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Hitachi

Hitachi High-Technologies GLOBAL

We are striving to create a company that inspires trust by putting in place an internal control system, as well as adopting the Company with Nominating Committee, etc. established by the Companies Act to build a highly transparent management framework.

Corporate Governance Structure

Basic Approach

Based on our corporate vision of "Simplify our customers' high-tech processes," we execute our mission of “To help our customers be fast-moving, successful, cutting-edge businesses” and increase supervision over the conduct of business in each segment and strive to improve the transparency of management and enhance corporate governance. By managing the Company with a strong awareness of our corporate social responsibility, we believe it is important to gain the trust not only of our shareholders, but also of the whole of society, and to contribute to the progress and development of society through our business activities. The Company has formulated and publicly disclosed its Corporate Governance Guideline to indicate our corporate governance framework. The Board of Directors and Nominating, Audit and Compensation committees continuously verify the appropriateness and effectiveness of the guideline, and the Board of Directors makes revisions as necessary.

Status of Response to Corporate Governance Code

As of April 2019, the Company is implementing all principles stipulated in the Tokyo Stock Exchange’s Corporate Governance Code.

Supervisory Functions of Management and Business Execution Functions

In terms of our organizational system, since 2003 we have been a Company with Nominating Committee, etc., as defined in Article 2 (xii) of the Companies Act. A Company with Nominating Committee, etc. is obliged to establish three committees: Nominating Committee, Compensation Committee, and Audit Committee. This allows authority over the nomination of candidates for positions on the Board of Directors, audits of the legality and appropriateness of business administration, and decision-making concerning the remuneration of directors and executive officers to be separated from the executive side of the business. Matters of business execution important to corporate management are deliberated and approved by the Executive Committee, the consultative body to the President and Chief Executive Officer (CEO), who then makes the final decisions, ensuring reciprocal checks and balances among executive officers.

Corporate Governance Structure and Internal Control and Business Execution Structure
Diagram: Corporate Governance Structure and Internal Control and Business Execution Structure

  • * The number of people comprising the Nominating, Compensation and Audit committees is as of July 1, 2019.

Board of Directors

To continually increase corporate value and enhance shared interests with shareholders, the Board of Directors decides the basic policy for the Group's management, and has the authority to supervise the execution of duties by directors and executive officers. With the aim of ensuring thorough corporate governance and greater management transparency, the Board of Directors comprises seven members, of whom four are outside directors who have been submitted to the Tokyo Stock Exchange as independent directors.

Nominating Committee

The Nominating Committee possesses the authority to decide the content of proposals to be submitted to the General Meeting of Shareholders concerning the appointment and dismissal of directors to ensure the fairness, objectivity, and transparency of the process for nominating directors. The Nominating Committee comprises six directors, four of whom are outside directors.

Approach Regarding the Appointment and Independence of Outside Directors

In appointing outside directors, the Nominating Committee strives to select people who, in addition to satisfying legal requirements, requirements for being an independent director as stipulated in the Tokyo Stock Exchange's regulations, and the criteria for determining independence noted below, have excellent personality and perception, have a strong ability to both make proper management decisions and supervise, have extensive experience in corporate management, administration, legal affairs, accounting, and other relevant fields and have made outstanding achievements, and are capable of providing proper advice and supervision in consideration of enhancing shareholder value as well as protecting the interests of minority shareholders. An outside director is considered to be independent when none of the following apply.

  1. Any close relative of the outside director, within the second degree of kinship, is currently serving or has served in the last three years as an executive director, executive officer or an employee of the Company or its subsidiaries
  2. A company for which the outside director is currently serving as an executive director, executive officer or employee receives payments from the Company or makes payments to the Company in consideration of provision of products or services, and the average amount of such transactions in the last three fiscal years exceeds 2% of the consolidated gross sales of either company
  3. Compensation received by the outside director directly from the Company as a legal, accounting or tax professional or consultant (excluding compensation as a director of the Company) for any single fiscal year in the last three fiscal years exceeds 10 million yen
  4. Contribution made by the Company to a non-profit organization for which the outside director serves as an officer who executes business exceeds 10 million yen and 2% of gross revenue or ordinary income of such organization for any fiscal year in the last three fiscal years

Status of Activities of Outside Directors

Outside directors endeavor to deepen their understanding of the Company’s businesses by holding discussions with executives and visiting business sites.

Examples of Key Initiatives

  • Regularly confirm with executive officers at Board of Directors meetings about reported themes related to the strategies for the entire company or individual businesses (including issues identified in the Board of Directors' effectiveness evaluation)
  • Hold discussions with each business division to promote an understanding of, and confirm the course of action for, the business environment and mediumto long-term strategies of each business division
  • Visit sites in Japan and overseas and attend Board of Directors meetings held at sites besides the headquarter
  • Attend key internal meetings regarding budgets and Company-wide strategies

The Company established Board of Directors Office to support the smooth management of Board of Directors meetings and all committees, as well as the activities of outside directors.

Compensation Committee

The Compensation Committee possesses the authority to decide the policy for determining the compensation for executive officers and directors as well as the compensation for individual executive officers and directors based on this policy, to ensure the fairness, objectivity, and transparency of the process for determining compensation. The Compensation Committee comprises six directors, four of whom are outside directors.

Audit Committee

The Audit Committee audits the execution of duties by executive officers and directors, and prepares audit reports to establish a high-quality corporate governance system that allows Hitachi High-Tech Group to meet the trust society places in us. The Audit Committee has the authority to decide the content of proposals submitted to the General Meeting of Shareholders concerning the appointment, dismissal and non-reappointment of the Accounting Auditor, and comprises four directors, three of whom are outside directors.
Working in collaboration with the Internal Auditing Div., part of the internal control system, the Audit Committee monitors the execution of business. In addition, it draws up its own plans for and conducts audits, after which the Audit Committee member responsible for the audit reports on the results to the Audit Committee and the Board of Directors. Furthermore, we ensure the appropriateness of non-consolidated and consolidated financial statements as a whole via close coordination with the Accounting Auditor.

Support System for Outside Directors

The Company has a Board of Directors Office, which serves as the secretariat for the Board of Directors and committees, and supports their smooth operation and management.
In addition, the Board of Directors Office arranges opportunities for outside directors to talk with the executive side and visit business sites as a part of efforts to help them gain a deeper understanding of the Company’s business activities.

Summary of the Analysis and Evaluation of the Overall Effectiveness of the Board of Directors

Starting from FY2015, the Company has assessed the effectiveness of the Board of Directors as a whole to make continuous improvement of its functions and effectiveness by repeating PDCA Cycle by which issues are analyzed from the assessment result and the result of analysis is utilized for the improvement.

1. Details of Assessment Conducted in FY2018

  1. Persons subject to assessment: All seven directors of the Company who were elected at the 99th Ordinary General Meeting of Shareholders held on June 22, 2018 and assumed the position
  2. Period of assessment: From November 2017 to December 2018.
  3. Outline of assessment process: After conducting a questionnaire survey, each director was interviewed by the secretariat of the Board of Directors to confirm the intent, background, etc. of his/her responses.
    Discussions were made regarding the assessment results and improvement policies at the meetings of the Board of Directors held on March 2019 and April 2019.
  4. Items in Questionnaire: Questions including "Structure of the Board of Directors," "Role and Responsibilities of the Board of Directors," "Operation of the Board of Directors," "Relationship with Investors and Shareholders" and "Committee Assessment" and Comments section for free comments.
    Opinions that are not included in the question items were checked in the free entry field and individual interviews.

2. Results of Analysis of FY2018 Assessment and Efforts for Improvement of Effectiveness

With regard to the items requiring improvement in FY2017, namely enhancing discussions on the major directions to be taken by the Company as a whole and medium- to long-term strategies for the purpose of ensuring sustained growth and the medium- to long-term improvement of corporate value, improvement of reports on the status of development of Executive Officers and their selection process, and continuous examination of the compensation policy and compensation system, the result of the assessment was that the Board of Directors has performed its functions in a proper manner and that the Board of Directors was functioning effectively as a whole.
Meanwhile, the Board of Directors has determined through this assessment of effectiveness that the priority issues to be addressed would be “continuous examination of medium- to long-term growth strategy” and “improvement of information delivery to stakeholders” and decided to address those issues for the purpose of ensuring sustained growth and the medium- to long-term improvement of corporate value of the Group.

Composition of the Board of Directors and Each Committee and Attendance (Term of office following the 99th Ordinary General Meeting of Shareholders)
Name Current Position Board of Directors Nominating Committee Audit Committee Compensation Committee
Ryuichi Kitayama Chairman of the Board (12/12) (5/5)
Masahiro Miyazaki Representative Executive Officer, President and Chief Executive Officer, Board Director (12/12) (5/5) (6/6)
Ryuichi Nakashima Board Director (11/12) (13/13)
Hideyo Hayakawa Board Director (Outside/Independent Director) (12/12) (5/5) (6/6)
Hiromichi Toda Board Director (Outside/Independent Director) (12/12) (5/5) (13/13) (6/6)
Yuji Nishimi Board Director (Outside/Independent Director) (12/12) (5/5) (13/13) (6/6)
Mayumi Tamura Board Director (Outside/Independent Director) (12/12) (5/5) (13/13) (6/6)

Composition of the Board of Directors and Each Committee following the 100th Ordinary General Meeting of Shareholders (committee chairpersons are underlined)

  • Board of Directors: Ryuichi Kitayama, Masahiro Miyazaki, Ryuichi Nakashima, Hideyo Hayakawa, Hiromichi Toda, Yuji Nishimi, Mayumi Tamura
  • Nominating Committee: Ryuichi Kitayama, Masahiro Miyazaki, Hideyo Hayakawa, Hiromichi Toda, Yuji Nishimi, Mayumi Tamura
  • Compensation Committee: Ryuichi Kitayama, Masahiro Miyazaki, Hideyo Hayakawa, Hiromichi Toda, Yuji Nishimi, Mayumi Tamura
  • Audit Committee: Ryuichi Nakashima, Hiromichi Toda, Yuji Nishimi, Mayumi Tamura

Business Execution Structure and Internal Control

Basic Approach

In a Company with Nominating Committee, etc., matters concerning the basic framework of the company such as medium- to long-term management strategy and formulation of the fiscal year budget are decided by the Board of Directors. However, decision-making concerning day-to-day operations for the execution of Board resolutions, etc. is the responsibility of the executive officers. As a rule, when making decisions regarding the execution of business, the President and CEO shall consult with the Executive Committee, a consultative body, to engage in more in-depth debate and arrive at the optimal decisions.
Furthermore, the extent to which responsibility for the tasks entrusted to the President and CEO by the Board of Directors can be transferred to the executive officers to expedite decision-making is stipulated in the Decision-Making Standards, which are internal rules. For example, with regard to business investment proposals, the standards stipulate that the executive officer in the position of General Manager of the relevant Business Group is responsible for decision-making with discretion unless the proposed investment exceeds a certain amount.

Decision-Making Process

We have implemented several steps to achieve more efficient operation in the business execution and decision-making process. The major steps are listed below.

Decision-Making Process
Classification Characteristics
Executive Committee The Executive Committee is a consultative body comprised of executive officers nominated by the President and CEO. Proposals are decided upon after deliberation by the committee. The Executive Committee is an accumulation of the wisdom of the Company, offering not only reciprocal checks and balances for the execution of business, but a place to promote individual proposals. As a rule, the committee convenes twice each month.
Budget/ Medium-Term Management Plan Deliberation Committee The Budget/ Medium-Term Management Plan Deliberation Committee deliberates on single-year budgets and three-year medium-term management plans and their progress. Budgets and management plans are presented to the Budget/ Medium-Term Management Plan Deliberation Committee after first being formulated by the relevant business group and then reviewed by the Budget/ Medium-Term Management Plan Deliberation Committee meetings. Because it deliberates over content at the core of our management, matters that are deliberated by the Committee must be authorized by a resolution of the Board of Directors after receiving final approval by the Executive Committee.
Management Meetings Management Meetings conduct in-depth discussions of companywide management issues and other important matters for the purpose of summarizing issues and clarifying the direction in which we should go. Meeting participants are Executive Committee members, and as a rule, they convene twice each month.
Business Groups Management Committee The Business Groups Management Committee is a decision-making committee that convenes once each month. It is made up of executive officers who are Business Group General Managers, and who make decisions within the scope of their authority. It also conducts advance consideration of matters to be put before the Executive Committee. Furthermore, Business Group General Managers formulate internal rules for their business groups and delegate authority to lower positions within the scope allowed for by the Decision-Making Standards to streamline work.

In addition, to support the above, there is the Investment Committee, which provides support to departments at the review stage of making business investments such as M&As, and conducts phase-gate management after the investment has been made. There is also the Business Strategy Committee, which double-checks goals under the Medium-Term Management Plan (Company-wide portfolio strategy, performance targets, etc.) and reviews the strategies and policies of business groups leading up to the formation of consensus and goals.

Operation of Group Companies

The Company has a governance framework of executive officers who supervise group companies. These executive officers attend the Shareholders Meetings of each company and exercise their voting rights as agents of the Company, which is the parent company, while also consulting with group companies and providing advice as necessary. Authorization by the Executive Committee of the Company, which is the parent company, and approval of the relevant Business Group General Manager are necessary to address important matters concerning group companies; however, the Decision-Making Standards and the internal rules of each business group stipulate the extent to which decision-making authority is delegated to each company to accelerate the decision-making process.
Furthermore, among overseas group companies, Hitachi High-Tech nominates a regional presiding company in each major region of the globe where it operates. The presidents of said companies represent the President of the parent company, while also providing oversight and support to group companies within their respective regions.

Overseas Regional Presiding Companies
Region Overseas Regional Presiding Company
North and Central America Hitachi High Technologies America, Inc.
Europe Hitachi High-Technologies Europe GmbH
ASEAN and India Hitachi High-Technologies (Singapore) Pte. Ltd.
China Hitachi High-Technologies (Shanghai) Co., Ltd.

Internal Control System

With regard to the legal requirement to develop an internal control system, the Board of Directors decides the internal control system to be established and the executive officers establish and operate the schemes and procedures composing the internal control system. The Board of Directors seeks liveliness and effectiveness of the internal control system. It receives reports from the executive officers concerning the operational status and results of the internal control system and issues instructions to improve the system if necessary. Alternatively, the executive officers may propose modification of the system in response to changes in the business environment, which the Board of Directors deliberates to adopt.
The Company has established an Internal Control Management Committee to oversee activities to strengthen and enhance the Group-wide internal control system. Furthermore, the Internal Control Management Committee oversees its four committees (the J-SOX Committee, the Compliance Committee, the Information Security Committee and the Environmental Committee), which issue instructions to responsible divisions on measures to address and prevent the respective risks for which each committee is responsible.

Internal Auditing

The Company has placed the Internal Auditing Div., which conducts auditing of the operation of business execution under the direction of the President and CEO. Group companies are also subject to auditing. Through audits, the Internal Auditing Div. also gives direction about the need for rectification and improvements, and conducts periodic follow-ups. With the cooperation of the Audit Committee and the Accounting Auditor, the Internal Auditing Div. promotes three-pillar audits, and plays an important role in the Group's internal control system, such as the secretariat of the J-SOX Committee.

Compensation for Directors and Executive Officers

Basic Approach

Directors and executive officers in charge of the management of the Company will be paid compensation for executing management aimed at making it an enterprise trusted by all our stakeholders and contributing to social progress and development through business activities that emphasize value creation through high-tech solutions. The standard level of compensation for Directors and Executive Officers of the Company will be determined in consideration of each individual's

Compensation Structure for Directors and Executive Officers
  Monthly Remuneration Year-end allowance or Performance-based Compensation Non-monetary reward
Directors The monthly salary to be received by the Company’s Directors will be fixed in amount considering that the directors’ duties are to perform supervisory functions. The level of pay will be determined by distinguishing between full-time and part-time Directors, subject to variation depending on the Committees to which they belong and the nature of their respective duties. The amount of year-end allowance paid will be capped at 1.5 times the monthly salary; however, the amount may be cut depending on the Company’s business performance. Positions (with duties) that have a significant impact on management shall be provided with health management services from a medical institution under contract with the Company, as a way of averting and reducing health risks as part of corporate risk management.
Executive Officers The standard annual salary decided for each executive officer with consideration for the standard in the business world shall be paid monthly as a standard salary excluding bonuses. The performance-linked component will be set based on the standard bonus which shall be the performance-linked component payable when the standard target is achieved and will be established at a proportion of approximately 40% of standard annual income and in accordance with a payee's title. Payment amounts will be adjusted depending on the level of achievement of the target within a range of 0 to 200% of the standard bonus and will be determined. The evaluation will be made based on the combination of business performance of the entire company, performance of the segment and achievement of the Executive Officer's individual target. The proportion of each item is set depending on title and range of responsibilities (existence of a specific business segment). The ratios for fiscal 2019 are 50-80% for total company performance, 0-30% for segment performance, and approx. 20% for individual targets. The indexes for total company performance use Income before income taxes, EBIT margin and degree of budget attainment for income before income taxes during the Mid-term Management Strategy period. The indexes for segment performance use degree of improvement versus the previous year in the five productivity indexes, and degree of budget attainment: income before income taxes, cash flow from operating activities, revenues, income before income taxes ratio. Those with duties that have a significant impact on management and business execution shall be provided with health management services from a medical institution under contract with the Company, as a way of averting and reducing health risks as part of corporate risk management.
  • * If a person serves concurrently as a director and an executive officer, compensation will be paid as either a director or an executive officer, depending on his/her main responsibilities.
Amount of Compensation to Directors and Executive Officers FY2018
Total Amount of Remuneration by Type Total
  Monthly Remuneration Year-end Allowance or Performance-linked Component
Number Amount (million yen) Number Amount (million yen) Amount (million yen)
Directors 7 120 6 16 136
  Outside Directors 4 47 4 6 53
Executive Officers 15 289 15 237 526
*1
The number of Directors and monetary amounts do not include Directors who concurrently serve as Executive Officers.
*2
The above monthly compensation includes the monthly compensation paid to one director who retired at the end of his term of office at the close of the 99th Ordinary General Meeting of Shareholders held on June 22, 2018.

Relationship with the Hitachi Group

Advantages of Being part of the Hitachi Group

The Group actively leverages the R&D capabilities, brand power and other management resources of the companies in the Hitachi Group. The Hitachi brand already has high added-value, both domestically and abroad, and it is used throughout our product lineup. Furthermore, by leveraging the Hitachi Group's R&D capabilities and network, the Group is able to take advantage of its superiority over market competition.
With regard to the Hitachi Group’s R&D activities, the direction of the entire Group is discussed at meetings with the Hitachi Group’s CTO*s, etc. and the Company also obtains information with high added-value, such as technological trends, through these activities. Also, in addition to providing for-profit outsourced R&D for the companies in the Hitachi Group, the Company receives ownership of the results of research by Hitachi Group companies, which are put to effective use.
Membership in the Hitachi Group has the above benefits, without the Group's business activities being greatly dependent on Hitachi, Ltd. or its Group companies.

  • * CTO: Chief Technology Officer

Securing a Certain Amount of Independence from the Parent Company

The Company executes business without restrictions from Hitachi, Ltd. Executive Officers have the authority to execute the business of the Company in individual areas, and more important decision-making issues are dealt with by order of the President and CEO after deliberation and approval by the Executive Committee, a consultative body comprised of key executive officers in accordance with internal rules. In this way, the Company ensures the independence of its decisions concerning the execution of business.
Furthermore, the Company's Board of Directors formulates basic policies and decides on particularly important matters. The Board, comprised of seven members, has no member who concurrently serves as director or executive officer for Hitachi, Ltd. In addition, we have appointed four Outside Directors who have been submitted to the Tokyo Stock Exchange as Independent Directors. In this way, we have a system in place to ensure the independence of management.
Note that, with regard to important transactions with Hitachi, Ltd., similarly to other regular transactions, we work to protect minority shareholders by monitoring fairness and appropriateness through checks by not just the relevant division, but by multiple divisions including the sales administration and accounting divisions.