MANAGEMENT &Independent Outside Directors* As of June 30, 2017
01 Baba Kalyani

02 Cynthia Carroll

03 Sadayuki Sakakibara

1972 Joined Bharat Forge Limited
1983 Joint Managing Director, Bharat Forge Limited
1994 Managing Director, Bharat Forge Limited
1997 Chairman & Managing Director,
Bharat Forge Limited (Currently in office)2016 Director, Hitachi, Ltd.

1991 General Manager, Foil Products, Alcan Inc.
1996 Managing Director, Aughinish Alumina Ltd.,
Alcan Inc.
1998 President, Bauxite, Alumina and Speciality
Chemicals, Alcan Inc.
2002 President & CEO, Primary Metal Group, Alcan Inc.
2007 CEO, Anglo American plc. (Retired in April 2013)2013 Director, Hitachi, Ltd.

2002 President and Representative Member of the Board,
Toray Industries, Inc.
2010 Chairman of the Board andRepresentative Member of the Board, Toray Industries, Inc.
2013 Director, Hitachi, Ltd.
2014 Chairman of the Board, Toray Industries, Inc.
2015 Chief Senior Advisor and Chief Senior Counselor,
Toray Industries, Inc.
2017 Senior Advisor, Toray Industries, Inc. (Currently in office)04 George Buckley

05 Louise Pentland

06 Harufumi Mochizuki

1993 Chief Technology Officer, Motors, Drives and Appliances,
Emerson Electric Company
1994 President, US Electrical Motors, Emerson Electric Company
1997 President, Mercury Marine Division andCorporate Vice President, Brunswick Corporation
2000 President and Chief Operating Officer,
Brunswick Corporation, Chairman andChief Executive Officer, Brunswick Corporation2005 Chairman of the Board, President andChief Executive Officer, 3M Company
2012 Executive Chairman of the Board,
3M Company (Retired in May 2012)
Chairman, Arle Capital Partners Limited(Retired in December 2015)
Director, Hitachi, Ltd.

1997 Admitted as a Solicitor (UK)2001 Senior Legal Counsel, Nokia Networks,
Nokia Corporation2007 Vice President, Acting Chief Legal Officer andHead of IP Legal, Nokia Corporation
2008 Senior Vice President and Chief Legal Officer,
Nokia Corporation2009 Admitted to New York State Bar Association2011 Executive Vice President and Chief Legal Officer,
Nokia Corporation (Retired in May 2014)2015 General Counsel, PayPal, eBay Inc.
Director, Hitachi, Ltd.
Senior Vice President and Chief Legal Officer,
PayPal Holdings, Inc.
2016 Executive Vice President,
Chief Business Affairs and Legal Officer,
PayPal Holdings, Inc. (currently in office)2002 Director-General for Commerce and Distribution Policy,
Minister’s Secretariat,
Ministry of Economy, Trade and Industry of Japan (“METI”)
2003 Director-General, Small and Medium Enterprise Agency, METI
2006 Director-General, Agency for Natural Resources and Energy, METI
2008 Vice-Minister of Economy, Trade and Industry of Japan
2010 Special Advisor to the Cabinet of Japan(Retired in September 2011)
Senior Advisor to the Board, Nippon Life Insurance Company(Retired in April 2013)2012 Director, Hitachi, Ltd.
2013 President and Representative Director,
Tokyo Small and Medium Business Investment & Consultation
Co., Ltd. (Currently in office)07 Takatoshi Yamamoto

08 Philip Yeo

09 Hiroaki Yoshihara

1995 Managing Director, Morgan Stanley Japan Limited
1999 Managing Director and Vice Chairman,
Tokyo Branch, Morgan Stanley Japan Limited
2005 Managing Director and Vice Chairman,
UBS Securities Japan Co., Ltd.
2009 Managing Director, CASIO COMPUTER CO., LTD.
2011 Advisor, CASIO COMPUTER CO., LTD. (Retired in June 2012)2016 Director, Hitachi, Ltd.

1970 Joined Ministry of Defense of Singapore
1979 Permanent Secretary, Ministry of Defense of Singapore
1986 Chairman, Economic Development Board of Singapore
2001 Chairman, Agency for Science,
Technology and Research of Singapore
2007 Senior Advisor for Science and Technology to
the Ministry of Trade & Industry, Singapore(Retired in September 2008)
Special Advisor in Economic Development,
Prime Minister’s Office, Government of Singapore(Retired in August 2011)
Chairman, SPRING Singapore (Currently in office)2012 Director, Hitachi, Ltd.

Chair of the Nominating Committee
Chair of the Compensation Committee

Chair of the Audit Committee
1978 Joined Peat Marwick Mitchell & Co.
1996 National Managing Partner, the Pacific Rim Practice,
KPMG LLP
1997 Board Member, KPMG LLP
2003 Vice Chairman and Global Managing Partner,
KPMG International (Retired in April 2007)2014 Director, Hitachi, Ltd.

* As all of outside directors meet the independence criteria defined by the Company and those provided by Japanese stock exchanges where the Company is listed,
they are referred to as independent outside directors in this report.

28

Hitachi, Ltd. Integrated Report 2017

Our Business Model
CEO Message
06
05

01
09

04
03

07

10
02

12

Strategic Focus

GOVERNANCE

08

13
11

Directors As of June 30, 2017
10 Kazuyuki Tanaka

11 Hiroaki Nakanishi

Nominating Committee

1977 Joined Hitachi Chemical Company, Ltd.
2005 Executive Officer, Hitachi Chemical Company, Ltd.
2006 Senior Executive Director, Hitachi Media Electronics Co., Ltd.
Representative Director and President,
Hitachi Media Electronics Co., Ltd.
2008 Vice President and Executive Officer,
Hitachi Chemical Company, Ltd.
2009 Representative Executive Officer, President & Chief Executive Officer,
Hitachi Chemical Company, Ltd.
Director, Representative Executive Officer, President & Chief
Executive Officer, Hitachi Chemical Company, Ltd.
2016 Chairman of the Board, Hitachi Chemical Company, Ltd.
(Currently in office)Director, Hitachi, Ltd.

1970 Joined Hitachi, Ltd.
2003 Vice President and Executive Officer
2004 Senior Vice President and Executive Officer
2005 Chairman and Chief Executive Officer,
Hitachi Global Storage Technologies, Inc.
2006 Executive Vice President and Executive Officer, Hitachi, Ltd.
(Retired in December 2006)
2009 Executive Vice President and Executive Officer, Hitachi, Ltd.
2010 President, Hitachi, Ltd., President and Director, Hitachi, Ltd.
2014 Chairman & CEO and Director, Hitachi, Ltd.
2016 Chairman of the Board and Representative Executive Officer,
Hitachi, Ltd.

Audit Committee

13 Toshiaki Higashihara
1977 Joined Hitachi, Ltd.
2007 Vice President and Executive Officer (Retired in March 2008)
2008 President, Hitachi Power Europe GmbH2010 President and Chief Executive Officer,
Hitachi Plant Technologies, Ltd.
President and Representative Director,
Hitachi Plant Technologies, Ltd.
2011 Vice President and Executive Officer, Hitachi, Ltd.
2013 Senior Vice President and Executive Officer, Hitachi, Ltd.
2014 President & COO, Hitachi, Ltd.
President & COO and Director, Hitachi, Ltd.
2016 President & CEO and Director, Hitachi, Ltd.

Value Creation

Representative Executive Officer

Management & Governance

12 Toyoaki Nakamura
1975 Joined Hitachi, Ltd.
2006 General Manager, Finance Department
2007 Senior Vice President and Executive Officer
Senior Vice President, Executive Officer and Director
2009 Senior Vice President and Executive Officer
2012 Executive Vice President and Executive Officer(Retired in March 2016)2016 Director

Compensation Committee

Each Committee is composed of the following members (chair names underlined)
Nominating Committee:
Harufumi Mochizuki, Cynthia Carroll, Sadayuki Sakakibara, Hiroaki Nakanishi
Audit Committee:
Hiroaki Yoshihara, Harufumi Mochizuki, Takatoshi Yamamoto, Kazuyuki Tanaka, Toyoaki Nakamura
Compensation Committee:

Hitachi, Ltd. Integrated Report 201729

Performance

Harufumi Mochizuki, Sadayuki Sakakibara, Takatoshi Yamamoto, Toshiaki Higashihara

Executive Officers
As of June 30, 2017

President & CEO

Executive Vice Presidents and Executive Officers

Toshiaki Higashihara*

Masakazu Aoki*

Ryuichi Kitayama*

Yutaka Saito*

Keiichi Shiotsuka*

Overall management

Assistant to the President andindustrial products business

Assistant to the President,
marketing & sales, and social
innovation business promotion

Assistant to the President andIoT business

Assistant to the President andsystems & services business

Senior Vice Presidents and Executive Officers

Koji Tanaka*Toshikazu Nishino*

Shinichiro Omori

Toshiaki Kuzuoka*

Keiji Kojima

Assistant to the President andnuclear energy business

Assistant to the President andmanagement strategies

Cost structure reform, information
technology strategies and supply
chain management (MONOZUKURI
and quality assurance)

Corporate communications
and CSR, legal matters, risk
management and corporate
auditing

Services & platforms business

Hiroshi Sato

Yasuo Tanabe

Yoshitaka Tsuda

Alistair Dormer

Mitsuaki Nishiyama*

Building systems businessGovernments & external relations

Marketing & sales and social
innovation business promotion

Railway systems business

Finance and corporate pension
systemVice Presidents and Executive Officers
Hiroyuki Ugawa

Kenji Urase

Ryuichi Otsuki

Atsushi Oda

Yoshihiko Kawamura

Business for industry &distribution sectors

Water business

Services & platforms business

Power business

Investment strategies andstrategies for next generation
business

Kenichi Kokubo

Keizo Kobayashi

Setsuo Shibahara

Akira Shimizu

Norihiro Suzuki

Regional strategies (China)

Urban solutions business

Systems & services businessGovernments & external relations

Research & development

Katsuya Nagano

Hidenobu Nakahata

Tadashi Namura

Isao Narukawa

Masaaki Nomoto

Business for government,
public corporation and social
infrastructure systems

Human capitalMarketing & sales (business forfinancial institutions, government,
public corporation and social
infra­structure systems, healthcare
business and defense systems
business)

Marketing & sales (nuclear energy
business, power business andenergy solutions business)

Energy solutions business

Kentaro Masai

Yasushi Manabe

Mamoru Morita

Tsugio Yamamoto

Masaya Watanabe

Railway systems business

Marketing & sales (business forindustry & distribution sectors,
water business, building systems
business, railway systems businessand urban solutions business)

Management strategies

Business for financial institutions

Healthcare business

Representative Executive Officer
Hiroaki Nakanishi*
GeneralNote: Executive officers are listed by position and in Japanese alphabetical order within each grouping.
* Denotes executive officers who are representative executive officers.

30

Hitachi, Ltd. Integrated Report 2017

oversight of Group companies. In these ways, Hitachi isworking to increase corporate value.
Starting in June 2015, Japan’s Corporate Governance
Code applies to companies listed on stock exchanges inJapan. Hitachi agrees with the basic approach of the Code,which is that the Code’s appropriate implementation willcontribute to the development and success of companies,
investors and the Japanese economy as a whole throughindividual companies’ self-motivated actions so as toachieve sustainable growth and increase corporate value
over the medium to long term. Moving forward, Hitachi will
work to further strengthen corporate governance.

CEO Message

Hitachi and its listed subsidiaries are “Companies with
Nominating Committee, etc.” defined under the Companies
Act of Japan. By demarcating responsibilities for
management oversight and those for the execution ofbusiness operations, Hitachi is working to create aframework for nimble operations, while making management
highly transparent.
In addition, Hitachi is executing business strategies
formulated to enable the Group to demonstrate its collective
strengths. Moreover, some of Hitachi’s directors andexecutive officers serve concurrently as directors or executive
officers at Group companies, thereby strengthening integrated
management of the Group and improving management

Our Business Model

Corporate GovernanceInitiatives to Strengthen Corporate Governance
1 Realizing quick, highly transparent management

2 Accelerating global management and strengthening

Hitachi transitioned to a Company with
Committee System (now called a Company
with Nominating Committee, etc.) in June 2003.

Increased number of independent outside
directors including non-Japanese directors;
independent outside directors became
majority in June 2012.

Major Aims

Major Aims

Make management highly transparent by demarcating
responsibilities for management oversight and those for the
execution of business operations

Reflect global, diverse viewpoints in management,
further strengthen oversight function

Composition of Board of Directors

Nominating Committee: Determines director candidates

Independent
outside directors

4

9

Audit Committee: Audits execution of directors
and executive officers

Directors(non-executive)

7

2

Compensation Committee: Determines remuneration
for directors and executive officers

Directors(serving concurrently as
executive officers)

2

2

Independent outside director

Director

Non-Japanese directors

Value Creation

June 2017 (13 elected)

Management & Governance

June 2011 (13 elected)

Female directors

Hitachi, Ltd. Integrated Report 201731

Performance

Composition of Each Committee (June 2017)

Chairman (Independent outside director)

Strategic Focus

oversight function

3

Appropriate implementation of the Corporate Governance Code

Implementing all of the principles of the Corporate Governance CodeAnalysis and Evaluation of the Effectivenessof the Board of Directors
In evaluating the Board’s effectiveness for the fiscal year
ended March 31, 2017, questionnaires were distributed to
all directors, and each of them carried out aself-assessment of the Board regarding its composition,
decision-making process, contribution to the company,
operational and support systems for the Board, and otheraspects. Based on the results of these evaluations, theBoard analyzed and evaluated its effectiveness as awhole, considering comparison to the results for the fiscal
year ended March 31, 2016.
The Board assessed that the Board members arediverse and make use of their knowledge and expertise to

speak out, having vigorous discussions especially on
matters related to business strategies such as the
Mid-term Management Plan toward medium/long-term
growth of corporate value. The Board, therefore,
concluded that the effectiveness of the Board as a wholeis being maintained.
Based on the suggestions made by each director
with an aim to maintain and improve the functions of theBoard, the Company will make Board discussions related
to business strategies more effective and improve themethod of information provision to help directors further
expand their contribution.

Corporate Governance Framework

Accounting Auditors

Report

Audit

General Meeting of
Shareholders

Senior Executive
Committee
ReportPresident & CEO

Appointment
Appointment/
Oversight

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

Board of Directors

Nominating Committee
Audit

Compensation
Committee

Internal
Auditing
OfficeAudit Committee

Executive
Officer
Department
in charge

Executive
Officer
Department
in charge

ReportAudit

32

Hitachi, Ltd. Integrated Report 2017

Department
in charge

Department
in charge

Attendance at meetings of the Board of Directors by eachindependent outside director in the fiscal year ended March 31, 2017
Attendance*

Attendance rate

Baba Kalyani

6 out of 7 days

86%

Concurrent Officer Positions at Other Companies

Cynthia Carroll

8 out of 8 days

100%

Sadayuki Sakakibara

8 out of 8 days

100%

In order for directors to secure the time necessary tounderstand the Company’s business and prepare for andattend Board of Directors meetings, the Company considers
it desirable for its directors not to hold concurrent officer
positions (director, corporate auditor, or executive officer) in
more than four other listed companies.

George Buckley

8 out of 8 days

100%

Louise Pentland

8 out of 8 days

100%

Harufumi Mochizuki

8 out of 8 days

100%

Takatoshi Yamamoto

7 out of 7 days

100%

Philip Yeo

8 out of 8 days

100%

Hiroaki Yoshihara

8 out of 8 days

100%

Our Business Model
CEO Message

In regard to the election of an independent outside
director, Hitachi’s Nominating Committee considers thefollowing criteria for independence. In addition, theCommittee also considers whether the independent
outside director has outstanding character and insight andwhether the independent outside director has worked in aleadership position in such fields as business, law, administration, accounting or education, or has experience atpolicy-making levels.
In regard to the independence of an independent
outside director, the Company considers an independent
outside director to be independent unless:• His or her immediate family member is, or has been within
the last three years, a director or an executive officer of theCompany or any of its subsidiaries;• He or she is currently an executive director, an executive
officer, or an employee of a company that has madepayments to, or received payments from, the Company forproperty or services in an amount which, in any of the last
three fiscal years, exceeds 2% of any of the companies’
consolidated gross revenues;• He or she has received during any of the last three fiscal
years more than ¥10 million in direct compensation for hisor her service as a specialist in law, accounting or tax, or
as a consultant from the Company, other than director
compensations; or• He or she serves as an executive officer or director of a
not-for-profit organization, and the Company’s
discretionary charitable contributions to the organization in
any of the last three fiscal years are more than ¥10 million
and 2% of that organization’s annual gross revenues.

Management & Governance

Name

Qualification for Independent Outside Directors
and Criteria for Independence

Strategic Focus

The Board of Directors approves basic management policy
for the Hitachi Group and supervises the execution of theduties of executive officers and directors in order to sustainably enhance corporate value and shareholders’ common
interests. The basic management policy includes the
Mid-term Management Plan and annual budget compilation.
The Board of Directors focuses on strategic issues related tothe basic management policy as well as other items to beresolved that are provided in laws, regulations, the Articles ofIncorporation, and Board of Directors Regulations. As ofJune 21, 2017, the Board of Directors was made up of 13
directors, two of whom concurrently serve as executive
officers. Hitachi aims to reinforce the oversight function of
the Board of Directors, of which nine independent outside
directors, including non-Japanese, account for the majority,reflecting their global and diverse viewpoints. The term ofoffice for directors is one year.
Within the Board of Directors, there are three statutory
committees—the Nominating Committee, the Audit
Committee, and the Compensation Committee—with
independent outside directors accounting for the majorityof members of each committee. The Board of Directors
meetings were held on 8 days during the fiscal year ended
March 31, 2017, and the attendance rate of directors atthese meetings was 99%. The attendance rates for eachindependent outside director were as shown in the tablebelow. To assist with the duties of the Board of Directors
and each committee, staff who are not subject to orders
and instructions from executive officers are assigned.

Value Creation

Board of Directors* Based on the number of days Board meetings were held during each independent
outside director s term of office.

Furthermore, Hitachi formulated and published
Corporate Governance Guidelines outlining the frameworkof corporate governance, such as the function andcomposition of the Board of Directors, qualifications for
directors, criteria for assessing the independence ofindependent outside directors, and rules on those serving
concurrently as officers at other companies.
Corporate Governance Guidelines of Hitachi, Ltd.

Hitachi, Ltd. Integrated Report 201733

Performance

http://www.hitachi.com/IR-e/corporate/governance/guidelines.html

Independent outside directors and reasons for appointment

Baba Kalyani

Mr. Kalyani is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the executionof duties by executive officers and others from an independent perspective as well as reflecting his global viewpoint to theCompany’s Board of Directors based on his rich experience and insight as the top executive of a major global company.

Cynthia Carroll

Ms. Carroll is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the executionof duties by executive officers and others from an independent perspective as well as reflecting her global viewpoint to theCompany’s Board of Directors based on her rich experience and insight as the top executive of major global companies.

Sadayuki Sakakibara

Mr. Sakakibara is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising theexecution of duties by executive officers and others from an independent perspective based on his rich experience andinsight as the top executive of a major global company.

George Buckley

Mr. Buckley is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the execution of duties by executive officers and others from an independent perspective as well as reflecting his global viewpoint to
the Company’s Board of Directors based on his rich experience and insight as the top executive of major global companies.

Louise Pentland

Ms. Pentland is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising theexecution of duties by executive officers and others from an independent perspective as well as reflecting her global
viewpoint to the Company’s Board of Directors based on deep insight into corporate legal matters and corporate governance gained through her rich experience as the chief legal officer of major global companies.

Harufumi Mochizuki

Mr. Mochizuki is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising theexecution of duties by executive officers and others from an independent perspective based on his rich experience andinsight in the area of public administration, etc.

Takatoshi Yamamoto

Mr. Yamamoto is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the execution of duties by executive officers and others from an independent perspective based on a broad range of insight in businessand management gained through his experience in the area of corporate analysis and global corporate management.

Philip Yeo

Mr. Yeo is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the executionof duties by executive officers and others from an independent perspective as well as reflecting his global viewpoint to theCompany’s Board of Directors based on his broad experience and insight in such areas as public administration.

Hiroaki Yoshihara

Mr. Yoshihara is expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the execution ofduties by executive officers and others from an independent perspective as well as reflecting his global viewpoint to the Company’s Board of Directors based on his rich experience and insight in the area of global corporate management and accounting.

(1) Nominating Committee
The Nominating Committee has the authority to determine
proposals submitted to the general meeting of shareholders
for the election and dismissal of directors. The Nominating
Committee consists of four directors, three of whom are
independent outside directors.
The Nominating Committee meetings were held on 10
days during the fiscal year ended March 31, 2017.

Composition of the Board of Directors and each committee(as of June 21, 2017)
Number of
persons

Independent
outsidedirectors*
Directors

13

9

4

Director

Nominating
Committee

431

Independent
outsidedirector

Audit Committee

5

3

2

Independent
outsidedirector

Compensation
Committee

431

Independent
outsidedirector(2) Audit Committee
The Audit Committee has the authority to audit the executionof duties of directors and executive officers and to determine
on proposals submitted to the general meeting ofshareholders for the election and dismissal of accounting
auditors. The Audit Committee consists of five directors,
including three independent outside directors and one
standing Audit Committee member.
The Audit Committee meetings were held on 16 days
during the fiscal year ended March 31, 2017.

(3) Compensation Committee
The Compensation Committee has the authority todetermine remuneration policies for directors and executive
officers and remuneration for individuals (including amountsof remuneration) based on them. The Compensation
Committee consists of four directors, three of whom are
independent outside directors.
The Compensation Committee meetings were held on
4 days during the fiscal year ended March 31, 2017.
34

Hitachi, Ltd. Integrated Report 2017

Chair

Board of Directors* Hitachi has issued notifications identifying all outside directors as independent outside
directors to each of the stock exchanges in Japan where the Company is listed.

Committee members

Nominating
Committee

Harufumi Mochizuki (Chair), Cynthia
Carroll, Sadayuki Sakakibara, Hiroaki
Nakanishi

Audit
Committee

Hiroaki Yoshihara (Chair), Harufumi
Mochizuki, Takatoshi Yamamoto,Kazuyuki Tanaka, Toyoaki Nakamura

Compensation Harufumi Mochizuki (Chair), Sadayuki
Committee
Sakakibara, Takatoshi Yamamoto,Toshiaki Higashihara

The Compensation Committee, of whose members morethan half are independent outside directors, sets forth thepolicy on the determination of compensation details for
directors and executive officers and, based on this policy,
the amount of compensation, etc., of each director andexecutive officer, pursuant to applicable provisions of theCompanies Act.

Basic Policy
Compensation for directors and executive officers shall be
determined in accordance with the following basic policy.
• Compensation shall be such that it enables the company
to attract necessary personnel to achieve an improvement
in corporate value through global business growth.
• Compensation shall be commensurate with the roles andresponsibilities of directors and executive officers.
• Compensation for directors shall be such that it enables
them to exercise functions of supervision of management
effectively.
• Compensation for executive officers shall be such that it
enables them to contribute to sustained improvement incorporate value through the execution of business, andemploys an appropriate balance between short-term
performance and medium- and long-term performance.
• The level of compensation shall be determined taking into
account compensation levels at other companies, as wellas economic and market trends.
• The Compensation Committee utilizes external experts togain expert advice and an objective viewpoint, if necessary,for considering the details and amounts of compensation.

Strategic Focus

Director and Executive Officer
Compensation(ii) Executive officers
Compensation for executive officers consists of basic
remuneration, performance-linked compensation, andmedium- and long-term incentive compensation. The higher
position the executive officer holds, the higher the proportionof variable pay (the sum of the performance-linked
compensation and the medium- and long-term incentive
compensation, not including basic remuneration as fixedpay) is as a portion of total annual compensation.
• ​Basic remuneration is decided by adjusting a basic amountto reflect the results of an assessment. The basic amountis set in accordance with the relevant position.
• ​The performance-linked compensation is decided within
the range of 0%–200% of the basic amount based on
financial results and individual performance. The basic
amount is set within the range of about 25%–35% of thetotal annual compensation of each executive officer inaccordance with the relevant position.
• ​Medium- and long-term incentive compensation is stock
options as stock-based compensation, with share priceconditions (stock acquisition rights with the strike price of¥1). The number of stock acquisition rights to be granted isdetermined within the range of about 10%–40% of thetotal annual compensation of each executive officer inaccordance with the relevant position. The number ofstock acquisition rights that may be exercised will be
determined within the range of 0%–100% of the stockacquisition rights granted in accordance with theconditions. As for expatriates, cash awards based on thevalue of Hitachi’s share price with similar conditions aresubstituted for the stock options.

Value Creation

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, through discussion from diverse viewpoints.
This committee consists of 10 members as of June 21,
2017: the President & CEO, six executive officers serving
as executive vice presidents, and three executive officers
serving as senior vice presidents.

Management & Governance

Senior Executive Committee

Our Business Model(i) Directors
Compensation for directors consists of basic remuneration
and a year-end allowance.
• ​Basic remuneration is decided by adjusting a basic amountto reflect full- or part-time status, committee membershipand position, travel from place of residence, etc.
• Year-end allowance is a predetermined amount equivalent
to about 20% of the director’s annual basic remuneration,
but may be reduced depending on financial results.
A director concurrently serving as an executive officer does
not receive any compensation as a director.

CEO Message

Compensation Structure

Executive officers decide on matters delegated to themby the Board of Directors and execute Hitachi’s businessaffairs within the scope of assignments determined by
the Board of Directors. As of June 21, 2017, Hitachi has
36 executive officers.

(iii) Miscellaneous
The compensation structure for directors and executive
officers was re-examined starting with compensation for
the fiscal year ended March 31, 2009, and the retirement
allowance was abolished.

Hitachi, Ltd. Integrated Report 201735

Performance

Executive Officers

The amount of compensation for directors and executive officers for the fiscal year ended March 31, 2017, is as follows:
Amount of compensation
Total amount of each type (millions of yen)
Total amount ofcompensation, etc.
(millions of yen)Monthly
remuneration

Year-end allowance andperformance-linked
compensation

Medium- and long-term
incentive compensation

Number of persons

Directors (excluding
independent outside directors)

75*1

69*1

6

−

4*3

Independent outside directors

308*2

290*2

17

−

10

Category

Executive officers

2,569

1,386

982

200

33

Total

2,953

1,747

1,005

200

47

*1 The amount of compensation to directors (excluding independent outside directors) includes the basic remuneration for two directors who retired due toexpiration of their term of office at the close of the 147th Annual General Meeting of Shareholders held on June 22, 2016.
*2 The amount of compensation to independent outside directors includes the basic remuneration for one independent outside director who retired due toexpiration of his term of office at the close of the 147th Annual General Meeting of Shareholders held on June 22, 2016.
*3 The number of directors indicated excludes two directors who concurrently serve as executive officers.

In addition, directors or executive officers whose compensation from Hitachi and its subsidiaries is not less than ¥100 million
and the amount of their compensation are as follows:(Millions of yen)
Total amount of each type
Incentive
Total amount ofcompensation, etc.

Basic
remuneration

Shortterm*4

Medium- andlong-term*5

Year-end
allowance

209

102

70

37

−

57

40

10

−

1

−

−

−

Name

Company

Category

Toshiaki Higashihara

Hitachi, Ltd. (The Company)

Executive
officer* 6

Hitachi, Ltd. (The Company)

Executive
officer

Hitachi High-Technologies
Corporation (consolidated
subsidiary)

Director

Hitachi Capital Corporation(consolidated subsidiary)* 7

Director

1

−

−

−

Hitachi, Ltd. (The Company)

Executive
officer

49

39

10

−

Hitachi Kokusai Electric Inc.
(consolidated subsidiary)

Director

7

−

−

1

Hitachi Construction MachineryCo., Ltd. (consolidated subsidiary)

Director

5

−

−

1

Hitachi, Ltd. (The Company)

Executive
officer

57

40

10

−

3

−

−

0

Ryuichi Kitayama

Yutaka Saito

Koji Tanaka

110

113

112

Hitachi Chemical Company, Ltd.
(consolidated subsidiary)

Director

Toshikazu Nishino

Hitachi, Ltd. (The Company)

Executive
officer

113

61

41

10

−

Alistair Dormer* 8

Hitachi Rail Europe Ltd.
(consolidated subsidiary)* 9

Executive
chairmanand CEO

146

67

40

38

−

Hiroaki Nakanishi

Hitachi, Ltd. (The Company)

Executive
officer* 6

189

97

67

24

−

*4 Collective term for compensation from the Company and consolidated subsidiaries paid depending on financial results and individual performance in the short term.
*5 Medium- and long-term incentive compensation for executive officers of the Company is stock options as stock-based compensation.
*6 Although they concurrently served as director for the fiscal year ended March 31, 2017, Toshiaki Higashihara and Hiroaki Nakanishi did not receive
compensation as director.
*7 The amount of compensation from Hitachi Capital Corporation is only for the period when it was a consolidated subsidiary of Hitachi, Ltd. during the fiscal year
ended March 31, 2017.
*8 Although he concurrently served as an executive officer of the Company for the fiscal year ended March 31, 2017, Alistair Dormer did not receive compensation as
an executive officer of the Company.
*9 The basic remuneration paid in pounds is converted into yen using the average exchange rate for each quarter of the fiscal year ended March 31, 2017. Incentive
compensation paid in pounds is converted into yen using the average exchange rate for the fiscal year ended March 31, 2017.

36

Hitachi, Ltd. Integrated Report 2017

Our Business Model

Internal Control over Financial Reporting
To ensure the reliability of consolidated financial reporting, theGroup develops and uses control documents ranging fromcompany-level to business process controls based on theguidelines determined by our J-SOX Committee.
Business units within Hitachi, Ltd. and major Group
companies have developed mechanisms to objectively

perform assessments. The J-SOX Committee officecollects the results of the assessments performed by eachbusiness unit and company, and assesses the effectivenessof internal control across the entire Group.

Financial
Services Agency

CEO Message

Hitachi Group Internal Control Assessment Framework (As of April 1, 2017)

Hitachi, Ltd. President and CFO
Internal
ControlReportReportReportJ-SOX Committee
J-SOX Committee’s Office

Audit
Committee

ReportCollaboration

Internal Auditing
OfficeReportBusiness Units andMajor Group Companies

Independent
Auditors
External
Audit

ReportStrategic Focus

Subsidiary Companies

Toward a More Integrated “Tripartite Audit” Function
We are working to further enhance the effectiveness of theinternal control exerted through the integrated work of a“tripartite audit” function comprising the Audit Committee;
our internal audit sections, principally, the Internal Audit
Office; and external auditing firm. Through close

communication, the three share information about risks
and evaluation of risk responses, secure transparency inthe audit process, and improve the effectiveness ofinternal control systems.

2 Improving efficiency and transparency in audit processes with a risk-based approach

Status report on internal audit

Audit Committee
Audit Committee audit
on risk-based approach

Request for detailed internal audit of issues identified
by Audit Committee
Exchange of opinions
regarding audit time, fee,risk evaluation, etc.

Report on importantfinancial and accounting
findings

Internal audit section(Internal Audit Office)Management & Governance

1 Leveling of audit methods

Regular business-site-levelinternal audits

Sharing of risk information
Status report on
accounting audit

Auditing firm

Identification of issues through internal
control audit and evaluation of severity offraud risk, etc.

Accounting audit centered on
accuracy and reliability offinancial statements

Hitachi, Ltd. Integrated Report 201737

Performance

Goals

Value Creation

Improving Internal Control through a “Tripartite Audit” Function

Accountability
In accordance with its disclosure policy, Hitachi isimplementing the fair and appropriate disclosure of suchinformation as management strategies and financial
information. In addition, Hitachi is aggressively conducting
dialogues through such means as meetings withshareholders and investors, investor relations (IR) events,
and the general meeting of shareholders.
In fiscal 2016, we held quarterly financial results
briefings as well as corporate strategy meetings
presenting our new 2018 Mid-term Management Plan.
We also hosted the seventh annual Hitachi IR Day, where
divisional managers from each business unit explained
their business strategies and management policies under
the plan. Feedback from institutional investors andanalysts was positive, with comments including “Hitachi
IR Day has become a well-established IR event,” and“Direct briefings from CEOs of business units about theirbusiness strategies are important opportunities for thoseof us in the capital market to deepen our understandingof Hitachi’s various businesses, and we very much hope
they will continue.”
We also held briefings to explain our newly
constructed IoT platform “Lumada,” and members ofsenior management continued their practice of visiting
institutional investors and analysts in North America,
Europe, and Asia twice a year to explain corporate
management policies and business direction, for a
combined total of around 700 meetings. In addition, we
hosted numerous company information sessions tailored
to individual investors to deepen their understanding of
Hitachi. We are doing our best to report to members ofsenior management and to reflect this in management
and operations.

38

Hitachi, Ltd. Integrated Report 2017

We also post briefing materials and businessperformance as well as stock price trend charts in a timely
manner on our IR website. Aiming to continuously enhance
our information disclosure, we introduced a new
responsive design on our website for improved browsing
convenience from smartphones and tablets.
Information for shareholders and investors
http://www.hitachi.com/IR-e/

Major information disclosure publications

Financial results/Quarterly financial results
Annual securities reports/Quarterly reports
Business reports/Interim business reports
Hitachi Group sustainability reports

Given the close relation of our business to social infrastructure, we are enhancing our business continuity plans (BCPs)
to ensure that the impact of risks does not disrupt ourbusiness and thereby significantly affect society. In
December 2006, we issued the Hitachi Group Guidelines forDeveloping Business Continuity Plans (Overview) inJapanese. In fiscal 2010 this was translated into English andChinese for distribution to all Hitachi Group companies
worldwide to ensure our response readiness for large
disasters and other risks.
When the Great East Japan Earthquake struck in March
2011, our BCPs enabled quick responses and swift decision
making. However, issues emerged, including identification of
secondary and other suppliers, cloud storage andmultiplexing of production information, and the need tosecure alternate transportation and fuel sources. Based on
the lessons learned from this disaster, in October 2011 wereleased and distributed new versions of the Hitachi Group
Guidelines for Developing Business Continuity Plans forindividual departments to further improve our BCPs.
By the end of fiscal 2011, Hitachi Group operations inJapan had completed their preparation and review of BCPs
for both large earthquakes and novel strains of influenza as
appropriate to their operations.
On top of these efforts, Hitachi, Ltd. has held annual
earthquake drills simulating a major seismic event at key
operations in Japan since fiscal 1998. In March 2017,
Hitachi Chemical held drills under the direction of its head
office general manager, with managers at the head officeand the Nabari Works striving to improve their risk
management skills and identify possible areas for improvement in their BCPs.
Hitachi appointed personnel with responsibility for risk
response policies at its main overseas bases in fiscal 2013.
By the end of that year, around 300 companies had
prepared BCPs with the goal of completing them for key
operations. These BCPs are aimed at strengthening ourability to respond to business risks, including large disasters,
novel strains of influenza, political instability, and social
disruption, as well as acts of terrorism. Moving forward, we
intend to further expand the scope of our BCPs.

Improving Safety for Employees Sent toDangerous Regions
Responding to the hostage incident in Algeria in January
2013, then President Hiroaki Nakanishi reinforced his policy
in February 2013 of ensuring the safety of employees sent tocountries and areas at higher risk. Survey missions of
in-house and outside experts are now sent beforehand toareas at high risk of war, terrorism, and other threats. Even
after employees are dispatched to such areas, we conduct
additional local surveys every six months as a means ofconfirming the effectiveness of our safety policies. In fiscal
2016, with the threat of terrorism expanding around theworld, we introduced a range of safety measures, including
providing timely alerts to employees. This underscores ourcommitment to ensuring the safety of our employees
working around the globe. Hitachi is also contributing tosafety measures at other Japanese corporations operating
outside Japan. To help enhance collaboration between theprivate and public sectors in this area, Hitachi executives
participated in the Council for Public-Private Cooperation for
Overseas Safety organized by Japan’s Ministry of Foreign
Affairs. Since 2014 Hitachi has taken part in public-private
kidnap incident preparatory training exercises.

Hitachi, Ltd. Integrated Report 2017

Value Creation

Creating BCPs in Key Operations Worldwide

Management & GovernanceStable Provision of Products and Services

CEO Message

We have a deep involvement in social infrastructures inplaces where the suppliers who are our business
partners can be affected by major earthquakes and othernatural disasters.
These disasters can heavily impact not only ourbusiness operations and those of our suppliers but alsosociety as a whole. To minimize this impact, the procurement divisions in business units and key Group companies
in Japan have created procurement BCPs that (1) standardize
and use generic parts to make procurement as flexible aspossible; (2) cultivate multiple suppliers; (3) distributeproduction across several locations; (4) budget inventory
strategically; and (5) consider substitute products. To see
whether or not procurement BCPs would be effective, we
held desktop exercises to discuss in a group what should bedone during and after a disaster, making further improvements as a result.
In fiscal 2016, all major Group business sites withproduction lines (approximately 200 sites in total) took steps
to maintain and strengthen the procurement BCPs they had
created by the previous fiscal year, thereby contributing to
the continuation of Hitachi’s global operations.

Strategic Focus

Creation of Procurement BCPs

The entire Hitachi Group is reinforcing its risk
management system to address increasingly globalized
and complex risks.
Under Hitachi, Ltd.’s head of risk management, eachbusiness operation assigns an executive as its risk
management officer to manage risks mainly concerned withcompliance, export control, disasters, and crime, and torespond adequately in coordination among the entire Group.
Furthermore, Hitachi is building a comprehensive risk
management system that contains standards andprocedures to objectively evaluate different risks that may
affect business.

39

Performance

Reinforcement of Risk Management System

Our Business Model

Risk Management

Promoting Information Security

Basic Approach to Information Security Governance

Implementing Rigorous Information Security
Hitachi’s chief information officer (CIO) is appointed by thecompany’s president and has the authority and responsibility to implement and operate an Information Security
Management System (ISMS). In fiscal 2016, the role of the
CIO was performed by Hitachi’s senior vice president andexecutive officer. The Information Security Committee,
chaired by the CIO, determines policies and proceduresfor information security and personal information
protection. The Information Security Promotion Council
and other bodies convey decisions internally and to othercompanies in the Hitachi Group. Information security
officers at business sites and companies ensure thatthese decisions are implemented in the workplace.
The Hitachi Group emphasizes two points in information security and personal information protection:(1) Precautionary measures and prompt security
responses
We classify assets to be secured and take safeguarding
measures based on vulnerability and risk analyses. We
also have an emergency manual for security breaches,
based on the assumption that these are inevitable, andnot just possible.
(2) Promoting stronger ethical and security awarenessamong data users
We have prepared a program tailored to Hitachi’s various
personnel levels and are working to raise the prevailingsense of ethics and security awareness throughGroup-wide e-learning. We are also conducting audits to
identify and address problems early on.

Details, including a message from the CIO and alist of third-party assessments and certifications, arecontained in Information Security Report 2016.
Information Security Report 2016
http://www.hitachi.com/csr/download/pdf/securityreport_e.pdf

40

Hitachi, Ltd. Integrated Report 2017

Clearly designate assets to be protected
Evaluate information assets and conduct risk
analysis

Improve user literacy
Supply security
education materials
Educate managers andstaff

Information
assets to beprotected

Implement preventive
techniques
Widely implementadministrative measures
Deploy technologicalprocesses

Establish information security system
Develop rules (security policy)
Create managerial framework
Establish audit and follow-up system
Ensure solid feedback through extensive PDCA
cycles for prevention and accident response

Education on Information Security
Consistently maintaining information security requires all
parties to continually develop their knowledge of information handling and to remain strongly aware of the issues.
For this reason, we hold annual e-learning programs on
information security and personal information protection
for all directors, employees, and temporary employees.
Nearly all of the roughly 40,000 employees at
Hitachi, Ltd. participate in these programs. We offer avariety of courses that have different goals and are
tailored to different target audiences, including new
employees, new managers, and information systemadministrators. In 2012, we also began simulation
training to educate employees about the increasing
trend toward malicious targeted e-mail attacks andother cyberattacks. Employees are sent examples oftargeted e-mail to heighten their awareness of security
through direct experience.
Our educational programs, available to HitachiGroup companies in Japan and other global regions,provide Group-wide education on information security
and personal information protection.

Global Information Security Management

Hitachi, Ltd. has formulated the Three Principles forPreventing Leakage of Confidential Information to ensure
the highest level of care for such information and toprevent leaks and other related incidents. Our policies
ensure that if an incident does occur, damage is promptly
minimized by contacting customers, reporting togovernment agencies, investigating causes, and acting toprevent any recurrence.
Hitachi Group companies take the following IT steps
to prevent information leaks: using encryption softwareand secure PCs; employing electronic document access
control and expiration processing software; maintaining ID
management and access control by building an authentication infrastructure; and filtering e-mail and visited
websites. In response to the recent spate of targetede-mail attacks and other cyberattacks, we are participating in an initiative to share information between theprivate sector and the government. We are alsoenhancing our IT organization by adding more layers to
our leak prevention procedures, including both entry andexit countermeasures.
To ensure the secure exchange of information with
our suppliers, we review their information security
measures based on Hitachi’s own standards before
allowing them access to confidential information. We haveprovided tools to suppliers (procurement partners) for
security education and for checking business informationon computers. In addition, we require suppliers to checkand remove business information from personal
computers to prevent leaks. In the May 2017 global
cyberattack, ransomware that functions like a network
worm affected parts of Hitachi’s in-house system,
temporarily disabling the sending and receipt of e-mails.
No information leaks were detected, however, and there
was no damage to customers or other outside parties
through e-mail sent from the Hitachi Group.

Hitachi Group companies worldwide reinforce theirinformation security in line with our Global Information
Security Administration Rules, which conform to theinternational ISO/IEC 27001 standard. These rules are
distributed from the parent company in Japan to Group
companies around the world. Other security measures
include secure shared services and support from ourregional headquarters in the Americas, Europe, Southeast
Asia, China, and India.

Our Business Model

Preventing Information Leaks

CEO Message

Thorough Information Security Audits
and Inspections

Value Creation

Strategic Focus

The Hitachi Group has developed its approach tosecurity based on the “plan-do-check-act” (PDCA) cycle
for its information security management system. We
conduct annual information security and personal
information protection audits at all Group companies andbusiness units.
The president appoints officers to conduct independent audits. These officers are not allowed to audit theirown units, underlining our commitment to fairness andobjectivity in auditing. There are 222 Hitachi Group
companies in Japan that conduct audits in the same way
as Hitachi, Ltd., and all results are subject to confirmation.
For Hitachi Group companies outside Japan, we use a“common global self-check” approach to ensure
Group-wide auditing and inspections. We implement
Confirmation of Personal Information Protection andInformation Security Management annually for thevoluntary inspection of business unit workplaces. We
conduct monthly Confirmation of Personal Information
Protection and Information Security Management
assessments at 654 operations (as of March 2017) that
handle important personal information. This regularcontrol mechanism ensures ample safety management
and implementation.

Management & GovernanceThree Principles for Preventing Leakage of Confidential
Information
Principle 1 As a general principle nobody can take Confidential
Information out of the Company’s premises.
Principle 2 Any person taking Confidential Information out of theCompany’s premises due to business necessity shallobtain prior approval from the Information Assets
Manager.
Principle 3 Any person taking Confidential Information out of theCompany’s premises due to business necessity shallput in place relevant and appropriate measuresagainst information leakage.
Damage Caused by Ransomware, and Status of Recovery

Hitachi, Ltd. Integrated Report 201741

Performance

http://www.hitachi.com/New/cnews/month/2017/05/170517a.pdf

Compliance

We carry out our business not only in full compliance with legal requirements but also in ways that
ensure socially responsible conduct. Spreading understanding of this among all Hitachi employees
is a fundamental management issue. As economic activity becomes increasingly borderless, there
is a growing need for steps to eradicate bribery, corruption, and other illegal behavior inaccordance with conditions in the countries and regions where we have operations. As a global
company, we are implementing a consistent compliance structure across the entire Hitachi Group.

42

Enhancing Our Compliance Framework

Compliance Reporting System

Based on the Hitachi Group Codes of Conduct, we have
expanded the Hitachi Global Compliance Program. To
comprehensively implement our compliance framework
through this program, we have appointed a senior executive
as the head of risk management for the entire Hitachi Group.
Every business unit and key Group company also has an
executive handling risk management, assisted by acompliance manager. We are also supporting regional Group
companies and have appointed compliance heads in 11
regions globally.
Under this system, policies and measures are sharedthrough the Compliance Management Conference,composed of risk management executives from business
units and key Group companies. In addition, all compliancemanagers meet regularly at the Hitachi Group Compliance
Conference to provide information on compliance and to
confirm implementation of required actions.
The Advisory Committee, consisting of outside experts,
convenes regularly to exchange views on the state ofcompliance initiatives. The insights provided by committee
members are utilized to improve policies and actions.
The internal audit section regularly conductsGroup-wide reviews to verify that each area of compliance isbeing appropriately operated. In cases where the reviews
identify necessary improvements, corrective measures are
swiftly implemented.

Hitachi has instituted a Group-wide whistleblowing system
to prevent illegal and unethical behavior, to promptly addressinfractions, and to enhance our ability to self-regulate.
In this system, reports go directly to the ComplianceDepartment at Hitachi or to an outside attorney. This system
can be used not only by employees within the Hitachi Group,
who are able to report issues through in-house channels, butalso by temporary staff and suppliers. In addition, we have
implemented the Channel to the Board of Directors system
to allow employees to directly report problems anonymously
to Hitachi directors.
The facts related to all reports are subject to thoroughinvestigation and checking, and people who have identified
themselves in the reports are informed of the investigation
results. We make every effort to appropriately deal withsituations, including taking remedial action where necessary.

Hitachi, Ltd. Integrated Report 2017

Thorough Export Controls
For basic export control policies, we have adopted the
Hitachi Standards of Corporate Conduct, which state: “Weshall help maintain international peace and security throughcompliance with trade-related laws and regulations.” Weestablished the Corporate Regulations Concerning Security
Export Control based on this policy in 1987. We carry out
strict export control practices in line with relevant laws andregulations, screening all goods and technologies intended
for export against such factors as destination countries andregions as well as intended end use and end users. We
provide guidance and educational support on the formulation of regulations as well as on the establishment offrameworks to Hitachi Group companies in Japan andaround the world to ensure that all Group companies follow
the same export control policies.
At present, as part of our educational program for all
the Group companies, we host workshops on export control
in addition to the annual implementation of an e-learning
program in Japanese, English, and Chinese. Moving
forward, we will continue to make an effort so that export
control is thoroughly enforced throughout the Group.

* The US Foreign Corrupt Practices Act consists of antibribery provisions regarding
foreign government officials and transparent accounting provisions within the
Securities Exchange Act. Enforced by the Department of Justice, it prohibits
bribes to foreign government officials. Transparent accounting, enforced by the
Securities and Exchange Commission, requires companies to show transactions
fairly and accurately in their accounting records and to maintain effective internal
control over accounting.

Our Business Model
CEO Message

The global expansion of Hitachi’s business activities has
made it necessary for the Group as a whole to build asystem of tax governance in order to comply with indications
made by the tax authorities in each country and respond torisks concerning taxation, such as tax-related legal proceedings. In January 2016, we established a set of tax-related
regulations with which the entire Group must comply.
Additionally, in connection with the globalization of ourbusiness, we are implementing risk management for taxationthat focuses in particular on the points listed below:(1) Group companies strictly comply with all relevant laws
and implement tax management when pursuing theirbusiness activities, bearing in mind such international
tax-compliance standards as the Transfer Pricing
Guidelines for Multinational Enterprises and Tax Administrations of the Organisation for Economic Co-operation
and Development (OECD), as well as that body’s Action
Plan on Base Erosion and Profit Shifting (BEPS).
(2) Group companies effectively, continually, and proactively
manage tax-related issues as socially responsibleorganizations, while maintaining Hitachi brand value andseeking to maximize shareholder value.
(3) Group companies build sincere and positive relations oftrust with the tax authorities in the regions where thecompanies do business, and strive to maintain anddevelop those relations.

Strategic Focus

Hitachi makes thoroughgoing efforts to prevent bribery andcorrupt practices in accordance with the Hitachi Global
Compliance Program.
To deal with global bribery and corruption risks, since
fiscal 2013 we have referred to the Resource Guide to the
US Foreign Corrupt Practices Act* and other documents todevelop various corruption risk scenarios. These were usedas the basis for a survey conducted at almost all HitachiGroup companies outside Japan (roughly 600 companies intotal). By analyzing the survey results, we identified
companies at risk from corruption due to factors such as
high levels of involvement with governmental and related
businesses. These risks were identified at approximately
10% of the companies surveyed, and through closemonitoring of those companies, along with educational andother initiatives, we are working to reduce corruption
worldwide. We will continue to carry out this sort of risk
evaluation regularly.
In 2016, we revised our rules regarding the preventionof bribery and corrupt practices, with changes including an
explicit ban on facilitation payments and clarification of due
diligence procedures for transaction partners.
To ensure awareness of these policies and regulations,
we developed a global e-learning program on preventing
bribery and corrupt practices, making it available in ninelanguages—including Japanese, English, and Chinese—for
use by Group companies worldwide.
In fiscal 2016, there were no incidents in which Hitachi
violated or was penalized under laws or regulations
regarding bribery or corrupt practices.

Implementing Thorough Tax ComplianceFurthermore, following the establishment in April 2017of rules for Group transfer pricing management, Hitachi
manages transfer pricing in accordance with the OECD
Transfer Pricing Guidelines as well as laws and regulations
on transfer pricing in each country or region where Group
companies are located.
Regarding tax compliance, Hitachi acts in accordancewith all applicable laws and regulations. Hitachi did not haveany significant fines or nonmonetary sanctions fornoncompliance with tax laws and regulations in fiscal 2016.

Value Creation

Measures to Prevent Bribery and Corrupt
Practices

Measures to Prevent Unfair Competition

Hitachi, Ltd. Integrated Report 201743

Performance

Management & Governance

Hitachi engages in business based on the principles ofconformance with the law and business ethics and fair anddisciplined competition. The Hitachi Global Compliance
Program was developed based on these principles to ensure
strict compliance with competition laws.
Fiscal 2016 saw two incidents in the United States ofplea agreements related to cartel activities, and one in Japanof a cease and desist order related to collusion.
Hitachi takes these incidents very seriously and willcontinue strengthening its educational and institutional
efforts to eliminate violations of competition laws.

Messages fromIndependent
Outside Directors
Contributing to Hitachi
Hitachi is a global company with
operations all around the world. My
tasks as a member of the Board of
Directors are to learn and to give
whatever input I can on the issues that
we face. Each country, and eachcompany, has a unique DNA. As abusinessman and entrepreneur, I am
always excited to learn these things. I
have long had respect for Japanesecompanies and how they have growninto international businesses. Hitachi is
one example of such a business,making it interesting for me to see
firsthand how the company works whileproviding input from my own perspective on the areas that I know well—India,
Europe, and North America.

Facing Challenges with
Multiple Strengths
Every company faces challenges
today, and Hitachi is no exception.
There is a high level of disruption intechnology and the digital space thattouches every business. Major
sociopolitical change is taking placeacross the spectrum in every country;
these winds of change are affecting
business like never before. There arealso crises and flashpoints all overwhat has become a very multipolarworld. All of this places tremendous
strain on companies as they determine
what talent they need to create for the
future and how to direct it.
Hitachi faces a particularly
broad range of challenges. The
company is involved in some fields,such as automotive systems andconstruction machinery, that could
be described as low-risk but featurehigh volatility related to technology
change. In other areas, like thenuclear power and railway
businesses, projects can run for
decades, involving governments andmaking it harder to see where costs
will be 15 years down the road. All ofthese different challenges requirevery different management
44

Hitachi, Ltd. Integrated Report 2017

approaches. The task, therefore, isto put the right people, the rightgovernance, and the right level ofrisk analysis and mitigation in place.
I believe that Hitachi has multiple
strengths to help it face these varied
challenges. First is the bandwidth ofits technologies and capabilities interms of products and processes. For
instance, many companies are
involved in IoT development now, butwhat Hitachi is doing with Lumada isahead of the game.
Second is its strong management
team. Hitachi handles corporate
governance very well. There is plentyof openness, with board members andexecutive officers able to express theiropinions freely. The company also has
outside board members from different
countries, as well as female directors,
making it a trendsetter of sorts aswell as a good corporate
governance example.
Third, Hitachi has the ability torecognize how the world is changing
and to take actions to stay ahead ofthose changes, rather than simply
reacting to them after the fact.
We’ve had plenty of forward-looking
discussion about Brexit and the US
presidential election, for example, as
something that could impact
Hitachi’s businesses.

Finding the Right Way
ForwardThis tremendous volume of
discussion is one of Hitachi’s key
tools to prepare it to meet thechallenges of the times. The Hitachi
Board carries out a lot of discussion,
taking a systematic approach to risk
management and ensuring that there
is analysis available on all areas
where risk is involved. This analysis
generates options for the company,
allowing it to get a feel for thebusiness environment, the risks, andthe growth opportunities. Of course,
Hitachi is involved in hundreds ofdifferent businesses, and it would bevery difficult for any one person tounderstand it all, but frequent anddetailed discussions let us get amore comprehensive feel of thebusiness environment.
On the level of its local
operations around the world,
Japanese managers used to run
global operations, but Hitachi is now
changing to place more operations inlocal managers’ hands. All it takes issome cultural adjustments and an
open mindset. Hitachi is certainly
headed in the right direction.

Baba Kalyani

Our Business Model
CEO Message

Takatoshi Yamamoto

unified audit structure for the entire
Group, including overseas entities.
Hitachi will need to mitigate various
risks as it continues to strengthen its
audit structure.
The second area is verifyingthat executive officers reflectboard-level discussions in both theiractions and the results achieved. By
monitoring and verifying how board
discussions influence Hitachi’s
operations, the company’s directors
will be able to ensure the effectiveness of the board on which they
serve. We independent outside
directors must construct bettermeans of assurance in this area.

A Roadmap to Becomea Truly Global Player

Hitachi, Ltd. Integrated Report 2017

Strategic Focus

I regard Hitachi’s corporate
governance highly. In 2016, Hitachi
increased management transparency
further by explicitly including
dismissal of the CEO and selection ofa successor among the responsibilities of the board of directors in its
corporate governance guidelines.
Nevertheless, in the course of
supervising and auditing Hitachi overthe past year as an outside director
and a member of the Audit
Committee, I noted opportunities forfurther improvement.
The first is audit structure.
Hitachi encompasses almost 900
Group companies, including those
newly consolidated through mergers
and acquisitions, and it makes
roughly half of its revenue outside
Japan. For the efficient andappropriate auditing of such a large
and diverse enterprise, further
structural improvements arenecessary. Hitachi’s “tripartite audit”
function, made up of the Audit
Committee, the Internal Auditing
Office, and an auditing firm, is
top-class within Japan, but in 2017
Hitachi began working to establish
tripartite audits for each Group
company as part of constructing a

Value Creation

Including my time as a financial
analyst, I have been an observer ofHitachi’s management for more than
30 years. Hitachi’s performance has
wavered at times, but the company is
now entering a new stage, aiming tobecome a truly major global player
and an “Innovation Partner for the IoTEra.” Although it is one of Japan’s
leading enterprises, in terms of
profitability Hitachi is not yet excelling.
To rank among the competition as atruly global player, Hitachi must
realize sustainable growth ofenterprise value by strengthening its
earnings ability. All executive officers
from the CEO down must understandthe concept of enterprise value,
including from an ESG perspective;
management decisions must be
based on a clear, ongoing estimationand evaluation of current and future
value. As an independent outside
director, my mission is to use my longprofessional experience in corporate
analysis in the capital markets to help
Hitachi’s management develop
sustainable enterprise value andimprove its corporate governance.

To make Hitachi a truly global playerthat satisfies diverse stakeholders,
and to develop ways to further
increase its enterprise value, thefollowing five points are vital: (1)bold and swift management
decision-making and execution,
including an ongoing review of theGroup’s business portfolio; (2)improved capital and asset
efficiency; (3) higher profitability tomeet global standards; (4) improved
coordination and administration formergers and acquisitions and major
projects; and (5) more effective useof Hitachi’s diverse and global
human capital by management,
including development of the next
generation of executive officers.
Achieving the goals of the 2018
Mid-term Management Plan will be an
important milestone, but when
considering the company’s long-term
development, Hitachi must lookbeyond this plan. Hitachi is at asignificant juncture, and whether it
can become a truly major global
player depends on which path it now
follows. As a director, I will continue
to monitor and supervise Hitachiclosely, contributing all that I can to
the realization of that goal and to theimprovement of the company’s
enterprise value.

Management & GovernanceFurther Strengthening
Corporate Governance45

Performance

Hitachi’s Challenge,
My Mission