LEGRAND_REGISTRATION_DOCUMENT_2017

INTERNAL CONTROL AND RISK MANAGEMENT Risk factors and control mechanisms in place

3.6.3 – Reputational and compliance risks

R 3.6.3.1 PRODUCTS QUALITYAND SAFETY Despite product testing, Legrand’s products might not operate properly or present errors and defects, particularly on the launch of a new range of products or enhanced products. These errors and defects could cause personal injury and/or damage to property and equipment. Such accidents have in the past, and could in the future, result in product liability claims, loss of revenue, warranty claims, costs associated with product recalls, litigation, delay in market acceptance or harm to the Group’s reputation for safety and quality. Legrand cannot guarantee that it will not be faced with significant product liability claims or product recalls in the future, or that it will be able to successfully settle such claims, or conduct these product recalls, at an acceptable cost. Moreover, a product liability claim or product recall, even if successfully concluded at a nominal cost, could have a material adverse effect on the Group’s reputation for safety and quality, and on its business. In response to standards and safety issues, the Group has introduced a global quality control program which includes a process of ISO 9001 certification for production sites, product qualification by certified laboratories, and products conformity and quality monitoring plans. The same product qualification and quality control processes are implemented by the Purchasing Department for trade products. In addition, a customer dissatisfaction management process identifies product defects and allows appropriate corrective action to be taken. Customer claims are systematically recorded and evaluated in real time using a single tool. If necessary, an instant alert procedure is set in motion with industry contacts and the team responsible for product expertise. The Group conducts regular customer satisfaction surveys on product lines and service quality. As detailed in section 4.2.1.2 of this Registration Document, “ensuring the safety of users of electrical equipment” is one of the Group’s CSR concerns. Legrand may also launch product recalls at its own initiative as a preventive measure and in the event that products could present a material risk. In 2017, one product recall or withdrawal operation was initiated. Provisions for product warranties totaled €29.1 million at December 31, 2017, compared to €21 million at December 31, 2016. Legrand’s products, which are sold in approximately 180 countries, are subject to numerous regulations, including trade, customs and tax regulations applicable in each of these

countries and on an international level. Changes to any of these regulations and their applicability to Legrand’s business could lead to lower sales or increased operating costs, and result in a decrease in Legrand’s profitability and income. In addition, Legrand’s products are subject to quality and safety controls and regulations arising from national and international standards, such as European Union directives or the National Electric Code in the United States, and product norms and standards adopted by international organizations such as the European Committee for Electrotechnical Standardization or the Federal Communication Commission (FCC), and the International Electrotechnical Commission. A change or more stringent application of these quality and safety standards could require the Group to make capital expenditures or implement other measures to ensure compliance, the costs of which could have a material adverse effect on the Group’s business, results and financial position. In order to follow changes in regulations, Legrand has set up a compliance department that is in charge of managing related risks. R 3.6.3.2 RESPECT FOR BUSINESS ETHICS In most of the markets where it sells its products, Legrand is subject to local and international regulations in the areas of competition law, embargoes, export control and the fight against money-laundering and the financing of terrorism. A dispute involving Legrand with regard to these regulations could have a material impact on the Group’s business, reputation, results and financial position. Because of its international exposure and the development of a planned business (as opposed to sales flow activity), the Group faces a growing risk of being obstructed by these laws and regulations. To address this, Legrand launched a Group-wide compliance program in 2012. This program is one of the objectives of the CSR roadmap 2014-2018. The program was further strengthened in 2017 by compliance with the requirements on the prevention of corruption and influence peddling under the French Sapin II Law (Law no. 2016-1691 of December 9, 2016). The complete system is detailed in section 4.3.1. of this Registration Document. Where specific advice is required, the Group contacts specialized law firms or the relevant authorities.

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REGISTRATION DOCUMENT 2017 - LEGRAND