![[image]Hitachi's Corporate Governance Framework and Its Features](1.jpg)
Hitachi established the Nominating Committee, the Compensation Committee and the Audit Committee, with independent directors comprising the majority of members and serving as chairpersons. This system ensures transparency in management, separates the oversight and execution of management, facilitates the full exercise of oversight functions, and enables discussions and reports to be conducted appropriately within these three committees.
The Board of Directors, which is chaired by an independent director, has 12 members, including nine independent directors, two directors who are also serving as executive officers, and one director who is not serving as an executive officer. The chairman of the Board is an independent director. In addition, we have established a system that facilitates the full exercise of oversight functions by maintaining a separation between management oversight and execution.
Hitachi's Audit Committee and internal audit sections collaborate with third-party accounting auditors to strengthen Tripartite Auditing aimed at increasing the effectiveness of internal controls.
The Board of Directors approves basic management policy for the Hitachi Group and oversees the execution of the duties of executive officers and directors in order to sustainably enhance corporate value and the shareholders' common interests. The basic management policy includes the Mid-term Management Plan and annual budget compilation. The Board of Directors focuses on strategic issues related to the basic management policy, as well as other items to be resolved that are provided in laws, regulations, the Articles of Incorporation, and the Board of Directors Regulations.
Fiscal 2021 was a year in which we formulated the next Mid-term Management Plan, with the Board of Directors holding numerous discussions between executive officers and directors on the plan’s direction and priority issues. At a Board meeting held in October 2021, then CEO Toshiaki Higashihara (currently Executive Chairman of the Board) provided a progress report on the 2021 Mid-term Management Plan, facilitating a common understanding among directors regarding issues that need to be strengthened in the next Mid-term Management Plan. This process was aimed at sharing Hitachi’s aspirations as a Company and examining specific plan details. In promoting the execution of management strategies, more time is spent discussing and deliberating than is used to explain quarterly financial reports and business strategies. As for GlobalLogic, which plays a major role in promoting Hitachi’s digital strategy, the Board of Directors is informed of the post-acquisition PMI plan and progress, and the status of promotion is shared on a regular basis. In terms of environmental initiatives, a report on Hitachi’s participation in COP26 and the revision of long-term environmental targets was provided, affirming Hitachi’s efforts toward the environment including carbon neutrality.
![[image]Administrative Performance of the Board of Directors](2.jpg)
The Board of Directors holds individual meetings and site visits to improve the effectiveness of the Board of Directors and increase opportunities for information sharing. Site visits were conducted on a limited basis in fiscal 2021 due to the impact of the COVID-19 pandemic, but through online participation in the Hitachi Social Innovation Forum, attendance at Internal Business Conference and Research Presentation Meeting held at research institutes, we provided opportunities to deepen understanding of the business and engage in dialogue with senior management and front-line employees.
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 directors.
This committee determines director candidates, holds preliminary discussions concerning the appointment and dismissal of the CEO and receives advance reports on the selection and dismissal of executive officers.
In fiscal 2021, the Nominating Committee held meetings on 10 days.
In addition to deciding upon the contents of the proposals made concerning director appointments at the Annual General Meeting of Shareholders, the Nominating Committee confirmed and deliberated proposals for CEO appointments and confirmed receipt of a preliminary report on the executive officer system implemented in fiscal 2022. In addition, it promoted committee-related activities including discussions and individual interviews aimed at developing candidates for future management and leadership positions.
The Audit Committee has the authority to audit the execution of 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 currently consists of five directors, including four independent directors and one standing Audit Committee member.
Hiroaki Yoshihara, the chairman of the Audit Committee, has been involved in accounting and other business practices at the KPMG Group for many years and possesses a considerable wealth of knowledge concerning finance and accounting.
In fiscal 2021, the Audit Committee held meetings on 15 days.
The Audit Committee conducted activities that were focused on its priority matters for consideration, which included the strengthening of collaboration and the facilitation of information sharing under a "Tripartite Audit" (audit by the Audit Committee, internal audit and audit by accounting auditors), and auditing of the establishment and operation of internal control systems from the perspective of risk management and validity of execution of duties. In addition, a standing committee member worked to obtain information as needed in a timely and accurate manner, mainly by collaborating with the Internal Auditing Office, among other departments, and attending important internal meetings such as the Senior Executive Committee, and facilitated information sharing with other committee members.
The Compensation Committee has the authority to determine remuneration policies for directors and executive officers and remuneration for individuals (including amounts of remuneration) based on them. Currently composed of four directors, including three independent directors, the committee strives to ensure objectivity, transparency, and fairness in the remuneration determination process.
In addition, the Compensation Committee verifies and reviews details of the process used for determining remuneration for individuals, including assessments concerning basic remuneration amounts, evaluations of progress made toward individual targets, and performance appraisals that are tied to short-term incentive compensation.
In fiscal 2021, the Compensation Committee held meetings on five days.
The Compensation Committee determined remuneration amounts for individual directors and executive officers in accordance with established policies while verifying and reviewing the processes and results of appraisals for performance and individual targets tied to short-term incentive compensation for executive officers. In addition, the committee reviewed the executive compensation system while giving due consideration to compensation granted to managers at global companies and the goal of sharing value with shareholders, and decided upon policies covering remuneration for directors and executive officers in fiscal 2022.
After a preliminary report to the Nominating Committee, Hitachi's Board of Directors decides upon the appointment and dismissal of executive officers, with the goal of constructing an optimal business execution system for management. As stipulated in our Corporate Governance Guidelines, our basic policy concerning the CEO requires that individuals serving in the position of CEO have extensive experience and achievements in the field of company management. They must also be considered optimally suited for conducting management aimed at achieving Hitachi's goals of continuously raising its corporate value and further serving the common interests of its shareholders. Decisions regarding the appointment or dismissal of the CEO shall be made based on prior deliberations and proposals by the Nominating Committee.
Regarding our CEO Succession Plan, as the speed of change in the management environment accelerates, we are striving to build a system that enables us to appropriately and promptly secure and develop (both internally and globally) necessary management personnel who will provide leadership that will allow us to realize our growth strategies. Accordingly, we are also concentrating on providing training for selected employees while targeting the early development of candidates for future management positions. Moreover, we are developing next-generation leaders capable of acting authoritatively and resolutely by establishing forums where participants can discuss what is necessary for Hitachi's future growth and make recommendations to management.
Hitachi’s basic policy is not to acquire or hold other companies’ shares except in cases where acquiring or holding such shares is necessary in terms of transactions or business relationships. We will promote reducing shares already held unless significance of holding shares or economic rationales of holding are confirmed.
The Board of Directors verifies the appropriateness of all stock holdings every year. To this end, each individual stock was reexamined as to the purpose of holding the shares and whether benefits from holding shares are in line with target level of capital efficiency. As the result of verification, we promote the sales of shares for which significance of holding shares and economic rationale are not confirmed. In the fiscal year ended March 31, 2022, we reduced the number of shares held in 10 listed stocks (total amount sold: 47,750 million yen).
![[image]Hitachi's Corporate Governance Framework and Its Features](3.jpg)
Compensation for Directors is basic remuneration as fixed pay. The amount of basic remuneration is decided by adjusting a basic amount to reflect full-time or part-time status, committee membership and position, and travel from place of residence, etc. A Director concurrently serving as an Executive Officer is not paid compensation as a Director.
Compensation for Executive Officers consists of basic remuneration as fixed pay and short-term incentive compensation and medium- and long-term incentive compensation as variable pay. The basic amount of basic remuneration, short-term incentive compensation and medium- and long-term incentive compensation is set based on the ratio of 1:1:1 as the standard, taking into account the composition of executive compensation for major global companies, in order to improve corporate value through the growth of global businesses. The higher position an Executive Officer holds, the higher proportion of variable pay is set to the total annual compensation.
If it is found that an executive officer has been engaged in misconduct during their term of office, any compensation already paid shall be returned to the Company (clawback provision).
Please refer to Compensation to Directors and Executive Officer on P.94 of Annual Securities Report (The 153rd Business Term).
In fiscal 2021, Hitachi introduced evaluations that take environmental value into consideration in the executive compensation system for the first time with the aim of accelerating the creation of environmental value. All executive officers, including the CEO, set targets for environmental value and were evaluated for their achievement of individual targets.
From fiscal 2022, in addition to environmental targets such as decarbonization and resource efficiency, we introduced quantitative and qualitative target setting for occupational health and safety and product quality in the compensation evaluation of all executive officers to further advance sustainable management.
![[image]Hitachi's Corporate Governance Framework and Its Features](4.jpg)
![[image]Compensation to Executive Officers (FY2023)](5.jpg)
![[image]1. Basic remuneration, 2. Short-term incentive](6.jpg)
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Please see the News Release for details.
