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.

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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 wasasked to join the Board of Hitachi
in 2013, the company wasdemonstrating positive
momentum in its own
transformation process led by himand 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 strategicexecution 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 whereproducts can rapidly become

CORPORATE GOVERNANCE REFORMS: DIVERSITY, LEADERSHIP, AND AUDIT INTEGRITYQ. 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 anorganization 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 theHitachi 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 berepresented by both women andnon-Japanese nationals byfiscal 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 becommoditized, 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 thatrepresent 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 toidentify 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 theNominating 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 theyoung 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 arefortunate 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 thejudgment 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, weaddress 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 willbe 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 toglobal 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 todiscuss 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.