NEC : (delayed) Corporate Governance Report 7 July2021

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: July 7, 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]

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

[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, 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.

When exercising voting rights, the Company examines various factors, such as whether it will contribute

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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)

【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 2.6 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
   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 Audit & Supervisory Board Members (KANSAYAKU) ("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 (3) 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 fulfill its responsibilities with various viewpoints based on broad knowledge, the Board of Directors is comprised with consideration given to diversity in such factors as career background, specialist field, internationality and gender. 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.

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:

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• 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 Directors, the Company considers whether they have their experience of corporate management and/or deep insight in their areas of expertise.

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. (Article 5 (2) of the Guidelines)

(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 Outside Directors. The chairperson is appointed among such 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 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)

【Principle 4.1 Roles and Responsibilities of the Board (1)】 （Supplementary Principle 4.1.1）

The Board of Directors delegates certain authority for business execution to corporate officers, and establishes the criteria for matters to be discussed by the Board of Directors. Pursuant to the criteria, a resolution of the Board of Directors is required concerning matters that have to be determined by the Board of Directors under laws and regulations, as well as transactions considered to be important for the Company in the light of its asset size and others.

【Principle 4.9 Independence Standards and Qualification for Independence Directors】

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Please refer to "(Policies) (i) Composition and Role of Board of Directors" of "I.1.【Principle 3.1 Full Disclosure】(4) Board policies and procedures in the appointment and dismissal of the senior management and the nomination of Directors and A&SBMs candidates" of this report.

Regarding Independent Outside Directors, please refer to "II.1. [Independent Directors/A&SBMs]" of this report.

【Principle 4.11 Preconditions for Board and A&SB Effectiveness】 （Supplementary Principle 4.11.1）

Please refer to "(Policies) (i) Composition and Role of Board of Directors" of "I.1.【Principle 3.1 Full Disclosure】(4) Board policies and procedures in the appointment and dismissal of the senior management and the nomination of Directors and A&SBMs candidates" of this report.

In order to further enhance the effectiveness of the Board of Directors, the Company is working to improve its structure so that more in-depth discussion can be ensured on matters related to "broad, company-wide management strategies" and "corporate governance". From the perspective of obtaining a broad range of knowledge on the relevant matters, the attributes of directors expected by the Company and particular areas of extensive experience and deep insight that the Company expects the directors to have are described in 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)

（Supplementary Principle 4.11.2）

When an Inside Director assumes office as a director or auditor of other companies, Board of Directors discuss and approve it from the perspective of the influence on business execution as the Director of the Company.

In appointing Directors and A&SBMs, when an appointee serves as a Director or A&SBM of other public companies, it is desirable that the number of concurrent positions does not exceed the numbers specified as follows:

-When an appointee serves as an executive of the Company or another company: only one company in addition to the company where a candidate for Director or A&SBM serves as an executive.

-In cases other than the above: up to 4 companies in addition to the Company.

However, if a candidate for Director or A&SBM serves in multiple roles concurrently at group companies of the Company or another public-listed company, the concurrent roles within the group companies shall be deemed as roles in one company.

As for the important concurrent positions of Directors and A&SBMs, please refer to the Company's "Executives" published on the Company's website at (https://jpn.nec.com/profile/corp/executives.html) and 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) （Supplementary Principle 4.11.3）

The Company has conducted an analysis and evaluation of the effectiveness of the Board of Directors once a year since the fiscal year ended March 31, 2016, in order to improve the effectiveness of the Board of Directors.

The summary of the results of the analysis and evaluation for the fiscal year ended March 31, 2021 and initiatives to be implemented in light of these results are as follows.

1. Procedure of the analysis and evaluation
2. • In the fiscal year ended March 31, 2021, the Company conducted a questionnaire of all Directors and A&SBMs, and also conducted individual interviews based on the results. In the questionnaire and interviews, participants expressed their opinions regarding the items listed below and identified issues and points for the Company to improve upon with the overall aim of improving the effectiveness of the Board of Directors. Evaluation regarding the Company's corporate governance system
   • Roles and functions of the Board of Directors as a means to enhance corporate governance
   • The effectiveness of deliberations that have been continuously enhanced based on the evaluation conducted in fiscal year ended March 31, 2019 regarding broad, company-wide management strategies and corporate governance.
   • Improvements necessary for more effective use of Outside Directors' insights and opinions

Issues and points for improvement identified in the questionnaire and interviews were reported at the

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ordinary Board of Directors' meeting held in February 2021, and the Board of Directors deliberated on plans for improvement going forward.

1. Summary of evaluation result
   A summary of the evaluation of the effectiveness of the Board of Directors for fiscal year ended March 31, 2021 is as follows.

1. Regarding the role and function of the Board of Directors

The Board of Directors can be evaluated as appropriately fulfilling its role and performing its functions sufficiently, including deliberations regarding broad, company-wide management strategies and corporate governance. However, to improve the effectiveness of the Board of Directors even further, the Company needs to consider improvements in line with the following points.

• Use of Outside Directors' insights and opinions
• Selection of themes for deliberation based on changes in the external environment and their impact

and risks

(ii) Regarding the use of Outside Directors' insights and opinions

While it has been useful to clarify the expected role of Outside Directors, which was a response to the evaluation of the effectiveness of the Board of Directors conducted in fiscal year ended March 31, 2020, to better utilize Outside Directors' insights and opinions, the Company need to consider improvements in line with the following points.

• Further enhancement of information provision for Outside Directors
• Investigation of more effective deliberation formats according to theme (off-site meetings, etc.) (iii) Regarding the corporate governance system

The current corporate governance system was deemed appropriate overall; however, it is important for the Company to continue looking into optimal systems based on the ideal direction of the NEC Group. The evaluation also reflected a desire for the Company to consider further strengthening the Board of Directors' supervisory functions over the medium to long term.

To enhance corporate governance, the Company need to consider improvements in line with the following points.

• Further expansion of the authority of the Board of Directors on the business execution side (including a review of the criteria for matters to be discussed by the Board of Directors)
• Provision of opportunities at meetings of the Board of Directors to allow for deliberation on the ideal system of corporate governance for the NEC Group for the medium to long term

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1. Initiatives going forward
   The Company will investigate and implement measures to further improve the effectiveness of the Board of Directors based on the following 3 policies, which were derived using the results from the evaluation of the effectiveness of the Board of Directors conducted in fiscal year ended March 31, 2021.
2. • Review the management methods of the Board of Directors to better obtain the diverse opinions and advice of Outside Directors, which includes measures involving the content and delivery method of information provided to Outside Directors
   • Select themes for deliberation based on the changes in the external environment and their impact and risks for the NEC Group
   • Clarify the role of the Board of Directors in building an ideal corporate governance system for the NEC Group, and strengthen the supervisory functions required to fulfill that role

Evaluation of the effectiveness of the Nomination and Compensation Committee

In the questionnaire and individual interviews pertaining to the effectiveness of the Board of Directors, the Company asked for opinions from Directors and A&SBMs to clarify challenges and improvements for the Nomination and Compensation Committee.

In summary, the results showed that the composition and operation of the Nomination and Compensation Committee can be evaluated as appropriate overall. In addition to improvements based on prior evaluations such as improving pre-meeting explanations and ensuring that deliberation time was in keeping with the theme being discussed, the Nomination and Compensation Committee was also deemed to handle topics such as the President's succession plan, configuration changes of the Board of Directors for strengthening the supervisory functions of the Board of Directors and the NEC Group's corporate governance in an objective, fair, and appropriate manner. Going forward, the

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