Foundation for Value Creation
Message from the Chief Human Resources Officer

p.31

Human Capital Development

p.33

Message from the Chief Technology Officer

p.35

Engaging in Responsible Procurement

p.37

Environment

p.39

Risk Management

p.41

Compliance

p.48

Management System

p.50

Independent Outside Director Dialogue

p.53

Messages from
Newly Appointed Independent Outside Directors

p.59

Corporate Governance

p.61

30

Foundation for Value Creation

Message from the
Chief Human Resources Officer
We are promoting our HR strategy to expand theSocial Innovation Business, based on the strategic
promotion of diversity and inclusion policies.
We are also upgrading management systems tobecome a truly global enterprise, including building
an integrated HR platform.

Hidenobu Nakahata
Senior Vice President
Chief Human Resources Officer (CHRO)

Human Capital Is a Critically Important Asset
In 1910, the same year that he founded Hitachi, Namihei
Odaira set up the Apprenticeship Training School. Thissymbolic act illustrates our belief in human capital being
one of the most critical assets in business. We benchmark
Hitachi’s human capital strategy and policies against thoseof a variety of global enterprises. I am exchanging opinions
directly with my counterparts at such companies. Basedon these discussions, I think that Hitachi is close to thelevel of major global players regarding our humanresources strategy and personnel management framework.
If I were asked about the strengths of Hitachi in trying togrow in an increasingly commoditized world, my unwavering
reply would be that we aim to realize sustainable growthby utilizing our human capital to create original value andinnovation. In accelerating our management strategy ofdeveloping the Social Innovation Business globally using
digital technology, two of the vital elements are developing
the people who can understand customer and social
issues precisely, and creating teams of people with diverse
viewpoints, backgrounds, and abilities to work together
towards common goals. For these reasons, my focus ison developing our human resources, including the next
generation of leaders, through promotion of diversity andinclusion. We have also been focusing efforts on building a
global personnel management system to support ourhuman capital utilization.

Initiatives to Promote Diversity and Inclusion
Diversity and inclusion are the wellspring of innovation for
Hitachi. We are building HR systems so we can evaluate
the performance of each position and role using acommon global standard. With the appointments of Mr.
Alistair Dormer as Global CEO of our railway systems
business and Dr. Brice Koch as the President of Hitachi
Automotive Systems, Ltd., a diversity of viewpoints isreflected in decision-making processes at the senior
management level. The ability to recognize diverse values
and express different opinions is critical to the provision of
optimal solutions that fully address the issues faced by ourcustomers within an increasingly complex society. We willcontinue to promote diversity within management ranks.
Our global “Work Life Innovation” campaign, which
includes work-style reforms in Japan, aims not merely to

reduce total working hours, but to create more flexible
approaches to work to respect and cater to the values
and differing lifestyles of our varied individual employees.
We are creating work environments to enable individuals
to maximize their abilities, based on practices such as
telecommuting or working from a satellite office.
Diversity Targets for Hitachi, Ltd. (FY2020)
End-FY2017 (actual)

FY2020 (target)

Executive and Corporate Officers
Female2.5%

10%Non-Japanese

6.4%

10%

577

800

Number of female managers

31Reinforcing Efforts to Develop Next Generation of Leaders to Realize Sustainable Growth
In addition to Hitachi University, the Group’s global e-learning
management system, we have developed a variety ofeducational programs tailored to different jobs and positions.
We are also focusing resources on selective training
courses aimed at developing future managerial candidates
at an early stage. In these courses, participants discuss
what is necessary for the growth of Hitachi. The opportunity
to generate ideas to present to senior management helps
to cultivate the next generation of leaders— people withunique perspective and determination. In addition, we
have identified a group of about 50 employees from aroundthe Hitachi Group with next-generation development
potential. People in this “Future 50” group are selected on
merit, regardless of age, gender, or nationality. They are
given challenges to help expand their horizons and build
their perspective, including tough assignments, different
types of work, and internal and external training
opportunities. The Future 50 group members receive
one-on-one mentoring opportunities with outside directors
to benefit directly from their extensive business experienceand global perspective. Our aim is to change mindsets so
we can develop people for important positions in the future.

Creation of Integrated Personnel Management Platform
We have introduced systems since fiscal 2012 to help
optimize the allocation of personnel to important positions
within the Hitachi Group, including the Global Human
Capital Database and Group-wide systems for grading
personnel and managing performance. Since fiscal 2013,
we have also conducted an annual survey of our global
employees called “Hitachi Insights” to cultivate dynamic
and supportive workplace conditions across the Group.
With a response rate of more than 80%, the survey
generates valuable feedback for business unit CEOs andother Hitachi Group managers. We also reflect the resultsin our personnel management to help promote greater
employee engagement.
In January 2018, we began full-scale operation of our
new HR Integrated Platform that brings together HR-related
information and processes. I expect three benefits from theintroduction of this platform. First, it will boost transparency.

Previously, we had no way of making timely assessmentsof the skills and capacities of the people working for
Hitachi Group companies throughout countries andregions. Being able to see these things will upgrade ourability to assign personnel to appropriate work and tocreate individualized development programs. Second, byenabling all employees to input experience or skills into thesystem and access HR-related information online, the newplatform reinforces the cultural shift within Hitachi toward
greater individual empowerment. It should translate directly
into greater development of those who are self-motivatedto broaden their horizons by taking on new challenges atwork. Finally, the new platform will boost speed andefficiency. For example, enhanced access to global data
will help us assign the necessary personnel for new
projects more quickly and efficiently, thus contributing tomore timely project start-ups.

Strategic Contribution of HR to the Realization of Society 5.0 and SDGs
Ever since it was founded, Hitachi’s corporate philosophyof “contributing to society through development ofsuperior, original technology and products” has embodied
the values that are expressed in the SDGs.
Our strategy for human capital development is in linewith the aim of the Social Innovation Business to addresssocial issues. Its promotion can make a significant
contribution to realizing the Japanese government’s“Society 5.0” vision and achieving the SDGs. Most notably,in our personnel development and the promotion of diversity
and inclusion policies, we are actively working to achieve
Goals 4, 5, and 8.

32

SDG focus

Hence, by reforming and developing our HR management
platform and systems, and creating conditions to makeeffective use of them, Hitachi’s diverse workforce will help
realize sustainable growth while also contributing to therealization of the “Society 5.0” vision and the SDGs.

Diversity and Inclusion
Diversity and Inclusion as the Wellspring of
Our Innovation
Diversity is the wellspring of our innovation and our growthengine. Hitachi regards personal differences—gender,
nationality, work history, age, sexual orientation, andphilosophy—as facets of people’s individuality. By respecting
our employees’ individualities and positioning them as anadvantage, Hitachi frames its diversity and inclusion as
conducive to both the individual’s and the company’ssustainable growth.
We have currently positioned and are promoting
diversity management as a management strategy under
the initiative slogan “Diversity for the Next 100.” Specifically,
this means promoting the creation of environments inwhich women and other members of our diverse human
workforce are able to demonstrate their skills to the fullest
extent in leadership and business management positions.
Hitachi, Ltd. and 17 Group companies jointly operate theAdvisory Committee and the Diversity Development Council
to accelerate awareness across Hitachi as a whole,including support for diverse human resources andwork-life management.

efforts demonstrate our commitment both internally and to
the world to further advance women in the workplace andimprove our diversity management.
* As another goal, Hitachi aims to achieve a 10% ratio of non-Japanese
executive and corporate officers by fiscal 2020

SDG focus

Finding solutions to customer and social issues, which arebecoming more diverse and complex, requires the bringing
together of human capital that possesses diverse values.
Hitachi is engaged in maintaining working environments thatenable the diverse members of its workforce to demonstrate
their abilities.
Number and Ratio of Female Managers(people)(people)

3,727

800

474
400

3,459

6.3%

577 6.4%

6.4%

600

Developing Women’s Careers
Hitachi, Ltd. has created two key performance indicators(KPIs) to enable as many female employees as possible totake up leadership positions and to participate inmanagement decision making. In fiscal 2013, Hitachi set a
goal of promoting women to executive positions by fiscal
2015. In April 2015, the company appointed its first female
corporate officer, a position equivalent to the executive
level. Aiming to create diverse views and values to bereflected in our management, in fiscal 2017 we publicly
announced our commitment to increasing the rate offemale executive and corporate officers to 10% by fiscal
2020.* With regard to the ongoing promotion of women to
managerial positions, we are aiming to double, comparedwith fiscal 2012, the number of female managers to 800
by fiscal 2020.
In addition to reinforcing existing programs, we are
introducing the Hitachi Group Women’s Career Success
Survey to visually highlight the level of progress made with
the initiatives and any outstanding issues in each business
unit while setting numerical targets for each unit. These

3,365

4.0%

509

4.1%

4,000

3,000

4.2%

2,000

200

0

1,000

2015

2016

2017

0

(FY)

Female managers, Hitachi, Ltd.*1 (left scale)
Female managers, Hitachi Group*2 (right scale)
Percentage of total, Hitachi, Ltd.*1
Percentage of total, Hitachi Group*2
Note: Figures include section chiefs and above.
*1 “Female managers” in fiscal 2017 include managerial employees dispatched from Hitachi,Ltd. to non-Group companies and those accepted from non-Group companies by Hitachi,Ltd. Earlier figures include regular managerial employees dispatched to non-Group
companies but exclude those accepted from non-Group companies.
*2 All full-time, regular female managers excluding those dispatched to non-Group companies.
Figures for fiscal 2016 were restated following a reexamination of HR data.

Ratios for Female and Non-Japanese Executive and Corporate
Officers (Hitachi, Ltd.)
June 2017 June 2018

Number of female executive and corporate officers
Ratio of female executive and corporate officers
Number of non-Japanese executive andcorporate officers
Ratio of non-Japanese executive and corporate officers

2

2

2.4%

2.6%

3

5

3.7%

6.4%

Global Human Capital and New Generation Development
Advancing Global Human Capital
Our Group-wide global human capital management
strategy optimizes both human resources and organizational performance in pursuit of our goal of becoming an
Innovation Partner for the IoT Era.
One part of that strategy has involved the building of a
Global Human Capital Database, which enables us to fully
ascertain the status of worldwide Group human capitaland to assess macro management data, such as the
allocation of human resources. We have also introduced the
Hitachi Global Grade system that applies to all managers
in the Hitachi Group worldwide, using it as a common
platform for job applications throughout the Group and as
a common standard for assessing the value of management
duties. In addition, we introduced Global Performance
Management at Hitachi, Ltd. and at some Group companies
33

Foundation for Value Creation

Human Capital Development

worldwide to link the individual and operational businessgoals, with the aim of promoting mutual sustained
improvement and the growth of both individuals
and businesses.
We are also working on talent development initiatives todrive global business growth. For example, in fiscal 2015
we implemented “Hitachi University,” a Group global
common learning management system.
With regard to Hitachi Insights, the global employee
survey that Hitachi conducts every year, we were able toreceive roughly 170,000 responses from the around
200,000 employees who were sent the fifth survey in
September 2017, and the overall evaluation resulted in an
improvement for the fourth consecutive year.

New Generation Development
Applying science and technology, the Hitachi Group andthe Hitachi Global Foundation carry out science, technology, engineering, and mathematics (STEM) education,
depending on the issues in local communities, to develop
a new generation of human capital capable of addressing
social challenges.
SDG focus

For Hitachi, employees are an important entity underpinning
the Company’s future and, at the same time, a driving force
contributing to the achievement of the SDGs and realizing
social change.

Occupational Health and Safety
Framework for Promoting Health and Safety
Ensuring the health and safety of all employees is the basic
principle underlining the Hitachi Group Health and Safety
Policy. This policy is shared by all Hitachi Group companies
around the world. Employees work together to create safe,
secure work environments that aim to be accident-free.
Manufacturing and maintenance, the areas of business
in which Hitachi is engaged, are particularly accident-pronelines of work, and we have around 34,000 employees
performing work of this type in Japan. We promote a rangeof Group-wide occupational health and safety activities
that include preventing workplace accidents by setting andapplying minimum safety standards to be observed byGroup manufacturers around the globe.
In Japan, a health and safety commission—composedof company representatives, labor-union officials, andemployees—is convened every month. We have introduced
the Hitachi Group Key Safety Management Designation
System, under which initiative Group companies andbusiness sites where serious work accidents have occurred
are designated as priority safety management companies
and business sites. Here, the potential for accidents is
reduced by reviewing risk assessments, including theinvestigations of accident causes, and third parties areengaged to conduct safety issue diagnoses. In fiscal 2017,
we recorded zero fatal workplace accidents in Japan andfive in the rest of Asia.
In December 2015, revisions to Japan’s Industrial Safety
and Health Act took effect, requiring businesses of 50 ormore employees to put in place a stress-check system.
We are proactively implementing stress checks at all
business sites in Japan—even those employing fewer than
50 employees, are required to make efforts toward
compliance—to promote awareness of stress among all
employees. Group analysis results from these stresschecks will also be used by workplace health and safetycommittee members, occupational healthcare workers,
34

and human resource departments to improve workplaceenvironments. In combination, these efforts are expected
to help prevent mental health issues and revitalize workplaces. Hitachi’s efforts in this area were recognized underthe 2018 Certified Health and Productivity Management
Organization Recognition Program, conducted by Japan’s
Ministry of Economy, Trade and Industry, in the large
enterprise category (White 500).
Hitachi Group Health and Safety Policy:
https://www.hitachi.com/sustainability/download/pdf/en_sustainability2018_19.pdf

SDG focus

We are primarily addressing SDGs in the recognition that it
is indispensable for business management to develop
environments in which the people working in the HitachiGroup can work safely and without anxiety about physicaland mental health.

Occupational Accident Rates
2.0

1.61

1.63

1.66

1.5

1.06

1.15

1.02

1.0

0.5

0

0.54

0.51

0.22

0.18

2015

2016

0.45
0.25

2017

(FY)

All industries
Manufacturing industries
Electrical machinery sector
Hitachi Group** Occupational accidents are defined as those involving fatality or work-time loss of one day ormore. Hitachi Group figures for Japan, including Hitachi, Ltd., are for 240 Group companies infiscal 2015; for 200 Group companies in fiscal 2016; and for 201 Group companies in fiscal 2017.

Foundation for Value Creation

Message from the
Chief Technology Officer
The R&D Division celebrated its 100th anniversary
in 2018. Inheriting Hitachi’s corporate credo andfounding spirit, our R&D operations support thegoal of Hitachi being “an Innovation Partner for the
IoT Era,” while also driving the future growth of thecompany by addressing societal issues.

Norihiro Suzuki
Vice President & Executive Officer
Chief Technology Officer (CTO)

R&D Initiatives Targeting Social Innovation Business Expansion
In fiscal 2015, to promote global R&D centered oncollaborative creation with our customers, we establishedthe Global Center for Social Innovation (CSI) in five key
regions, setting up bases in Tokyo, North America, China,
Europe, and Asia-Pacific (APAC). Using a systematizedcollaborative creation methodology called “NEXPERIENCE,”
CSI researchers share their vision directly with customers
as part of a process of original value creation that ranges
from identifying issues to testing solutions and creating
practical business models. At the same time, positive

steps are being taken to help upgrade and expand digitalsolutions that employ Lumada.
I believe this process is creating positive feedback cycles,in which resolving customer issues helps us to reinforce
Hitachi’s core technologies while at the same time generatingknowledge to support new business development based on
accumulated customer cases. We are upgrading our focus onopen innovation approaches as a way of expanding suchinitiatives globally, for example by building ecosystems thatspan industry, academia, and the government sector.

R&D Investments for Enhanced Efficiency
Hitachi invests approximately 4% of revenues into R&D on
the four focus business domains that drive the Social
Innovation Business, as well as open innovation and otherprojects. I would emphasize the fact that our investment inopen innovation in fiscal 2018 was over 60% higher than in
fiscal 2015. The establishment of the CSI enables us to workwith customers from the research stage to develop the technology for products and services that address societal
issues, thus boosting the efficiency of our R&D. Moreover,
we are looking to make R&D even more efficient by shortening development time by leveraging AI and other digital technologies for our research work itself.

Fiscal 2018 R&D Policies
Becoming a Global Innovation Leader to Drive Evolution Towards a Global Company
Objectives

Policy Directives

Strengthen monetization capabilities to expand the Social
Innovation Business

Enhancing collaborative creation of global solutions
From individual solutions to connected industries
Focus on growth domains and regions

Increase world-leading products and services

Creating and focusing on world-leading technology
Create world-leading technology to support the Social
Innovation BusinessAccelerate open innovation

Participate and engage with global community

Promoting basic research to resolve societal issues
Accelerate creation of disruptive technology
Create vision to lead “Society 5.0”35Enhancing Collaborative Creation of Global Solutions
To drive the evolution of our collaborative creation efforts withcustomers, we are looking to develop new “Connected
Industries” solutions that can generate greater value thanthose for individual solutions, and those that can connect avariety of solutions in different industries for multiple customers.
One practical example of this is an initiative where small- andmedium-sized customers in industrial sectors and financial
institutions manage and share global supply chain information.

Utilization of a blockchain platform to digitize order-related
information from customers to suppliers can improve theoperational efficiency of procurement and inventory
management, while also facilitating faster decisions by thefinancial institutions relating to aspects such as settlement andfunding. By focusing on growth domains and societal issues
across global regions, we are helping to expand the Social
Innovation Business-related collaborative creation.

Creating and Focusing on World-leading Technology
The R&D Group is also actively trying to create world-leading
technology to support the Social Innovation Business. For
example, our development of high-speed rolling stock andtraffic management systems to enhance railway safety,
comfort, and convenience is helping Hitachi’s business growthin Europe. Elsewhere, we are applying fluid analysis technology
developed in the railway field to improve compartment design
to help achieve the world’s fastest elevator. In the industrial
sector, Hitachi has secured a world-first with the development
and commercialization of a compact and energy-efficient
amorphous motor-integrated oil-free scroll compressor.
Going forward, we aim to develop world-leading technologies
in fields such as blockchain, autonomous vehicles, smart
manufacturing, AI, and robotics.
For the creation of world-leading technology, it is necessary
to enhance the value offered by Hitachi’s OT, IT, and productswith the utilization of digital technologies. For that, it is also
important for us to strengthen our human capital. Aiming toincrease the number of data scientists working throughout the
Hitachi Group to at least 3,000 by fiscal 2021, we haveinstituted a training program and established the Professional
Community to support top-class researchers and practitioners
from every field. In this online community initiative, the R&D
Group plays a major role in driving the continued evolution ofcore technology development and value creation.
In addition to internal efforts to strengthen human capital,
we are investing in the development of technology platforms
through an open innovation R&D consortium, based oncollaboration with research institutions, academia, open
community partners, and start-ups both in Japan and overseas.
Through our open community initiatives, we are actively
involved in open-source projects and a consortium in fields
such as blockchain and edge computing, and have also joined
Hyperledger, a project sponsored by the Linux Foundation as
well as the Edgecross consortium. Through Geodesic Capital,a venture capital firm in which Hitachi owns an equity stake, we
are also promoting collaboration with start-up ventures. We
are accelerating the creation of world-leading technologies
through such activities and initiatives.

Promoting Basic Research to Resolve Societal Issues
Communicating a vision for the future and creating disruptive
technologies are both essential to resolving societal issues.
Hitachi has established joint R&D centers with the Universityof Tokyo, Kyoto University, and Hokkaido University to develop
visions to support realization of the “Society 5.0” concept.
The laboratories established with these three institutions arefocusing on different topics, namely urban planning andenergy (Hitachi University of Tokyo Lab), issues facing society
in 2050 (Hitachi Kyoto University Lab), and regional issues
and food/health (Hitachi Hokkaido University Lab). Each lab isalso responsible for related global communications. We areworking to identify practical research topics within these
initiatives, and converting research findings as a major sourceof potential business opportunities. Efforts to create disruptive
technologies include a project to develop quantum computing
with UK-based Cambridge University, and a regenerative
medicine project based at the Kobe Biomedical Innovation
Cluster. I see these initiatives helping to lay the foundation for
Hitachi’s new businesses of the future.
Besides patent activities to reinforce product businesses,
we are promoting novel intellectual property (IP) activities tosupport ecosystem construction. Our IP programs areincorporating data and other information assets to help
36

accelerate the development of digital solution businesses
based on AI, analytics, and other digital platform technologies.
Through these R&D activities, I am confident that we willcontribute to the growth of Hitachi and the SDG No.17 target“Partnership for the goals.”
SDG Focus

Historical/Projected R&D Expenditure(Billions of yen)
500.0

450.0

3.4%

3.3%

334.8

333.7

3.5%

3.6%

3.7%

400.0

350.0

350.0
323.9

332.9

300.0

0

2014

R&D expenditure

2015

2016

2017

R&D expenditure relative to revenues

2018(Forecast)(FY)In seeking to be a company that continually fulfills its social responsibility throughout the value
chain, Hitachi strictly adheres to laws and regulations and acts in a moral and fair manner with all its
business partners.

Promoting CSR Procurement
Creating and Sharing Procurement Policies
We base our procurement activities on the Hitachi Guidelines
for Procurement Activities, while sharing global supply chain
issues within the Group. All Group companies follow theseguidelines. The guidelines were created in line with the United
Nations Global Compact and include the elimination of
discrimination in employment and occupation, the rejection of
all forms of child and forced labor, and environmental protection
activities. Suppliers are selected strictly in accordance with
the Hitachi Guidelines for Procurement Activities.
A fully revised version of the Hitachi Group CSR Procurement
Guidelines was released in fiscal 2016. This revision incorporates
the provisions of the Hitachi Group Codes of Conduct andalso makes references to version 5.1 of the Responsible
Business Alliance (RBA, formerly called EICC) Code of Conduct,
promulgated in January 2016. To ensure that the guidelines’
provisions are strictly followed, we distribute the Guidelines

to the approximately 30,000 suppliers of Hitachi business
units and Group companies, from whom we request
acknowledgment of suppliers’ understanding in writing. Tier 1
suppliers are further asked to confirm that tier 2 suppliers also
follow the provisions in the guidelines.
We plan to revise these guidelines regularly in the future toensure that they always reflect the demands of global society
regarding corporate supply chain management.
Guidelines for Procurement Activities:
http://www.hitachi.com/procurement/policy/__icsFiles/afieldfile/2018/06/07/
guidelines.pdf
CSR/Green Procurement:
http://www.hitachi.com/procurement/csr/green/index.html

Implementation of CSR Monitoring and Audits
To monitor how well Hitachi’s CSR supply chain management
philosophy has been adopted by our suppliers, since fiscal
2007 we have asked key suppliers to conduct CSR Monitoring(self-checks) using the JEITA Supply Chain CSR Deployment
Guidebook and detailed checklists. After collecting and analyzing
the results, we provide feedback for the business operations
related to the suppliers, and then work with those involved in
the operations to resolve issues related to the suppliers.
In fiscal 2017, we asked 131 suppliers inside and outside
Japan to conduct CSR Monitoring and received survey replies
from them. From fiscal 2017, all checklists were fully updated inaccordance with the revisions made to the Hitachi Group CSR
Procurement Guidelines. Based on the results of the survey, we
have identified problematic labor-related trends, and we will
promote measures to address such issues going forward.
Since July 2012, Hitachi, Ltd. has been auditing the
manufacturing bases of its and Group companies’ suppliers in
China and the rest of Asia. In fiscal 2017, we conducted CSR
audits of 18 suppliers. Our audits are based on the international
SA8000 certification standard developed by Social

Accountability International (SAI), an American CSR evaluation
institution. An RBA-recognized auditor checks suppliers’ CSR
initiatives from the perspectives of labor and human rights,
health and safety, the environment, and ethics. No major
infringements were found at the 18 suppliers audited in fiscal
2017, but some small areas needing improvement werenoted, such as overtime work exceeding stipulated rules(14 suppliers), failure to conduct periodic inspections ofmachinery and equipment (12), and insufficient managementof hazardous waste (7). The relevant suppliers were requested
to submit improvement action plans, and Hitachi, Ltd.,
together with Group companies, will work with and advise thesuppliers until they complete the planned improvements.
We hope to contribute to the development ofsustainable consumption and production
patterns within society by addressing societal
issues within our value chain.

Number of CSR Audits
Fiscal 201520companies

Fiscal 201620companies

Fiscal 201718

companies(total of 106 companies since fiscal 2012)37

Foundation for Value Creation

Engaging in Responsible Procurement

Respect for Human Rights
Human Rights Due Diligence in Procurement
Our pledge under the Hitachi Group Human Rights Policy is todevelop human rights due diligence mechanisms andimplement them on an ongoing basis. Based on the results ofthe pilot programs undertaken with certain entities in fiscal
2014 across six countries in the ASEAN region under thispolicy, we have formulated a set of written guidelines for
implementing human rights due diligence in collaboration with
the US-based NPO Shift*.
In fiscal 2015, we initiated human rights due diligence inthe procurement divisions, whose activities are at risk ofnegatively impacting the human rights of workers in the supply
chain and local communities. In fiscal 2017, we completely
revised the questions on the check sheet used in supplier
CSR monitoring (self-checks) to better grasp the issues
related to workers’ rights at suppliers, as well as health andsafety and the environment. We also visited one of our
suppliers in Malaysia with members of the US nonprofit
organization BSR (Business for Social Responsibility) to conduct
an assessment on migrant workers, who are socially vulnerable
and often said to be exploited by forced labor. The assessment
was based on interviews with managers of human resources
and production divisions, recruitment agencies, and migrant
workers, along with inspection of the factories and dormitories.

Fiscal 2016 also saw the launch of human rights due
diligence for human resources divisions at Hitachi. The
operations in those divisions touch on many issues connected
to human rights for employees, including working hours,
employee treatment, and health and safety. Human rights
risks for employees were assessed and prioritized, andmitigation strategies were explored. They also investigatedgrievance mechanisms, analyzing existing procedures andexploring ideas for improvement. Going forward, Hitachi willfurther promote human resources initiatives by its business
units and Group companies.
Since fiscal 2014, Representative Executive Officer,
President, and CEO Toshiaki Higashihara has sent an annual
human rights message on Human Rights Day (December 10).
In fiscal 2017, this was distributed via email to executives andemployees at Hitachi, Ltd. and Group companies worldwide.
* John Ruggie, former Special Representative of the Secretary-General on
business and human rights, founded this NPO with the team that drafted the
UN Guiding Principles on Business and Human Rights.
Hitachi Group Human Rights Policy:
http://www.hitachi.com/sustainability/renew/pdf/human_rights_policy.pdf

Response to the Conflict Minerals Issue
The policy for procurement departments of Hitachi has always
been and will continue to be to ensure that procurement
activities do not result or aid in conflicts within the same
region and that the armed groups described above do notbenefit from those activities, while continuing responsible
procurement activities of minerals that are not related to theconflicts in the region based on local laws. At the same time,
we will continue to support the practice of due diligencebased on the “OECD Due Diligence Guidance for Responsible
Supply Chains of Minerals from Conflict-Affected and High-Risk
Areas” among companies. With these in mind, Hitachi Groupwould like to request all of our suppliers to utilize the Conflict

Minerals Reporting Template developed by RBA/GeSI tocontinue checking the country of origin and supply chain ofminerals, and also to procure from the CFS (Conflict Free
Smelter)* listed within.
* A list of smelters who have been identified as “not being involved in the conflictwithin the same region” by the Responsible Minerals Initiative (RMI), an organization that was founded by the RBA/GeSI, which is a group that aims to solve
the conflict minerals problem.
Hitachi Group Conflict Minerals Procurement Policy:
http://www.hitachi.co.jp/procurement/csr/__icsFiles/afieldfile/2018/06/07/
CM_PP_RE_E.pdf

Respect for human rights is the foundation of all 17 SDGs. In working toachieve such goals, it is important that we mitigate any negative impacts
related to human rights caused by our business activities throughout thevalue chain.

Distributed CEO’s human rights message to
Fiscal 2015

Approx.
38

148,000 people

Fiscal 2016

Approx.

156,000 people

Fiscal 2017

Approx.

178,000 peopleIn order to achieve its Environmental Vision, the Hitachi Group is actively working to reduce its overall
environmental burden. To reduce its CO2 emissions across its entire value chain, Hitachi aims to lower
emissions not just at the production stage but also during use of sold products and services, which
accounts for the vast majority of total emissions, by promoting low-carbon businesses.
The Environmental Vision and Hitachi Environmental Innovation 2050
As climate change, resource depletion, ecosystem destruction,and other environmental issues grow more serious, companies
face increasing demands and expectations to reduce theenvironmental burden of their business activities. The Paris
Agreement, which came into force in 2016, sets ambitious
targets, including a global long-term target of keeping global
warming to below 2°C and efforts to limit the increase to
1.5°C. These targets are based on the Fifth Assessment
Report of the Intergovernmental Panel on Climate Change(IPCC). Environmental targets have also been set in the
Sustainable Development Goals (SDGs)—the centerpiece ofthe 2030 Agenda for Sustainable Development, adopted by
the United Nations in 2015—whose Goal 13 reads: “Takeurgent action to combat climate change and its impacts.”
In the light of these global demands and our own management policy, we created an Environmental Vision clearlystating our aim to both improve the quality of life and achievea sustainable society from a long-term perspective, as well as
to achieve a low-carbon society, a resource efficient society,and a harmonized society with nature by promoting environmental management. Looking toward 2030 and 2050, we
also established long-term environmental targets called
Hitachi Environmental Innovation 2050 that demonstrates
our resolve to achieve the kinds of societies outlined in ourEnvironmental Vision.
Our environmental strategy, centered on the Environmental
Vision and our long-term environmental targets, is deliberated
by the Executive Sustainability Committee, chaired by the
President & CEO, and advanced by the Hitachi Group asa whole.

The aim of Hitachi’s environmental management

Achieving a Low-Carbon Society
Hitachi has established a goal of reducing CO2 emissions
throughout its value chain by 50% by fiscal 2030 and 80% by
fiscal 2050 (compared to fiscal 2010 levels).
A significant share of the CO2 emissions from our value
chain arises from the use of our products and services by ourcustomers. To reduce these emissions and combat climatechange, we are expanding our low-carbon businesses as
outlined below.
We are also improving the environmental performance of
products and services across the entire Hitachi Group to help
address environmental challenges through the development
and popularization of products and services with high environmental value. To track our progress, we use the reduction rate
per product and service function of CO2 emissions during usage
as our index. At the same time, we continue to promote

environmentally conscious design of products and services atthe design and development stage.
In addition, we remain focused on cutting direct emissions
by the Hitachi Group during production by enhancing theefficiency of our factories and offices, advancing energy-saving
measures, and introducing the use of renewable energy.
Please refer to the Hitachi Sustainability Report 2018 for further details.

Ratio of CO2 Emissions at Each Stage of Hitachi Value Chain
Production
Transportation

Disposal/Recycling

Use
Procurement of raw materials/Parts

39

Foundation for Value Creation

Environment

Responding to Climate Change Through Growth in “Low-Carbon Businesses”
As part of its efforts to address challenges posed by climatechange, Hitachi is combining the strengths of its business
units and Group companies through digital solutions built
on the Lumada platform, and expanding its low-carbon
businesses through co-creation with customers and partners.
To help achieve low-carbon energy supplies, we offer windand other non-fossil energy systems. We also promote
improvements in power distribution efficiency via the use ofsmart grids and related technology. To realize low-carbon
spaces, we are striving to make buildings more efficientthrough total solutions and reduce the energy requirements offactories via smart manufacturing. Through the developmentof more efficient railway systems and the promotion ofincreased adoption of automotive electric powertrains, we areproviding highly efficient transportation methods in order toachieve low-carbon mobility. Our amorphous transformers andother low-carbon products contribute to increasing efficiency
and reducing emissions throughout society. In these andmany other ways, we are helping to realize a low-carbon
society and promoting measures to address climate change.

Low-Carbon Businesses: A Hitachi Focus
Achieving Low-Carbon
Energy Supplies

Non-fossil energy systems• Wind energy systems
Smart grids• Distributed power supply
solutions• Energy management

Achieving Low-Carbon Spaces

Achieving Low-Carbon Mobility

Low-Carbon Products

Offices• Total solutions for buildings• Elevators• Escalators

Railways• Operation management/railway
information systems• Rolling stock

Industrial equipment• Amorphous transformers• Air compressors• Motors

Factories• Smart manufacturing

Automobiles• Electric powertrain systems(Storage batteries, motors,
inverters, etc.)• Automobile components

High functional materials &components• Amorphous metal materials fortransformers• Rare earth magnets

Rolling stock

Amorphous transformers

Smart life & ecofriendly systems• Smart life business• Home appliancesWind energy systems

Elevators

Escalators

Digital Solutions Built on Lumada Platform

SDG Focus

Hitachi promotes initiatives to minimize environment-related risks, principally climate change, andcontribute to resolving environmental issues.

Rate of Reduction in CO2 Emissions from Use of Products
and Services (Hitachi Group)

Reduction in Per-Unit Energy Use by Factories and Offices(Hitachi Group)

From base year

From base year%
reduction%
reduction

33

14

FY2010 (base year)

FY2017CO2 emissions

CO2 emissions

Function size*

100%

Function size

* Major functions of products correlated to CO2 emissions.

40

67

%

FY2005 (base year)

FY2017

Energy used 2.06 GL*1

Energy used 2.00 GL

Activity amount*2

100%

Activity amount86*1 Energy volume used both in and outside the organization (Scope 1 and 2).
*2 A value closely related to energy use at each business site (for example,
production quantity, output, building floor space, and number of employees).

%

Advancing Risk Management on Multiple Fronts

Risk Factors

Changes to our operating environment from such factors as
the globalization of the economy and advances in and spreadof information and communications technology (ICT) lead not
only to the expansion of business opportunities but also to thediversification of risks to our operations.
We have built a diverse risk management system underwhich we carry out risk analysis to accurately gauge ongoing
economic and social changes and use the insights gained totake preventive measures and ensure a rapid response toissues that may arise unexpectedly. Particularly in recent
years, as a company deeply involved in infrastructure projects
in countries and regions around the world, we take note of the
discussions at meetings like the World Economic Forum onsuch international risks as the unending series of terrorist
attacks, the increasing severity of abnormal weather conditions,
global-scale climate change, and the growing scale andsophistication of cyberattacks. We are reinforcing business
continuity plans (BCPs) and further tightening our information
security to ensure the stable supply of our products andservices and to prevent threats to our networks that could
severely disrupt business operations. We will continue toreinforce our risk management on a Group-wide basis andmake thoroughgoing efforts to minimize risks to society fromour operations.

We conduct business on a global scale across a broad rangeof business areas and utilize sophisticated, specialized
technologies to carry out our operations. Therefore, we areexposed to risks attributable to the economic environment,risks inherent in individual industrial sectors and businesslines, and risks related to our operations. Investment in our
securities also involves risks. The following risks are based on
the assumptions we consider reasonable as of the date thisreport was issued.

Reinforcement of Risk Management System
The entire Hitachi Group is reinforcing its risk management
system to address increasingly globalized and complex risks.
Under the head of risk management at Hitachi, Ltd.,
each business 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 and procedures
to objectively evaluate different risks that may affect business.

• Economic Trends• Currency Exchange Rates Fluctuations• Access to Liquidity and Long-term Financing• Marketable Securities Risks• Material and Component Procurement• Estimates, Fluctuations in Cost and Cancellation ofLong-term Contracts• Credit Risks Arising from Business Transactions• Supply and Demand Balance• Rapid Technological Innovation• Dependence on Specially Skilled Personnel• Intense Competition• Our Strategy to Strengthen Our Social Innovation Business• Acquisitions, Joint Ventures, and Strategic Alliances• Restructuring of Our Business• Worsening of Business Performance of Equity-method
Associates and Joint Ventures,• Our Overseas Growth Strategies• Overhaul of Cost Structure• Intellectual Property• Litigation and Regulatory Investigations• Product Quality and Liability• Significant Disasters and Similar Events• Dependence on Information Systems• Management of Confidential Information• Employee Retirement Benefits• Dilution of Your Shares by Issuances of Additional Shares
Please refer to the Company’s annual securities report for the fiscal year
ended March 31, 2018 for details of business and other risks.
http://www.hitachi.com/IR-e/library/stock/index.html

41Foundation for Value Creation

Risk Management

Stable Provision of Products and Services

Creation of Procurement BCPs

Creating BCPs in Key Operations Worldwide

We have a deep involvement in social infrastructures in places
where the suppliers who are our business partners can beaffected by major earthquakes and other natural disasters.
These disasters can heavily impact not only our business
operations and those of our suppliers but also society as awhole. To minimize this impact, the procurement divisions inbusiness units and key Group companies in Japan havecreated procurement BCPs that (1) standardize and use
generic parts to make procurement as flexible as possible;(2) cultivate multiple suppliers; (3) distribute production acrossseveral locations; (4) budget inventory strategically; and(5) consider substitute products. To see whether or notprocurement BCPs would be effective, we held desktop
exercises to discuss in a group what should be done during
and after a disaster, making further improvements as a result.
In fiscal 2017, all major Group business sites withproduction lines (approximately 208 sites in total) took steps
to maintain and strengthen the procurement BCPs they had
created by the previous fiscal year, thereby contributing to thecontinuation of Hitachi’s global operations.

Given the close relation of our business to social infrastructure,
we are enhancing our business continuity plans (BCPs) toensure that the impact of risks does not disrupt our businessand thereby significantly affect society. In December 2006,
we issued the Hitachi Group Guidelines for Developing
Business Continuity Plans (Overview) in Japanese. In fiscal
2010 this was translated into English and Chinese 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 identificationof 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 2018, we held
initial response drills at our headquarters under the directionof our head office general manager simulating a large
earthquake in the Tokyo area, striving to promote understandingof each department’s role and strengthen cooperation
among departments.
As part of countermeasures against large earthquakes
striking the Tokyo metropolitan area, in December 2017 wedeveloped action plans including setting up substituteheadquarters in the Kansai region in case our Tokyo headquarters
cease to function temporarily due to such earthquakes.
Hitachi appointed personnel with responsibility forrisk-response policies at its main overseas bases in fiscal 2013.
By the end of that year, approximately 300 companies
prepared BCPs with the goal of completing them for key
operations. These BCPs are aimed at strengthening our ability
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 tofurther expand the scope of our BCPs.

42

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-houseand outside experts are now sent beforehand to areas at highrisk 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 of confirming theeffectiveness of our safety policies. In fiscal 2017, with thethreat of terrorism expanding around the world and infectious
diseases spreading regionally, we introduced a range of safetymeasures, including providing timely alerts to employees. This
underscores our commitment to ensuring the safety of ouremployees working around the globe.
Hitachi is also contributing to safety measures at otherJapanese corporations operating outside Japan. To help
enhance collaboration between the private 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 hastaken part in public-private kidnap incident preparatory
training exercises.

Information Security Policies
The increased connections between things due to development of IoT are creating new value. At the same time,increasingly creative cyberattacks are widening their focus
from traditional IT to include the IoT/OT field. Managing
information security risks is one of the most critical issues forcompanies to minimize the risk of business disruption due tofactors such as leaks of information or operational stoppages.
The development of the Social Innovation Business has
highlighted for Hitachi the vital importance of information
security governance as a key management issue. The Japan
Business Federation’s Declaration of Cyber Security Management that was published in March 2018 also placed emphasis
on cyber security measures as a critical management challenge
from the aspects of both value creation and risk management.
Hitachi approaches the issue of information security
governance based on the same concept.

Information Security Set-up
At Hitachi, Ltd. the senior executive with ultimate authority
and responsibility regarding the handling of information security
and personal privacy issues is appointed by the President &CEO. Previously, the CIO*1 oversaw information security.
In October 2017, in a move aimed at upgrading thegovernance of information security for the Group and to
centralize the promotion of related measures, Hitachi establisheda new position of CISO*2 to oversee promotion of information
security for all Hitachi products and internal facilities. In fiscal 2017,
the CISO role was performed by an executive vice president.

Chaired by the CISO, the Information Security Committee
determines all policies and procedures for information security
and personal information protection. These decisions areconveyed to all Hitachi Group business sites and companies,
and are implemented by the relevant information security officers.
*1 CIO: Chief Information Officer*2 CISO: Chief Information Security Officer

Information Security Management
Global Information Security Management
Hitachi Group companies worldwide reinforce their information
security in line with our Global Information Security Administration
Rules, which conform to the international ISO/IEC 27001
standard. These rules are globally distributed from the parent
company in Japan to Group companies worldwide. Other
measures include the provision of shared security services
and related support for information security by the regional
headquarters in the Americas, Europe, Southeast Asia, China,
and India.

Security Monitoring
In Hitachi, the SOC*1 monitors security on a 24/7 basis socyberattacks can be detected and countermeasures initiatedright away. The IRT*2 collects and develops security-related
data and manages the response to any security incidents.
*1 SOC: Security Operation Center*2 IRT: Incident Response Team

Information Security Promotion Set-up

President & CEO

Information Security
Chief Auditor

Chief Information
Security Officer

Overseen by CIO until September 2017
CISO position created in October 2017

Information Security
Committee

43Foundation for Value Creation

Promoting Information Security

Preventing Confidential Information Leaks

Information Security Audits

Hitachi, Ltd. has formulated the Three Principles forPreventing Leakage of Confidential Information to ensure theutmost care is taken with such information and to prevent any
leaks or other related incidents.

The Hitachi Group has developed its approach to security
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 and business units.
Information security audits are carried out by the Information
Security Chief Auditor, an independent appointee by thepresident of Hitachi, Ltd. There are 221 Hitachi Group
companies in Japan that conduct audits in the same way as
Hitachi, Ltd., and all results are subject to review. For HitachiGroup companies outside Japan, we use a “common global
self-check” approach.
An annual review of Personal Information Protection andInformation Security Management is conducted as part of thevoluntary inspection of business unit workplaces. We conduct
monthly Confirmation of Personal Information Protection andInformation Security Management assessments at 693
operations (as of March 2018) that handle important personal
information. This regular control mechanism ensures ample
safety management and implementation.

Three Principles for Preventing Leakage ofConfidential Information
Principle 1 In principal, no Confidential Information shall be takenout of the Company’s premises.
Principle 2 Any person taking Confidential Information out of
the Company’s premises due to business necessity
shall obtain prior approval from the Information
Assets Manager.
Principle 3 Any person taking Confidential Information out of
the Company’s premises due to business necessity
shall put in place relevant and appropriate measuresagainst information leakage.

Hitachi Group companies take the following IT steps toprevent information leaks: using encryption software and securePCs; employing electronic document access control andexpiration processing software; maintaining ID management
and access control by building an authentication infrastructure;and filtering e-mail and visited websites. In response to cyberattacks, we are creating multilayered controls to prevent leaksof information, including both entry and exit countermeasures.
We also review and investigate the information security
status of suppliers based on our internal standards.

Protecting Personal Information
Hitachi, Ltd. has established a personal information protection
management system based on the Company’s own Personal
Information Protection Policy. Hitachi, Ltd. and 44 other
Hitachi Group companies* in Japan have received Privacy
Mark accreditation.
No customer complaints or claims were received by Hitachi
during fiscal 2017 relating to a breach of privacy or loss of data.
As shown by the EU’s enforcement of the General Data
Protection Regulation (GDPR) in May 2018, consumer privacy
laws and regulations are evolving on a global basis. Hitachi
is committed to monitoring these trends and taking any
appropriate related measures.
* As of May 31, 201844

Education on Information Security
Annual e-learning programs are held on information security
and personal information protection for all directors, employees,
and temporary employees. Nearly all of the roughly 40,000
employees of Hitachi, Ltd. participate in these programs.
We also offer varied educational courses on information
security with different goals tailored to specific target audiences.
In 2012, we began simulation training to educate employees
about e-mail phishing and other targeted malicious
cyberattacks. In the exercise, employees are sent actual
examples of malicious e-mails to heighten their awareness of
security through direct experience.

Foundation for Value Creation

Cybersecurity: A Key Management Issue
Damage was caused to some Hitachi systems in May 2017 following an infection with WannaCry ransomware*1. Treating
this as a management issue, Hitachi is reinforcing cybersecurity measures based on the lessons learned from this incident.

Initial Response to Ransomware Infection
The incident originated around 10 PM JST on May 12, 2017, when systems inside a datacenter began operating unreliably. An investigation for suspected systems failure proceeded, but it was not known at this initial stage that the cause was
infection due to a software virus. Once ransomware infection was confirmed about an hour later, the information wasreported promptly to the internal Incident Response Team (IRT) and work began to characterize the attack and assess
related damage.
Shortly after 1 AM JST on May 13, the IRT concluded from its initial assessment that the incident was due to infection
by WannaCry ransomware. This was reported to management, and countermeasures were initiated to prevent morewidespread damage. Instructions for urgent countermeasures were developed for the entire Hitachi Group by around 5 AM
JST. An Emergency Response Center was set up at Hitachi’s head office at 9 AM JST. Work began to assess and repair
the damage to systems, and to analyze the route of infection.

Lessons from the Incident
Hitachi drew four lessons from the response to this ransomware infection incident.
First was the threat from cyberattacks that diffuse rapidly within a network. Equipment connected to the company
intranet includes not only PCs, servers, and other office equipment, but also equipment used in product development,
production facilities, and other OT equipment. In this case, damage spread due to rapid diffusion over the intranet after thevirus had infected weak links in the security chain, including office equipment not automatically updated with security
patches*2 as well as OT equipment that would not ordinarily be updated in this way.
The second lesson was the importance of thorough security measures for servers and other office equipment. The
systems that were damaged by the infection were ones where security patches had not been installed in a timely manner
because system operation precluded their necessary shutdown.
The third lesson related to the difficulties involved in security measures for OT equipment, which in many cases had
been designed without considering the need to install security patches or undertake post-installation system updates.
The fourth lesson concerned the need to upgrade business continuity planning to combat the threat from cyberattacks.
As with a natural disaster, the assumption with ransomware and other cyberattacks must be that there is no absolutesafety, and the approach in an emergency should be to contain the damage and focus on how quickly operations can berestored. The BCPs must envision worst-case scenarios and stipulate related procedures and training so that frontline
personnel are better prepared.
Besides the various technical aspects, the management response to this kind of issue must include a comprehensive
risk assessment and related decision-making from a business continuity perspective.
The threats in the information security sphere continue to grow year after year, with increasingly sophisticated cyberattacks supplementing problems due to human error, internal misconduct, and changing business conditions, among
other factors. The business impact when these incidents occur is significant. Going forward, viewing information security
as a critical management issue, Hitachi will seek to reinforce cybersecurity measures and improve systems durability while
maintaining an appropriate balance with organizational, misconduct, and system-related factors.
*1 Ransomware is a type of software virus that places restrictions on an infected computer before demanding monetary compensation in exchange for liftingthese restrictions.
*2 Security patches are programs designed to rectify any faults or weaknesses that are discovered in computing software.

45

Engaging with Climate-Related Risks and Opportunities
Hitachi sees climate change risks and opportunities as important management issues. One governancemechanism that we established to address such risks and opportunities is the Executive Sustainability
Committee, chaired by Hitachi’s President & CEO, with other top executives serving as committee
members. The committee develops business strategies to minimize risks and maximize opportunities
from climate change in line with relevant global regulations and policy trends.
In 2017, the Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial
Stability Board in response to a request from the G20 Meeting of Finance Ministers and Central Bank
Governors, published its recommendations seeking corporate disclosures of information aboutclimate-related risks and opportunities. In June 2018, Hitachi announced its endorsement of the TCFD
and is preparing its information disclosure based on its recommendations. As regards climate-relatedrisks and opportunities, Hitachi is reviewing its risks in two categories, namely, (1) risks related to thetransition to a low-carbon economy, and (2) risks related to the physical impact of climate change inaccordance with the categories outlined in the new global TCFD recommendations. In terms ofopportunities, we are positioning our contributions to the creation of a low-carbon society throughenhanced energy-saving features of our products and services as a major opportunity, and are
discussing how we can further expand it.

Risks in Transitioning to a Low-Carbon Economy

Market and Reputation

Policy and Legal

A company’s approach to climate change issues
influences stakeholders’ evaluations, and changes tomarket values, such as placing great importance on
climate change countermeasures, affects customers’
choices of products and services. This may pose arisk to business continuity. Hitachi upholds long-term
environmental targets of reducing CO 2 emissions
throughout its value chain by 50% in fiscal 2030 and 80%
in fiscal 2050 compared to fiscal 2010 levels. Measures toattain these goals include investing in new facilities andequipment with higher energy efficiency and targeting greater
efficiency in production through digitalization.

Carbon taxes, energy consumption taxes, emissions trading
systems, and other measures may be newly introduced or
further strengthened, representing risks impacting directly on
management costs in addition to those incurred in complying
with the environmental regulations and policies of countries
and regions around the world.
To mitigate such risks, we have been reducing or minimizing
cost burdens by enhancing production efficiency andintroducing energy-saving measures. In fiscal 2017, ourenergy-saving investments totaled approximately 5.4 billion
yen. Should our products fail to meet energy-efficiency
standards and regulations, we will risk losing sales
opportunities. In addition to strictly complying with existing
standards and regulations, we will always endeavor to keep
abreast of trends in laws and regulations and participate in theplanning of new policies.

Technology
To reduce CO 2 emissions caused by the use of our
products and services by our customers, which make up asignificant share of emissions in the value chain, we need newtechnology to achieve further energy-saving in our products
and services.
Therefore, by applying Environmentally Conscious Design
Assessments in the design and development stages of Hitachi
products and services, we assess various environmental
aspects at each stage of the product life cycle and strive tominimize environmental impact. In addition, by combining
Hitachi’s longstanding expertise in a wide range of social
infrastructure technologies with OT (operational technology)
and IT, we can provide optimal solutions that lead to thecreation of new business opportunities.
46

Risks Related to the Physical Impacts of
Climate Change
Acute and Chronic
Climate-related physical risks include acute risks, such asincreased severity of typhoons and floods, and chronic risks,
including climate patterns that may cause the sea level to riseand chronic heat waves. Hitachi has a worldwide businesspresence and believes that disasters due to weather
phenomena attributed to climate change, such as increasingly
bigger typhoons and torrential rainfall, pose a risk tobusiness continuity.
In order to minimize these risks, we take into considerationsuch factors as location and the possibility of damage
from flooding when setting up a new plant or deciding on
the deployment of equipment. We also use the HitachiGroup Guidelines for Developing Business Continuity Plans
that outline measures to be taken in times of disaster tomitigate risks.

Products, Services, and Markets

Resource Efficiency

Products and services featuring innovative, energy-saving
technology that can contribute to the mitigation andadaptation of climate change are viewed as having thepotential to increase market value and revenue. Many of our
products use energy, so we must enhance the efficiency ofour products and services and facilitate low carbonization inorder to contribute to resolving the issue of climate change.
To this end, we are developing ultra-efficient products andlow-carbon energy, as well as encouraging their use. We arealso promoting the development of innovative devices andmaterials that contribute to reducing the environmental
burden. In fiscal 2017, Hitachi’s total investment in R&D was
332.9 billion yen, including sizable spending to reduce theenvironmental burden.
A company’s approach to climate change issues influences
stakeholders’ evaluations and affects customers’ choice of
products and services. Hitachi not only meets the required
standards and regulations for the energy efficiency of its
products, but also develops and provides energy-saving
products and services that go beyond the prescribedstandards, thereby increasing opportunities to be chosen
by customers.

Hitachi is promoting the efficient use of resources by reducing
waste, recycling, and undertaking other measures. Also, forthe efficient and sustainable use of natural resources, we arepromoting efforts to minimize the amount of natural resources
we use through improvements in production processes andresource-conserving designs.

Energy Source
Hitachi proactively uses renewable energy for ourfactories and offices. In our factories, we are able toefficiently use the electricity supplied from photovoltaic
power generation facilities, despite fluctuations in theamount of power generated, by monitoring and controllingenergy usage on production lines and by using storage
batteries. Also, we are promoting the adoption of renewableenergy credits and the expanded deployment of internalcarbon pricing and the self-consumption solar power
generation. In our offices, too, we are enhancing the efficiencyof lighting and air conditioning, as well as visualizing energy
usage and optimizing the amount of energy used in thebuilding as a whole through Building and Energy Management
Systems (BEMS).* In our business operations, we create new
business opportunities, such as by actively providing
renewable energy from wind power generation systems.
* BEMS aim to optimize the internal environment of a building and its
energy efficiency.

Resilience
We have devised a plan for vital functions to be maintained
through the use of renewable energy and storage batteries if
a power outage occurs in any of Hitachi’s main factories.
In our business operations, we are providing disasterprevention solutions to help various countries and regions deal
with the rise in natural disasters. Hitachi uses sophisticated
IT developed over the years to analyze and evaluate data
pertaining to people’s daily lives, meteorological and othernatural trends, and the operation of social infrastructure, in
promoting the provision of solutions conducive to responding
to climate change.

47

Foundation for Value Creation

Climate-Related Opportunities

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 afundamental management issue. As economic activity becomes increasingly borderless, there is a
growing need for steps to eradicate bribery, corruption, and other illegal behavior while taking into
consideration the characteristics of the countries and regions where we operate.
As a global company, we have put in place and expanded a coherent compliance structure acrossthe entire Hitachi Group.

Sharing Codes of Conduct and ComplianceApproaches Throughout the Group
Ensuring Awareness of the Hitachi Group Codesof Conduct
Hitachi, Ltd. is a pioneer in developing business ethics. The
company formulated the Hitachi, Ltd. Standards of Corporate
Conduct in 1983, followed by the Hitachi Group Codes ofConduct in 2010 that the entire Group pledges to uphold.
The Hitachi Group Codes of Conduct are available in 21
languages and shared among Hitachi Group employees
throughout the world. In addition, an e-learning tool has been
made available in Japanese and nine other languages, suchas English and Chinese, showing appropriate behavior andpresenting specific examples for use.
In April 2018, we revised the Hitachi Group Codes ofConduct based on our philosophy that corporate activities
should meet the needs of the times, such as the SDGs,
toward a sustainable society, human rights and building awork environment, and various types of crisis management.
Hitachi Group Codes of Conduct
http://www.hitachi.com/corporate/about/conduct/index.html

Enhancing Our Compliance Framework
In 2016, Hitachi reviewed compliance regulations andguidelines that had been set independently relating to such
issues as competition law and the prevention of transactions
with antisocial groups as well as bribery and corruption.
These compliance regulations and guidelines have beenreorganized into the Hitachi Global Compliance Program as a
newly integrated system of rules under the Hitachi Group
Codes of Conduct.
To implement this program, we have appointed a senior
executive as the head of risk management for the entire
Hitachi Group, to supervise management-level risk management
executives from business units and key Group companies.
Under this system, policies and measures are shared throughthe Compliance Management Conference, composed ofthese risk management executives. Each executive is
assisted by a compliance manager who implements practicalsupport measures.

48

Compliance heads have been appointed in 11 regions to
support Group companies outside Japan, with responsibility
for implementing education and sharing information as well as
arranging consultation services with outside attorneys andother experts.
The internal audit section regularly conducts Group-wide
reviews to verify compliance status across Group operations.
Composed of outside experts, the Advisory Committee
has also been created to provide new compliance insights forproactive implementation within the Group.

Compliance Whistleblowing System
Hitachi has instituted a Group-wide whistleblowing system
under which reports go directly to the Company’s ComplianceDepartment or to an outside attorney. This system can beused not only by Hitachi employees, but also by temporary
staff and business partners. Fiscal 2017 saw 360 reports
throughout the Group. In each case, the relevant facts were
investigated thoroughly and the results were provided towhoever made the initial report. Appropriate measures weretaken, including remedial action where necessary. Goingforward, we will continue to maintain and review the system,
prioritizing the protection of whistleblowers.
In addition, we have implemented the Channel to theBoard of Directors system to allow employees to directly
report problems anonymously to Hitachi directors in cases
where they see any illegality or extreme inappropriateness inbusiness conduct by management.

Prevention of Antisocial Transactions
To prevent any such relationships, our commitment never toengage in any kind of transactions with organized crimegroups and other antisocial forces is laid out clearly in the
Hitachi Group Codes of Conduct. As part of this policy
stance, we insert antisocial force rejection clauses in ourcontracts with suppliers and business partners and conduct
regular compliance checks. In addition, we try to eliminate any
approaches from antisocial forces in partnership with thepolice and other external specialist institutions.

The basis of our export control policy is the statement in the
Hitachi Group Codes of Conduct that: “We will help maintaininternational peace and security through compliance with allapplicable laws and regulations concerning import and export,
and will operate appropriately based on internal rules andprocedures.” We instituted the Corporate Regulations
concerning Security Export Controls based on this policy
to ensure strict export controls are maintained throughout
the Hitachi Group, including all domestic and overseas
Group companies.
At present, we host training sessions and workshops onexport controls for all domestic and overseas Group companies,in addition to the annual implementation of an e-learning
program in Japanese, English, and Chinese.

Measures to Prevent Bribery and Corrupt Practices
In 2008, Hitachi established rules against bribery and corruption
for the Hitachi Global Compliance Program, along with guidelines
delineating specific spending thresholds for entertainment,
gifts, and other arrangements. In 2016, we introduced arevised policy to explicitly forbid any facilitation payments forroutine governmental action, and to clarify due diligenceprocedures for business partners. To ensure awareness ofthese rules and policies, we developed a global e-learning
program on preventing bribery and corrupt practices, making it
available in nine languages—including Japanese, English, andChinese—for use by Group companies worldwide.
As the risks of bribery and corruption vary according to
the nature of the business, the industry sector, the region ofbusiness, the counterparty, and other conditions, since fiscal
2013 Hitachi has conducted surveys of Group companies
outside Japan (about 500 companies in fiscal 2017) concerningpotential risk scenarios relating to bribery and corruption.
In fiscal 2017, there were no incidents in which Hitachi
violated or was penalized under laws or regulations regarding
bribery or corrupt practices.

in 2016 and earlier. To prevent any recurrence, the Group
company involved has already appointed a compliance headin each unit to conduct regular reviews of participating businessassociations and to promote education through sharing casesof violations within and outside Japan.
Eliminating competition law violations is among our top
priorities for regaining trust. Going forward, we will continue
our efforts to prevent such incidents recurring.

Quality Assurance Initiatives
Based on the Corporate Mission of ‘contributing to society
through the development of superior, original technology andproducts,’ Hitachi’s manufacturing ethos (monozukuri) places
top priority on quality and reliability. To achieve this, we areworking to strengthen quality assurance from the standpointsof organization and management, technology, and humanresources in every process—from planning and development
to design, manufacturing, delivery, and maintenance.
From fiscal 2016, to achieve the goals of our 2018 Mid-termManagement Plan, we have been steadily working to improve
service quality and product reliability, and to reduce losses
arising from quality issues based on better quality management.

Intensive Risk Assessment
Hitachi is committed to the delivery of safe products andservices. We verify safety at every step, from development
and production to sales and maintenance, and conduct risk
assessments from a wide perspective in collaboration withrelated business units and research laboratories.

Handling Product Accidents
When a product accident occurs, the division responsible acts
swiftly to resolve the problem. For a severe accident, we report togovernment agencies in line with legal requirements and publish
the incident information on our website and through otherchannels. Our systems are designed to ensure that appropriate
action is taken swiftly at all companies throughout the Group.

Preventing Violations of Fair Competition Laws

Global Quality Assurance Personnel Training in Asia

Hitachi engages in business based on the principles ofconformance with the law and business ethics, and fair andopen competition. For this reason, the Hitachi Global
Compliance Program incorporates rules concerning competition
law as well as related business standards and guidelines. In
2017, to enhance awareness of ethical principles and practices
globally, we created a global version of our standards regarding
contact with competitors based on the standards originallyprepared for use in Japan.
Fiscal 2017 saw one incident where one of our Group
companies was sanctioned and fined by the European
Commission. This related to a cartel in the capacitor businessthat had already been identified by Japanese and US authorities

We undertake personnel training as part of maintaining
Hitachi’s global quality standards. In China and Thailand,
where many of the Group’s manufacturing sites areconcentrated, we organize educational seminars aimed at
improving our quality management technology. We also hostconferences for quality assurance managers to raise quality
awareness regarding Hitachi’s monozukuri craftsmanship, andto share information and best practices.

49

Foundation for Value Creation

Thorough Export Controls

Foundation for Value Creation

Management System

03

05

09

07

04

01

11

06

Independent Outside Directors* As of June 30, 2018

08

02

10

Directors As of June 30, 201801 Katsumi Ihara

02 Cynthia Carroll

03 Joe Harlan

09 Kazuyuki Tanaka

10 Hiroaki Nakanishi

2005 Executive Deputy President, Representative Corporate Executive
Officer, Member of the Board, Sony Corporation2009 Executive Deputy President, Corporate Executive,
Sony Corporation
Executive Vice President, Representative Director,
Sony Financial Holdings Inc.
2010 President, Representative Director, Sony Financial Holdings Inc.
2011 President, Representative Director, Sony Life Insurance Co., Ltd.
2015 Chairman, Director, Sony Life Insurance Co., Ltd.
(Retired in June 2017)2016 Chairman, Director, Sony Financial Holdings Inc.
(Retired in June 2017)2018 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.

1999 Vice President and Chief Financial Officer, Lighting Business,
General Electric Company (USA)2001 Vice President, Corporate Financial Planning and Analysis,
3M Company (USA)2002 President and Chief Executive Officer, Sumitomo 3M Ltd.
2004 Executive Vice President, Electro and Communications Business,
3M Company (USA)2009 Executive Vice President, Consumer and Office Business,
3M Company (USA)2011 Executive Vice President, Performance Materials,
The Dow Chemical Company (USA)2012 Executive Vice President, Chemicals, Energy and Performance
Materials, The Dow Chemical Company (USA)2014 Chief Commercial Officer and Vice Chairman, Market Business,
The Dow Chemical Company (USA)2015 Vice Chairman and Chief Commercial Officer, The Dow Chemical
Company (USA) (Retired in August 2017)2018 Director, Hitachi, Ltd.

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.
(Retired as CEO in March 2009)2006 Executive Vice President and Executive Officer, Hitachi, Ltd.
(Retired in December 2006)
2009 Executive Vice President and Executive Officer, Hitachi, Ltd.
Chairman of the Board, Hitachi Global Storage Technologies, Inc.
(Retired in March 2010)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.
2018 Chairman of the Board and Executive Officer, Hitachi, Ltd.

04 George Buckley

05 Louise Pentland

06 Harufumi Mochizuki

11 Toyoaki Nakamura

12 Toshiaki Higashihara

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)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

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.

07 Takatoshi Yamamoto

08 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.

50

12Chair of the Nominating Committee
Chair of the Compensation Committee
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)Nominating Committee
Audit Committee
Compensation Committee
Representative Executive Officer

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

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 the outside directors meet the independence
criteria defined by the Company and those provided by
Japanese stock exchanges where the Company islisted, they are referred to as independent outside
directors in this report.

51

Executive Officers
As of June 30, 2018

President & CEO

Executive Vice Presidents and Executive Officers

Toshiaki Higashihara*

Masakazu Aoki*

Keiji Kojima*

Keiichi Shiotsuka*

Hideaki Takahashi*

Overall management

Assistant to the President (businessfor industry and distribution sectors,
water business and industrial
products business)

Assistant to the President (building
systems business, railway systems
business, smart life & ecofriendly
systems business and automotive
systems business) and information
security management

Assistant to the President (systems& services business, healthcare
business and defense systems
business), systems & services
business and social innovation
business promotion

Assistant to the President (coststructure reform and supply chain
management), cost structurereform and supply chain
management (MONOZUKURI and
quality assurance)

Senior Vice Presidents and Executive Officers

Toshikazu Nishino*

Shinichiro Omori

Yoshihiko Kawamura

Kenichi Kokubo

Setsuo Shibahara

Assistant to the President(nuclear energy business andpower business)

Cost structure reform andinformation technology strategies

Management strategies, investment
strategies, and strategies fornext-generation business

Regional strategies (China)

Services & platforms business

Hideaki Seki

Yoshitaka Tsuda*

Alistair Dormer

Hidenobu Nakahata*

Mitsuaki Nishiyama*

Building systems business

Marketing & sales, regional
strategies, and social innovation
business promotion

Railway systems businessCorporate communications,
legal matters, risk management,
corporate auditing, andhuman capital

Finance and corporate
pension system

Vice Presidents and Executive Officers
Keiichi Akino

Jun AbeHitoshi Ito

Kenji Urase

Ryuichi Otsuki

Marketing & sales(business for financial institutions,
government, public corporationand social infrastructure systems,
healthcare business, and defense
systems business)

Business for industry &distribution sectors

Governments & external relations

Water business

Regional strategies

Atsushi Oda

Kohei Kodama

Keizo Kobayashi

Norihiro Suzuki

Hidetoshi Takehara

Power business

Legal matters, risk management,
and corporate auditing

Industrial products businessResearch & development

Nuclear energy business

Osamu Naito

Katsuya Nagano

Isao Narukawa

Kentaro Masai

Yasushi Manabe

Governments & external relations,
CSR & environmental strategy, andexecutive support

Business for government,
public corporation, and social
infrastructure systems

Marketing & sales (nuclear energy
business and power business)

Supply chain management(MONOZUKURI and quality
assurance)

Marketing & sales(business for industry & distributionsectors, water business, building
systems business, and railway
systems business)

Shinya Mitsudomi

Mamoru Morita

Tsugio Yamamoto

Masaya Watanabe

Railway systems business

Management strategies

Business for financial institutions

Healthcare business

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.

52

Foundation for Value Creation

Independent Outside Director Dialogue

Cynthia Carroll

Hiroaki Yoshihara

Independent Outside Director

Independent Outside Director

Initiatives in Governance, Diversity andLeadership Development
Hitachi aims to earn the trust of customers and the broader public as a leading global
innovation partner, based on the development of digital solutions and global business.
Working from an objective standpoint, the independent outside directors play animportant role in supporting this process. Outside directors Ms. Cynthia Carroll (“CC”)
and Mr. Hiroaki Yoshihara (“HY”), both of whom are extensively involved in the ongoingtransformation at Hitachi, discuss its unique approach to fostering talent and promoting
good governance as part of realizing this mission.

53

BUSINESS CONDITIONS AND CHALLENGES

Q. What attracted you originally to become an independent outside director at Hitachi?
HY: The two reasons I originallyjoined the Board of Directors ofHitachi four years ago were thecompany s strong leadershipand its positive momentum.
Prior to that, I was a memberof the Board of Hitachi Global
Storage Technologies (HGST)
from 2008 until it was acquired byWestern Digital in 2012. In
common with Hitachi, HGST
faced a financial and operational
crisis during that period. Mr.
Nakanishi, current Chairman anddirector of Hitachi, Ltd. and theCEO of HGST at that time, led an
impressive and rapidtransformation process that I
witnessed first-hand. The

turnaround took HGST from being
the industry s worst performer to
its most profitable player.
Mr. Nakanishi later becamepresident of Hitachi. When I was
asked to join the Board of Hitachi
in 2013, the company wasdemonstrating positive
momentum in its own
transformation process led by him
and his strong executive team.
CC: I was also attracted to thestrong leadership of Hitachi. I
was highly impressed with thevision of the management, theambition to develop a morecompetitive, globalized business,and the strong determination of

top management to leverage thecompany s historical legacy. The
thinking was long-term, but at
the same time, they were looking
for alternative perspectives andexperiences to help Hitachi scale
new heights.
Hitachi is an iconic brand. It
is a phenomenal enterprise,given its global reach and thesheer breadth of its products
and services, which aresupplied by around 850
subsidiaries. The broad scopeof the business made it anespecially attractive proposition
for me.

Q. In your view, what are the strengths of Hitachi and the challenges it faces in
its global business development?
HY: Hitachi is blessed with many

competitive advantages. The
company is filled with many
talented people, and we have arich wealth of technologicalexpertise. Most importantly,
Hitachi s well-establishedcorporate values of Harmony,
Sincerity, and Pioneering Spirit
have stood the test of time.
I think that good strategic
execution has helped Hitachi tocreate strong positive
momentum in recent years as
we work to become a highperforming global enterprise.
CC: I agree that Hitachi has beensuccessful in building
momentum. We are more
effective in ensuring that thedecision-making is focusedsolidly on value creation.
54

To my mind, the fact that somany people spend their entire
careers in this company is oneof its strengths, because it
reflects the tremendous loyalty
and experience associated with
the Hitachi name. In addition,
the engineering and technicalcapabilities are phenomenal.
Hitachi is unique, relative toother companies today, with its
breath and depth of young andlong serving talent, in a position
to build on the core values andestablished trust created overmany decades.
HY: The direction we are taking

is excellent, but speed is also
vital. In that regard, I would liketo see accelerated evolution insome aspects of business,

including faster rationalizationof the business portfolio.
Greater synergy between
different parts of the businessportfolio is another criticalchallenge, based on
stimulating connectivity
between business sectors.
That is partly what theSocial Innovation Business isabout. In my view, we should
accelerate launching Social
Innovation Business initiatives
globally, while also deploying
data and insight-driven
strategies throughout theorganization.

lightning-fast in their response
to social change because of thegreater speed of connecting in

the context of the twin trends ofglobalization and digitalization.
We live in an age where
products can rapidly become

CORPORATE GOVERNANCE REFORMS: DIVERSITY, LEADERSHIP, AND AUDIT INTEGRITY

Q. What value is there in promoting diversity? What is Hitachi doing to increase diversity?
CC: In general terms, I think

diversity is critical to our future
success. Diversity within an
organization leads to diversity interms of thinking andperspectives, as we always
consider alternative approaches.
Ultimately, it can lead to smarterbusiness decisions and solutions.
In an area such as Social
Innovation, if our products,
services, and solutions are tomeet the needs of a constantly
evolving global society, we must
understand that society in detail.
For this reason, it is criticallyimportant for Hitachi to have aworkforce that reflects society.
Greater diversity in theworkforce means that we havethe right make-up of people toprovide the necessary

alternative perspectives. Also,
we cannot afford to leave out
half the population if we want todevelop the best global
management talent.
HY: As CEO Higashihara haspointed out, I believe, actively
targeting higher diversity enables
Hitachi to develop better as adiversified global business. The
company has set specificdiversity targets, and we aremaking steady progress towards
achieving them.
CC: To add some figures, women

represent almost 17% of the
Hitachi Group workforce, orroughly 44,000 people. Womenare now about 27% of new hires,
which is approximately double

the level that was being achieved
in fiscal 2000. By these various
indicators, I think we are making
measurable progress.
The current target for Hitachi,Ltd. is to increase the number offemale managers in Japan to800 by fiscal 2020. Similarly,
amongst executive andcorporate officers, we arelooking for 10% to be
represented by both women and
non-Japanese nationals by
fiscal 2020̶another major goal.
This is quite an ambitious
objective, but I think it
demonstrates Hitachi s
commitment to diversity.
HY: We also have measures inplace to support the development
and inclusion of women.

55

Foundation for Value Creation

CC: Businesses today must be

commoditized, which meansthat we will often struggle tomarket or sell them using purely
traditional approaches.
The core challenges faced by
the business relate to innovationand commercialization. We need
to be working in partnershipwith our customers andsuppliers to develop products,
services, and processes that
represent original value.
In my opinion, we have all thecapabilities to become a global
leader in the industries where wecompete but this takes
collaboration within and acrossbusiness boundaries.

CC: Yes, I spoke at the Global

Women s Summit in Las Vegas.
Elsewhere, we hold diversity
workshops such as the World
Café Program, and we have awork-life balance month. Both areinteresting initiatives, I think.
There is a lot of discussion
inside Hitachi around supporting
women who are working andraising children, for example byadopting systems to allow flexible
working hours, or using
teleworking or virtual officearrangements. All these initiatives
are managed within an overarching
work style reform program called
Work Life Innovation.
It s tremendously positivethat we are considering thesetypes of approaches to thesekinds of issues. In addition,

Hitachi recognizes theimportance of inclusion of men
and women in the discussion
about diversity as they together
grow the culture internally.
HY: Cynthia has been addressing

this issue extremely well for along time. As the CEO of aleading global corporation, she isa role model in her own right.

Q. How is Hitachi developing its next generation of leaders?
CC: Within the pipeline of

HY: As directors, we also

management talent, we work to
identify and meet regularly withhigh potential candidates whoare being considered forleadership positions. We try toensure such individuals arechallenged and developed
appropriately. If, for instance,
they have not worked outside ofJapan, we try to place themoverseas. Similarly, opportunities
are created to help them gain
experience of working in morethan one business unit.
A lot of thought goes into
this aspect of human capitaldevelopment and the HR team isdoing a phenomenal job of
ensuring that gaps in experienceof future management talent
within the organization are filled
through redeployment or
redirection of people. It s aboutdeveloping people for future
leadership positions. The HitachiGroup has built a fully integrated
human capital management
platform to provide a global
talent management framework.

contribute to this leadershipdevelopment process directly. It
is important for personal
development to haveprofessional mentors. It is also
vital to create a systematic
process that helps senior
managerial candidates tovisualize where they might want
to be in three or five years.
I remember in my earlier
career benefiting from this kindof mentoring when I wasworking for an organization with
headquarters in New York andLondon. I am always grateful forthe help that I received frommentors to help me direct myefforts appropriately indeveloping my technical andleadership skills. I think theprocesses we have in Hitachi are
helping to foster exciting careerdevelopment pathways within
our management talent pool.

56

CC: The directors serving on the

Nominating Committee take alead in the human capitaldevelopment process. I am also
personally involved in mentoring
management talent.

Having served on multiple
nominating committees withvarious multinationals, my viewis that Hitachi has adopted auniquely valuable approach totalent and executive
development. It is highly
systematic and proactive when
considering executive
development and succession.
For example, I have one-onone discussions with mentees
where we talk about what isgoing on in their work, therelated challenges, and how they
think about their career.
As independent outside
directors, we also take theopportunity to address the
young talent inside Hitachi bygiving speeches to select groups
and hearing personal feedback.
They can communicate theirperceptions about what theymight see as some of theroadblocks within Hitachi, andthis leads into a discussion
about how to confront
challenges in different ways, or
how we see the future. It s an
unusual approach for a big
multinational, but very valuable
in my view.

Foundation for Value Creation

Q. What is special about Hitachi’s audit processes?
HY: Hitachi uses a tripartite

audit approach that demands
strong, cohesive coordination
between the Audit Committee,
the Internal Auditing Office, andthe outside auditing firm.
Basically, the Audit
Committee leads a team whose
goal is to identify and address thevarious risks. The three groups
share and update the identified
risk data. We also spend
significant time on collaborative
audit planning, audit progress
updates, and final reporting for
financial, operational, andmanagement audits. It s a fully
integrated approach.
We make sure we havecomplete access to necessary
information and people toaccomplish the audit objectives.
With the Hitachi Group extending
to around 850 subsidiaries
operating worldwide, there are a
multitude of risks to consider, both
domestic and overseas. We are
fortunate that the people in Hitachi
are generally receptive and openminded, so we only need to ask
once to be provided withwhatever information we need.
With such a complex picture
to manage, the commitment ofAudit Committee members toeach other is that we maintain
open and honest
communication in all committee
discussions. The members arealso extremely active on a global
basis so that we can better
understand the global risks
faced by the Hitachi Group. Thismeans getting involved in onsite
audits across different
operational sites worldwide.

CC: The approach is rigorous, but
at the same time, it is extremely
open and transparent. I thinkpeople are relaxed and feel
comfortable to come forwardwith issues, which is the best
way to help mitigate risk on acontinuous basis. Having served
on several audit committees, I
believe Hitachi s approach is topof the class.
HY: Before I joined the Hitachi

Audit Committee, it was alreadyregarded as one of the best inJapan. Collectively, though, weare determined to improve andrefine every aspect of theauditing function to reinforce
oversight on a continuous basis.
As part of continuous
improvement, our finance andinternal audit departments
evaluate the performance of theoutside auditor each year. In
turn, the independent auditors
evaluate the performance ofHitachi s finance and internal
audit departments. We makesure everything is fair and open
so that the evaluation feedback
is beneficial for facilitating
improvements by all parties

involved in audit processes.
We are also considering theimplementation of AI/IT-based
audit tools to improve audit
effectiveness and efficiency byenabling people to focus on the
judgment and assessment side,rather than just collecting
information.
Moreover, we seek tostrengthen the Audit Committee
and the internal audit functions,both central and in business units
and subsidiaries, by identifying
and developing talented people
for relevant positions.
Naturally, all these efforts aretime-consuming. We spend a lotof time monitoring the progress ofaudits to guard against surprises.
If points of difference arise inaudits, which is something you
cannot avoid proactively, we
address issues or implement any
necessary controls for risk
mitigation straight away.
Together with the final
reporting, all this means that wemeet on many occasions
through the year with people
from the internal and external
audit teams and from finance.
57

FUTURE INITIATIVES

Q. In what areas should Hitachi strengthen to be a leading global enterprise?
HY: As I mentioned earlier, I think

Hitachi has built up momentum
in becoming a leading global
innovation partner for the IoT era
in the markets where we choose
to compete. Yet there is stillsome way to go in terms ofglobalization because aroundhalf of Hitachi Group s revenue isstill in Japan and there are still
tremendous opportunities
overseas.
I think the key is to continue
to execute the strategy ofbusiness portfolio rationalization,
while working to shift the internal
mindset from product-centric tomore customer-centric andsociety-centric. We also need todevelop global management
talent based on continuing topromote greater diversity.
CC: As I have already mentioned,
the changing landscapes inmarkets mean that technologies
are changing every minute. We
need to continually update ourfact bases and refresh ourstrategies, focusing on thosebusinesses that are going tosubstantially add value over thelong term. We need to be truly
disciplined about spending
money where value will becreated. Everyone has a role toplay in contributing to thebottom line. The market

dynamics necessitate being
flexible, responsive, creative,
efficient, and relentless in drivingfor performance. In addition,effectively marrying innovationand commercialization with theSocial Innovation Business will
be fundamental to Hitachi svalue creation and ability toleapfrog our competitors. We
are unique in our ability to
combine infrastructuretechnologies with OT and IT
applications and capitalize on
the Hitachi brand, synonymouswith leading edge technologies
and engineering solutions.

Q. Looking ahead, what is your main aim as an independent outside director?
HY: Our primary role is tocontinue providing strong
management oversight to ensure
all corporate objectives areachieved for the benefit of all
Hitachi stakeholders.
Management is about making
the tough decisions, and that is
why oversight is so crucial.
Considering the volatility anduncertainty inherent in global
business conditions, I think wemust pay special attention to
global risks. At the same time,
we need to exert a positive
influence on management tosupport the execution of highquality global growth strategies.
Practicing open and honest
communication during theBoard and Committee
discussions is another importantelement. Diversity and open
58

exchanges of ideas are essential
for fostering a better
environment to help manage thehighly diversified business that isthe Hitachi Group.
CC: I agree. As independent

outside directors with anindependent voice, our role is tolend support to the CEO and theexecutive team, to stimulate
debate, to challenge, and to
discuss opportunities, with theultimate aim to enhanceshareholder value in delivering on
our performance commitments.
We are also working to support
One Hitachi, building a culture ofinnovation with partnerships
across businesses and withcustomers to capture synergies
and expertise globally.

I will continue to work toembed the global leadershipmindset through myinteractions with young talentand executive candidates, both
men and women.
Hitachi has sound moral andgood governance structures.
With the right systems in place,
we need to execute the correctbusiness strategy whiledeveloping talent for today andthe future so that we can deliveron our promises to ourstakeholders with the ambitionof becoming a global leader in
our industries.

Contributing to Hitachi
In a career that has spanned 40 years to date, I worked
for Sony developing a range of businesses acrossglobal markets. Most of this time was spent in
consumer electronics and financial services. Change isfierce in consumer electronics markets, and I gained abroad range of experience. For example, in the mobile
phone sector where Sony had a joint venture with amajor European communications handset maker, I was
directly involved in the integration process. In the TV
business, during the technology shift from cathode ray
tubes to LCD, we had to restructure assets scattered inevery region worldwide in a relatively short time. The
experiences taught me about the need to anticipate
paradigm shifts and major technological changes;
about how to set management priorities; and how vital
it is to make fast, timely decisions when companies arefacing a period of necessary reform.
I am honored to receive the opportunity to serve as
an independent outside director for Hitachi, a leader ofAn enterprise that creates new value
Hitachi is a unique global enterprise in its goal to be aleading innovation partner for the IoT era. The internalGroup strengths in OT, IT, and Products enable Hitachi
to develop integrated digital solutions. The global
development of businesses across a wide range ofsectors means it can create new value for manycustomers worldwide by helping to address a range ofsocial or corporate management issues.
The strong leadership displayed by top
management has driven transformation at Hitachi
across different business sectors, producing noteworthy
results. The Group as a whole is working diligently toachieve the goals of the 2018 Mid-term Management
Plan. A sustained transformation will probably berequired to turn Hitachi into a global force. Continuously
My aspirations as a director
Hitachi clearly has the potential to be a leading
company known worldwide for its excellence.
The Mid-term Management Plan to fiscal 2021 will
guide evolution towards this goal. I am extremely happy
to become an independent outside director of Hitachi at
a time when the discussion on how to achieve this ishappening in earnest.
To realize further growth for Hitachi, as members of
the Board of Directors, our role is to support theFoundation for Value Creation

Messages from Newly Appointed Independent Outside Directors

Katsumi Ihara

corporate Japan. I am extremely sympathetic to
Hitachi’s business vision of applying technology andinnovation to the solution of a variety of social issues.
Hitachi is currently pursuing additional reforms to evolve
into a major player in global markets. Using myexperience and knowledge, I hope to provide Hitachiwith useful management advice to target global growth.

revising the business portfolio while reinforcing overseas
operations are needed so that Hitachi can generate theprofits that are consistent with the success of attaining
global enterprise status.
The Hitachi Group’s highly diversified operations
make it no easy task to grasp Hitachi’s entire business.
In my opinion, this increases the importance of
explaining the corporate philosophy and businessstrategy to varied stakeholders clearly to gain theirunderstanding and empathy. In this global environment,
I believe that maintaining communication with manydifferent stakeholders will help Hitachi to build greater
enterprise value.

executive officers in our supervisory capacity. I will also
be serving on the Audit Committee and theCompensation Committee. While serving on the Boardor working in other roles, I hope to utilize my experienceto provide various opinions and advice. As a member ofa highly diverse and knowledgeable Board, my sincere
wish is to contribute to Hitachi’s continued growth andto further gains in enterprise value.

59Why I joined the Board of Directors of a trusted
and iconic company
It was most gratifying to be asked to be a directorof such a prestigious company as Hitachi with its
long and successful history. The cultural power ofJapan s processes and organization have helped
produce one of the world s largest and mostsophisticated economies. Having worked in Japanas an executive for GE and then for the former
Sumitomo 3M venture, I was naturally aware that
Hitachi is regarded as one of Japan s leading
companies. I have immense respect for Japan sachievement in setting the de facto standard for
quality and innovation.
My business background is in finance andcommerce. I hope I can use my experience ofworking in Europe and Asia in various roles to help
contribute to Hitachi s global development.
While corporate governance has evolved quite a
bit over the past decade in Japan, I think the

Joe Harlan

increased presence of independent voices at Board
level shows Hitachi is a company with an excellent
governance structure. I have also been extremely
impressed by the quality of the people who serve on
Hitachi s Board of Directors. Naturally, I jumped at
the opportunity to contribute to the company s
continued growth as an outside director.

In aspiring to global leadership, innovation and marketing are the keys to growth for HitachiEnterprises must grow to survive in the modern
marketplace. Growth is essential because it leads tomore business opportunities, more R&D investment, andbetter products, services, and solutions. Growth is also
vital to provide investors with a return, because trying toshrink your way to success is not a good option.
Innovation in new applications and markets is the
key to growing while also keeping the core businesshealthy. Hitachi has a culture and history ofdeveloping unique, differentiated products, services,and solutions that help their customers succeed.
One of the reasons I am so excited to be at Hitachi
is the potential to combine its great product trackrecord with the IoT platform Lumada to become aleading innovation partner of integrated products,
services, and solutions that help link up customers
value chains. It often benefits the customer when one
company provides a total solution, rather than having
to deal with multiple vendors.
For example, it benefits a city if you can help
provide a complete end-to-end transportation
solution̶not just the trains or rolling stock, but thecontrols, signaling, ticketing machines, and related
services as well.
Supported by its manufacturing and productdevelopment culture, Hitachi has a strong track recordin serving customers in this way. And this approach isjust as valid across different markets, from energy orwater to railway, finance, and healthcare.
Marketing this great story to stakeholders̶who
include investors, shareholders, customers, andemployees̶is another vital element in generating
continuous growth.
Over time, the success cultivated by great
products and services, backed by an organization
dedicated to innovative product development anddelivered through high-quality sales and marketing,creates its own appeal. I think the aspiration tocontribute to society through the development ofsuperior, original technology and products, thereby
fulfilling Hitachi s Mission, is also part of Hitachi s
appeal. This is a story we need to tell repeatedly topotential customers in cities and countries around theworld as we perpetuate our brand awareness.

A strong desire to contribute to the growth of the enterprise
Growth is a challenge, and meeting that challengemeans cultivating change within the organization. In myview, adding more independent voices to the discussion
in the executive suite can only help to support
constructive change for the benefit of all stakeholders.
Hitachi is undergoing a transformation. Having left acompany that did transform, I see great potential for thebusiness to grow using Hitachi s strengths in the
integration of OT, IT, and products.
60

In my time as an independent outside director, I
want to look at what Hitachi does commercially andprovide insights into where we can move faster, bemore agile, or have a better relationship with customers
by focusing on core competencies. In this way, I hopethat I can help Hitachi to develop and sell total solutions
that are truly competitive in the marketplace.
I look forward to contributing to the development of
Hitachi as a member of its Board of Directors.

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