawyer), which may be used by all persons working at the Company and its business subsidiaries.
- The hotline has adopted a policy of: maintaining strict confidentiality regarding reports and notifications; not disclosing the personal information of whistleblowers to a third party without their consent; being careful to avoid identification of the whistleblower when investigating the facts; and ensuring that whistleblowers are not subjected to disadvantageous treatment in terms of personnel affairs or any other aspect.
- For hotline reports concerning management personnel, the Company shall build a structure whereby the reports are submitted directly to the Audit Committee and subjected to directions from the Audit Committee so as to secure an independent reporting route.
IV. Internal Audit Structure
- The Company shall establish an independent internal audit division under the direction of the President and Representative Executive Officer. In accordance with internal audit rules and under the direction of the President and Representative Executive Officer, the internal audit division shall audit the operations of the Company and its business subsidiaries or ask them to properly report the results of audits of operations, examine the properness and effectiveness of their business process, and provide guidance, advice and proposals to each division at the Company and to the business subsidiaries.
- The person responsible for the internal audit division, while providing directions, guidance and assistance to the internal audit divisions of the business subsidiaries, shall provide a report to the President and Representative Executive Officer of the status of internal control functions through a third-party evaluation of the audit plans and audit results of the business subsidiaries.
- To further enhance corporate governance by strengthening auditing functions, the Company shall clarify links among the President and Representative Executive Officer, the Audit Committee and the internal audit division. Specifically, the Company shall adopt a dual-reporting system where both the President and Representative Executive Officer and the Audit Committee shall receive reports. Audit reports and improvement reports shall be provided together to them to realize swift measures.
- The appointment and transfer of the person responsible for the internal audit division shall be subject to the advance approval of the Audit Committee, and when the person is evaluated, the Audit Committee states an opinion before the execution of such evaluation.
- The Audit Committee shall audit the legality and suitability of the execution of duties by Executive Officers and Directors.
- The Audit Committee is composed of independent Outside Directors and full-time Directors who do not execute business, and its chairperson is chosen from among independent Outside Directors from the standpoint of ensuring transparency and objectivity.
- The Audit Committee Secretariat has been established as an organization in charge of assistance for the Audit Committee’s duties.
- The reorganization of the Audit Committee Secretariat, appointments and transfers of its staff, and the performance evaluation of its responsible person are subject to the Audit Committee’s advance approval to ensure independence.
- The Audit Committee shall have periodic meetings and the like with the President and Representative Executive Officer to share information. Moreover, the Company’s Executive Officers and Directors may be asked to attend the Audit Committee meetings to provide reports and opinions as necessary.
- The Audit Committee shall regularly coordinate with the internal audit division to share information. Moreover, the Accounting Auditor, outside experts and others may be asked to attend the Audit Committee meetings to provide reports and opinions as necessary.
- The Audit Committee members shall report to the Audit Committee on the status of audits of the following matters:
- Matters resolved by or reported to the Board of Directors;
- Matters identified by the Audit Committee as issues; and
- Internal audit implementation status and results (audit report, improvement report, etc.)
- The Audit Committee members shall attend the Group Management Meeting and other meetings, inspect important documents associated with the execution of duties, such as circular approval memos, and request explanations from officers and employees of the business subsidiaries as necessary.
- The business subsidiaries shall submit necessary audit reports and perform other duties if requested to do so by the Audit Committee.
- The Audit Committee shall have periodic meetings and the like with the audit & supervisory board members of the business subsidiaries to enhance and strengthen the auditing of the entire Group.
- Appointments and transfers of the audit & supervisory board members of the business subsidiaries are subject to the approval of the Audit Committee, and the audit & supervisory board members of the business subsidiaries shall concurrently serve on the Audit Committee Secretariat.
- The Audit Committee may claim expenses deemed necessary for performing its duties from the Company, and the Company shall bear them.
- For documents relating to the execution of duties by Executive Officers and Directors, and minutes and related documents regarding meetings organized by Executive Officers and Directors, all of which include electromagnetic records, in accordance with laws and regulations and the rules on confidential information management, each responsible division shall carry out document storage and management during the stipulated period and shall develop a system to keep them available for inspection.
- Senior Executive General Manager of the system divisions shall control information security management of the Company based on the Information Security Policy and the IT Governance Policy, and shall report periodically and whenever necessary on the status of information system management and related matters to the Board of Directors, the Audit Committee, the Management Meeting and the President and Representative Executive Officer.
V. Structure of the Audit Committee
VI. System for Storage and Management of Information
(1) Confidential information management
(2) Information security management
Amended on May 26, 2022