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

Facing Challenges with
Multiple Strengths
Every company faces challenges
today, and Hitachi is no exception.
There is a high level of disruption intechnology and the digital space thattouches every business. Major
sociopolitical change is taking placeacross the spectrum in every country;
these winds of change are affecting
business like never before. There arealso crises and flashpoints all overwhat has become a very multipolarworld. All of this places tremendousstrain on companies as they determine
what talent they need to create for thefuture and how to direct it.
Hitachi faces a particularly
broad range of challenges. Thecompany is involved in some fields,such as automotive systems andconstruction machinery, that could
be described as low-risk but featurehigh volatility related to technology
change. In other areas, like thenuclear power and railway
businesses, projects can run for
decades, involving governments andmaking it harder to see where costs
will be 15 years down the road. All ofthese different challenges requirevery different management
44Hitachi, Ltd. Integrated Report 2017

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

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

Baba Kalyani

Our Business ModelCEO Message

Takatoshi Yamamoto

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

A Roadmap to Becomea Truly Global Player

Hitachi, Ltd. Integrated Report 2017

Strategic Focus

I regard Hitachi’s corporate
governance highly. In 2016, Hitachi
increased management transparency
further by explicitly including
dismissal of the CEO and selection ofa successor among the responsibilities of the board of directors in its
corporate governance guidelines.
Nevertheless, in the course ofsupervising and auditing Hitachi overthe past year as an outside director
and a member of the Audit
Committee, I noted opportunities forfurther improvement.
The first is audit structure.
Hitachi encompasses almost 900
Group companies, including those
newly consolidated through mergers
and acquisitions, and it makes
roughly half of its revenue outside
Japan. For the efficient andappropriate auditing of such a large
and diverse enterprise, further
structural improvements arenecessary. Hitachi’s “tripartite audit”
function, made up of the Audit
Committee, the Internal Auditing
Office, and an auditing firm, is
top-class within Japan, but in 2017
Hitachi began working to establish
tripartite audits for each Group
company as part of constructing aValue CreationIncluding my time as a financial
analyst, I have been an observer ofHitachi’s management for more than
30 years. Hitachi’s performance haswavered at times, but the company is
now entering a new stage, aiming tobecome a truly major global player
and an “Innovation Partner for the IoTEra.” Although it is one of Japan’s
leading enterprises, in terms ofprofitability Hitachi is not yet excelling.
To rank among the competition as atruly global player, Hitachi must
realize sustainable growth ofenterprise value by strengthening its
earnings ability. All executive officers
from the CEO down must understandthe concept of enterprise value,
including from an ESG perspective;
management decisions must be
based on a clear, ongoing estimationand evaluation of current and futurevalue. As an independent outside
director, my mission is to use my longprofessional experience in corporate
analysis in the capital markets to help
Hitachi’s management develop
sustainable enterprise value andimprove its corporate governance.

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

Management & GovernanceFurther Strengthening
Corporate Governance45

Performance

Hitachi’s Challenge,My Mission