The Company has established the “Nomination Committee” and the “Compensation Committee” (in this paragraph, “the Committees”) as advisory committees to the Board of Directors. The Committees' chair and the majority of their members are Independent Outside Directors. It has been utilizing the more diverse range of knowledge and advice of Outside Directors and Outside Audit & Supervisory Board Members to ensure further objectivity and transparency in procedures for deciding the nomination of and compensation for Representative Directors, Directors, Audit & Supervisory Board Members, and executive officers (in this paragraph, “Officers, etc.”), thereby enhancing the supervisory functions of the Board of Directors and further substantiating corporate governance functions.

The Committees deliberate on the nomination and compensation of not only the Company’s Officers, etc., but also Representative Directors of the core domestic operating companies and President and CEO of the core overseas operating companies (in this paragraph, “Representative Directors, etc.”).
　The Representative Directors, etc., of the core operating companies occupy an important position for the Group's management and are included within the purview of deliberations by the Committees from the perspective of emphasizing the objectivity and transparency of the principal nomination and compensation procedures for the management of not only the Company but also the Group.
　The Company will also appropriately determine the companies to be "core operating companies" with an emphasis on the objectivity and transparency of the Group management procedures, in accordance with the Group's business portfolio strategy and governance system.

One internal Audit & Supervisory Board Member and one Outside Audit & Supervisory Board Member act as observers at the Committees.
　This is because deliberations by the Committees include nomination of candidate Audit & Supervisory Board Members, whose duty is to audit the performance of duties by the Directors, and it is important to ensure due process at the Committees as advisory committees to the Board of Directors.

The Company's Audit & Supervisory Board develops audit plans with the basic audit policies of ensuring sound and sustainable growth of the Company and its Group companies and establishing high-quality corporate governance systems to respond to public trust. The Audit & Supervisory Board sets the establishment of internal control systems, and the system to promote legal compliance and risk management, as key audit items.
　The Audit & Supervisory Board Members attend the Board of Directors meetings and other important meetings. They conduct audits in the following manner: exchanging opinions with the Representative Directors and periodically interviewing Directors and others on the status of business execution; viewing important documents for approval such as request forms; and surveying the status of operations and assets at the Head Office and others. For subsidiaries, they communicate and share information with the Directors and Audit & Supervisory Board Members of subsidiaries, visit the subsidiaries' Head Offices and stores to survey the actual status of operations in accordance with the audit plans, and receive reports.

In order to enhance and reinforce its internal auditing function, the Company has appointed, within the Auditing Office, the “operational auditing staff” and the “internal control evaluation staff,” which are independent internal auditing divisions. The “operational auditing staff” has an oversight function to verify and provide guidance on internal auditing, including the status of the maintenance and management of compliance systems, by core operating companies or to directly audit them, and an internal auditing function for auditing the Company, the holding company, and performs these operations. Internal control evaluation staff evaluate internal controls regarding the financial reporting of the whole Group. As of May 31, 2024, there were 29 dedicated staff members handling internal audit duties.
　The results of internal audits and evaluations of internal controls regarding the financial reporting are reported to the president and representative director, each executive officer in charge, and the Board of Directors. Additionally, they are reported to the Audit & Supervisory Board, facilitating coordination and discussions to enhance the effectiveness of audits.

(a) Coordination between the Audit & Supervisory Board members, the Auditing Office, and the accounting auditor

To improve the quality of audits across the Group, the Company ensures that the Audit & Supervisory Board members, the Auditing Office, and the accounting auditor proactively exchange information and opinions, and engage in discussions to maintain close ties with each other, by such means as periodically holding tri-partite meetings.

(b) Coordination between the Audit & Supervisory Board members and the accounting auditor

The Audit & Supervisory Board members receive reports from the accounting auditor at the beginning of the fiscal year on the annual audit plan, and on the procedures and results of accounting audits and internal control audits on a quarterly basis, and exchange opinions to coordinate with them..

(c) Coordination between the Audit & Supervisory Board Members and the Auditing Office

The Audit & Supervisory Board Members and the Auditing Office ensure comprehensive sharing of audit information between each other in order to improve the quality of audits.

(d) At each audit, the Audit & Supervisory Board Members, the Auditing Office, and the accounting auditor receive reports and materials, etc. from the internal control divisions, and request explanations as deemed necessary, and the internal control divisions cooperate in the appropriate performance of these audits.

The Company is taking steps to appropriately manage various risks based on effective methods with practical application, such as achieving growth strategies, in order to increase corporate value while ensuring the continuous development of the Group. In managing the Group's risks, the Company employs an integrated approach that quantitatively and qualitatively evaluates the risks in every business domain faced by each Group company, and implements measures that avoid, transfer, mitigate, and retain risks.

The Company and its Group companies have established governing bodies such as the Risk Management Committee, with the departments that oversee the overall risk management of the respective companies as the secretariat.
　As a general rule, the Risk Management Committee meets once every six months to receive reports on the risk management status of the respective companies from the departments responsible for the management of risks, to comprehensively determine, assess, and analyze risks and discuss measures, and to determine the future direction going forward.
　For individual risks, response policies, initiatives for risk mitigation undertaken by each company, and various internal and external examples illustrating signs of emerging risks are shared primarily through Groupwide governing bodies led by the Company's departments responsible for the management of risks.

Group Risk Management System

Group Risk Management System

The Group conducts comprehensive risk management, including risk identification, assessment, proposal of improvement measures, prioritization, and ongoing improvement activities and monitoring, utilizing information from both internal and external sources.
　In addition, the internal auditing division of each company verifies whether risk management is being handled effectively, from an independent perspective, through periodic internal audits, and provides advice to each department for improving risk management, as necessary.

In addition to changes in the Group's internal environment, it is necessary to capture various changes in the business environment, including shifts in global trends such as rising geopolitical risks and ESG-related risks, changes in consumer values, and the expansion of e-commerce. In recent years, factors such as the unpredictable global situation have contributed to heightened uncertainty surrounding corporate activities.
　Against this backdrop, the Company is bolstering and broadening its risk classification framework to incorporate external factors and medium- to long-term perspectives. This ensures effective adaptation to evolving landscapes, augmenting traditional risk management, which primarily addressed internal environments and short-term horizons. Furthermore, the Company is diversifying and enhancing the assessment and analysis of various risks. This involves adding qualitative factors such as business continuity and damage to the brand image of the Group to conventional quantitative factors to evaluate the impact on performance when risks materialize.
　The Company conducts a comprehensive assessment of various risks, focusing on importance, commonality, materiality, and efficiency, before organizing them into four risk classes.
　Subsequently, roles and responsibilities for each risk class are defined for both the Company and its Group companies, ensuring that the responsible parties undertake improvement activities. This approach boosts the effectiveness of risk management across the Group.

In FY2020, the Company introduced shared Group risk indicators (Key Risk Indicators, “KRIs”) to enhance the effectiveness of the Group’s risk management.
　KRIs are quantitative monitoring indicators that facilitate the early detection of the materialization or potential materialization of risks, as well as the reduction and minimization of any possible damage and its impact. A total of 100 KRIs have been set.
　In operations, priority risks and their KRIs are identified from the perspectives of the Company and its Group companies. The Company coordinates with its Group companies to take measures before any major incidents occur, conducting assessments from a Groupwide cross-organizational perspective alongside respective self-assessments.

The environment surrounding the Group, including recent technological innovations and social values, has changed drastically, and we are continuously revising our views on risk management, accordingly.
　In particular, regarding risks associated with information security, damage from cyberattacks is increasing, as corporate DX (digital transformation) is advancing.
　Accordingly, the Group has been engaged in redeveloping its information security policy, regulations, guidelines, etc., increasing personnel with expertise in security, and providing internal training to instill a better awareness of information security within the Group.
　In addition, as the business environment changes drastically, recognizing that prevention and early detection of incidents are crucial, the Company is promoting company-wide initiatives that require each line of defense, i.e., the operating division-the first line of defense, the administrative divisions-the second line of defense, and the internal auditing division-the third line of defense, to function properly.
　In the first line of defense, the operating division strengthens communication in the regular business line to ensure the early detection and reporting of/responses to risks onsite.
　In the second line of defense, the internal control promotion division, which is independent from the regular business lines (e.g., the administrative divisions and monitoring divisions), has established a system to give feedback, advice and support to the operating division, the first line of defense, regarding the information gathered daily, while engaging in mutual coordination, as necessary.
　In the third line of defense, the internal auditing divisions of the Company and its Group companies conduct the risk management audits that analyze and evaluate whether the first and second lines of defense of each company are functioning properly.
　In addition to the above, given the lightning speed of changes in today's business environment, the Company is strengthening analysis of information on social media as well as the content of opinions from its customers and other parties, as part of its efforts to strengthen early understanding of the warning signs of risk.

Toward further strengthening of risk management: detecting the warning signs of risk

Toward further strengthening of risk management: detecting the warning signs of risk

Overall, the Group's cross-shareholdings as of the end of February 2024 comprise 50 stocks, with a market value of ¥86.3 billion accounting for 2.2% of consolidated net assets.
　In principle, the Group does not hold cross-shareholdings except where there is an accepted rational for doing so, such as maintaining or strengthening business alliances or business relationships, in order to maintain and strengthen business competitiveness.
　Stocks held are reviewed annually and shares with less rationale or less effectiveness for holding are to be sold in view of the circumstances of the investee companies.

When exercising voting rights as to listed cross-shareholdings, based on the following Detailed Rules regarding Standards for Exercising Voting Rights, the Company decides whether to vote for or against proposals from the perspective of increasing the medium- to long-term corporate value of the Company and the investee companies, and engages in dialogue with the investee companies about the proposals before exercising its voting rights if necessary.

The Company's Board of Directors assesses the matters below regarding the rationale for and effectiveness of holding listed cross-shareholdings and makes comprehensive decisions regarding the appropriateness of holding said shares. The Company will continually review the matters to be assessed.

The results of the Board of Directors' FY2023 assessment of all of the Company's listed cross-shareholdings are as below. (The review was performed at the Board of Directors meeting on May 9, 2024.)

　The Company's Board of Directors confirms that its Group companies other than listed subsidiaries also assess the Group's cross-shareholdings based on the same shareholding policy as the Company.