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