Corporate Governance Promotion Framework

The Fuji Electric Group adopted a pure holding company structure in October 2003 and established a group management structure that separated management oversight and operational execution, with the aim of achieving autonomous management in each business segment and flexible, swift operational management that reflects the special characteristics of businesses and changes in the operating environment. The resulting measures that were implemented independently at operating companies strengthened the Group’s earnings capabilities, but at the same time, as the economy weakened over several years, the issues of delays in business development and restructuring from a Groupwide perspective, and the amount of time required to implement measures across multiple businesses, appeared.

Given this situation, the previous policy of not having directors of the holding company serve concurrently as directors of operating companies, which had been implemented to separate management oversight and operational execution, was revised and a new structure adopted from June 2008. Under the new system, segment executive officers serve concurrently as directors of the holding company, in response to calls for more accountability to stakeholders and stronger oversight of the operational execution of the holding company’s Board of Directors. Examples of how this new system functions include:

• When the global recession caused earnings to deteriorate at the magnetic disk business, as an emergency measure the holding company president worked directly (hands-on) to restructure the business.

• The concentration of management resources in the field of “energy and the environment” led to business restructuring and strategic reinforcement from a Group perspective.

At the same time, there is no change to our management system and audit structure, which includes the active utilization of outside directors to increase transparency, monitoring, and oversight functions.

We have decided that going forward, it is important for the Group to shift from the previous strategy of individual optimization to promoting an emphasis on the “energy and the environment” business, strengthening the solutions business, and expanding businesses globally. To achieve this, the Board of Directors decided at its meeting held on May 25, 2010, to begin preparations to merge Fuji Electric Systems Co., Ltd., the core company of the “energy and the environment” business, with the holding company, which is responsible for Group strategy functions. The merger accomplished on April 1, 2011.

Remuneration for Directors

The Fuji Electric Group has established a remuneration system and remuneration levels for directors and auditors that are deemed appropriate for their respective duties and in accordance with the shareholders’ mandate, giving due consideration to the aims of securing and maintaining competent personnel and providing incentives for the improvement of business performance. Remuneration for standing directors comprises fixed-amount remuneration determined according to their position, and performance-based remuneration. A predetermined amount of the fixed-amount remuneration is paid to the director ownership plan, in accordance with the director’s position.

Performance-based remuneration is paid only when dividends from retained earnings are paid to shareholders. In order to establish a clear link with consolidated performance in each fiscal year, the total amount is limited to 1.0% of consolidated net income in the previous fiscal year.

For presidents of core operating companies who have executive responsibility in major business segments, performance-based remuneration is paid by the operating company based on an evaluation of consolidated results and results at the segments for which they are responsible, in each fiscal year.

Remuneration for outside directors and auditors comprises a fixed amount determined according to position, as they bear the responsibility of supervising and auditing the execution of duties for the entire Group. Acquisition of the Company’s stock is on a voluntary basis.

In fiscal 2006, the holding company abolished the retirement benefit system for directors.

Outside Directors and Auditors

In addition to their management oversight role from an objective perspective, outside directors and auditors are expected to ensure the appropriateness of management decisions by providing useful advice and insights regarding the Group’s overall management from a variety of perspectives. Of the Group’s 15 directors and auditors, six are outside directors and auditors, and these outside directors and auditors are an important part of the corporate governance structure. The Board of Directors met 13 times and the Board of Auditors met six times during fiscal 2009, and the attendance rates were 97% and 100%, respectively.

Tadashi Kudo
Outside director

Companies seek to successfully compete in a difficult operating environment and to increase corporate value. Corporate governance plays a major role in achieving this, and I believe it is important for corporate governance to function properly, with the understanding of shareholders and other stakeholders.
As an outside director of Fuji Electric Holdings, I basically see myself as having three major roles. The first is management oversight and supervision. For example, I constantly follow the status of progress and achievement of the management targets set by management. The second is monitoring the decision making process. It is an outside director’s responsibility to make sure that important management decisions are made rationally, based on sufficient information, and without violations of duty of loyalty. The third is to ensure accountability. It is important that corporate actions are based on what society perceives as being common sense—rather than what the company perceives as common sense—so that the Company is accountable to shareholders, customers, employees, and all other stakeholders.
Corporate managers face a variety of pressures in the course of daily management, and sometimes end up making decisions that pursue short-term gains or less than optimal results. My mission as an outside director is to support management in a way that emphasizes a medium- to long-term perspective and pursues overall optimization for the entire Group, for the continuous development of the Fuji Electric Group. In addition, in the area of risk management, I ascertain the Company’s risk capacity from an objective standpoint and advise management on investment proposals and new businesses.
The Board of Directors of Fuji Electric Holdings engages in very lively debate, and I consider this to play an effective corporate governance role. I also believe that outside directors and outside auditors fulfill the roles that are expected of them.
I will do my utmost to meet the expectations of stakeholders and promote the healthy development of Fuji Electric going forward.