Fujikura : Corporate Governance Report

Corporate Governance Report Last update: December 24, 2021 Fujikura Ltd.

Director, President & CEO: Masahiko Ito

Contact: Corporate Strategy Planning Division

Stock Code: 5803 https://www.fujikura.co.jp/eng/

The status of our company's corporate governance is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

Fujikura Ltd. established the basic strategy of focusing on an early business recovery in light of the rapid deterioration in performance in FY2019 and narrowed the key measures to "the unreserved selection and concentration of existing businesses" and the "strengthening of Corporate governance." We are resolutely implementing business structural reform, management reorganization, and organizational restructuring based on the 100-Day Plan, an operational turnaround plan formulated in September 2020. The top priority mission of management is to switch to the phase of creating corporate value through sustained growth after achieving early completion of the operational turnaround. Our basic views on corporate governance aimed at steady implementation of this strategy are detailed below.

[Management Structure]

(1) Board of Directors

Fujikura adopted a "company with an Audit and Supervisory Committee" organizational structure in 2017 to separate the supervisory and executive functions. More than half of the internal directors resigned on March 31, 2021, creating a structure consisting of 10 directors in total, five of whom are outside directors (all Audit and Supervisory Committee members) and five of whom are internal directors. This raised the percentage of outside directors on the Board of Directors to 50%, strengthening the function of supervising the performance of duties by directors. The outside directors who make up half of the Board of Directors are independent of Company management and possess management experience and expertise in finance, legal matters, and other areas. These outside directors fully discuss important matters (formulation of medium and long-term strategy, business portfolio restructuring, etc.) concerning management with internal directors at Board of Directors meetings and make decision on them after sufficient debate.

1. Operational Execution Structure

In Fujikura, the Board of Directors may designate a Chief Executive Officer (CEO) and a Chief Operating Officer (COO) from among the executive directors, in principle. The CEO (hereafter, "Director, President and CEO") serves as the Chair of the Board of Directors and as the CEO of the Group consisting of Fujikura and its subsidiaries (hereafter, collectively called "the Fujikura Group"; each subsidiary is called a "Group subsidiary"). As the person who exercises overall control over the performance of duties in Fujikura, the Director, President and CEO assumes ultimate responsibility for the pursuit of business by each business division and structural reforms, as well as supervision and oversight of corporate divisions. The COO is responsible for overseeing the pursuit of the core businesses of the Fujikura Group.

1. Audit and Supervisory Committee

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The Audit and Supervisory Committee consists of six committee members in total. One committee member is a full-time internal director and five are outside directors who are independent of Company management. The Audit and Supervisory Committee Office was established and is staffed with exclusive, full-time personnel as the organization which supports the activities of the Audit and Supervisory Committee, at its direction.

(4) Nomination and Remuneration of Directors

When making decisions on the following matters concerning the nomination of directors, the Nominating Advisory Committee, an advisory body to the Board of Directors (having an outside director as Chair and outside directors as the majority of committee members), verifies the fairness and appropriateness of the Board of Directors' decision-making process.

• Draft proposals for resolutions of the General Meeting of Shareholders concerning election and dismissal of directors
• Criteria for election and dismissal of directors
• Successor plans
• Criteria for independence of outside directors

When making decisions on the following matters concerning remuneration of directors, the Remuneration Advisory Committee, an advisory body to the Board of Directors (having an outside director as Chair and outside directors as the majority of committee members), verifies the fairness and appropriateness of the Board of Directors' decision-making process.

• Director remuneration and the system for determining the amount thereof
• The amount of remuneration for each director

[Establishment of a System of Internal Controls by Executive Directors and Audits by the Audit and Supervisory Committee]

Executive directors are in charge of business divisions they are assigned by the Board of Directors and supporting organizations for business divisions, corporate divisions, or Group companies overseen by them or by an executive officer under their control. They assume responsibility for compliance with and implementation of Fujikura's system of internal controls. As members of the Board of Directors, which makes decisions on the system of internal controls, executive directors also assume responsibility for the appropriateness of the internal control system.

The Audit and Supervisory Committee supervises compliance with and implementation of the system of internal controls concerning the performance of duties by executive directors. The Committee therefore audits that status of compliance and implementation in Fujikura and in Group companies, as needed. In addition to checking and verifying the contents of information provided by the executive side, the Audit and Supervisory Committee requests direct explanations from executive directors and others responsible for execution. As members of the Board of Directors, which makes decisions on the system of internal controls, Audit and Supervisory Committee members also assume responsibility for the appropriateness of the internal control system.

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

Fujikura is implementing each of the principles laid out in the Corporate Governance Code.

[Disclosure Based on the Principles of the Corporate Governance Code]

[Principle 1.4] Cross-shareholding

1. Policy on cross-shareholding

Fujikura does not engage in cross-shareholding in principle. However, Fujikura may hold the shares of a company only if it is necessary for Fujikura to enter into a strategic business partnership in the course of its business activities and it will contribute to an increase in corporate value over the medium to long term. Fujikura sells off shares that it has decided to stop holding, and the Board of Directors receives reports on

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the sell-off of these shares. At the same time, the Board of Directors treats the shares as part of the invested capital of each business division and decides whether to continue holding them after examining their utility.

2. Policy on exercise of voting rights

Fujikura properly exercises voting rights each year based on comprehensive decisions derived from the aforementioned strategic cross-shareholding policy and from the perspective of increasing corporate value over the medium to long term.

[Principle 1.7] Related party transactions

Fujikura conducts surveys on transactions between related parties that involve its directors and the members of the Audit and Supervisory Committee to ensure that there is no conflict of interest with the company. Based on the results of these surveys, Fujikura discloses information concerning related party transactions in the Convocation Notice of the Annual General Meeting of Shareholders and the annual securities report.

[Supplementary Principle 2.4.1] Ensuring diversity in the appointment of core personnel and so forth The Fujikura Group changed its remuneration system in 2017 from the system based on the functional classification assigned according to one's ability to perform their jobs (shokunou-kyuu) to the system based on the role and responsibilities one fulfills (yakuwari-kyuu). At the same time, the Group created its common human resources platform. At present, Fujikura is organizing an environment that will enable employees of not only Fujikura but also those recruited by its Group companies worldwide to move across the Group.

To secure future managerial staff, Fujikura will utilize this structure to develop human resources through measures such as systemic transfers across Group companies within and outside Japan including transfers to key posts.

In addition, Fujikura promotes the building of an organization that will allow diverse human resources to unleash their potential regardless of their nationality, ethnicity, gender, religion, age, previous career or employment, among other factors, under the Fujikura Group's Declaration of Promoting Diversity. As its action plan developed pursuant to the Act on the Promotion of Female Participation and Career Advancement in the Workplace, Fujikura has established the following goals to be achieved by March 31, 2023:

1. Number of employees on secondment: 10% or more of managerial staff and the Assistant Manager level staff respectively; and
2. Ratio of women: 3.9% or more of managerial staff and 13% or more of the Assistant Managers level staff.

Fujikura adopted the Fujikura Group's Declaration of Promoting Diversity in December 2016. The Declaration explains the significance of diversity for the Fujikura Group as follows: "By providing an environment that makes it easy for employees both to deal with personal needs and desires and professional needs and desires, we will strive to hire and retain superior human resources, which will contribute to the profitability of the company," and "We will cultivate a climate that is inclusive, where diverse people can cooperate, one that welcomes new concepts, and a culture in which creative ideas are likely to arise, thus enhancing our 'metabolism'." With this purpose, Fujikura will move forward with creating a system that can make use of diverse human resources, irrespective of their nationality, ethnicity, gender, religion, age, or previous career or employment.

March 2015 Introduced the rehiring system (a system to rehire former employees who left Fujikura for personal reasons such as giving births and childrearing)

November 2016 Joined the IkuBoss Business Alliance (IkuBoss is defined as a boss who achieves

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business results while taking care of work-life balance of his/her staff and supporting their lives as well as enjoying his/her own work and private life. Japanese website is available: https://ikuboss.com/ikuboss)

December 2016 Adopted the Fujikura Group's Declaration of Promoting Diversity October 2017 Introduced the work-from-home system

February 2018 Launched daycare concierge services (to help employees with children find a daycare) October 2019 Improved the system to support employees balancing work with nursing care

responsibilities

(Introduced a nursing care concierge service and a nursing care information website) October 2019 Introduced leave entitlements that can be used in units of hours

January 2021 Introduced the teleworking system

Please refer to the following website for details: https://www.fujikura.co.jp/eng/esg/data/csr_esg.html

[Principle 2.6] Measures to ensure that corporate pension funds perform their role as an asset owner Fujikura has established a corporate pension fund (the Fujikura Corporate Pension Fund) to which it has

entrusted the management of Fujikura's pension assets. Fujikura Corporate Pension Fund subcontracts the entire management of the assets to asset management firms and monitors the management of those assets.

Fujikura takes care to provide the Fujikura Corporate Pension Fund with the necessary personnel and organizational structures to ensure that the fund can monitor the asset management firms (handling practical management) effectively.

[Principle 3.1] Enhancement of information disclosure

(i) Corporate goals (corporate philosophy, etc.) and management strategies and plans

Fujikura has established the Fujikura Group corporate philosophy "Mission, Vision, & Core Value (MVCV)", and Mid-term Business Plan posted as links below. As of the submission of this document, we have posted a business recovery plan based on the management results of fiscal 2019.

Group corporate philosophy: https://www.fujikura.co.jp/eng/corporate/philosophy/index.html

Mid-term Business Plan:

https://www.fujikura.co.jp/eng/ir/management_policy/management_plan/index.html

1. Basic stance and basic policy on corporate governance which reflect the principles of the Corporate Governance Code

See "1. Basic Views" above.

1. Policy and procedures followed by the Board of Directors to determine remuneration for executive management and directors

In addition to handling a large variety of products, Fujikura operates its business globally, and director duties are also highly complex and varied. Our basic policy is that the director remuneration should be at a level appropriate for outstanding human resources who are capable of accomplishing such duties. We have therefore classified director remuneration into the following three specific categories, based on the survey results from multiple research groups, mainly on listed companies. We have renewed our remuneration system based on objective indicators and evaluations while strengthening the linkage to performance.

Fujikura's Board of Directors determines the amount of remuneration for directors who are not audit and supervisory committee members after it has been discussed by the Nominating Advisory Committee, which is an advisory body to the Board of Directors (and consists of the director in charge of human resources and three outside directors, and chaired by an outside director). The Remuneration Advisory Committee evaluates the performance of each director, examines whether the level of compensation is in line with the market, and confirms that the decision-making process concerning the remuneration structure and specific

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remuneration is appropriate. It then reports the results to the Board of Directors. The Board of Directors then takes these findings into consideration in determining the remuneration of directors who are not audit and supervisory committee members.

(1) Basic compensation

A fixed amount of compensation is allocated for the monitoring and supervision functions of each director, according to his/her rank.

(2) Short-termperformance-based compensation

Compensation ranges from 0% to 200% of the basic compensation set by rank, according to corporate performance and performance of the division the director is in charge of, and performance is based on certain indicators (operating margin, ROE, ROIC). These indicators are used because they easily reflect management policy, strongly correspond to shareholder return, and are highly compatible with the Fujikura's growth strategy.

(3) Stock-based compensation

In addition to the monetary compensation in (1) and (2) above, Fujikura also grants shares of Fujikura Ltd. as compensation. This scheme is intended to enhance the motivation of directors to contribute to an increase in the corporate value of Fujikura by placing directors in a position to enjoy the advantage of a rising share price as well as to bear the risk of a falling share price, so that directors and shareholders share the advantages and disadvantages of such fluctuations.

In terms of overall compensation, compensation linked to performance and share price (short-termperformance-linked compensation and stock-based compensation) is generally expected to be around 40%, at maximum. Compensation for non-executive directors is comprised exclusively a fixed amount as basic compensation, according to their duties, and does not include short-termperformance-based compensation or stock-based compensation.

1. Policy and procedures followed by the Board of Directors to appoint or remove executive management and nominate candidates for the position of director and auditor
   At Fujikura, when the Board of Directors makes decisions on proposed resolutions for the General Meeting of Shareholders concerning the election and dismissal of directors who are not audit and supervisory committee members (excluding outside directors), it does so after the Nominating Advisory Committee, which is an advisory body to the Board of Directors (consisting of the president & CEO, the director in charge of human resources (the president & CEO is currently serving concurrently in this position), and three outside directors, and chaired by an outside director), has discussed them. The Nominating Advisory Committee deliberates on the selection criteria for directors and the reasons for selecting each director, including their performance, based on the candidates originally proposed by the Board of Directors. The committee confirms that the process is fair and appropriate, and presents the results of its deliberations to the Board of Directors. Based on the advice of the committee, the Board then submits a proposal for director candidates to be voted upon at the General Meeting of Shareholders.
2. Explanations of individual appointments and nominations when appointing or removing executive management and nominating director and auditor candidates in accordance with (iv) above
   An explanation of individual director candidate nominations is disclosed in the reference documents of the "Convocation Notice of the Annual General Meeting of Shareholders."

[Supplementary Principle 3.1.3] Sustainability initiatives

Fujikura issues the Fujikura Group Integrated Report annually to report on the details of Fujikura's sustainability activities to our stakeholders. The Report is also available on Fujikura's website.

URL for the Fujikura Group Integrated Report on Fujikura's website: https://www.fujikura.co.jp/eng/esg/integrated_report/index.html

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