Corporate Governance

Basic policies on corporate governance

The Codes of Conduct of Hitachi Construction Machinery Group consist of rules and principles which provides officers and employees with standards in making decisions and taking actions. Hitachi Construction Machinery Group states its Codes of Conduct as the basic policies of its corporate governance.

Basic Concept

The Company recognizes that sustainability is an important management issue, and that, in addition to improving business performance, the purpose of corporate governance is to deeply acknowledge that a company is a member of society which must devote itself to fair and transparent corporate behavior. By extension, the Company believes that this will lead to an increase in corporate value and a further increase in shareholder value.

Therefore, the Company establishes an execution system that will enable the development of management strategies both powerfully and swiftly, and in order to realize fair and transparent management, the Company has adopted the organizational structure of a “company with the Nominating Committee, etc.”, as stipulated in Article 2, Item 12 of the Companies Act aiming to strengthen its corporate governance by separating the management supervision functions and the business execution functions.

In addition, the Codes of Conduct of Hitachi Construction Machinery Group, is positioned as the basis of the brand and sustainability promotion activities, and the Company works to share an understanding of the social responsibilities that companies must fulfill.

Corporate governance system

Hitachi Construction Machinery Group has adopted a corporate organizational system based on a structure for company with Nominating Committee, etc., as defined in the Companies Act, with the aims of ensuring highly fair and transparent management while building an operational system that facilitates the prompt and sound execution of management strategy. The Company has greatly strengthened its system of corporate governance through this separation of management oversight from business execution. The Board of Directors comprises nine (9) Directors, of which six (6) are Outside Directors (four (4) male and two (2) female). The Representative Executive Officer and Executive Officers, who are authorized to do so by the Board of Directors, have the right to make decisions on business execution and execute work in accordance with the Company’s basic management policies. The Board of Directors decides the responsibilities and duties of the Executive Officers, matters regarding supervision and authority, and the mutual relationships among the Executive Officers. An Executive Committee (convening twice a month, in principle), comprising all the Executive Officers has been established as a consultative organ for the Chief Executive Officer (CEO) in making business decisions. The Executive Committee exercises control regarding important matters related to the management of the Company’s operations.

Relationship with the major shareholders

There are nine (9) Directors in the Company, of which one director is the representative director of HCJI Holdings, Ltd. and another serves as the COO of Social Infrastructure Systems business unit, Hitachi, Ltd. As a result, those major shareholders are able to exert influence on decisions on the Company’s management policy through the views expressed by these Directors at Board meetings. Nevertheless, there are four (4) Outside Directors who have been reported to the Tokyo Stock Exchange as independent officers. Therefore, the Company is in a position to be able to make its own management decisions. In addition, the Company entered into the contract for capital alliance with HCJI Holdings, Ltd., and a license agreement regarding the Hitachi brand with Hitachi, Ltd. Also, there are business relationships such as product sales with Hitachi, Ltd. group companies.

Policy on determining the amount of compensation, etc. for directors and executive officers

1. Method for determination of policies
Compensation Committee of the Company sets forth the policy on the determination of the amount of compensation for the Company’s respective Directors and Executive Officers pursuant to the　provision of the Companies Act applicable to companies with nominating committees, etc.

2. Policy Overview
(1) Matters relating to both Directors and Executive Officers
Compensation will be commensurate with the scope and range of the Company’s business, the ability required of, and the responsibilities and risks to be borne by, Directors and Executive Officers, taking into consideration package at other companies.

(2) Directors
Compensation for Directors consists of a monthly compensation.

• A monthly compensation shall be set as a fixed amount in light of the duty that is the supervisory function. The level of payment is determined in accordance with a full-time or part-time basis, basic payment, allowance for committee members for committees to which the Director belongs and his or her position.
  In case of Directors who also serve as Executive Officers, compensation as a Director is not paid.

(3) Executive Officers
Compensation for Executive Officers consists of a monthly compensation and performance-linked compensation.

• Monthly compensation is set to standard amounts according to job positions.
• The breakdown of Executive Officers' monthly compensation and performance-linked compensation is as follows.

• The standard amount of the performance-linked bonus shall be varied according to the degree of achievement of the standard performance and the results of the work in charge, and the range of variation shall be approximately 0% to 200%. In principle, the evaluation method will be carried out at the following ratio.

• The Evaluation indicators and Composition ratio for performance-linked bonus are as follows.

* ESG assessment is an overall assessment based on the CDP’s climate change and water security ratings, Dow Jones Sustainability Indices (DJSI) and the progress in reducing rate of  CO₂ emissions related to production and products.

* Organizational Health Index is an index that evaluates the health of an organization from various perspectives such as employee engagement and diversity and inclusion.

・For foreign Executive Officers, standard compensation is set according to the benchmarks of compensation levels of the country or region in question from the viewpoint of retaining capable personnel, taking into account the competitiveness of the compensation.

Directors and Executive Officers (as of February 9, 2024)

Directors

Executive Officers

Reasons for appointing Outside Directors

The Company has appointed Toshiko Oka as Outside Director so that she can provide advice on the Company’s overall management and supervise the execution of duties by Executive Officers from an independent position, utilizing her extensive experience as the top executive of a consulting company, knowledge and deep insight on M&A. Ms. Oka is a constituent member of the Nominating Committee, Compensation Committee and the Audit Committee.

The Company has appointed Kazushige Okuhara as Outside Director so that he can provide advice on the Company’s overall management and supervise the execution of duties by Executive Officers from an independent position, utilizing his extensive experience as the top executive of a global company, knowledge and deep insight on personnel and labor policy.
Mr. Okuhara is a constituent member of the Nominating Committee, Compensation Committee and Audit Committee.

The Company has appointed Maoko Kikuchi as Outside Director so that she can provide advice on the Company’s overall management and supervise the execution of duties by Executive Officers from an independent position, utilizing her extensive experience and knowledge that she has cultivated to date as legal expert, and also high insight from experience as a manager/auditor. Ms. Kikuchi is a constituent member of the Nominating Committee the Compensation Committee and Audit Committee.

The Company has appointed Takatoshi Hayama as Outside Director so that he can further strengthen the Company’s management structures by providing advice on the Company’s overall management utilizing his experience in the field of information and communications systems in the Hitachi Group and his extensive experience and deep insight as a top executive. Mr. Hayama is a constituent member of the Audit Committee.

The Company has appointed Hidemi Moue as Outside Director so that he can provide advice on the Company’s overall management and supervise the execution of duties by Executive Officers from an independent position, utilizing his extensive experience, knowledge and deep insight in the fields of finance and M&A as a top executive of a fund management firm. Mr. Moue is a constituent member of the Nominating Committee and Compensation Committee.

Joseph P. Schmelzeis, Jr. has a wide range of experience in promoting friendly relations between Japan and the United States as the Chief of Staff of the U.S. Embassy in Japan, in addition to managing an international company. The Company has appointed as Outside Director in order to further strengthen the Company's management structure by utilizing his extensive business experience and knowledge of geopolitics to provide advice on overall management of the Company. Mr. Schmelzeis is a constituent member of the Nominating Committee, Compensation Committee and Audit Committee.

The four (4) of Toshiko Oka, Kazushige Okuhara, Maoko Kikuchi and Joseph P. Schmelzeis, Jr. are Independent Directors based on the provision of Tokyo Stock Exchange, Inc.

• The Nominating Committee has the authority, etc. to determine proposals submitted to the shareholder’s meetings for the election and dismissal of the Directors. The Nominating Committee comprises 7 persons in total: Outside Director Kazushige Okuhara, who is the chair, 4 Outside Directors made up of Toshiko Oka, Maoko Kikuchi, Hidemi Moue and Joseph P. Schmelzeis, Jr., and President and Executive Officer Masafumi Senzaki and Chairman and Executive Officer Kotaro Hirano.
• The Compensation Committee has the authority, etc. to determine compensation for respective Directors and Executive Officers. The Compensation Committee comprises 7 persons in total: Outside Director Kazushige Okuhara, who is the chair, 4 Outside Directors made up of Toshiko Oka, Maoko Kikuchi, Hidemi Moue and Joseph P. Schmelzeis, Jr., and President and Executive Officer Masafumi Senzaki and Chairman and Executive Officer Kotaro Hirano.
• The Audit Committee has the authority to audit of the execution of duties of Directors and Executive Officers and to determine proposals submitted to the shareholder’s meeting for the election and dismissal, etc. of accounting auditors. The Audit Committee comprises 5 persons in total: Director Toshiko Oka, who is the chair, 4 Outside Directors made up of Kazushige Okuhara, Maoko Kikuchi, Takatoshi Hayama and Joseph P. Schmelzeis, Jr.

As of  February 9, 2024, Board of Directors consists of 6 Outside Directors (including 2 female Directors and 1 foreign Director) out of 9 Directors. The Audit Committee is comprised of a majority of independent Outside Directors to strengthen its supervisory function. In addition, Outside Directors serve as chairpersons of the Nomination, Audit, and Compensation Committees, and the Company strive to ensure highly objective and transparent management.

Corporate Governance Guidelines

Corporate Governance Report

Ensuring tax transparency

In January 2016, the Hitachi Construction Machinery Group established regulations on tax related matters covering the entire Group, and carries out tax risk management to address the globalization of its operations. Within the securities report of the Company, it discloses corporate tax and other tax obligations for the Hitachi Construction Machinery Group and also discloses information on factors behind variance with the effective statutory tax rate to ensure full tax transparency.

The Hitachi Construction Machinery Group continues to implement these measures to fulfill its tax obligations with a focus on fairness in all of the regions where it conducts business and complies with the spirit and tax laws applied in those countries and regions.

Hitachi Construction Machinery Group Rules for Global Tax Management

1. Group companies strictly comply with all relevant laws and implement tax management when pursuing their business activities, bearing in mind such international tax-compliance standards as the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of the Organization for Economic Co-operation and Development (OECD^※1), as well as that body’s Action Plan on Base Erosion and Profit Shifting (BEPS^※2).
2. Group companies effectively, continually, and proactively manage tax-related issues as socially responsible organizations, while maintaining their brand value and seeking to maximize shareholder value.
3. Group companies build sincere and positive relations of trust with the tax authorities in the regions where the companies do business, and strive to maintain and develop those relations.

※１OECD : Organization for Economic Co-operation and Development
※２BEPS : Base Erosion and Profit Shifting