Nihon Unisys : Aug. 2, 2018 Posted "Corporate Governance Report" >

The establishment of an effective corporate governance and internal control system is essential for sustainable growth and long-term improvements in corporate value, and accordingly the Company works to strengthen such structures.

Basic Views

A mechanism of corporate governance that enables management to make prompt and sound management decisions under appropriate and effective supervision is indispensable for enabling the Nihon Unisys Group to continuously grow and increase its mid- and longterm corporate value, and the Company shall create, maintain, and ceaselessly improve this mechanism.

Furthermore, Nihon Unisys believes that a company's raison d'etre lies in its contribution to society. Based on this belief, the Company stipulates as part of its corporate philosophy, 'Listen sincerely to our stakeholders to improve our corporate value' in order to create relationships of trust with all stakeholders, and it shall proceed with its business activities in accordance with this principle.

Corporate Governance Structure

The Company has judged that an audit system that includes outside auditors is effective for supervising management, and thus has adopted the system of having a Board of Auditors.

Given the drastically changing nature of the Company's industry, its Board of Directors consists of five internal directors who are well-versed in the state of the Company and its industry and also four directors from outside institutions who are expected to use their abundant management experience, give advice on management as a whole from their external, objective, and expert perspectives, and operate as an efficient supervisory body to management. In anticipation of these three factors, we have appointed four directors from outside institutions (three of whom serve as independent outside directors).

We think this makes the Company capable of more objective and broad-based decision making as well as more effective supervision of its business execution.

As of June 28, 2017

Board of Directors

The Board of Directors is composed of nine directors, including three independent outside directors (two of whom are female). It meets every month as a general rule. The Board of Directors receives reports on and decides on key matters for the Company. The term of directorship is set at one year in order to establish a flexible management system capable of responding to changes in the management environment and to clarify the management responsibilities of directors.

In FY2016, the Board of Directors met 11 times, holding discussions on various issues related to management.

The attendance ratio of Board of Directors' meetings was 100.0% for outside directors and 95.4% for outside Audit & Supervisory Board members.

Despite satisfying the legal requirements for outside directors, executives who are Nihon Unisys' principal shareholders are judged strictly and conservatively and as of FY2017 no longer serve as outside directors. This is why our number of outside directors has decreased. However, our number of independent officers has increased by one, leaving us with a system capable of highly efficient management supervision.

The Audit & Supervisory Board

There are five Audit & Supervisory Board members (herein also referred to as 'auditors'), including three independent outside auditors (one of whom is female). Two are full-time auditors. Auditors attend key meetings (such as those of the Board of Directors) and examine the state of the Company's performance and assets. In addition, by exercising their authority related to the appointment or dismissal of accounting auditors and the determination of remuneration, the Audit & Supervisory Board members audit the performance of the directors in their professional duties and conduct investigations pertaining to internal control systems. They are assisted in accomplishing their duties by dedicated personnel assigned to the Office of the Auditors in order to enhance the effectiveness and smoothness of audit operations by auditors.

In FY2016, the Audit & Supervisory Board met 13 times, with an attendance ratio for outside Audit & Supervisory Board members of 94.2%.

Internal Audit Department

The Internal Audit Department has been established as an internal body under the direct control of the president & CEO to assess the effectiveness and efficiency of internal controls across the Group.

Business Execution Structure

• Executive Council

  The Executive Council consists of representative directors and directors who concurrently serve as corporate officers and has been established as a body to make efficient decisions regarding key matters relating to business execution.

• Various Committees

  Various committees have been established in order to deliberate on specific management issues relating to business execution by the directors from practical perspectives. These are the Project Review Committee, the R&D / Investment Committee, the Information Systems Investment Committee, the Compliance Committee, the Risk Management Committee, the Business Continuity Project, and the Information Security Committee. Furthermore, the CSR Committee and Management of Technology (MOT) Committee have been established as advisory bodies.

• Corporate Officer System

  The Company has adopted a system of corporate officers in order to separate the supervision of management from its execution and to enable prompt business execution.

• System for Approval via Circulation of Drafts for Deliberation

  In regard to matters that are important from a management perspective, we are building and operating systems that not only reflect the expert opinions of the relevant heads of corporate staff, but arrive at decisions via deliberation between head directors and members of decision-making bodies (committees) and executive councils.

Project Management Risks

The Project Review Committee manages a thorough and multifaceted system for assessing risk at both the proposal and implementation stages while also working to increase the profits of the Company's service businesses.

At meetings of the Project Review Committee, the committee examines business risks of system services and long-term business activities as well as the suitability of measures against said risks and determines the advisability of project implementation. In addition, for projects in operation, the committee conducts various reviews of project management on a regular basis in such ways as receiving third-party opinions on quality assurance. The committee also monitors the status of business risks and risk mitigation measures and conducts budget control and assessment of various project plans. When necessary, the committee carries out revisions to project plans.

Remuneration of Directors and Audit & Supervisory Board Members

• Policy and Procedure for Deciding Remuneration for Directors

  Directors are in principle paid according to their professional responsibilities, with a focus on performance-based pay and taking into account market-rate salaries and employees' salary levels. Remuneration for directors consists of a fixed monthly salary, annual performance-based bonuses using net income attributable to owners of the parent as an indicator, and stock options for performance-based compensation system. Non-executive directors, such as outside directors, are paid a fixed monthly salary only. The exact amount of remuneration is decided by the Board of Directors after deliberation by the Nomination and Remuneration Committee, which partly consists of one or more independent outside directors, within the amount as decided by resolution at general shareholders'meetings.

  It was resolved at the 49th Ordinary General Meeting of Shareholders held on June 25, 1993, that the monthly remuneration amount is a maximum of ¥ 35 million per month. It was resolved at the 72nd Ordinary General Meeting of Shareholders held on June 28, 2016, that the total amount of directors' bonus is limited to ¥ 100 million per year, with the payment standard set at 0.5% of net income attributable to owners of the parent for the time being.

• Performance-Based Remuneration

  With the aim of increasing director motivation to contribute to continuous improvement in the Company's performance and corporate value, the Company has been issuing stock options to directors based on a system of linking remuneration to performance introduced in FY2012.

  In addition to these stock options, the Company provides directors with incentives to contribute to cultivating a sound corporate spirit. At the same time, in order to clarify director responsibility in terms of business performance, the Company introduced performance-based bonuses in FY2016 that use net income attributable to owners of the parent as an indicator.

• Remuneration for Auditors

  Auditors are compensated without linking pay to performance in order to ensure the effectiveness of auditing from an independent perspective. Their fixed monthly remuneration is decided as a result of discussions among auditors.

  It was resolved at the 62nd Ordinary General Meeting of Shareholders held on June 22, 2006, that the monthly remuneration amount for auditors is a maximum of ¥ 8 million per month.

Total Remuneration for Directors and Audit & Supervisory Board Members with Subtotals for Each Type of Remuneration and Numbers of Recipients (FY2016)

Classification	Total Remuneration Paid (Millions of yen)	Remuneration Paid by Type (Millions of yen)			Recipients(People)
		Basic Remuneration	Stock Options	Bonuses
Directors (Excluding Outside Directors)	266	209	26	30	6
Audit & Supervisory Board members (Excluding Outside Audit & Supervisory Board Members)	28	28	- (*1)	- (*1)	2
Outside Directors and Outside Audit & Supervisory Board Members	82	82	- (*1)	- (*1)	9

*1 Outside directors and outside Audit & Supervisory Board members do not receive stock options or bonuses.
*2 Figures shown in millions of yen have been rounded down to the nearest million.

The Nihon Unisys Group has strived to establish, operate, and continuously improve its internal control system as follows in order to achieve the aims of internal control: improving the effectiveness and efficiency of business, ensuring the reliability of financial reports, compliance with laws and regulations on business activities, and preservation of Company assets.

Improving the Effectiveness and Efficiency of Business

The Group has established a mid-term management plan and specific management targets, and it strives to develop sys-tems that will improve operational effectiveness and efficiency.

Ensuring the Reliability of Financial Reports

The Company's management and employees have conducted themselves in compliance with the basic policy for appropriate financial reporting established by the Group set forth for ensuring the reliability of financial reporting.

Compliance with Laws and Regulations on Business Activities

In recognition of compliance as one of the most critical issues to the execution of business operation, the Group has established the Nihon Unisys Group Charter of Corporate Behavior, the Group Compliance Basic Regulations, and the Nihon Unisys Group Code of Conduct, based on which all of the Group's employees act ethically in compliance with laws and regulations, social norms, and in-house regulations.

Preservation of company Assets (Risk Management)

The Nihon Unisys Group is faced with various kinds of risk in connection with its operating business activities. The Company has developed a common risk classification system for the Group to share and centralize the management of risks throughout the entire Group. Furthermore, it has developed preventive measures and countermeasures against the occurrence of risk events in order to safeguard its assets.

Accordingly, the Company has established a Risk Management Committee and Business Continuity Project chaired by the chief risk management officer (CRMO) to unify, lead, and manage risk management across the entire Group.