Corporate Governance

Basic Approach to Corporate Governance

Through a decision by the Board of Directors in December 2015, Fujitsu formulated a basic policy that sets out its approach to corporate governance (the "Corporate Governance Policy"). We updated the policy in September 2023 and, adopting the stance that the aim of corporate governance is to ensure better management, we constantly review the policy to ensure that it does not become rigid or lose its relevance. We also discuss it with the Board of Directors as appropriate, and strive to maintain the best corporate governance system at all times.

• Corporate Governance Policy
  https://www.fujitsu.com/global/about/ir/library/governance/governancereport-b-en.pdf

In accordance with its Corporate Governance Policy, the company outlines the following rules to ensure effective oversight and advice, given from the diverse perspectives of Non-Executive Directors (hereinafter, the term used for a combination of Independent Directors and Non-Executive Directors appointed from within the company), to Executive Directors on their business execution as part of the Board of Directors function while taking advantage of the company through the Audit & Supervisory Board system.

＜Board of Directors＞
The Company has a Board of Directors to serve as a body for making important decisions and overseeing management. The Board of Directors delegates the decision-making authority over business execution to the Representative Directors and subordinate Corporate Executive Officers to the broadest extent that is permitted by law and the Articles of Incorporation of the company and is considered to be reasonable and will mainly perform as oversight and advisory function. Moreover, the Board of Directors has been formed with Non-Executive Directors at its core so as to enable correction and remediation of errors, insufficiencies, and recklessness in business execution. And by ensuring that External Directors, who are highly independent and hold diverse perspectives, constitute the majority of the members of the Board of Directors, the oversight and advisory function of the Board of Directors is strengthened. Furthermore, in order to better define the management responsibility of the Directors, their terms were reduced from two years to one year in accordance with a resolution at the June 23, 2006 Annual Shareholders’ Meeting.

As of June 26, 2023, the Board of Directors consists of nine members in total, comprising three Executive Directors and six Non-Executive Directors (including five External Directors).

The Company held 13 Board of Directors meetings in FY2022 (including one extraordinary Board of Directors meeting) to discuss matters including formulation of the Management Direction and measures for its implementation, as well as to decide a new management system based on the recommendations of the Executive Nomination Committee.

＜Audit & Supervisory Board＞
The Company has an Audit & Supervisory Board that performs the auditing and oversight functions. The auditing and oversight functions are carried out by Audit & Supervisory Board Members, who review the Board of Directors as well as business execution functions and attend important meetings, including meetings of the Board of Directors. As of June 26, 2023, the Audit & Supervisory Board has five members, comprising two full-time Audit & Supervisory Board Members and three External Audit & Supervisory Board Members. The Company held ten Audit & Supervisory Board meetings in FY2022 (including one extraordinary Audit & Supervisory Board meeting), mainly to discuss audit policy and plans, the audit method of Accounting Auditors and the appropriateness of the audit results, and the Key Audit Matters. Internal Audit Departments made reports and full-time members of the Audit & Supervisory Board reported matters of importance to External Audit & Supervisory Board Members, which were discussed at Audit & Supervisory Board meetings.All meetings were attended by the full Audit & Supervisory Board.

＜Independent Directors & Auditors Council＞
In response to the requirements of Japan’s Corporate Governance Code, which facilitates the activities of Independent Directors and Auditors, and in order to invigorate discussions on the medium- to long-term direction of the Company at its Board of Directors Meetings, the Company believes it essential to establish a system that enables Independent Directors and Auditors, who maintain a certain degree of separation from the execution of business activities, to consistently gain a deeper understanding of the Company’s business. Based on this recognition, the Company established the Independent Directors and Auditors Council, which consists of all Independent Directors and Auditors (five Independent Directors and three Independent Auditors), and discusses the medium- to long-term direction of the Company, shares information, and exchanges viewpoints so that each can formulate their own opinions.

In FY2022, the Independent Directors and Auditors Council met 12 times. The members shared information and exchanged views on important management matters arising from business restructuring in Fujitsu and the Fujitsu Group, including the Company’s management direction and mergers and acquisitions.

＜Executive Nomination Committee & Compensation Committee＞
The Company has established the Executive Nomination Committee and the Compensation Committee as advisory bodies for its Board of Directors for the process of nominating Directors and Audit & Supervisory Board Members, for ensuring the transparency and objectivity of its process for determining executive compensation, to enable efficient and substantial discussions, as well as to ensure the fairness in the structure and level of executive compensation.

The Executive Nomination Committee deliberates on the candidates for Director and Audit & Supervisory Board Member positions in accordance with the Framework of Corporate Governance Structure and the Procedures and Policy for the nomination and dismissal of Directors and Auditors stipulated in the Policy, and it provides its recommendations or proposal to the Board of Directors. In addition, the Compensation Committee provides its recommendations or proposal on the level of base compensation and the method for calculating performance-based compensation to the Board of Directors in accordance with the Procedures and Policy of Determining Directors and Auditors Compensation, as stipulated in the Policy.

The Executive Nomination Committee consists of three Non-Executive Directors (including two Independent Directors) and the Compensation Committee consists of three Independent Directors. The members appointed to the two committees in June, 2023 are as follows. Additionally, the secretariats of both committees are operated by the Company’s HR and legal departments.

• Executive Nomination Committee
  Chairperson: Atsushi Abe (Independent Director)
  Members: Yoshiko Kojo (Independent Director), Masami Yamamoto (Director and Senior Advisor)
• Compensation Committee
  Chairperson: Chiaki Mukai (Independent Director)
  Members: Kenichiro Sasae (Independent Directors), Byron Gill (Independent Directors)

In FY2022, the Executive Nomination Committee met eight times to discuss the election of Representative Directors including the CEO, the nomination of candidates for Director, and the skill matrix of Directors and Auditors, etc. and provided its recommendations to the Board of Directors. The Compensation Committee met six times to discuss the revision of executive compensation details and changes to the process for determining individual compensation, and provided its recommendations to the Board of Directors.

The Executive Nomination Committee discussed CEO succession and mutual evaluations of Non-Executive Directors, and the Compensation Committee discussed the introduction of the stock compensation plan for External Directors.

• Corporate Governance Report
  Matters on Functions such as Business Execution, Auditing, Oversight, Nomination and Compensation Decisions (Overview of Current Corporate Governance System)
  https://www.fujitsu.com/global/about/ir/library/governance/governancereport-en20230807.pdf

The diagram below illustrates the Company's corporate governance structure.(As of June 26, 2023).

We believe that both direct oversight of business execution by the Non-Executive Directors and oversight by Audit & Supervisory Board Members that stays distant from the decision making and operation of business execution should work jointly to ensure highly effective oversight performance. The company adopts “the company with Audit & Supervisory Board system”, which establishes an Audit & Supervisory Board composed of Audit & Supervisory Board Members appointed as independent agents.

Moreover, the Board of Directors has been formed with Non-Executive Directors at its core so as to enable correction and remediation of errors, insufficiencies, and recklessness in business execution. External Directors also constitute the majority of the members of the Board of Directors. The core of Non-Executive Directors shall be External Directors with a high degree of independence and diverse perspectives. Moreover, at least one Non-Executive Director is appointed from within the Company to complement the External Directors’ knowledge in the business fields and the culture of the Company, so that the efficiency of oversight performance by the Non-Executive Directors is enhanced.

Compensation paid to Directors and members of the Audit & Supervisory Board is determined based on the policy on the determination of the details of compensation, etc. for individual Directors established by the Board of Directors, subject to approval by the Compensation Committee.

• Corporate Governance Report
  Incentive Policies for Directors (page 19); Policy on Determining Remuneration Amounts and Calculation Methods (Page 21)
  https://www.fujitsu.com/global/about/ir/library/governance/governancereport-en20230807.pdf

Basic Approach to the Internal Control System

To continuously increase the corporate value of the Fujitsu Group, it is necessary to pursue management efficiency and control risks arising from business activities. Recognizing this, the Board of Directors have formulated the "Policy on the Internal Control System", which provides guidelines on: a) how to practice and promote the Fujitsu Way, the principles that underlie the Fujitsu Group’s conduct; and b) what systems and rules are used to pursue management efficiency and control the risks arising from the Company’s business activities.

See below for the full text of the Policy on the Internal Control System and an overview of the operating status of the systems tasked with ensuring appropriate business practices.

• Matters Subject to Measures for Electronic Provision (Matters Excluded from Paper-based Documents Delivered Upon Request) at the Time of Notice of the 123rd Annual Shareholders’ Meeting
  https://www.fujitsu.com/global/imagesgig5/notice123b.pdf