Corporate Governance

Fuji Electric is reinforcing its corporate governance toward the improvement of its management transparency and its oversight function. Furthermore, the Company has prepared its response measures to Japan’s Corporate Governance Code, which was instituted by the Tokyo Stock Exchange. These measures have been compiled into the Company’s Corporate Governance Report.

 

Basic policy on Corporate Governance

In strengthening our corporate governance, our basic policies are to protect shareholder rights and ensure their equal treatment, cooperate appropriately with non-shareholder stakeholders, ensure proper information disclosure and transparency, execute the duties of the Board of Directors, and engage in dialogue with shareholders.

Corporate Governance Framework

Fuji Electric’s corporate governance framework consists of the Board of Directors, which performs the functions of management supervision and making important decisions, and the Audit & Supervisory Board, which is in charge of the management audit function. As a company employing the corporate auditor system, Fuji Electric’s Audit & Supervisory Board suitably undertakes audits of the Company’s Directors and Executive Officers and guarantees objectivity and neutrality.

The Company actively appoints Outside Officers that satisfy the requirements for Independent Directors / Audit & Supervisory Board Members, endeavors to strengthen management supervisory and auditing functions, and has established the Nomination and Remuneration Committee comprising a majority of Outside Officers as an advisory body to the Board of Directors.

Also, in order to clarify the roles of management and execution, we have introduced an executive officer system in an effort to clearly define the responsibilities of each business and streamline business execution. We are endeavoring to build an effective corporate governance framework with the use of the Executive Committee, which discusses and reports on important matters related to management as an advisory body to the president and chairman of the Board of Directors, as well as other committees tasked with planning and promoting key business strategy issues and key external issues, such as legal compliance.

 

Corporate Governance Framework

Nomination and Remuneration Committee

Established in fiscal 2019, the Nomination and Remuneration Committee enhances the Company’s corporate governance by reinforcing the fairness, transparency, and objectivity of procedures concerning the nomination and remuneration of Directors and Audit & Supervisory Board Members. The committee comprises at least three Directors as members, the majority of which are elected from among the Company’s Outside Directors. The chairperson is elected from among the Outside Directors that sit on the committee as members.

The committee deliberates on the following matters and reports its findings to the Board of Directors.

  • (1) Policy on the composition of the Board of Directors
  • (2) Policies and criteria regarding the appointment or dismissal of Directors, the President and Chairman of the Board of Directors, and Audit & Supervisory Board Members
  • (3) Appointment or dismissal of Directors, the President and Chairman of the Board of Directors, and Audit & Supervisory Board Members
  • (4) Matters regarding the formulation and implementation of a succession plan for the President and Chairman of the Board of Directors
  • (5) Policies and criteria regarding the remuneration of Directors and Audit & Supervisory Board Members
  • (6) Details of remuneration for Directors and Audit & Supervisory Board Members

In fiscal 2019, the committee had five members, three of which were Outside Directors. During the period July 2019 through July 2020, the committee convened on three occasions to deliberate matters and report the results to the Board of Directors.

Nomination and Remuneration Committee

The committee Chairman
Outside Director Toshihito Tamba
Committee members
Outside Directors Naoomi Tachikawa, Yoshitsugu Hayashi
Standing Directors Michihiro Kitazawa, Kenzo Sugai

Appointment of Directors and Audit & Supervisory Board Members

Fuji Electric’s policy on nominating candidates for Directors and Audit & Supervisory Board Members is to decide on candidates by taking into account such factors as the overall balance of qualifications and experience on the Board of Directors, and other viewpoints like diversity. Directors are appointed for a single-year term so that their management responsibilities for each fiscal year can be clearly defined. This also creates a management structure capable of responding to changes in the operating environment.

Persons with the qualifications, experience, and other attributes required to execute the Company’s management policies are appointed as Standing Directors.

Persons equipped with the insight and experience required to make multilateral business decisions who also have an understanding of Fuji Electric’s management are appointed as Outside Directors. For instance, managers of listed companies or experts in academic fields closely related to Fuji Electric’s business domains.

Persons familiar with the Company’s operations in general who also possess expert knowledge and experience are appointed as Standing Audit & Supervisory Board Members.

Persons equipped with the expert knowledge and experience required to undertake audits who also have an understanding of Fuji Electric’s management are appointed as Outside Audit & Supervisory Board Members. For instance, corporate managers, persons with experience as a standing auditor of a listed company, or legal experts.

Independence Criteria for Outside Officers

The Company judges the applicable candidate to be fully independent from the Company when he/she does not fall under any of the conditions listed below in addition to criteria of independence stipulated by domestic financial exchanges including the Tokyo Stock Exchange.


(1) Major shareholder

A major shareholder of the Company (who owns 10% or more of the voting rights) or its executor of business.

(2) Major business partner

A business partner (consultants such as lawyers, certified public accountants, and tax accountants, as well as consulting firms such as law firms, audit firms, and tax firms) or a person executing its business whose transactions with the Company exceed 2% of the annual consolidated net sales of the Company or the other entity in the past three fiscal years.

(3) Major lender, etc.

A financial institution, other major creditor, or a person executing the business of these institutions that is indispensable for the Company’s funding and on which the Company depends to the extent that it is irreplaceable.

(4) Accounting Auditor

A certified public accountant who belongs to an auditing firm that serves as the Accounting Auditor of the Company or employee, etc. of such auditing firm.

(5) Donee

A person executing the business of an organization which receives a donation exceeding 10 million year per year that is greater than 2% of its annual income from the Company for the past three fiscal years.

Training Policy for Directors and Audit & Supervisory Board Members

Before taking office, Standing Officers undergo compliance training, which also encompasses legal and taxation matters. They are also provided opportunities after taking office to acquire necessary knowledge on an ongoing basis.

Before taking office, Outside Officers are briefed on the state of the Company and the roles they are expected to perform. After taking office, they have the chance to deepen their understanding of the Company’s business by attending internal technology presentations and inspecting production sites.

Outside Director Tachikawa receiving an explanation of the product at the internal technology presentations
Outside Director Tachikawa receiving an explanation of the product at the internal technology presentations

Activities of Outside Officers in Fiscal 2019

Outside Directors
Name

Status of Attendance at Board of Directors Meetings (Meetings Attended/Meetings Held)

Main Activities

Toshihito Tamba 13/13 Mr. Tamba offered opinions as necessary on all areas of Fuji Electric’s management at the Board of Directors meetings, including on the following matters, based on his professional standpoint and considerable insight as a manager of listed companies.
  • • Formulation of a business plan taking into account changes in the market environment
  • • Methods of evaluating the effectiveness of the Board of Directors
Naoomi Tachikawa 13/13 Mr. Tachikawa offered opinions as necessary on all areas of Fuji Electric’s management at the Board of Directors meetings, including on the following matters, based on his professional standpoint and considerable insight as a manager of listed companies.
  • • Managing progress of management plans
  • • Situation concerning management of fixed costs
Yoshitsugu Hayashi 13/13 Mr. Hayashi offered opinions as necessary on all areas of Fuji Electric’s management at the Board of Directors meetings, including on the following matters, based on his professional standpoint and considerable insight as an environmental engineer.
  • • Appropriate ways to carry out research and development
  • • Initiatives aimed at reducing Fuji Electric’s environmental footprint
Outside Audit & Supervisory Board Members
Name

Status of Attendance at Board of Directors Meetings Status of Attendance at Audit & Supervisory Board Meetings (Meetings Attended/Meetings Held)

Main Activities

Yoshiki Sato 11/13
9/9
Mr. Sato confirmed and offered opinions as necessary at meetings of the Board of Directors concerning agenda items and the status of Fuji Electric’s business activities based on his extensive experience and considerable insight as a manager at financial institutions. At meetings of the Audit & Supervisory Board, he confirmed and offered opinions on the legal compliance of the overall business activities of Fuji Electric.
Akiko Kimura 13/13
9/9
Ms. Kimura confirmed and offered opinions as necessary at meetings of the Board of Directors concerning agenda items and the status of Fuji Electric’s business activities based on her expert knowledge as an attorney. At meetings of the Audit & Supervisory Board, she confirmed and offered opinions on the legal compliance of the overall business activities of Fuji Electric.
Tetsuo Hiramatsu 12/13
9/9
Mr. Hiramatsu confirmed and offered opinions as necessary at meetings of the Board of Directors concerning agenda items and the status of Fuji Electric’s business activities based on his extensive experience and considerable insight as a manager at financial institutions. At meetings of the Audit & Supervisory Board, he confirmed and offered opinions on the legal compliance of the overall business activities of Fuji Electric.

Executive Remuneration

We have established a remuneration system and remuneration levels for Fuji Electric’s Directors and Audit & Supervisory Board Members that are deemed appropriate for their respective duties and in accordance with shareholder mandates, giving due consideration to the aims of securing and maintaining competent personnel and providing incentives for the improvement of business performance.

We routinely verify that the system and levels are appropriate or whether they need reviewing in light of changes in the operating environment or objective external data.

Officer remuneration comprises mainly performance-linked remuneration and remuneration other than performance-linked remuneration, but there is no policy in place for determining payment ratios. As for indicators pertaining to performance-linked remuneration, the amount of performance-linked remuneration is determined mainly in line with the consolidated ratio of operating income to net sales—a key target in the Medium-Term Management Plan—and in light of consolidated Company earnings (operating income, net income, dividends, etc.) the previous fiscal year.

Note that the operating margin in fiscal 2019 was 4.7%, short of the 6.7% target called for in our management plan.

Authority for determining officer remuneration amounts and calculation methods

The Nomination and Remuneration Committee receives and discusses inquiries from, and reports back to, the Board of Directors with regard to mainly policies and criteria concerning remuneration of Directors and Audit & Supervisory Board Members.

While the Board of Directors discusses the details of the committee’s report, the actual decision on remuneration amounts is left to the discretion of President and Chairman of the Board of Directors, but within the limit resolved at the General Meeting of Shareholders and with reference to the details of the committee’s report.


Classification-Based Remuneration System
Classification Remuneration System
Standing Directors

Base Remuneration

Base remuneration is a predetermined amount that is paid to executives according to their position. A portion of the base remuneration is contributed to the director shareholding association to share the economic interests of shareholders and as an incentive to make management aware of share value.

Performance-Linked Remuneration

Performance-linked remuneration is paid only in instances in which dividends are paid to all shareholders from retained earnings. The total amount of executive performance remuneration shall be within 1.0% of consolidated net income for the fiscal year prior to the date of payment in order to make the link with consolidated results for each fiscal year more clearly.

Standing Audit & Supervisory Board Members
Outside Directors and Outside Audit & Supervisory Board Members
A predetermined amount is paid as base remuneration and stock in the Company may be acquired at their own discretion.
Remuneration Amounts by Classification (Fiscal 2019)
Classification Total
Remuneration (Millions of Yen)
Remuneration by Type (Millions of Yen) Number of Recipients
Base Remuneration Performance-Linked Remuneration
Standing Directors 348 240 108 5
Standing Audit & Supervisory Board Members 58 58 - 2
Outside Directors and Outside Audit & Supervisory Board Members 50 50 - 6
Amount of Contributions to Officer Shareholding Association and Shares of the Company Acquired (Fiscal 2019)
Classification Amount of Contributions to the Director Shareholding Association (Millions of Yen) Shares of the Company Acquired (Hundreds of Shares)
Directors 20 61
Audit & Supervisory Board Members 3 10

Evaluation of Effectiveness of the Board of Directors

The evaluation of the effectiveness of the Board of Directors was conducted with the use of a third-party survey for the first time in fiscal 2019 in order to verify whether the Board of Directors is properly fulfilling its expected roles and functions and to facilitate further improvements thereof. The results of the survey was reported to the Board of Directors and issues that require improvement going forward were shared with everyone.

Based on the results of this effectiveness evaluation, the Board of Directors will continue to work on enhancing its role by properly examining the issues that have been shared and addressing each one in turn according to a clearly defined schedule.

Scope of evaluation Fiscal 2019 Board of Directors (13 meetings in total)
Subjects All Directors and Audit & Supervisory Board Members (13 people in total)
Evaluation method Anonymous survey conducted by a third party
Evaluation period January to February 2020
Main question categories (1) Board of Directors make-up, administration, discussions, and monitoring functions
(2) Support structure and training for Directors and Audit & Supervisory Board Members
(3) Dialogue with shareholders
(4) Initiatives implemented by Directors and Audit & Supervisory Board Members themselves
Evaluation process (1) Subjects answer a survey conducted by a third party
(2) The third party identifies issues based on a results report and advice
(3) Board of Directors analyzes, discusses, and assesses the findings
Summary of evaluation results The administration of the Board of Directors and its discussions earned mostly positive assessments, thereby assuring the overall effectiveness of the Board of Directors.
Issues to address In light of the opinions in the survey calling for more in-depth discussions about longer-term topics, such as the Medium-Term Management Plan, ESG issues, and workstyle reforms, as well as the need for reports on dialogue with institutional investors, it was recognized that challenges lie ahead in order to further improve the Board’s functions and invigorate discussions.

Internal Control System

With the aim of complying with laws and regulations, managing the risk of loss, and securing the efficiency of the execution of duties, the Fuji Electric Board of Directors determines basic policies concerning the establishment of an internal control system as stipulated in the Companies Act of Japan, and the Company discloses those policies. Fuji Electric discloses information on the implementation of its internal control system, thereby taking steps to respond promptly and accurately to the demands placed upon the Company by society. Such information includes descriptions of provisions for ensuring that Directors and employees perform their duties in a manner that is compliant with laws and the articles of incorporation.

Main Systems Based on the Internal Control System

■Compliance system

Based on systems for ensuring that Directors and employees perform their duties in a manner that is compliant with laws and the articles of incorporation, Fuji Electric has established and promotes a compliance system in order to secure the transparency and soundness of business execution.

■Risk management system

Based on regulations and other systems pertaining to managing the risk of loss, Fuji Electric has developed an appropriate risk management system in order to manage business risks in a coordinated, systematic manner. In regard to specific cross-sectional risks, the Company determines departments to put in charge of each risk, thereby establishing a risk management system.

Preventing reoccurrence of fictitious transactions

On January 30, 2020, we released the Statement Regarding Allegations of Fictitious Transactions Against Subsidiary. So that such an incident never happens again, we amended the Group’s internal regulations to clearly stipulate that employees must not undertake transactions that cannot be confirmed as real. The subsidiary in question is currently adopting measures aimed at preventing a reoccurrence mainly by rebuilding its risk management framework for workflow of ordering and accepting goods, including checking and examining sales channels, its own role, and the existence of transactions. It is also implementing exhaustive risk awareness training for sales divisions.

Audits by the Audit & Supervisory Board Members and Internal Audits

■Audits by the Audit & Supervisory Board Members
Audit & Supervisory Board Members conduct audits in accordance with the audit policies and duties assigned and in compliance with the standards for audits established by the Audit & Supervisory Board. They report the details and results of their audits to the Audit & Supervisory Board.
In fiscal 2019, the Audit & Supervisory Board convened nine times in total. Every meeting was attended by all of the Company’s Audit & Supervisory Board Members. During the meetings, the Audit & Supervisory Board mainly reviewed audit policies and plans, the appropriateness of auditing methods and results of the Accounting Auditors, and undertook an assessment of the Accounting Auditors. It also reported on and reviewed important matters that the Standing Audit & Supervisory Board Members communicated to the Outside Audit & Supervisory Board Members.
■Internal audits
Every second year, the internal auditing divisions perform the following audits on Fuji Electric’s business divisions and subsidiaries in accordance with internal auditing standards and annual audit plans. A total of 44 bases were audited in fiscal 2019. No risks or inadequacies with the potential to seriously affect management were discovered.
Type of Audit Main Tasks
Organizational management Evaluating the appropriateness of management and administration (development of regulations, approval procedures, performance management, etc.)
Risk management Evaluating the effectiveness of risk management systems and risk response
Compliance Checking for compliance with laws and regulations based on the Fuji Electric Compliance Program and confirming legal compliance
Business execution Evaluating the appropriateness, efficiency, and effectiveness of business execution (booking of sales and purchases, investments, cash flow, etc.)
Accounting Evaluating the appropriateness of cost accounting and the soundness of assets and liabilities

■Strengthening collaboration between audit functions

We ensure the effectiveness of Fuji Electric’s audit functions by reinforcing collaboration between statutory audit functions (Audit & Supervisory Board Members, Accounting Auditors) and internal audit functions (Internal Audit Office). We will continue to strengthen this cooperation going forward, with a particular focus on project management for large-scale projects, compliance audits, and audits at overseas subsidiaries.


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