Corporate Governance

Basic Concept

The Shimamura Group believes that the basics of our business come from dealing fairly and equitably with various stakeholders such as employees, customers, business partners, shareholders, and society.
We recognize that further strengthening the confidence and trust from stakeholders surrounding our business is necessary for business continuity and growth. Furthermore, for that purpose, we recognize the importance of enhancing corporate governance.
Moreover, in order to further increase management efficiency and profitability by developing and expanding the unique business model that we have built in the retail industry, we believe that directors who possess highly-specialized business and operational knowledge should decide on financial and business policies at the Shimamura Group while complying with laws, regulations and the Articles of Incorporation, heighten corporate value and contribute to the common interests of all stakeholders.

Corporate Governance System
(as of May 20, 2024)

System Diagram

Maintenance of Internal Controls System

At the same time as being a sincere and good company for our stakeholders, the Shimamura Group has defined the Internal Controls Regulations to maintain an organizational structure which continuously improves while establishing an internal controls system stipulated by the Companies Act and the Financial Instruments and Exchange Act.

Basic Policy for the Internal Controls System PDF

See details of Internal Control

Criteria for Nominating Officers

Criteria for Nominating Director Candidates

Candidates for members of the Board of Directors of the Shimamura Group are those who satisfy the following criteria and are deemed as possessing the knowledge, ability, and experience for contributing to the realization of our philosophy as members of the Board of Directors. After deliberation by the Nomination & Remuneration Committee, nominations will be made in accordance with a resolution of the Board of Directors.
Furthermore, at least three candidates for outside Directors will be nominated from among candidates who satisfy the requirements for outside Directors as defined in the Companies Act, and who satisfy criteria (5) as listed below in place of criteria (4).

1. Possess the strong will and high ability necessary to execute the duties of a Director.
2. Possess the appropriate personality and insight as a Director of the Shimamura Group.
3. Be capable of securing the time and effort necessary to properly fulfill the roles and responsibilities required of a Director of the Shimamura Group.
4. Possess the knowledge, ability, and extensive experience for contributing to the formulation and execution of the Group's management strategy based on a deep understanding of the Group's business and management environment.
5. Possess a high level of expertise or abundant experience in corporate management, academics, financial accounting, law and other fields. Recognized as being capable of executing duties from an independent and objective point of view.

Criteria for Nominating Audit & Supervisory Board Member Candidates

Candidates for members of the Audit & Supervisory Board of the Shimamura Group are those who satisfy the following criteria and are deemed as being able to contribute to the realization of our philosophy through the execution of their duties as members of the Audit & Supervisory Board. After receiving agreement from the Audit & Supervisory Board, nominations will be made in accordance with a resolution of the Board of Directors.
Furthermore, more than half of the candidates for outside Audit & Supervisory Board members will be nominated from among candidates who satisfy the requirements for outside Audit & Supervisory Board members as defined in the Companies Act, and who satisfy criteria (5) as listed below in place of criteria (4).

1. Possess the strong will and high ability necessary to execute the duties of an Audit & Supervisory Board member.
2. Possess the appropriate personality and insight as an Audit & Supervisory Board member of the Shimamura Group.
3. Be capable of securing the time and effort necessary to properly fulfill the roles and responsibilities required of an Audit & Supervisory Board member of the Shimamura Group.
4. Possess the knowledge, ability, and experience for auditing in the Group based on a deep understanding of the Group's business and management environment.
5. Possess a high level of expertise or abundant experience in corporate management, academics, financial accounting, law and other fields.

Criteria for Nominating Outside Directors and Outside Audit & Supervisory Board Members

1. Independence

   The Group recognizes the independence of persons to whom none of the following items apply.

   1. 1) A person who is currently an executive of the Group or its subsidiaries, or had been an executive during the past ten years ("executive" as defined in Article 2, Paragraph 3, Item 6 of the Regulation for Enforcement of the Companies Act. The same applies in the following criteria).
   2. 2) A person for whom the Group is a main business partner, or an executive at a company for whom the Group is a main business partner. (Note)
   3. 3) Main business partners of the Group, or executives at main business partners of the Group. (Note)
   4. 4) In addition to officer remuneration from the Shimamura Group, a consultant, accounting expert, or legal expert who has received money or other property of 10 million yen or more in that person's most recent business year. (If the party who has obtained the money or other property is a corporation or organization, a person who belongs to the corporation/organization which obtains more than 2% of its net sales or total income from the Shimamura Group.)
   5. 5) A person to whom any of the items from 2) to 4) above has applied in the past 3 years.
   6. 6) A person who substantially holds 10% or more of the voting rights of the Group, or an executive at a company which holds 10% or more of the voting rights.
   7. 7) Spouse and relatives within the second degree of kinship to persons listed in any of the items from 1) to 6) above.

   (Note) "Main business partners" are those whose transaction amount in the most recent business year accounts for 2% or more of the annual sales of the Group or the business partner.

2. Term of office
   1. 1) The maximum term of office for outside directors is basically 10 years.
   2. 2) The maximum term of office for outside Audit & Supervisory Board members is basically eight years (two terms).

Skills to Expect from the Board of Directors

Status of Outside Officers
(as of May 20, 2024)

• *All Five outside officers have been notified to the Tokyo Stock Exchange as independent officers.

Message from Outside Directors

• 

  Outside DirectorTamae Matsui

  What is your role as an Outside Director?

  Shimamura's family-like corporate culture, sincere approach to work, and high level of employee loyalty make Shimamura a remarkable company that truly deserves to be recognized as a "good company." I also admire the fact that the company has continued to grow for a long time by steadily pursuing its business centered on apparel while sparing no effort to evolve further. However, we are now in an era of instability where anything can happen, including world affairs, and there is no guarantee that we can even protect the status quo if we do not discern the truth amidst the flood of information and manage our business with a sense of crisis.
  I am strongly convinced that now is the time for all Executives, both from outside and inside the company, to work together to protect the company and aim for further growth. With a heightened sense of resolve, we are committed to honing our abilities to make swift and astute decisions and fearlessly implementing transformative reforms. While ensuring the active discussions and improving effectiveness of the Board of Directors remains paramount, I firmly believe that it is essential to nurture managers who can lead management with a broader perspective than ever before. With a profound sense of ownership and unwavering determination, I am committed to fulfilling my role in this endeavor.

  How would you evaluate the effectiveness of the Board of Directors' deliberations in FY2023 compared to that in FY2022?

  I believe that the situation is improving compared to last year, and I can see that efforts toward further improvement are ongoing.
  However, I am concerned that we are not having enough fundamental and essential discussions.
  Even a great corporate culture must change with the times, and there are aspects that must be preserved and aspects that must be changed in our corporate culture.
  Corporate governance codes and other requirements for corporate culture are changing dramatically. Should Shimamura incorporate them as they are, and is it something that will allow Shimamura to grow further?
  In order for the new Shimamura to evolve, I think it is necessary to discuss these essential issues first. Whether or not a corporate governance code has been established is meaningless without such discussion.

  What initiatives would you like to focus on to promote the female's participation in our company?

  We are serious about promoting the female's participation and have made concrete plans to do so, and I believe we have made considerable improvements in this matter. However, my experience has taught me that education and promotion alone are not enough to ensure the success of initiatives for female's participation.
  In these days, the momentum for increasing opportunities for female's participation is gaining traction, and Shimamura is certainly taking this seriously as well. However, in order to instill it in our company, it is important to have a follow-up system that goes beyond formalities, which involves structures, mentors, and cooperation from those around them. It is also necessary not only to change the mindset of men, but also that of females themselves. Merely promoting females to positions of authority without providing them with the necessary opportunities to succeed and demonstrate their abilities is a disservice to them, their colleagues, and the company as a whole. They need effective talent development and a culture that encourages risk-taking.
  Despite the various challenges, it would be a great loss for females and the company, if talented females cannot make the most of their abilities. This is my main focus, and I am prepared to give everything in my power to lead Shimamura and its talented females to success.

• 

  Outside DirectorYutaka Suzuki

  What is your role as an Outside Director?

  We are pursuing management that can sustainably gain the support of our customers and realize the growth and happiness of our employees. The key to the sustainable and sound development of the Shimamura Group is to utilize the wisdom of the employees working with us to deliver a wide range of products and services that will please our customers. The sweat and hard work that generate that wisdom is the basis for our growth, and the results of that growth will create our valued customers. We believe that a company exists only if it has a business that is supported by its customers, and our mission is to devote ourselves to the creation of people, organizations, and satisfaction in order to make our company respected and trusted by our customers.

  How would you evaluate the effectiveness of the Board of Directors' deliberations in FY2023 compared to that in FY2022?

  The previous Medium-term Management Plan, "Reborn," was not formulated solely based on numbers but rather with a determination to change the way we had been doing things until that point. I believe that this created a shared sense of determination among all employees, and as each day passed, they became more confident and acquired a behavioral pattern that focused on solving the challenges they faced. Reports at the Board of Directors started to follow a general structure of goals, results, problems, and countermeasures, and I believe that this has fostered both a sense of what needs to be done and a will to do it.

  What is your assessment of the Medium-Term Management Plan 2027?

  In the previous medium-term management plan, we achieved remarkable results based on the Medium-Term Management Plan, "Reborn." However, the current medium term must be the term to lay the groundwork for the next medium term, as the name "Next Challenge" implies. In other words, it is essential to create a structure that will enable us to feel the impact of our growth strategy for the future. The major challenges in this regard include the development of overseas strategies, the challenge of new businesses, the expansion of the E-Commerce Business, and investment in education for human resource development. How we implement these strategies is crucial. We need to work carefully and steadily toward growth that is unique to Shimamura for future generations, a company that continues to be trusted and supported by its customers.

• 

  Outside DirectorTeiichi Murokubo

  What is your role as an Outside Director?

  The skills expected of me are in the areas of corporate management, finance and accounting, legal, compliance and risk management, organization and human resources, and ESG. I provide advice and recommendations on a case-by-case basis, drawing on the knowledge, experience, and personal networks I have gained over the past 30 years working for financial institutions and 15 years working for economic organizations. Last fiscal year, I expressed my opinions on various matters, particularly on the development of risk management systems and the promotion of ESG response.
  Maintaining my independent position from the executive team, I will continue to supervise management and strive to contribute to Shimamura's sustainable growth and enhancement of corporate value. The basis of Shimamura's corporate governance is to deal with stakeholders fairly and justly, and I will continue to value communication with everyone.

  How would you evaluate the effectiveness of the Board of Directors' deliberations in FY2023 compared to that in FY2022?

  Although the issues that were pointed out as lacking in the discussion were actively discussed through deliberations on the formulation of the Medium-Term Management Plan 2027, it is still not sufficient. Concerning risk management, each department has positioned risk as an obstacle to achieving the goals of the Medium-Term Management Plan 2027 and has established a system to prevent and reduce risk. On the other hand, discussions regarding policies and measures for growth and human resource strategies are insufficient. In an era of rapid change, it is expected that there will be an increasing number of occasions when business strategies will have to be reviewed. We recognize that it is essential to continue to implement the PDCA cycle to evaluate the effectiveness of the Board of Directors, and we will continue to promote sufficient discussions that will lead to the improvement of the role and functions of the Board of Directors.

  What is your assessment of the Medium-Term Management Plan 2027?

  I would like to express my respect for the efforts and ingenuity of all employees who have completed the previous Medium-term Management Plan, "Reborn," and laid the foundation for the next phase of growth. Among the issues that we have taken over to the next Medium-term Management Plan 2027, we will improve our capital policy by setting KPIs such as an ROE of around 8.0% (a level exceeding the cost of shareholders' equity), a payout ratio of around 35.0%, a DOE of around 3.0%, and a liquidity on hand of around 4 to 6 months, as well as clarifying the allocation of management resources to demonstrate a positive stance toward growth investment for scale expansion under a stable financial base and the enrichment of shareholder returns through the review and revision of dividend payout ratio. We will continue our efforts to achieve an appropriate return on capital through active dialogue with investors.

Officer Remuneration

Basic Policy of Officer Remuneration

1. Remuneration shall emphasize the link between business performance and medium- to long-term corporate value, and that value shall be shared with shareholders.
2. The level should be appropriate for the roles and responsibilities of officers.
3. We will ensure fairness, transparency, and objectivity through deliberation by the Nomination & Remuneration Committee, the majority of which is composed of outside Directors.

Officer Remuneration System and Remuneration Determination Procedures

Officer remuneration is composed of three types: Basic remuneration, which is a fixed remuneration, bonuses as short-term incentive remuneration (executive officers), and stock compensation as medium- to long-term incentive remuneration (executive officers; scheduled to be introduced this fiscal year).

Director Remuneration

Only the basic remuneration is paid. Within the total amount approved at the general meeting of shareholders, the President shall draft an appropriate standard, and a final decision is made by the Board of Directors after deliberation by the Nomination & Remuneration Committee.
*The maximum amount of remuneration for Directors shall be 400 million yen per year (per a resolution passed at the 62nd Ordinary General Meeting of Shareholders held on May 14, 2015).

Remuneration for Audit & Supervisory Board Members

Only the basic remuneration is paid. Within the total amount approved at the general meeting of shareholders, a final decision is made based on deliberation by Audit & Supervisory Board members per valid criteria.
*The maximum amount of remuneration for Audit & Supervisory Board members shall be 94 million yen per year (per a resolution passed at the 55th Ordinary General Meeting of Shareholders held on May 16, 2008).

Executive Officer Remuneration

In addition to the basic remuneration, executive officer remuneration consists of performance-linked bonuses based on company performance for each business year and restricted stock compensation (introduce in FY2021). The total amount of payment and the amount of payment for each individual are drafted by the President in accordance with the Executive Officer Regulations. A final decision is made by the Board of Directors after deliberation by the Nomination & Remuneration Committee.
Monthly compensation, which is basic compensation, is revised in April each year in principle based on the performance evaluation of executive officers for the previous year.
The restricted stock compensation is by having executive officers own shares of the Group, we seek to clarify the system for linking the remuneration of executive officers and the stock value. We also strive to achieve sustainable growth and to increase corporate value in the medium- to long-term by further promoting the sharing of value with shareholders.
In addition, the Group's directors basically serve concurrently as executive officers.

Compensation configuration ratio

	Basic remuneration (fixed)	Incentive remuneration
		Bonus	Stock compensation
Director who concurrently serves as executive officer	82％	11％	7％
Outside Directors / Senior Advisor	100％	－	－
Executive Officers	80％	12％	8％

Guidelines for Holding Treasury Shares

We have established Guidelines for Holding Treasury Shares for officers (directors, executive officers, and Audit & Supervisory Board members). These guidelines establish restrictions on the acquisition and sale of treasury shares.

Evaluating the Effectiveness of the Board of Directors

The Group conducts a questionnaire-based survey of Directors and Audit & Supervisory Board members once per year in order to evaluate the effectiveness of the Board of Directors.
The Secretariat of the Board of Directors reports the analysis results of the survey to the Board of Directors. Then, after deliberating on issues and countermeasures, efforts are made to improve the effectiveness of the Board of Directors by making the necessary improvements.

[Implementation content]

Evaluation target:	Board of Directors meetings held in FY2022 (March 2022 to February 2023) (total of 17 meetings)
Evaluator:	8 Directors and 4 Audit & Supervisory Board members (12 in total)
Implementation period:	March 2023

[Evaluation process]

1. The President and the Secretariat (Planning Section) of the Board of Directors prepare a questionnaire on the effectiveness of the Board of Directors.
   (Main items on the questionnaire)

   1. 1) Composition of the Board of Directors
   2. 2) Operation of the Board of Directors
   3. 3) Agenda of the Board of Directors
   4. 4) Systems for supporting the Board of Directors
2. Questionnaires collected from Directors (8) and Audit & Supervisory Board members (4)
3. Aggregation and analysis of survey results by the Secretariat of the Board of Directors; reporting of results to the Board of Directors
4. Deliberation by the Board of Directors

[Measures to improve effectiveness]

Issue 1.
There is a lack of discussion about elaborating and realizing growth strategies.

[Countermeasures]

The Management Plan Formulation Committee and Board of Directors discussed new business development, investment plans and capital policies and then formulated our Medium-Term Management Plan 2027.

Issue 2.
There is a lack of discussion about human resource strategies.

[Countermeasures]

We formulated the Medium-term Human Resource Strategy 2027 in line with the formulation of our Medium-term Management Plan 2027 and then established basic policies and human resource policies for each department. In addition, the Nomination & Remuneration Committee and the Board of Directors deliberated on a plan to train successors for the role of President.

Issue 3.
There is a lack of discussion on risk management.

[Countermeasures]

We significantly revised the risk management regulations we formulated last year in line with the formulation of our Medium-term Management Plan 2027. We again identified risks, classified and analyzed them, prioritized them and then deliberated on initiatives to tackle them.

Cross-Shareholding
(as of February 20, 2024)

The Group engages in cross-shareholding at the discretion of the Board of Directors when there is a need for business alliances, building and maintaining business relationships with important business partners, or other business activities aimed at sustainable growth.
For individual instances of cross-shareholding, the Board of Directors conducts an annual review for the rationality and economic rationality of the purpose of cross-shareholding. This review includes confirming the purpose of holding, transaction status, latest business results, and future transaction prospects, as well as consideration for selling when the purpose of holding no longer exists.