Introduction
Business Transformation and Future Growth

Value Creation

Transformation

Business Strategies

Governance

Data

Hitachi Integrated Report 2023

Evolving Governance (Independent Directors Messages)

Evolving Governance (Independent Directors Messages)
Board andNominating Committee

Maintain and improve the effectiveness of the global top-tier Board,and commit to future CEO succession planning

Roles of the Board
and Nominating Committee

Ensure diverse boards and develop
CEO succession

Hitachi is a company with a nominating committee, etc., and independent directors assume
heavy responsibilities, such as serving as the chairperson of the Board and chairing the threecommittees. The current board is well balanced in terms of diversity such as skills, geography(Japan, the United States, Europe, India), and gender, and is composed of world-class members.
The board is responsible for corporate governance and separates its functions from theexecutive officers responsible for managing Hitachi. Each board meeting begins with a report by
the CEO on the current status of the company, priority issues, and action to be taken, followedby an active discussion. In particular, the quality of management strategies is enhanced throughin-depth discussions of the Mid-term Management Plan, the one-year business plan, and largescale M&A projects. For example, some M&A projects proposed by executives are rejected after
discussion, and it is fair to say that the board functions effectively through an open exchange ofopinions.
The Nominating Committee, on the other hand, has three roles. The first is the selectionof director candidates, the second is the formulation and proposal of CEO succession
plans, and the third is the development of future CEO candidates. Hitachi’s Nominating
Committee is unique in that it devotes a great deal of energy not only to selection but
also to development. In addition to candidates for the next and subsequent CEO terms,
Nominating Committee members are involved in the training of even younger candidates
through interviews and lectures.

Initiatives and evaluations forfiscal 2022

Select the optimal members
for a more effective board

In fiscal 2022, COVID-19 subsided and directors became more active in their roles. Active
communication was achieved through visits to business sites and exchanges of opinions withexecutive officers outside of meetings. Each year, through questionnaires and interviews withdirectors, we evaluate and verify whether the board is functioning properly and producing
results, and how it is contributing to Hitachi’s growth. We have confirmed that a high level ofeffectiveness has been ensured, and this has continued from fiscal 2021.
To maintain and improve the effectiveness of the board, it is essential to recruit the right people
to serve as directors. This is not an easy task. Hitachi regularly maintains and updates a listof potential board members worldwide. Given the diverse nature of Hitachi’s business and its
focus on the digital field, we are now prioritizing candidates with global corporate management

Katsumi Ihara
Chairman of the Boardand Nominating Committee

experience and expertise in the IT field.
In fiscal 2022, the members of the Nominating Committee continued to devote much time todeveloping the next generation of leaders. We conduct one-on-one interviews with the next andsubsequent CEO candidates to confirm their growth as leaders and discuss challenges that will
foster further growth. By conducting these activities on an ongoing basis, we are able to charteach candidate’s growth. We are also involved in the development of the Future50, younger
future leaders, honing their leadership skills, global perspective, and strategy through interviews
and lectures. We believe that it is very important for Hitachi to develop a pipeline of future CEOsand to improve the quality of this pipeline.

Challenges and prospects forfiscal 2023

A board that inherits Hitachi’s culture andcontributes to growth

The first priority this fiscal year is to continue to review the board and CEO succession plan.
We will select people with a robust process. The second is to ensure that the Mid-termManagement Plan 2024 delivers results to meet stakeholder expectations. In fiscal 2022, wewere able to achieve good financial results, and in fiscal 2023, we will continue to respond firmly
to various risk factors to achieve the Mid-term Management Plan 2024 and deliver shareholder
returns. Third, now that the major portfolio reforms have been completed, it is time to shift
to organic growth. To make this shift, we need to transform Hitachi’s business into a globallycompetitive business. We have a mix of businesses that can compete in the global market andbusinesses that are yet to come, but we recognize that this transformation is a key issue forfiscal 2023 and 2024.
As Hitachi moves toward sustainable growth, the evolution of transparent and effective
governance will continue to be required. Hitachi’s directors and executive officers havemaintained a relationship that combines a healthy tension and mutual support, and they havebeen able to function well, which has contributed greatly to Hitachi’s transformation and growthto date. As Chairman of the Board and the Nominating Committee, I am committed to building
a board that will continue this culture, even as the members change in the future, and toachieving continuous improvement in Hitachi’s corporate value.

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Introduction
Business Transformation and Future Growth

Value Creation

Transformation

Business Strategies

Governance

Data

Hitachi Integrated Report 2023

Evolving Governance (Independent Directors Messages)

Evolving Governance (Independent Directors Messages)
Compensation
Committee

Compensation is an engine for corporate growth, and a new compensation
structure will enhance corporate value and global competitivenessRoles of the Compensation
Committee

Ensuring objectivity, transparency,and fairness is the key

The roles of the Compensation Committee are to consider, create, and implement a compensation
system for directors and executive officers that is desirable for Hitachi’s medium- to long-term
vision. Specifically, the Compensation Committee decides the policy for determining the detailsof compensation for directors and executive officers and the details of individual compensation
based on the policy. Of particular importance is ensuring objectivity, transparency, and fairness inthe compensation determination process. This enhances accountability and disclosure.
I was appointed chairperson in June 2022. I believe that one of the important roles of theCompensation Committee is to review the compensation system for Hitachi’s further growth asa global company and to make the necessary revisions. I am working hard every day with thecommittee members and the secretariat to ensure that we can properly fulfill this role.

Initiatives and evaluations forfiscal 2022

Thorough discussion and revision of newcompensation framework

Compensation is an important driver of a company’s growth. To achieve global growth as One Hitachi,
it is essential to secure and retain talented human resources, and to this end, we must increase thecompetitiveness of Hitachi’s compensation in the global market. Specifically, to realize the “ModeChange to Growth” stated in the Mid-term Management Plan 2024 and to continue to grow over thenext 10 years, we investigated and thoroughly discussed the following three perspectives as issues
regarding the future form of the executive compensation system: whether the current compensationlevel is appropriate, whether compensation is linked to the growth in corporate value, and whether
compensation is competitive compared to global companies in Europe and the United States.
Looking back, Hitachi’s CEO compensation has increased at a CAGR of 15% from 2016 whenChairman Higashihara became CEO to the present. We believe that it is necessary to always
be aware of whether this compensation is commensurate with the company’s growth and themarket. In fact, Hitachi’s stock price continued to grow at a 16% CAGR with market capitalization
at a CAGR of 17% during this period, while the TOPIX growth was a 6% CAGR. Comparison withthe market and global competitors is very important.
Based on these findings, in fiscal 2022, we devoted more time to discussing the ideal compensationsystem. In April 2023, we revised the compensation system to reflect that content.
In making the revision, we also placed emphasis on ensuring pay-for-performance that rewards
contributions to growth and innovation and measures that contribute to enhancing corporate
value by strengthening sustainable management. One of the goals of the revision was to design asystem that provides room for alignment with shareholders and other stakeholders, and to create

Takatoshi Yamamoto
Chairperson of
the Compensation Committee

a flexible budget system.
As a company committed to sustainable management, we have introduced sustainability targets
as evaluation items. I believe that a company that cannot endorse or practice sustainable
management will not be able to survive in the global market and enhance corporate value. To
have Hitachi’s growth evaluated by aligning with the capital market, we need to project corporate
value over three to five years, that is, over the medium to long term, based on sustainable
management. I would like to have the perspectives of linkage with corporate value growth andglobal competitiveness, which were formed through those discussions, take root as a basic
concept and culture so that present and future Compensation Committee members can share thesame mindset in approaching issues.
In Japan, I believe that there are still few companies that have a globally accepted compensationsystem. I hope that the content of these revisions will be perceived as Hitachi leading the way incompensation structures as a global company.

Challenges and prospects forfiscal 2023

Deepening the design and operation of thecompensation system as a global company

In fiscal 2023, we will promote internal understanding of the revised compensation system andwork to permeate and implement it. When applying it to individual evaluations, such as companywide performance and divisional performance, we will organize and operate specific simulated
issues on how to implement the evaluations also taking into account changes in the externalenvironment. We will communicate thoroughly, including with non-Japanese executive officers.
Hitachi’s 12 directors also include nine independent directors. We believe it is necessary toalso discuss a review of the compensation system for independent directors, who play a role incorporate management as a supervisory function. To accelerate the growth of Hitachi as a global
company and respond to the changing times, I, as chairperson of the Compensation Committee,
will strive to design and operate the compensation system while maintaining a high level ofobjectivity, transparency, and fairness at all times. We believe that the compensation system,
which is a growth engine, should be an ideal form that supports further growth and serves as thebasis of Hitachi’s corporate value creation scenario not only for the Mid-term Management Plan
2024 but also beyond into the future.

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Introduction
Business Transformation and Future Growth

Value Creation

Transformation

Business Strategies

Governance

Data

Hitachi Integrated Report 2023

Evolving Governance (Independent Directors Messages)

Evolving Governance (Independent Directors Messages)
Audit Committee

Enhance corporate value through audits that contribute to achieving growthand overcoming management challenges

Roles of the Audit Committee

Constructive tension with management tomeet stakeholder expectations

The role of the Audit Committee is to fulfill the trust of stakeholders by auditing the legality andappropriateness of the execution of duties by directors and executive officers and conducting
accounting audits. Since Hitachi faced a major deficit in fiscal 2008, successive management
teams have worked to strengthen its governance. One of the hallmarks of this is Tone at theTop, which means that management is keenly aware of the importance of governance forsound growth. It facilitates frank and honest discussions. As a member of the Audit Committee,
I constantly consider how I can contribute to Hitachi’s goal of growth and overcoming
management challenges.
The “growth” that Hitachi is aiming for not only means short-term growth in sales and profits
but also very high-quality, healthy growth that can be sustained over the medium to longterm, including non-financial factors such as human resources, organizational culture, andenvironmental value. I believe that it is necessary for the Audit Committee to engage closelywith management while maintaining a constructive sense of tension and mutual understanding
and respect for each other’s roles in order to improve corporate value in a balanced manner. By
utilizing Hitachi’s “Tripartite Audit”*1 and triangular pyramidal monitoring system* 2, we strive toimprove transparency and the effectiveness of internal controls, and continue to evaluate eachother’s performance and make efforts to improve while ensuring appropriate tension.

Initiatives and evaluations forfiscal 2022

Perform global and effective audits
with high priority

In fiscal 2022, we visited Hitachi Energy in Switzerland and Hitachi Rail in Italy, which wererecent major acquisitions, and exchanged views directly with local management on theenvironmental business growth strategy and other issues to confirm the current concerns andfuture direction. We also conducted on-site assessment of global business risks by visiting threerecently acquired CI sector companies and their holding company in North America to checkthe progress of post-merger integration (PMI) and the One Hitachi initiatives.
In the past few years, major structural reforms at Hitachi have progressed successfully, but
structural reforms, including business portfolio transformation, are a process of achieving anideal that has no end in sight, one that evolves every moment with the operating environment,
and can be said to be an enduring proposition for the company. This is why our strong attention
on measures against low-profit businesses and strategies to achieve higher levels of cash flow
and ROIC, as well as our expected DX and GX investment returns, will continue to be important.

Hiroaki Yoshihara
Chairperson ofthe Audit Committee

In particular, one of our important roles is to monitor the soundness of long-term large-scale
projects for Hitachi Energy and the railway systems business.
While we have these priorities, we will also pay constant attention to health and safety, quality
assurance, compliance, and fostering a culture of thoroughness in these areas. Hitachi iscommitted to earnestly addressing these issues, analyzing the causes, and making efforts in
the right direction, including reviewing and disseminating guidelines. The Audit Committee willcontinue to evaluate and assist with these issues.

Challenges and prospects forfiscal 2023

Prioritize AI risk assessment andoperational efficiency

In addition to further improving the audit items that we conduct every year, the Audit Committee
will contribute to maximizing synergies in Hitachi’s business portfolio as One Hitachi. AsHitachi is a major company that is engaged in a variety of businesses, there are a wide range
of opportunities to improve through greater efficiency, and improving the efficiency of global
operations in particular is an urgent issue that we are addressing.
Regarding AI, which is an important theme today, Hitachi is utilizing generative AI to provide
newer solutions in addition to the current control and analytic AI systems. Risk management
related to AI systems provided by Hitachi within the company and for clients is becoming
increasingly important. The Audit Committee will also closely monitor the progress whileassessing the trends in AI-related global legislation.
For Hitachi to continue to grow soundly and become a global leader in the Social Innovation
Business, the Audit Committee will make earnest efforts to support and monitor the executionof duties by management.

*1 Audit system based on cooperation and close communication among the Audit Committee, the Internal Audit Office, and theaccounting auditor*2 To strengthen the auditing system and functions, in addition to the current Tripartite Audit system, there is an oversight system,
headed by the Audit Committee, that recognizes, assesses, and supervises and supports the resolution of material risks andissues in collaboration with the head office and business unit administration.

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