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 of business operations,
Hitachi is working to create a framework 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 and executive
officers serve concurrently as directors or executive officers at
Group companies, thereby strengthening integrated
management of the Group and improving management

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 in Japan.
Hitachi agrees with the basic approach of the Code, which isthat the Code’s appropriate implementation will contribute to
the development and success of companies, investors, and theJapanese economy as a whole through individual companies’
self-motivated actions so as to achieve sustainable growthand increase corporate value over the medium to long term.
Moving forward, Hitachi will work to further strengthen
corporate governance.

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

2 Accelerating global management and strengthening

oversight function

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

Composition of Each Committee (June 2018)

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

Composition of Board of Directors
June 2011 (13 elected)

June 2018 (12 elected)

Nominating Committee: Determines director candidates

Independent outside
directors         4           8Audit Committee: Audits execution of
directors and executive officers

Directors(non-executive)      7           2Compensation Committee: Determines
remuneration for directors and executive officers

Directors(serving concurrently as
executive officers)     2           2Chairman (Independent outside director)

Independent outside director

Director

Non-Japanese directors

Female directors

3 Appropriate implementation of the Corporate Governance Code

Implementing all of the principles of the Corporate Governance Code (based on form prior to June 2018 revision)
Analysis and Evaluation of the Effectiveness of theBoard of Directors
The Company implements an evaluation of the effectivenessof the Board as a whole each year, in a continuous effort tomaintain and improve the Board’s function.

Evaluation process
In evaluating the effectiveness of the Board of Directors in thefiscal year ended March 31, 2018, questionnaires were
distributed to all Board members. Each member carried out aself-assessment of the Board regarding its composition,
61

Foundation for Value Creation

Corporate Governanceoperation, contribution to the Company, activities of the threecommittees, support systems for the Board, etc. In addition,
the Board’s effectiveness was discussed at a meeting by
independent outside directors. Based on the results of theseevaluations and discussions, the Board analyzed and evaluatedits effectiveness as a whole while considering a comparison
with results for the fiscal year ended March 31, 2017 andmeasures taken for improvement and confirmed the policy on
approaches to further improvement of the Board’s effectiveness.

Results of evaluation and future initiatives
The Board assessed that its members are diverse and makeuse of their knowledge and expertise to speak out, having
vigorous discussions especially on matters related to businessstrategies such as the mid-term management plan toward
mid/long-term corporate value growth. The Board, therefore,
concluded that the effectiveness of the Board as a whole wasbeing maintained.
With the aim to maintain and improve its functions, the Board
confirmed that it will make efforts to further contribute to thedetermination of Hitachi’s mid/long-term strategic direction andsuccession planning for the CEO, etc. It was also confirmedthat the Company will make efforts to strengthen support for
the Board’s operations including the enhancement of information provision to make Board discussions more effective.

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/Vice Presidents andExecutive Officers

Board of Directors

Nominating Committee
Audit

Compensation
Committee

Executive
OfficerInternal
Auditing
OfficeAudit Committee

Department
in charge

Executive
Officer
Department
in charge

Department
in charge

Department
in charge

ReportAudit

Board of Directors
Summary
Independent outside directors comprise 8 of the 12 Board members.
Each of the Nominating, Audit, and Compensation Committees has been established with independent outside directors in the majority.
The extensive experience and insight of the independent outside directors in international business management and administration
serve to strengthen the Board’s supervisory function.

The Board of Directors approves basic management policy for
the Hitachi Group and supervises the execution of the duties
of executive officers and directors in order to sustainably
enhance corporate value and shareholders’ common interests.
The basic management policy includes the Mid-term
62Management Plan and annual budget compilation. The Boardof Directors focuses on strategic issues related to the basic
management policy as well as other items to be resolved thatare provided in laws, regulations, the Articles of Incorporation,
and Board of Directors Regulations. As of June 29, 2018, theAttendance at meetings of the Board of Directors byindependent outside directors in the fiscal year ended
March 31, 2018
Name

Attendance* Attendance rate

Baba Kalyani

7 out of 9 days

78%

Cynthia Carroll

9 out of 9 days

100%

Sadayuki Sakakibara

8 out of 9 days

89%

George Buckley

9 out of 9 days

100%

Louise Pentland

9 out of 9 days

100%

Harufumi Mochizuki

9 out of 9 days

100%

Takatoshi Yamamoto

9 out of 9 days

100%

Philip Yeo

9 out of 9 days

100%

Hiroaki Yoshihara

9 out of 9 days

100%

* 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 framework of corporate
governance, such as the function and composition of the Boardof Directors, qualifications for directors, criteria for assessing
the independence of independent outside directors, and ruleson those serving concurrently as officers at other companies.

Qualification for Independent Outside Directors andCriteria for Independence
In regard to the election of an independent outside director,
Hitachi’s Nominating Committee considers the following
criteria for independence. In addition, the Committee also
considers whether the independent outside director has
outstanding character and insight and whether he or she has
worked in a leadership position in such fields as business,law, administration, accounting, or education, or has experience at policy-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 made payments
to, or received payments from, the Company for property orservices in an amount that, 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
compensation; 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 thatorganization’s annual gross revenues.

Concurrent Officer Positions at Other Companies
In order for directors to secure the time necessary to understand the Company’s business and prepare for and attend
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.

(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 8 days
during the fiscal year ended March 31, 2018.

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

63Foundation for Value Creation

Board of Directors was made up of 12 directors, two of whom
concurrently serve as executive officers. Hitachi aims toreinforce the oversight function of the Board of Directors, ofwhich eight independent outside directors, including nonJapanese, account for the majority, reflecting their global anddiverse viewpoints. The term of office 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 majority of members of eachcommittee. The Board of Directors meetings were held on 9 days
during the fiscal year ended March 31, 2018, and the attendance
rate of directors at these meetings was 97%. The attendance
rates for each independent outside director were as shown in
the table below. To assist with the duties of the Board of
Directors and each committee, staff who are not subject toorders and instructions from executive officers are assigned.
The Board of Directors continuously supervises succession
planning for the CEO. The CEO is appointed or dismissed inline with the proposal of the Nominating Committee inconsideration of the matters: (1) that the candidate has thehighest personal and professional ethics, integrity, insight, andleadership, and (2) that the candidate is believed to be theone most qualified to realize sustainable enhancement of theCompany’s corporate value and shareholders’ common
interests, with rich experience and a distinguished record in
the area of corporate management.

(2) Audit Committee

Composition of the Board of Directors and each committee

The Audit Committee has the authority to audit the executionof duties of directors and executive officers and to decide on
proposals submitted to the general meeting of shareholders
for the election and dismissal of accounting auditors. The
Audit Committee consists of six directors, including four
independent outside directors and one standing Audit
Committee member.
The Audit Committee meetings were held on 14 days
during the fiscal year ended March 31, 2018.

(as of June 29, 2018)(3) Compensation Committee
The Compensation Committee has the authority to determine
remuneration policies for directors and executive officers
and remuneration for individuals (including amounts ofremuneration) based on them. The Compensation Committee
consists of four directors, three of whom are independent
outside directors.
The Compensation Committee meetings were held on 4days during the fiscal year ended March 31, 2018.

Numberofpersons

Independent
outsidedirectors*

Directors

Board of Directors

12

8*

4

Independent
outside director

Nominating
Committee

431

Independent
outside director

Audit Committee

6

4

2

Independent
outside director

Compensation
Committee

431

Independent
outside director

Chair* 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,
Hiroaki Yoshihara, Hiroaki Nakanishi

Audit Committee Hiroaki Yoshihara (Chair), Katsumi Ihara,
Harufumi Mochizuki, Takatoshi Yamamoto,Kazuyuki Tanaka, Toyoaki Nakamura
Compensation
Committee

Harufumi Mochizuki (Chair), Katsumi Ihara,
Takatoshi Yamamoto, Toshiaki Higashihara

Executive Officers

Senior Executive Committee

Executive officers decide on matters delegated to them by
the Board of Directors and execute Hitachi’s businessaffairs within the scope of assignments determined by the
Board of Directors. As of June 29, 2018, Hitachi has 35
executive officers.

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 12 members as of June 29,
2018: the President & CEO, five executive officers serving
as executive vice presidents, five executive officers serving
as senior vice presidents, and one executive officer serving
as a vice president.

Director and Executive Officer Compensation
Basic Policy
Compensation shall be sufficiently attractive to retain the personnel required to realize improvements in enterprise value throughglobal business growth.
Compensation shall be commensurate with the roles and responsibilities of directors and executive officers.
Compensation for directors shall contribute to effective supervision of management.
Compensation for executive officers shall provide incentives to contribute to sustained improvement in enterprise value throughbusiness execution, while striking an appropriate balance between short-term results and performance over the longer term.
Compensation levels shall take into account remuneration at other companies, along with economic conditions and market trends.
In considering the terms and amounts of compensation, the Compensation Committee shall seek objective advice as necessary fromoutside experts.

The Compensation Committee, of whose members more thanhalf are independent outside directors, sets forth the policy on
the determination of compensation details for directors andexecutive officers and, based on this policy, the amount ofcompensation, etc., of each director and executive officer,
64

pursuant to applicable provisions of the Companies Act.
Since fiscal 2008, the compensation structures for directors
and executive officers have been revised to eliminate
severance payments.

Foundation for Value Creation

Compensation Structure(1) Directors
Compensation for directors consists of basic remuneration and a year-end allowance.
1 Basic remuneration
Basic remuneration is decided by adjusting a basic amount to reflect full- or part-time status, committee membership andposition, travel from place of residence, etc.
2 Year-end allowance
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.

(2) Executive officers
Compensation for executive officers consists of basic remuneration, performance-linked compensation, and medium- andlong-term incentive compensation. The higher the position the executive officer holds, the higher the proportion of variable
pay is as a portion of total annual compensation.
Fixed remuneration
1 Basic remuneration

Variable pay (basic amount)+

2 Performance-linked

compensation
25–35% of
total remuneration+ 3 Medium/long-term=

Total remuneration

incentives

10–40% of
total remuneration

1 Basic remuneration
Basic remuneration is decided by adjusting a basic amount to reflect the results of an assessment. The basic amount is set inaccordance with the relevant position.
2 Performance-linked compensation
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 the total annualcompensation of each executive officer in accordance with the relevant position.

Position-related(basic amount)×

Assessment 0
Performance assessment

200%
Individual performance=

Performance-linked compensation(payments)

3 Medium- and long-term incentive compensation
Medium- and long-term incentive compensation is stock options as stock-based compensation, with share price conditions(stock acquisition rights with the strike price of ¥1). The number of stock acquisition rights to be granted is determined within
the range of about 10%–40% of the total annual compensation of each executive officer in accordance with the relevant
position. The number of stock acquisition rights that may be exercised will be determined within the range of 0%–100% of
the stock acquisition rights granted in accordance with the conditions. The proportion of the assessment (0–100%) is determined by comparing the total shareholder return*1 for Hitachi stock against the rate of growth in the TOPIX benchmark. Thisis set to 0% if the TSR is less than 80% of the TOPIX growth rate, and reaches 100% once the TSR rises to at least 120% of
the TOPIX growth rate, with intermediate results for figures in the 80%–120% range.

Position-related stock options granted(basic amount)×

Assessment 0100%

TSR relative to TOPIX growth rate=

Exercisable stock options(fully vested)*2*1 Total Shareholder Return (TSR) includes capital gains (due to share price movements) and income (dividends).
*2 Stock options can no longer be exercised if fraud or other serious misconduct occurs during the term of office. Under a clawback provision, the Company can demand repayment of
economic gains made from any options that have already been exercised if fraud or other serious misconduct is discovered during the term of office.

65

Internal Control over Financial Reporting
Summary
Under guidelines determined by the J-SOX Committee, internal controls ranging from those at the company level to businessprocesses are all documented.
Systems to enable objective assessments are also in place at Hitachi business units and major Group companies.

developed mechanisms to objectively perform assessments.
The J-SOX Committee office collects the results of theassessments performed by each business unit and company,
and assesses the effectiveness of internal control throughout
the entire Group.

To ensure the reliability of consolidated financial reporting,
the Group develops and uses control documents ranging
from company-level to business process controls based on
the guidelines determined by our J-SOX Committee. Business
units within Hitachi, Ltd. and major Group companies have
Hitachi Group Internal Control Assessment Framework
Financial Services
AgencyInternal
ControlReportHitachi, Ltd. President and CEO
CFO
ReportReportAudit Committee

J-SOX Committee

ReportCollaboration

J-SOX Committee’s OfficeInternal Auditing
OfficeReportBusiness Units and Major
Group Companies

External
Audit

Independent
Auditors

ReportSubsidiary Companies

Toward a More Integrated “Tripartite Audit” Function
Summary
We are working to strengthen the “tripartite audit” function, which comprises the Audit Committee, the internal audit section, and theexternal auditing firm.

communication, the three functions share information aboutrisks and evaluation of risk responses; ensure the audit
process is transparent with appropriate checks and balances;and improve the effectiveness of internal control systems.

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
Auditing Office; and external auditing firm. Through close
Improving Internal Control through a “Tripartite Audit” Function
Goals

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

Evaluation ofaudit content

Status report oninternal audit

Audit Committee

Evaluation of audit content

Sharing of risk information

Request for detailed internal
audit of issues identified byAudit Committee

Status report on accounting audit

Exchange of opinions
regarding audit plans, fee,risk evaluation, etc.

Report on important financial and accounting findingsInternal audit section(Internal Auditing Office)Evaluation of audit content

Regular business site-level internal audits

66

Identification of issues
through internal control
audit and evaluation ofseverity of fraud risk, etc.

Auditing firm
Accounting audit centered on accuracy
and reliability of financial statements

Foundation for Value Creation

Accountability
Summary
The “Hitachi IR Day” event has been held for eight years in a row.
A total of around 600 meetings have been held with institutional investors and analysts in Japan and overseas.

In accordance with its disclosure policy, Hitachi is implementing
the fair and appropriate disclosure of such information as
management strategies and financial information. In addition,
Hitachi is aggressively conducting dialogues through suchmeans as meetings with shareholders and investors, investor
relations (IR) events, and the general meeting of shareholders.
In fiscal 2017, in addition to quarterly financial results
briefings and presentations on the progress made with the2018 Mid-term Management Plan, we hosted the eighthconsecutive “Hitachi IR Day” event, in which senior managers
from each business presented business strategies andmanagement policies under the plan.
Other IR events included a briefing on the original value
being created in R&D divisions and a tour of the Omika Works
as part of promoting better understanding of the Lumada
business. Members of senior management also continued tovisit institutional investors and analysts in North America,
Europe, and Asia to explain their business strategies forrealizing medium- to long-term growth. During the year, a totalof around 600 such meetings with institutional investors andanalysts were held in Japan and overseas. Hitachi alsoorganized briefings to help individual investors gain a better

understanding of the company. The feedback gained fromthese IR events is reflected in management and business
operations as part of efforts to build enterprise value.
We also post briefing materials and business performanceas 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/

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

Major information disclosure publications
Financial results/Quarterly financial results
Annual securities reports/Quarterly reports
Business reports/Interim business reports
Hitachi Group Integrated Report
Hitachi Group sustainability reports

67