A Business Foundation that Supports Sustainable Growth

Corporate Governance
Hitachi is a company with nominating committee, etc. under theGovernance Guidelines as a set of enhancing principles and as a

Companies Act of Japan. In June 2003, we changed our organizationalframework for corporate governance that includes criteria fordesign, separating the oversight of management from execution ofdetermining the roles and composition of the Board of Directors,

management. By demarcating responsibilities for management oversightdirector appropriateness and the independence of independentand those for the execution of business operations, Hitachi is working

directors.
Hitachi agrees with the basic approach of the Code, which is that theto create a framework for nimble operations, while making

Code's appropriate implementation will contribute to the development

management highly transparent.
In June 2012, we ensured that 7 of the 13 members of our Board ofand success of companies, investors and the Japanese economy as a

Directors were independent directors*, and that some of thesewhole through individual companies' self-motivated actions, so as toindependent directors were non-Japanese. These changes will help us

achieve sustainable growth and increase corporate value over theto establish management that reflects diverse global perspectives andmedium- to long-term. Moving forward, Hitachi will work to further

strengthen our supervisory functions.

strengthen corporate governance.

Starting in June 2015, Corporate Governance Code of Japan (the“Code”) was applied to companies listed on Japanese stock
exchanges. In 2012, Hitachi formulated and published Corporate* The “Independent Directors” are the directors who fulfill the qualification requirements to be outside directors
as provided for the Companies Act of Japan and also meet the independence criteria defined by the Company
and those provided by Japanese stock exchanges where the Company is listed.

2019
Acceleration of Social Innovation Businessacross 5 Growth Fields

Start of application of
Corporate Governance CodeDevelopment of Stewardship Code

2016

2015

Representative vice presidents were placed in
5 sectors

Enhancement of Dissemination of Information
about Medium- to Long-term Sustainable Growth2014

Publication of an integrated report

Development of Guidelines forStrengthening Governance2012

Development of Corporate Governance
Guidelines

Acceleration of Global Management
Enforcementof revisedCompanies Act

2006

2010

• Independent directors including foreign directors wereincreased• Independent directors comprised the majority of directors

Enhancement of Interactions with
Capital Markets

2003

Hitachi IR Day (briefing on business strategy by division) was
launched• Clarification of commitment of top management of thebusiness units to the capital markets

Demarcation of Management Oversightand Execution

1999

Shifted to a company with committees(currently a company
with nominating committee, etc.)• To increase management speed and improve managementtransparency

Introduction of Objective Perspective
Management Advisory Committees• Practical advice from experts in Japan and overseas

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Hitachi Integrated Report 2019

History of Hitachi’s corporate governance reformImplementing All of the Principles of the Corporate Governance CodeWe are implementing all of the principles of the Corporate Governance Code.

Analysis and Evaluation of the Effectiveness of the Board of Directors
The Company evaluates the effectiveness of its Board of Directors as a whole each year, in a continuous effort to maintain and improve its functions.

Fiscal 2018 Evaluation Process
Points of evaluation· Composition of Board of Directors: Member diversity, numbers and ratios of independent directors and insidedirectors, etc.
1. Questionnaire-based self-assessment for each · Operation of Board of Directors: Meeting frequency, discussion time, proposal selection, role of chairperson, etc.
director (February–March 2019)· Contribution: Contribution to management strategy formulation and other matters, member demonstration ofexperience and knowledge, etc.
· Status of committee activities: Composition, responsibilities and roles, collaboration with Board of Directors, etc.
· Operation supporting system: delivery of information e.g., provision of documents for the Board
2. Discussions held by independent directors(March 2019)· Independent directors held an exclusive meeting to discuss the effectiveness of the Board of Directors.

3. Discussion and review within the Board of
Directors (May 2019)· The Board of Directors holds a discussion based on the results of the questionnaire-based self-assessment anddiscussions conducted in the exclusive meeting attended by independent directors, comparing these results to thoseof the previous year and considering the statuses of related initiatives. Through this discussion the Board of Directors
analyzes and evaluates its overall effectiveness and identifies policies through which it can increase this effectiveness.

Evaluation Results and Future Initiatives
Overall evaluation in fiscal 2018

Overall evaluation in fiscal 2018

Fiscal 2018 evaluations determined that membership in our Board of Directors was sufficiently diverse. They also indicated theBoard of Directors’ overall effectiveness was satisfactory due in part to its active discussions aimed at medium- to long-term
growth in corporate value. Each director was found to have contributed his or her own knowledge to these discussions, whichwere primarily focused on points related to management strategy, including the Mid-term Management Plan.

Maintenance and improvement ofBoard of Director functions· Determine the Company’s medium- to long-term strategic direction and further contribute to the formulation of businessstrategies· Raise contribution to CEO succession planning· Conduct thorough and continuous monitoring of important matters

Future initiatives

Enhancement of support to operation of · Continue to create opportunities to share information, including independent directors visit to Group locations
the Board of Director· Apply ingenuity to improve the design and content of documents and work to consistently provide them in advance

Corporate Governance Framework
Senior Executive
Committee
General Meeting of
Shareholders

ReportAppointment

Appointment/
Oversight

President & CEO

Executive Vice Presidents andExecutive Officers/Senior Vice Presidents andExecutive Officers/Vice Presidents andExecutive Officers

Board of Directors

Nominating Committee
Audit
Compensation
Committee

Audit Committee

ReportInternal
Auditing
OfficeExecutive
Officer
Department
in charge

Executive
Officer
Department
in charge

Department
in charge

Department
in charge

Audit
Audit
ReportAccounting Auditors

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A Business Foundation that Supports Sustainable Growth

Corporate Governance
Board of Directors(3) Compensation Committee
Summary· Independent directors comprise 8 of the 11 Board members.
· Each of the Nominating, Audit, and Compensation Committees
has been established with independent directors in the majority.
· Independent directors have extensive experience and insight ininternational business management and administration serve tostrengthen the Board’s supervisory function.

The Compensation Committee has the authority to determine
remuneration policies for directors and executive officers andremuneration for individuals (including amounts of remuneration) based onthem. The Compensation Committee consists of 4 directors, 3 of whom
are independent directors. The Compensation Committee meetings were
held on 6 days during the fiscal year ended March 31, 2019.
The Board of Directors continuously supervises succession planning for
the CEO. The CEO is appointed or dismissed in line with the proposal of
the Nominating Committee in consideration of the matters: 1) that the

The Board of Directors approves basic management policy for Hitachi

candidate has the highest personal and professional ethics, integrity,

Group and supervises the execution of the duties of executive officers andinsight, and leadership, and 2) that the candidate is believed to be the one

directors in order to sustainably enhance corporate value andmost qualified to realize sustainable enhancement of the Company’s

shareholders’ common interests. The basic management policy includes

corporate value and shareholders’ common interests, with rich experience

the Mid-term Management Plan and annual budget compilation. The

and a distinguished record in the area of corporate management.

Board of Directors focuses on strategic issues related to the basic

Furthermore, Hitachi formulated and published Corporate

management policy as well as other items to be resolved that are provided

Governance Guidelines outlining the framework of corporate

in laws, regulations, the Articles of Incorporation, and Board of Directors

governance, such as the function and composition of the Board ofRegulations. The Board of Directors was made up of 11 directors, 2 ofDirectors, qualifications for directors, criteria for assessing thewhom concurrently serve as executive officers. Hitachi aims to reinforce theindependence of independent directors, and rules on those serving

oversight function of the Board of Directors, of which 8 independent

concurrently as officers at other companies.

directors, including non-Japanese, account for the majority, reflecting theirglobal and diverse viewpoints. The term of office for directors is 1 year.
Within the Board of Directors, there are 3 statutory committees—the

Corporate Governance Guidelines of Hitachi, Ltd.
https://www.hitachi.com/IR-e/corporate/governance/guidelines.html

Nominating Committee, the Audit Committee, and the Compensation
Committee—with independent directors accounting for the majority ofmembers of each committee. The Board of Directors meetings were
held on 12 days during the fiscal year ended March 31, 2019, and theattendance rate of directors at these meetings was 96%. The
attendance rates for each independent director were as shown in the

Attendance at meetings of the Board of Directors by independent
directors in the fiscal year ended March 31, 2019
Attendance / Number of days on which the meetings were held*

Name

Board ofDirectors

Nominating
Committee

Audit
Compensation
Committee Committee

table on the right. To assist with the duties of the Board of Directors

Katsumi Ihara

100%

—

100%

100%

and each committee, staff who are not subject to orders andCynthia Carroll

100%

100%

—

—

instructions from executive officers are assigned.

Joe Harlan

100%

—

—

—

George Buckley

100%

—

—

—

Louise Pentland

100%

—

—

—

(1) Nominating Committee
The Nominating Committee has the authority to determine proposals

Harufumi Mochizuki

100%

100%

100%

100%

submitted to the general meeting of shareholders for the election and

Takatoshi Yamamoto

100%

—

100%

100%

dismissal of directors. The Nominating Committee consists of 4 directors, 3Hiroaki Yoshihara

92%

100%

100%

—

of whom are independent directors. The Nominating Committee meetings* Number of days during term of office during on which Board of Director meetings were held: 12 (9 in the casesof Mr. Ihara and Harlan)
Number of days during term of office on which Nominating Committee meetings were held: 9 (7 in the case of Mr.
Yoshihara)
Number of days during term of office on which Audit Committee meetings were held: 17 (11 in the case of Mr. Ihara)
Number of days during term of office on which Compensation Committee meetings were held: 6 (5 in the case of Mr. Ihara)
Indicates role as board or committee chairperson

were held on 9 days during the fiscal year ended March 31, 2019.
(2) Audit Committee
The Audit Committee has the authority to audit the execution of duties
of directors and executive officers and to decide on proposals
submitted to the general meeting of shareholders for the election and

80

Executive Officers

dismissal of accounting auditors. The Audit Committee consists of 5

Executive officers decide on matters delegated to them by the Board

directors, including 4 independent directors and 1 standing Audit

of Directors and execute Hitachi’s business affairs within the scope ofCommittee member. The Audit Committee meetings were held on 17

assignments determined by the Board of Directors. As of the end ofdays during the fiscal year ended March 31, 2019.

June, 2019, Hitachi has 39 executive officers.

Hitachi Integrated Report 2019

Compensation Structure

Senior Executive Committee
The Senior Executive Committee is a council to ensure that the
President deliberately decides on important managerial matters, which
may affect the business of Hitachi or the Hitachi Group, throughdiscussion from diverse viewpoints. This committee consists of 12
members as of the end of June, 2019: the President & CEO, 6
Executive Vice President and Executive Officers, 4 Senior Vice President
and Executive Officers, and 1 Vice President and Executive Officer.

(1) Directors
Compensation for Directors is basic remuneration as fixed pay. The
amount of basic remuneration is decided by adjusting a basic amount toreflect full-time or part-time status, committee membership and position,and travel from place of residence, etc. A Director concurrently serving
as an Executive Officer is not paid compensation as a Director.
(2) Executive Officers
Compensation for Executive Officers consists of basic remuneration as

Director and Executive Officer Compensation

fixed pay, and short-term incentive compensation and medium- and longterm incentive compensation as variable pay. The basic amount of each

Basic Policy

type of compensations is set based on the ratio of 1:1:1 as the standard

Compensation shall be such that it enables the Company to attract
necessary personnel to achieve an improvement in corporate value
through global business growth.

from compensation for the fiscal 2019, taking into account theCompensation shall be commensurate with roles and responsibilities of each
Directors and Executive Officers.

order to improve corporate value through the growth of global

Compensation for Directors shall be such that it enables them to exercise
functions of supervision of management effectively.

proportion of variable pay is set to the total annual compensation.

Compensation for Executive Officers shall be such that it enables them tocontribute to sustained improvement in corporate value through theexecution of business and employs an appropriate balance between shortterm performance and medium- and long-term performance.

composition of executive compensation for major global companies, inbusinesses. The higher position of Executive Officers holds, the higher
If it is found that an executive officer has been engaged in misconduct
during his/her term of office, compensation for Executive Officers that has
been already paid shall be returned to the Company (clawback provision).

The level of compensation shall be determined taking into account compensationlevels at other companies as well as economic and market trends.

Please refer to Compensation to Directors and Executive Officers

The Compensation Committee utilizes external experts to gain expert
advice and an objective viewpoint, if necessary, for considering the details
and amounts of compensation.

on P.75-80 of Annual Securities Report.
https://www.hitachi.com/IR-e/library/stock/hit_sr_fy2018_4_en.pdf

Compensation to Executive Officers (FY2019)
Total remuneration
Variable pay

Fixed pay
(Basicremuneration)

Short-term incentive compensation

Medium- and Long-term incentive compensation

The amount of short-term incentive compensation is decided within
the range of 0 to 200% of a basic amount set according to therelevant position by adjusting that amount to reflect financial results
and individual performance.

The shares of restricted stock are granted in order to propel
management from a medium- and longterm perspective and to provide
incentives to bring about a sustainable increase in enterprise value by
further promoting senior management’s shared values with shareholders
through the holding of shares during their term of office.

Individual
target-linked
component
Set according to therelevant position byadjusting that amountt o re f l e c t f i n a n c i a lresults and individual
performance.

Varies according to theevaluation of the level ofachievement of
individual target for each
Executive Officer
determined based on
his/her responsibility.

Performance-linked component
Company
performance

Division
performance

Evaluated referring toconsolidated revenues,
adjusted operating
income, EBIT, and net
income attributable to
Hitachi, Ltd. stockholders
in order to measure thelevel of achievement ofconsolidated financial
forecasts disclosed to
stakeholders, including
shareholders andinvestors.

Evaluated referring toadjusted operating
income and operating
cash flows for eachdivision, among otherindicators, to measure
the level of achievementof targets under the
Midterm Management
Plan and the annual
budgets for divisions.

The shares of restricted stock· The restriction on transfer shall be lifted if executive officers resign from all of thepositions of the Company’s executive officer, director, and corporate officer.
· With regard to one-half of granted shares of restricted stock, the number ofshares whose transfer restriction is lifted shall be determined after ex-post
evaluation in which the total shareholder return of Hitachi stock is compared to
growth rate of TOPIX. Lifting of transfer restrictions shall apply to all granted
shares if the TSR/TOPIX Growth Rate Ratio is 120% or more. Lifting of transfer
restrictions shall apply to part of granted shares if the TSR/TOPIX Growth Rate
Ratio is between 80% or more but less than 120% (*). Transfer restrictions shallnot be lifted for any shares if the TSR/TOPIX Growth Rate Ratio is less than 80%.
Shares whose transfer restrictions are not lifted shall be acquired by theCompany without consideration.
* Number of shares whose transfer restrictions are lifted= Number of granted shares × {(TSR/TOPIX Growth Rate Ratio × 1.25) - 0.5

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A Business Foundation that Supports Sustainable Growth

Corporate GovernanceInternal Control over Financial Reporting
To ensure the reliability of its consolidated financial reporting, the Hitachi Group is establishing and implementing relevant internal controls.
We evaluate their effectiveness by adhering to standards for the evaluation of internal controls related to financial reporting that are generally
accepted as fair and reasonable.
Furthermore, we have established the J-SOX Committee with the goal of raising the effectiveness of these internal controls. This committee
evaluates internal control effectiveness and establishes frameworks designed to improve and strengthen them.
Internal Control Assessment Framework

Financial Services
AgencyHitachi, Ltd. President & CEO
Chief Financial Officer

Internal
ControlReportReportReportAudit
Committee

ReportJ-SOX Committee
J-SOX Committee Office

Cooperation

Internal Auditing
OfficeReportBusiness Units and Major Group Companies

Accounting
Auditors
External
AuditsReportSubsidiary Companies

Enhanced Collaboration through Tripartite Audits
In pursuit of sustainable growth in corporate value, Hitachi’s Audit Committee and internal audit section collaborate with third-party accounting
auditors to strengthen its “tripartite auditing,” which aims to increase the effectiveness of internal controls. Our Audit Committee takes the lead in thisregard, as the three parties communicate closely to share risk information and assessments concerning risk response while securing transparency
and ensuring appropriate checks and balances.
Improving Internal Control through a "Tripartite Audit" FunctionGoals

 1 Leveling of audit methods
2 Improving efficiency andtransparency in audit processes witha risk-based approach

Audit by the Audit Committee
based on the risk approach

Audit Committee

Assessment of content of audit

Report status of internal audit

Sharing of risk information andassessment of responses to risk

Request that internal auditors undertake
detailed audit of problems found as aresult of audit by Audit Committee

Assessment of content of audit

Report status of financial audit

Exchange opinions about audit
plans, auditors’ remuneration, risk
assessment, etc.

Report important indications related to financing

Internal audit section(Internal Audit Office)
Periodic internal audit
by office and base82

Hitachi Integrated Report 2019

Assess content
of audit

Extract problems based on
results of internal audits
and assess significance of riskof improper accounting

Accounting Auditors
Accounting audit centered on accuracy
and reliability of financial statements

Building a More Effective and Efficient Auditing Systemapproach in response to the Group’s overall financial status. Applying thisOur Audit Committee formulates audit plans in accordance with its risk-

approach, they then determine the scope and methods of the audit,

based approaches and conducts audits for each consolidated business
unit. Audit Committee members meet directly with business unit heads
before the internal audit section’s audits are carried out. Then, thesemembers inform the internal audit section about concerns and issues
related to the implementation of business strategies aimed at achieving
sustainable growth that require attention. At this time, Hitachi also verifies
matters that carry high levels of risk in terms of quality, measuring theserisks through employee awareness surveys and thorough implementationof business strategies.
Hitachi’s internal audit section performs regular internal audits at eachbusiness site and location. This section reports directly to the CEO and isindependent from organizations that are subject to its audits. The internal
audit section also formulates audit plans based on past audit records
and the most recent business circumstances. Additionally, this section
performs audits upon receiving direction from the Audit Committee,
ensuring their effectiveness.

formulate an audit plan and share opinions with the Audit Committee.
Next, based on the audit plan, they perform audits on each of the 5
growth sectors and the business units that comprise them, enabling
effective and efficient understanding of data related to Hitachi’s financedepartment and each of its business segments. If, during the auditing
process, our accounting auditors discover a degree of risk that could
impact future financial statements significantly or issues that, even ifmonetarily small, could have a large qualitative effect, they share related
information regarding these risks and issues and progress on response
from related divisions with the Audit Committee and internal audit
section. They also work to improve and raise the effectiveness of audits
by submitting “management letters” containing points of concern andimprovement suggestions through the accounting department. Recently,
they have also been working to raise the efficiency of checks on theaccuracy of numerical figures by using IT systems to investigate allcases, rather than performing test-checking through sampling.

The internal audit section at Hitachi is responsible for confirming the legality
and appropriateness of all business operations, including those related to

Dialogue with Shareholders and Investors

accounting, production management, sales, purchasing, IT systems,

Hitachi, Ltd., believes in the importance of dialogue with a wide range

compliance and personnel labor. Furthermore, employees are well versed inof stakeholders, including institutional investors and analysts, andthe ideas and policies of our management and, acting on behalf of ourconducts extensive IR activities.

management team, confirm whether operations are being carried out based

In fiscal 2018, we held quarterly results briefing sessions and aon these ideas and policies and if business strategies are being

briefing on the progress of our 2018 Mid-term Management Plan. In

implemented in a way that will efficiently lead to sustainable growth.

addition, we held the Hitachi IR Day for the ninth consecutive year. At

To further raise audit effectiveness, we implemented a “executive auditor”

this IR event, the people in charge of individual businesses explained

system in each of our 5 growth sectors (IT, Energy, Industry, Mobility, Smart

principal business strategies and management measures in line with

Life) in April 2019. We also established internal control systems which are

the Mid-term Management Plan.

headed by executive auditors who report to the vice presidents who

We also held a briefing by the R&D Division, which is the source of ourmanage each sector. Although these executive auditors do not act as legal

value creation, and members of our management team visited institutional

agents under the Companies Act, they still assume responsibility forinvestors in North America, Europe and Asia, explaining our management

governance in each sector. They also function as a reporting line forstrategies for achieving medium- to long-term growth. Including thesestatutory auditors at Hitachi subsidiaries who are legal agents under thevisits, we held some 550 one-on-one meetings for institutional investors

Companies Act and are working to improve the efficiency of our internal

and analysts in Japan and overseas. We reflect the opinions we obtain

control systems.

through these IR activities into our management and business operation

When conducting business audits, we use IT systems to expeditiously

as we strive to enhance corporate value.

search for reference information contained within materials submitted

On our website that provides information for shareholders andprior to audit in an attempt to improve efficiency. We are currently

investors, in a timely manner we post materials used in briefingbuilding a system that will allow our internal audit section to sharesessions, as well as videos of these briefings, plus graphs showing

information with professional accounting auditors using the Lumada

operating performance and our share price. We are improving theplatform’s data lake and expect it to be complete sometime in fiscal

responsiveness of our website (making browsing from smartphones

2020. When reading audit reports submitted by the internal audit section,and tablets more convenient) as part of an ongoing effort to enhance

our CEO must be able to quickly understand the issues identified bydisclosure.

these reports and make prompt judgments concerning whether
immediate action is required. In the future, our internal audit section will

Information for shareholders and investors:

continue to maintain its transparency and independence while working tohttps://www.hitachi.com/IR-e/index.html

improve audit efficiency as one member of our tripartite audit system.
Our accounting auditors perform audits that focus on the accuracy andreliability of our financial statements. First, they adopt a risk-based

Disclosure Policy:
https://www.hitachi.com/IR-e/corporate/disclosure/index.html

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