NEC : Corporate Governance Report 6 December2021

This is a translation of the Corporate Governance Report of NEC Corporation, and is provided for your reference purpose only without any warranty as to its accuracy, completeness of the information, or otherwise. In the event of any discrepancy between the Japanese original and this translation, the original shall prevail.

Corporate Governance Report

Last Update: December 6, 2021

NEC Corporation

Takayuki Morita, President and CEO

Contact: Legal Division

TEL: [phone]

Securities Code: 6701

https://www.nec.com/

The corporate governance of NEC Corporation (the "Company") is described below.

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

Basic Information

1. Basic Views

In recognition of the fact that reliable corporate governance is essential to the continuous creation of social value and the maximization of corporate value, the Company is committed to strengthening its corporate governance practices through (1) assurance of transparent and sound management, (2) realization of prompt decision making and business execution, (3) clarification of accountability and (4) timely, appropriate and fair disclosure of information.

The Company has established the "NEC Corporate Governance Guidelines" (the "Guidelines") which set out the basic framework and policy of the corporate governance system of the Company. Please refer to the Company's website. (https://www.nec.com/en/global/about/pdf/nec_governance_guidelines.pdf)

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

The Company fully complies with the principles of the Corporate Governance Code.

All the principles are provided based on the Corporate Governance Code amended in June 2021 (including the principles for the Prime Market).

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

The followings are the details of the items required to be disclosed under the principles of the Corporate Governance Code.

【Principle 1.4 Strategic Shareholdings】

The Company does not hold shares of other listed companies for the purpose of strategic -shareholdings in principle. But the Company exceptionally holds shares of other company as strategic shareholding if the Company judges that it is necessary for business cooperation with other company and business relationship with investee.

The Board of the Directors of the Company assesses the rationale of each individual strategic shareholding from a comprehensive perspective every year, taking into consideration the necessity to hold shares and the returns from such strategic shareholdings based on the Company's cost of capital, and the Company sells such individual strategic shareholding which the rationality to hold is not confirmed as the result of the assessment.

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When exercising voting rights, the Company examines various factors, such as whether it will contribute to enhancement of the mid- to long-term corporate value of issuers, as well as whether it will be in the interest of the NEC Group. (Article 11 (4) of the Guidelines)

During the fiscal year ended March 31, 2021, the Company assessed the rationality of the above strategic shareholdings at the Board of Directors meeting held in December 2020.

【Principle 1.7 Related Party Transactions】

In order to protect the interests of shareholders, the Company stipulates in the Rules of the Board of Directors that approval of the Board of Directors is required when a member of the Board of Directors engages in transactions that may have conflict of interests with the Company. The Board of Directors monitors such transactions in accordance with laws and regulations. (Article 11 (5) of the Guidelines)

【Principle 2.4 Ensuring Diversity, Including Active Participation of Female】 （Supplementary Principle 2.4.1）

(1) Basic policy

The NEC Group considers that it is necessary for creation of innovation and is an important management strategy to foster an environment that promotes the success of a diverse array of human resources who can incorporate multiple perspectives and ideas. As part of measures to achieve this, the NEC Group is working to promote global recruitment of human resources, female participation and career advancement in the workplace, active appointment of mid-career workers, employment of people with disabilities, and provision of support and encouragement of understanding for sexual minorities. In addition, such inclusion and diversity initiatives are positioned as practice of "Respect for Human Rights" called for in the Principles. (Article 12 (3) of the Guidelines)

(2) Views on ensuring diversity

To achieve the Purpose of "NEC creates the social values of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential" set forth in the NEC Way, the NEC Group will accelerate diversity, which is a source of innovation, through active appointment and systematic development of diverse human resources, including female and non-Japanese employees.

(3) Voluntary and measurable goals for ensuring diversity

In "Mid-term Management Plan 2025" and the plan of action for general employer under the Act on Promotion of Female Participation and Career Advancement in the Workplace, the following figures are specified as goals to be pursued by the Company by the end of the fiscal year ended March 31, 2026 (including the case where transfers as of April 1, 2026 are determined within the fiscal year ended March 31, 2026).

-Ratio of female or non-Japanese to Directors, Audit & Supervisory Board Members (KANSAYAKU) ("A&SBMs") and corporate officers 20%

-Ratio of female to all managers	20%
-Ratio of female to all employees	30%

(4) Status of ensuring diversity

The Company's figures as of April 1, 2021 are as follows:

-Ratio of female or non-Japanese to Directors, A&SBMs and corporate officers 3.6%

-Ratio of female to all managers	7.2%
-Ratio of female to all employees	19.6%

- Ratio of female to all employees in department head or higher positions 5.4%

While the Company aimed to achieve 5% of the ratio of female to all employees in department head or higher positions by the end of the fiscal year ended March 31, 2021 (including the case where transfers as of April 1, 2021 are determined within the fiscal year ended March 31, 2021), it has achieved the numerical target as stated above.

Of the total number of employees recruited by the Company in the fiscal year ended March 31, 2021, approximately 40% is mid-career employees, and the ratio of female to these mid-career employees is approximately 20%. In addition, the ratio of female to mid-career employees in managerial positions is also approximately 20%. As for recruitment of non-Japanese employees, the Company focuses on employment of non-Japanese students from overseas who are new graduates, and makes a direct approach to students in university or graduate school abroad to hire them for research positions.

1. Policy for human resource development and policy for internal environment improvement to ensure
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diversity, and implementation status thereof

As for fostering of female managers, based on the talent management program for developing the next generation of human resources, which was revamped in the fiscal year ended March 31, 2020, the Company selects promising female employees from a wide range of ranks and fosters them through training assignments at other companies, holding of roundtable discussions with the corporate officer in charge of human resources (for female managers ranked department head or higher), implementation of a group mentoring program conducted by corporate officers and managers ranked department head or higher (for female section heads), and other measures. For mid-career hires, the Company provides support so that they find their feet and begin contributing soon after joining the Company, including distribution of manuals to departments to which mid-career hires are assigned and support for building a network of employees who joined the Company at the same time as well as provision of orientations at the time of joining the Company. In addition, to corporate officers and business division managers, training aimed to strengthen the management ability with regard to diverse human resources has been provided since the fiscal year ended March 31, 2020.

【Principle 2.6 Roles of Corporate Pension Funds as Asset Owners】

The Company manages corporate pension funds through NEC Corporate Pension Fund ("Fund") in which the Company's finance division and accounting division properly deploy its personnel. The Committee of Representatives of the Fund decides all important matters on the Fund. The Company appropriately manages conflicts of interest which could arise between the beneficiary and the Company through the Committee of Representatives which consists of equal number of members elected by the Company and elected from among the pension subscribers. (Article 12 (4) of the Guidelines)

【Principle 3.1 Full Disclosure】

1. Company objectives (e.g., business principles), business strategies and business plans
   The NEC Group has defined the NEC Way as a common set of values that form the basis for how the entire NEC Group conducts itself. Within the NEC Way, the "Purpose" and "Principles" represents why and how as a company we conduct business, whilst the "Code of Values" and "Code of Conduct" embodies the values and behaviors that all members of the NEC Group must demonstrate. To fulfill the Company's Purpose, "NEC creates the social values of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential", the NEC Group aims to create social values continuously and to maximize its corporate values by implementing its middle and long term management strategy including its "Mid-term Management Plan" based on the Company's Principles ((i) The Founding Spirit of "Better Products, Better Services", (ii) Uncompromising Integrity and Respect for Human Rights, (iii) Relentless Pursuit of Innovation). (Article 2 of the Guidelines)
   For the details, please refer to the Company's "Management Strategy and Policy" published on the Company's website at https://www.nec.com/en/global/ir/corporate/management.html.
2. Basic views and guidelines on corporate governance based on each of the principles of the Code Please refer to "I.1.Basic Views" of this report.
3. Board policies and procedures in determining the remuneration of the senior management and Directors For the purpose of continuously improving corporate value and strengthening its competitiveness, the Company's basic policy on the remuneration for Directors and A&SBMs is to set the level and structure appropriate for a global company which enables the Company to secure excellent human resources and serves as an incentive to improve performance of the NEC Group. (Article 6 (2) of the Guidelines) For the details, please refer to "II.1. [Director Remuneration]" of this report.
4. Board policies and procedures in the appointment and dismissal of the senior management and the nomination of Directors and A&SBMs candidates

（Policies）

(i) Composition and Role of Board of Directors

The Company's Board of Directors consists of 12 members, 6 of whom are Outside Directors. To effectively fulfill their roles and responsibilities, the Board of Directors is comprised with consideration given to the balance between diversity, in such factors as career background,

specialist field, internationality and gender, and appropriate size. Outside Director's independency is expected to be ensured through the Board of Directors' composition as a whole. The Company judges their independency based on the standards defined by Tokyo Stock Exchange and the "Independence Criteria for Outside Directors and Outside A&SBMs" set forth in "II.1. [Independent Director/A&SBMs]" of this report.

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The Board of Directors is responsible for making important decisions for the Company's business execution, including decision on its basic management policies, as well as supervising overall business execution. (Article 5 (1) of the Guidelines)

(ii) Term and Appointment of Directors etc.

The term of office for Directors is set at one year in order to clarify their management responsibilities for management every fiscal year. The candidates for Directors are determined with consideration given to the followings, in addition to satisfaction of the requirement of a Director as specified by laws and regulations:

• they have superior character, discernment and high ethical standards; and
• they sympathize with the NEC Way and act with strong will to realize the Philosophy

In addition to the above, the Company considers whether candidates have extensive experience and/or deep insight related to the career background and skills presented in "(Career background and skills particularly expected of Directors)" in 【Principle 4.11 Preconditions for Board and A&SB Effectiveness】 (Supplementary Principle 4.11.1) below.

The Board of Directors appoints the senior management officer who has superior character and discernment and fulfills its job responsibilities. The senior management officer will be dismissed by a decision of the Board of Directors if it is found to be in violation of laws or in lack of qualifications to be the officer or not to perform its duties appropriately. The Board of Directors determines appointment and dismissal of the Chairman of the Board, the Vice Chairman of the Board and the President taking into consideration the results of the deliberations by the Nomination and Compensation Committee.

(iii) Composition and Role of the Audit & Supervisory Board (KANSAYAKU-KAI)

The Company has 5 A&SBMs, 3 of whom are Outside A&SBMs. The Company appoints as A&SBMs the personnel who have the knowledge and experience necessary for audits, such as considerable expertise in finance and accounting or experience as an attorney at law, and strengthen the auditing functions of the A&SBMs. Independency of each Outside A&SBM is ensured at individual level. The Company judges their independency based on the standards defined by Tokyo Stock Exchange and the "Independence Criteria for Outside Directors and Outside A&SBMs" set forth in "II.1. [Independent Directors/A&SBMs]" of this report.

The Audit & Supervisory Board (KANSAYAKU-KAI) ("A&SB") conducts audits of legality, as well as certain level of audits of validity (including internal control auditing) and provides advice to the President and others based on the results of the auditing. Moreover, the A&SB reports to the Board of Directors on its auditing plan and the results of the audit on a regular basis. (Article 8 (1) of the Guidelines)

1. Term and Appointment of A&SBMs

The term of the A&SBMs is 4 years. The candidates for the A&SBMs are determined with consideration given to the followings, in addition to satisfaction of the requirement of A&SBM as specified by laws and regulations:

• they have superior character, discernment and high ethical standards; and
• they sympathize with the NEC Way and act with strong will to realize the Philosophy.

In addition to the above, in determining the candidates for Outside A&SBMs the Company considers whether they have deep insight in their areas of expertise. (Article 8 (2) of the Guidelines)

（Procedures）

The majority of the members of the Nomination and Compensation Committee are Independent Outside Directors. The Company ensures independence by appointing the chairperson from among such Independent Outside Directors. This Committee deliberates on nomination for Directors, Representative Directors, and A&SBMs, the Chairman of the Board, the Vice Chairman of the Board and the President, including succession planning for the President from an objective perspective. The Committee reports the results of its deliberations to the Board of Directors. (Article 6 (1) of the Guidelines)

1. Explanations with respect to appointment and dismissal of senior management and the individual appointments and nominations of Directors and A&SBMs
   Please refer to the reference documents attached to the Notice of General Meeting of Shareholders. (https://www.nec.com/en/global/ir/pdf/report/183/report183_01.pdf)
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（Supplementary Principle 3.1.3）

The NEC Group seeks to realize a sustainable world and has been promoting the measures for sustainability. The NEC Group identified "materiality" comprising of the priority management themes from an ESG (Environment, Social and Governance) perspective in 2018 and furthermore, once again identified priority management themes to be addressed in an effort to strengthen foundations for sustainability-oriented management in formulating the "Mid-term Management Plan 2025". The Company actively discloses information regarding the progress and achievement of such measures on the Company's website, the Integrated Report and the Sustainability Report.

In addition, the Company has endorsed the TCFD's recommendations, and discloses results of analysis of effects of risks and profit-earning opportunities related to climate change on the NEC Group's business activities, revenue and others in the Sustainability Report. For details, please refer to "Implementation of Environmental Protection, CSR Activities, etc." of "III. 3. Measures to Ensure Due Respect for Stakeholders" below.

Integrated Report

（https://www.nec.com/en/global/ir/pdf/annual/2021/ar2021-e.pdf） Sustainability Report

（https://www.nec.com/en/global/csr/report/index.html）

Viewing people as its greatest management resource, the NEC Group has been investing in them by transforming systems and improving environments in ways that maximize the capabilities of its personnel and organization.

As measures for heightening employees' engagement, and improving productivity and generating innovation, the NEC Group will accelerate inclusion and diversity through active appointment and systematic development of diverse human resources, and establishment of operational infrastructure for the personnel system such as providing a wider range of options in workstyles in order to allow diverse talent to further achieve high productivity and demonstrate creativity. In addition, the NEC Group will reform its business processes, systems and IT in a unified manner.

Strategic expenses for these measures in the fiscal year ended March 31, 2022 are estimated to be approximately 8 billion yen.

The details are disclosed in the Integrated Report and the Sustainability Report.

Integrated Report

（https://www.nec.com/en/global/ir/pdf/annual/2021/ar2021-e.pdf） Sustainability Report

（https://www.nec.com/en/global/csr/report/index.html）

The NEC Group will support its sustainable development by production of technologies that foster existing businesses functioning as a hub for creation of social value and advanced technologies for future businesses that can provide new value to the society and accelerating commercialization of these technologies. The NEC Group continuously allocates approximately 4% of its revenue to R&D, and promotes R&D focusing on "data science" technology area, which creates new value by analyzing diverse data using AI (artificial intelligence) technologies, etc., and "ICT platform" technology area to support the said technology area efficiently and securely. In addition, as for patents, patent portfolio has been established to ensure competitiveness in growth business areas. The details are disclosed in the Sustainability Report and the Annual Securities Reports.

Sustainability Report

（https://www.nec.com/en/global/csr/report/index.html) Annual Securities Reports

（https://jpn.nec.com/ir/library/securities.html)

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