Corporate Governance Framework

The Board of Directors approves the 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 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.
In fiscal 2023, we reported on the progress of the Mid-term Management Plan 2024, including overall priority items and progress in each sector, and confirmed consistency with the plan. In addition to management plans and business strategy, wide-ranging discussion and deliberation took place regarding responses to cybersecurity, the risks of generative AI, and other matters.
Aside from these strategic discussions on basic management policies and risk-related discussions, recognition is shared between the supervisory and executive sides of management by reporting to the Board of Directors on important topics discussed in the Senior Executive Committee, an advisory body to the President & CEO, in order to promote discussion. To facilitate more lively discussion on these topics, more time is allotted to exchanging opinions than explaining each topic.

Board of Directors meetings in FY2023

FY2023 time spent and ratios of explanations and discussions of important topics (results up to January 31, 2024)

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.
Hitachi holds Board of Directors meetings in countries closely related to its business once a year in general. In September 2023, we held a board meeting in Stockholm, Sweden. At the meeting held in Stockholm, directors discussed business strategy and environmental strategy in Europe, attended lectures by local experts, and visited local subsidiaries. In addition, in December 2023 Hitachi held a Board of Directors meeting at the Kyoso-no-mori, the R&D Group's Kokubunji site, which is one of Hitachi's research-and-development sites. Directors discussed research-anddevelopment strategy and innovation strategy, and were briefed on research-and-development initiatives by front-line employees.
Hitachi has also created opportunities for directors to increase their understanding of the businesses and engage in dialogue with senior management and frontline employees, including participation in the Hitachi Social Innovation Forum, internal business conferences, and research presentations held at research institutes, including those online, as well as visits to Hitachi Origin Park and other sites.

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. Through this, participants discuss what is necessary for Hitachi's future growth, and by providing a forum for making recommendations to management, we foster next-generation leaders capable of acting authoritatively and resolutely.

Hitachi's basic policy is not to acquire or hold the shares of other companies except in cases where acquiring or holding such shares is necessary in terms of commercial transactions or business relationships. We will promote divesting such shares already held unless the significance or economic rationalities of holding are confirmed. The Board of Directors verifies the appropriateness of all such shareholdings every year. In the verification, each individual share is examined as to the purpose of holding the share and whether benefits from holding the share are in line with our capital efficiency targets. As a result of verification, we promote the divesture of the share for which the significance or economic rationality of holding is not confirmed.

Strategic shareholding status

With the aim of promoting management from medium- to long-term perspectives and providing incentives for the sustainable enhancement of corporate value by having executives share more value with shareholders through the holding of shares from the moment they assume their posts, Hitachi has introduced a restricted stock-based compensation system for Japanese executive officers and corporate officers, and the officers of some Group companies. In fiscal 2023, to further promote management based on medium- to long-term perspectives and better enhance pay-for-performance under global compensation—the link between corporate value enhancement and compensation—we made further revisions, expanding the ratio of compensation conditioned on stock price, introducing a global competitor comparison as a new stock price condition, and adopting an incentive to be awarded upon achieving the goals of the 2024 Mid-term Management Plan.
From FY2024, we newly adopted an RSU system as compensation for directors to ensure that Hitachi directors will provide oversight and advice on management while remaining mindful of the need to enhance corporate value in the medium to long term.
Hitachi has also introduced mechanisms for employee compensation to link individuals' goals with those of the company and determine compensation based on their achievement, and the management goals set out in the 2024 Mid-term Management Plan are used as an evaluation metric when determining the compensation of individual employees. Hitachi will foster a growth-oriented mindset linking the enhancement of corporate value with compensation among both executives and employees, achieving global growth as One Hitachi.

In fiscal 2023, Hitachi amended the executive compensation system to further accelerate growth as a global company, and to further strengthen links between increases in corporate value and compensation. The revised executive compensation system is more closely linked to the Mid-term Management Plan 2024 and incorporates sustainability targets.
Specifically, sustainability evaluations that had been used as an index for individual short-term incentive compensation (STI) are now treated separately and account for a larger ratio of STI.
In addition, an additional grant of shares equivalent to 10% of the standard amount of medium- to long-term incentive compensation (LTI) will be granted if the sustainability targets are achieved.
Sustainability evaluation in STI will be aligned to materiality topics including Environment, Business with Integrity and Quality of Life, each linked to sub-materiality topics targets listed below.
Going forward, Hitachi will enhance link of compensation and the growth of the company, cultivating a growth mindset and strive to achieve global growth as One Hitachi.

Materiality targets linked to executive compensation

Please see the News Release for details.