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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 Committees System established by the Companies Act to build a highly transparent management framework.

Corporate Governance Structure

Basic Approach

Based on our corporate vision of "To consistently aim to be Global Top in high-tech solutions," we leverage our global network to bring our customers – who are leaders in their fields – the most advanced products and solutions, as befits a cutting-edge technology company that functions as both a manufacturer and a trading company. Moreover, we believe that it is vital to increase supervision over the conduct of business in each segment and to strive to improve the transparency of management by enhancing corporate governance, managing the company with a strong awareness of our corporate social responsibility. This will enable us 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 its corporate governance framework.

Supervisory Functions of Management and Business Execution Functions

In terms of our organizational system, we are 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: a Nominating Committee, an Audit Committee, and a Compensation 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 Exective Committee, the consultative body to the President and Chief Executive Officer, who then makes the final decisions, ensuring reciprocal checks and balances among executive officers.

Corporate Governance Structure and Internal Control and Business Execution Structure

Roles and Responsibilities of Board of Directors

With the aim of ensuring thorough corporate governance and greater management transparency, the Board of Directors includes four outside directors, all of whom have been submitted to the Tokyo Stock Exchange as independent directors. Working in collaboration with the Internal Auditing Division, 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 in question 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 Audit Committee and the Accounting Auditor.

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

In FY2015, the Company began conducting an evaluation of the effectiveness of its Board of Directors as a whole, with the goal of continually enhancing the functioning and effectiveness of the Board. Based on the results of this evaluation, the Company applies a repeated PDCA cycle designed to analyze any issues and lead to improvements.

1. FY2016 Evaluation

In FY2015, the Company began conducting an evaluation of the effectiveness of its Board of Directors as a whole, with the goal of continually enhancing the functioning and effectiveness of the Board. Based on the results of this evaluation, the Company applies a repeated PDCA cycle designed to analyze any issues and lead to improvements.

  1. Target: All seven of the Company's directors as nominated and appointed at the 97th Ordinary General Meeting of Shareholders held on June 24, 2016.
  2. Evaluation period: October 2016 through January 2017.
  3. Overview of evaluation: Following a written questionnaire, the Board of Directors secretariat conducted individual interviews to re-verify the intent of and background behind the responses. Results of the evaluation and policies for improvement were then discussed at meetings of the Board of Directors held on December 26, 2016 and January 27, 2017.
  4. Questionnaire items: Included questions and space for comments regarding, among others: Composition of the Board of Directors; roles and responsibilities of the Board of Directors; operation of the Board of Directors; and relationships with investors and shareholders.

2. Results of FY2016 analysis and initiatives to enhance effectiveness

In FY2015, the operation of the Board of Directors was recognized as an area requiring improvement (including a greater focus on important management issues through a review of items submitted to the Board for discussion, and improvements in methods for providing directors with information). While those improvements were carried out appropriately, and while the effectiveness of the Board as a whole was seen as being ensured, the analysis also acknowledged that further improvements were needed in the areas noted below. As a result, the Company has formulated additional policies aimed at enhancing effectiveness, and will work toward ongoing improvement in the functioning and effectiveness of the Board of Directors as a whole.

  1. Ensuring Diversity in the Composition of the Board of Directors
    The Company has arrived at the conclusion that improvements are needed to ensure a more diverse Board composition, with the issue to be taken under consideration by the Nominating Committee.
  2. Expanding Monitoring of Business Risk
    As management conditions quickly change, and with further advancement of globalization, monitoring business risk has become extremely important, and the Board of Directors has worked to expand discussions in this area. Further, with regard to business investment, we worked to place particular emphasis on further strengthening verification of risks before investment, as well as post-investment monitoring.
  3. Expanding Discussion of Long-term Strategy
    To expand discussion of long-term strategy for the Company as a whole, we worked to establish opportunities for such discussions with executive officers Board of Directors meetings.

Composition of the Board of Directors and Each Committee and Attendance at Meetings of the Board of Directors (FY2016)

*○: Committee member

FY2016
Name Current position Nominating Committee Audit Committee Compensation Committee Attendance to the Board of Directors meetings (FY2016)
Masao Hisada Chairman of the Board     100% (14/14)
Masahiro Miyazaki Representative Executive Officer,
President and Chief Executive Officer,
Board Director
    100% (14/14)
Yoshikazu Dairaku Board Director     100% (14/14)
Toyoaki Nakamura Board Director   100% (14/14)
Hideyo Hayakawa Board Director (Outside/Independent Director)   100% (14/14)
Hiromichi Toda Board Director (Outside/Independent Director) 100% (14/14)
Yuji Nishimi Board Director (Outside/Independent Director) 100% (14/14)

Business Execution Structure and Inter Control

Basic Approach

In a company with nominating committee, etc., matters concerning the basic framework of the company such as mid- 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 Chief Executive Officer (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 decisionmaking 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 company-wide 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 streamline 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 establishment of a legally recognized internal control system, executive officers implement appropriate and specific systems and procedures on behalf of the Company, and operate on the basis of approval and resolutions by the Board of Directors. The Board of Directors receives reports from the executive officers concerning the operational status and outcomes of these systems, issuing instructions for their improvement if necessary. Alternatively, the executive officers may propose alterations in response to changes in the business environment, which may be approved and resolved by the Board of Directors.
Through these efforts, the Company strives to maintain the vitality and effectiveness of its internal control system.
Furthermore, to strengthen the Group-wide internal control system, the Internal Control Management Committee acts as a structure for managing the activities of its four subcommittees (the J-SOX Committee, the Compliance Committee, the Information Security Committee and the Environmental Committee).

Internal Auditing

The Company has placed the Internal Auditing Division, 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 Division also gives direction about the need for rectification and improvements, and conducts periodic follow-ups. The Internal Auditing Division promotes sharing of information through cooperation with the Audit Committee and the Accounting Auditor, 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 of its 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 duties commensurate with his/her position, the Company's business performance including the group companies, business environment, the average rate in the business world, and other such factors, based on the Policy on Determining the Nature of the Compensation Received by each Individual Director and Executive Officer by the Compensation Committee.

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. 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.
Executive Officers The standard annual salary decided for each director and executive officer with consideration for the standard in the business world shall be paid monthly as a standard salary excluding bonuses. The standard bonus amount shall be the performance-based compensation paid at the time standard targets are achieved, and shall fluctuate depending on the degree to which those targets are met. Evaluations are determined through a combination of Company-wide performance, division performance, and individual targets. 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 FY2016
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 7 115 6 15 130
Outside Directors 4 37 3 4 41
Executive Officers 15 237 15 309 546

Notes:

*1
The number of Directors and monetary amounts do not include Directors who concurrently serve as Executive Officers.
*2
The above monthly salary includes the monthly salary paid to one Director who retired at the end of his term of office at the close of the 97th Ordinary General Meeting of Shareholders held on June 24, 2016.
*3
Of the amounts at left, monthly remuneration for Outside Directors includes the monthly salary paid to one Director who served as Outside Director until the close of the 97th Ordinary General Meeting of Shareholders of the Company held on June 24, 2016, for the period during which that Director served as Outside Director.

Risk Management System

Basic Approach

The Group regards as risks any events or problems that may significantly interfere with achieving its business goals, and to improve corporate value, has put in place a system for appropriately understanding and managing risk.
The Group works to prevent and manage risks involving its transactions, investments, M&A and other business activities through discussions by its Board of Directors, Executive Committee and other bodies, and through a decision-making system based on the Rules of the Board of Directors and the Decision-Making Standards, etc.
Further, the Company has established Risk Management Rules governing risks involving regulatory compliance, including prevention of bribery, antitrust laws, and prevention of antisocial transactions, as well as risks involving labor, intellectual property, imports and exports, procurement, sales, information security, financial reporting, the environment, quality and safety (hereinafter, operational risk), and has built a system for departments responsible for each of these areas to appropriately understand and manage these risks. With regards to operational risk, the Internal Control Management Committee, chaired by the Chief Risk Management Officer (CRO), oversees subcommittees including the J-SOX Committee, the Compliance Committee, the Information Security Committee and the Environmental Committee, which issue instructions on measures to address the respective risks for which each committee is responsible.
The Company is also moving forward with efforts to strengthen business continuity management (BCM).

Internal Control Management Committee

The Internal Control Management Committee manages the risks facing the Group through the reports of the activities of its four subcommittees (J-SOX Committee, the Compliance Committee, the Information Security Committee and the Environmental Committee) and the efficacy of responses by the departments in charge. It also evaluates the internal control system, including important decision-making processes, reviews the content of resolutions of the Board of Directors, and proposes revisions to those resolutions to address changes in the business environment.

Internal Control Management Committee

The Internal Control Management Committee manages the risks facing the Group through the reports of the activities of its four subcommittees and the efficacy of responses by the responsible departments. It also evaluates internal controls systems, including important decision-making processes, considers the content of the resolutions of the Board of Directors, and makes proposals to change in the resolution contents to meet the business environment change.

J-SOX Committee

The Group confirms the effectiveness of internal controls on a consolidated basis by implementing the assessment system by management based on policy decisions of the J-SOX Committee, in accordance with the Internal Control Reporting System (J-SOX) established by the Financial Instruments and Exchange Act, to ensure the reliability of financial reporting.

Compliance Committee

The Group has established a Compliance Committee, which meets regularly to discuss, on a company-wide basis, the status of compliance risk, plans for countermeasures to address this, and the status of implementation of such measures. Responsibility for addressing each type of risk has been assigned to specific departments, each of which envisages and evaluates that risk, and reports to the Compliance Committee regarding risk status, plans for countermeasures, and the status of implementation of such plans. In addition, the heads of organizations including the business groups, branch offices, and Group companies manage compliance structures within each organization by appointing Compliance Managers for each organization, responsible for building compliance structures and systems within their respective organizations, and for implementing compliance measures and reporting to the Compliance Committee.

Information Security Committee

The Group is aware that efforts to maintain information security are a high priority, and has developed regulations to facilitate such efforts, while also ensuring awareness among all of its employees. The Information Security Committee was established to promote information security management systems, and all from management to employees are united as one company in conducting a range of activities in accordance with the Three Principles to Prevent Leaks of Confidential Information.*

* Three Principles to Prevent Leaks of Confidential Information

  1. As a rule, it is forbidden to take confidential information outside the Company.
  2. Approval must always be received from a confidential information manager before confidential information is taken outside the Company due to business necessity.
  3. If confidential information is taken outside the Company due to business necessity, necessary and appropriate measures must be implemented to prevent the leaking of information.

Environmental Committee

The Group established the Environmental Committee to conduct operational management and improvement throughout the environmental sector. It also aims to minimize environmental risks and risks related to chemical substances contained in products. In addition, there are several subcommittees operating under the Environmental Committee that conduct environmental activities in a more detailed manner.

Business Continuity Plan (BCP)

To ensure that work to supply its products and services continues uninterrupted in the event of a natural disaster or other risk, and in the event that work is interrupted, to resume business activity as quickly as possible, the Group is working to enhance its BCP, which focuses primarily on important products and operations which have a significant social and economic impact.
The Group has established a BCM Committee, to maintain and enhance the Group's ability to respond to business continuity issues and strengthen collaboration within the Group, and to conduct virtual drills designed to enhance initial response, develop double-track manufacturing sites, and increase effectiveness in the event of an emergency. In the case of infectious diseases such as new strains of influenza, the Committee has published its Guidelines for Countermeasures Against New Strains of Influenza, which, based on its basic policies, outlines specific behavior standards in the event of a global pandemic.
To ensure manufacturing, sales and service are unified in an effective approach to business continuity, the Company is striving to continuously improve its BCM system, including drills, validation and other efforts, as it works to strengthen its ability to respond to risk.

Establishment of the Whistleblower Reporting Service

The Group has established a whistleblower reporting service, available to full-time employees, temporary agency workers, casual workers and fixed-term employees, to uncover and address violations of the law and incipient fraud as early as possible. We also operate a whistleblower system at our overseas Group companies, according to the legal system in each country and the corporate structure of the company in question.
Information provided to this reporting system is passed on to the Compliance Committee and the Internal Control Management Committee.
In January 2016, we established the Whistleblower Reporting Service Independent of Management, which enables direct reporting to members of the Audit Committee with regard to breaches of laws and regulations related to the conduct of business by directors and executive officers. This further strengthens our whistleblower system.
Note that while the Group endeavors to avoid or reduce the impact of risks related to its business activities and other business risk by establishing a risk management structure, in some cases we may not be able to completely avoid or reduce the impact of risks, which could affect operating results, share price, and financial position, etc. The 13 items listed below are the key risks that could affect the Group's operating results, share price, and financial position, etc.

Major Risks

  1. Market trends
  2. Technological innovation
  3. Intensifying competition
  4. Soaring materials costs
  5. Risks arising from international activities and overseas expansion
  6. Disasters
  7. Pension benefit obligations
  8. Changes in exchange rates
  9. Intellectual property matters
  10. Dependence on information systems
  11. Management of confidential information
  12. Litigation and other legal procedures
  13. Faulty Pile Work

Dialogue with Shareholders and Investors

Philosophy Behind Dialogue with Shareholders and Investors

We proactively engage in constructive dialogue with our shareholders and investors to achieve sustainable corporate growth and medium to long-term increases in corporate value. To promote dialogue with shareholders and investors, we engage in direct discussions, led by executives in charge of IR, in conjunction with our IR Division. The IR Division has also formed an IR Information Disclosure Committee, chaired by the President and CEO, which discusses IR activities in general, while also working to collect information through participation in information exchanges and meetings, etc. with each division in the Company, and ensuring timely and appropriate transmission of information. The opinions, etc. of shareholders and investors are periodically provided as feedback to management and otherwise within the Company, and are reflected in management strategies.

Promoting Understanding for Analysts and Institutional Investors

As a means of promoting dialogue with analysts and institutional investors, the President and CEO attends the second quarter and year-end financial results briefings, and personally explains the results forecasts and management strategies. We also strive to build relationships through periodic visits to Japanese institutional investors by either the President and CEO or the executive officer responsible for IR, as well as individual visits to overseas investors in the US, Europe, Hong Kong and Singapore against the backdrop of the increased proportion of shares of the Company held by overseas investors. Note that IR Division actively promotes understanding of the Group, such as by holding approximately 280 meetings per year, including telephone conferences, with Japanese and foreign institutional investors.

Communication with Individual Investors

We work to promote understanding of the Company through a section of our website dedicated exclusively to individual investors, which introduces our Corporate Vision and business content. We also work to include substantial non-financial information on the website, in addition to financial information, to deepen understanding of the Group's business activities.

Main IR Activities in FY2016
IR Activities Aimed at Institutional Investors Number of Times Conducted
Financial Results Briefing 4 (including 2 briefings by the President)
Overseas IR (US, Europe, Hong Kong, Singapore) 3
Conferences Held by Securities Companies 2
Meetings with Analysts and Institutional Investors Cumulative 276 briefings

Relationship with the Hitachi Group

Advantages 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 considered at meetings with the Hitachi Group's CTO*, 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 by the Executive Committee, a consultative body in accordance with internal rules that is comprised of key executive officers.
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. While the Board, comprised of eight members, includes two members who concurrently serve as director or executive officer for Hitachi, Ltd., they do not represent a majority of the Board of Directors overall, and 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.