Governance

[Target] Develop a governance organization for the entire Fujifilm Group and reinforcement of the business management process.

• Reviewed the structure of the Board of Directors; established a governance strengthening committee to implement projects for each specific issue.
• Consolidated the FX business management divisions including accounting and auditing with FH and strengthened the business management process.

[Target] Improve compliance awareness across the entire global Group and reinforce risk management.

• Introduced education and training programs aimed at improving compliance awareness among employees across the entire Group, especially in overseas subsidiaries.
• Opened the FUJIFILM Holdings Hotline for all employees to report directly to FH.

[Target] Maintain a fair and independent audit and improve the audit quality level.

• Established a system for implementing global audits and reinforced and increased the efficiency of audit capabilities with IT applications.
• Appointed a new female outside director to ensure diversity on the Board of Directors and to enhance corporate governance; established the voluntary Designated Reward Committee chaired by an independent outside director.

Related Data and Information Environmental information

FH:FUJIFILM Holdings FF:Fujifilm FX:Fuji Xerox

FUJIFILM Holdings is aiming to foster sustainable growth, achieve higher corporate value and contribute to the sustainable development of society through sincere and fair business activities. We regard corporate governance as the foundation for achieving these goals and a key issue in business management.

In response to the inappropriate accounting at overseas subsidiaries of Fuji Xerox uncovered in 2017, we implemented governance strengthening measures that include integrating part of Fuji Xerox's headquarters and management functions into FUJIFILM Holdings, further expanding personnel exchanges within the Group including management personnel, and rebuilding and strengthening internal control at Fuji Xerox and its subsidiaries, including the system for reporting to FUJIFILM Holdings. We will continue our efforts toward greater transparency in our business processes and enhancement of Group governance to prevent any recurrence.

FUJIFILM Holdings has positioned the Board of Directors as the organization for determining basic Group management policies and strategies and other important matters relating to business execution, as well as supervising the implementation of business affairs. The Company's Articles of Incorporation stipulate that the board can consist of up to 12 directors. Currently, the board has ten directors, including four outside directors. In June 2018, the Company appointed the first female outside director to ensure diversity on the Board of Directors. To better clarify their missions and responsibilities, the directors have a one-year term of office. The attendance of outside directors to the Board of Directors meetings held in FY2017 was 97% (11 meetings in total). Additionally, FUJIFILM Holdings has adopted an executive officer system to facilitate speedier business execution. The Company currently has 11 executive officers, including five concurrently serving as Board members. The executive officers have a one-year term of office, the same as the Company's Directors.

The Company discloses the number of individuals to whom remuneration is paid and the total amount of remuneration for Directors as well as Audit & Supervisory Board members. Meanwhile, we have adopted a remuneration system under the stock option program to make its directors and executive officers, excluding outside directors, share a mutual interest— the effect of stock price fluctuations—with its shareholders. In this way, the directors and executive officers are in actual fact encouraged to have stronger drive and morale toward achieving higher corporate value.

The Company has established the Designated Reward Committee as an arbitrary advisory body to the Board of Directors. It aims to secure transparency on procedures for deciding CEO succession plan and remuneration for directors.

For further details of the Corporate Governance Guidelines and the Corporate Governance, please refer to

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FUJIFILM Holdings has adopted a system of Audit & Supervisory Board, which currently consists of four members, including two outside members. Each Audit & Supervisory Board member attends the board of directors, while full-time members attend all Management Council meetings in order to assess our overall business operations.

The attendance of outside auditors to the Board of Directors meetings held in FY2017 was 96% (14 meetings in total). Also, the attendance of outside auditors to the Audit & Supervisory Board meetings held in FY2017 was 100% (14 meetings in total).

The Company established the Global Audit Division, consisting of 56 members (as of June 1, 2018), which will support internal audits and evaluation of internal control in our global operations. The division will assess and verify the current state of internal control and business operations throughout the Group. These improvements are supervised by FUJIFILM Holdings for greater transparency and speed of action.

As a set of fundamental policies, we have formulated the Fujifilm Group Charter for Corporate Behavior and Code of Conduct. The Fujifilm Group Code of Conduct is established to guide each employee to act and behave in compliance with laws, regulations and social ethics and make it clear that we give first priority to compliance in our business activities through Fujifilm Group Compliance Statement.

In FY2017, in response to the inappropriate accounting practices uncovered at overseas subsidiaries of Fuji Xerox, consolidated management of compliance activities by FUJIFILM Holdings, Fujifilm and Fuji Xerox has been strengthened, with training programs aimed at greater awareness of compliance throughout the Group, especially in other countries, a communication from top management on the website, and compliance awareness surveys.

We have already introduced a separate whistle-blowing system in each company. In addition, to ensure that the system is effective, we have also established the FUJIFILM Holdings Hotline, through which any employee in the Group is able to report directly to FUJIFILM Holdings, in the drive for early detection of violations.

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At the Fujifilm Group, actions on risk prevention and measures for risk issues that have emerged at each business company are managed and reported to the secretariat of the CSR Committee through the designated procedure. Major risk issues are reviewed and appropriate corrective measures are implemented by the CSR Committee. In addition to management at each company and division, major risk issues for the Group are examined each year, with attention given to social and environmental changes, probability of risks projected for each business field and the impact on business management. Responses to each risk are reconsidered, and action is taken on a global scale.

In FY2017, in response to inappropriate accounting practice at overseas subsidiaries of Fuji Xerox, we have prompted further enhancement of risk management for the entire Group. Especially in the Fuji Xerox and its Group companies, risk management committees were newly set up at each company, apart from Fuji Xerox headquarters, to promote comprehensive crisis management and recurrence prevention in emergency situations and to reinforce risk management and risk control activities under normal conditions. The minutes of the risk management committee meetings held at the Group companies are reported as occasion arises to the Compliance & Risk Management Division of the CSR Committee(*) Secretariat at Fuji Xerox.

In regard to business continuity plan (BCP), worldwide environmental changes are increasing the risk of natural disasters. In Japan, further improvements in the Group’s response to wide-area disasters, in the face of the risk of the Nankai Trough earthquakes expected to occur in the ocean to the east, southeast and south of Japan, a major earthquake anticipated to occur in the Tokyo area and the possible eruption of Mount Fuji, have been marked out as issues to be tackled, and efforts are underway to add to the BCP and upgrade measures to deal with these projected disasters.

* Changed its name to Compliance & Risk Management Committee in July 2018.

Related Data and Information FY2018 priority risk map for the Fujifilm Group

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Fujifilm Group recognizes information security as a priority risk issue and is conducting continual reviews and reinforcement of its systems and measures to address the growth in cyber security threats in recent years. Regarding information leakage from within the Group and measures to deal with external attacks, Global Information Security Regulations have been established to foster a group-wide approach to the issue and to promote improvements in information security maintenance throughout the Group. For employees, training programs are organized to promote greater awareness on how to respond to suspicious emails and information security. To prepare for information security breaches, both Fujifilm and Fuji Xerox have set up their own information security incident response teams to minimize the potential damage from such incidents. For personal information protection, the Personal Information Protection Policy and the Personal Information Protection Regulations have been established for appropriate management of information within the Group, including regular audits and employee training. In FY2017, we prepared for the introduction in May 2018 of the EU General Data Protection Regulations (GDPR), and implemented measures in collaboration with the Group's regional headquarters in Europe.

The Fujifilm Group Charter for Corporate Behavior and Corporate Code of Conduct state explicitly that cautious and detailed attention are to be paid to relationships with public officials, government representatives and business partners and prohibit both involvement in corrupt activities and offering or receiving gifts or entertainment that raises suspicion of unfairness. Especially in the face of the growing reinforcement of anti-corruption laws and regulations globally in recent years, we have introduced regulations in each company to prevent corruption and are organizing regular audits, including on-site audits, chiefly in the areas that are relatively vulnerable to such risks. The Fujifilm Group has never been investigated by administrative authorities concerning any anti-corruption matters.

Fujifilm Group Tax Policy

1. In line with its Code of Conduct, which advocates an “Open, Fair and Clear” corporate culture, the Fujifilm Group shall comply with taxation laws of countries around the world, international taxation regulations and the spirit of such laws and regulations. The Group shall make payment of all required taxes by all specified dates in all countries in which it operates
2. The Fujifilm Group shall thoroughly examine the contents of all business transactions in advance from the perspective of tax, receive advice from competent tax advisors if and when required, and implement reporting and preliminary approval processes for important tax matters in accordance with internal regulations in order to maintain and improve governance on tax affairs
3. The Fujifilm Group shall maintain trusting relations with tax authorities, and give full consideration to, and if deemed necessary, shall proceed with its application for the Advance Pricing Agreement, so as to avert any lack of transparency in tax affairs
4. The Fujifilm Group shall actively utilize beneficial tax treatment in countries in which it operates while complying with their legislative intent in order to maximize consolidated cash flow. The Group shall not engage in tax planning or use tax havens for the sole purpose of obtaining tax benefits.

To increase awareness of compliance throughout the Group, communications stressing the importance of compliance have been sent from the president of FUJIFILM Holdings to all employees. At the same time, training was conducted to provide summary information on the matter, developments in addressing the matter, the cause and the problems involved, and to disseminate an understanding of the action policy founded from the lessons of this matter. Training and education programs were organized for leaders in late September 2017, and for other employees up to November of the same year. Also, a communication from top management emphasizing compliance and "thorough efforts at promoting open, fair and clear business activities" was made publicly available on the Company website, as well as internally via in-house magazines, the intranet, etc.

To assess the level of dissemination of compliance awareness through compliance training and for early detection of signs of misconducts or fraud, an awareness survey was conducted on all 93,000 employees of the Group in December 2017, with responses received from virtually all employees. The result was very positive; more than 90% understood the matter of inappropriate accounting and compliance priority at the workplace, and 84% had the pride in working at the Fujifilm Group. The findings will be disclosed within the Group to further improve compliance awareness.

In addition to the whistle-blowing system set up in each Group company, a new FUJIFILM Holdings Hotline was set up to enable any employee in the Group to report incidents directly to FUJIFILM Holdings (FH). The reports are received by an external consultation office and sent to the FH CSR Group, and they are also reported to the CSR Committee chaired by the President. Appropriate measures are being implemented to provide counseling when reports are received, with consideration given to protecting the reporting party, so that misconduct can be detected at an early stage through the consultation office.

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On October 1, 2017, the Regulations on Advance Reporting of Matters To Be Discussed by the Board of Directors of Fujifilm and Fuji Xerox were introduced. To strengthen internal control, the relevant business division will be required to report the matters in advance to the director responsible at FUJIFILM Holdings for review by the Board of Directors of Fujifilm and Fuji Xerox.