Corporate Governance

Basic policies on corporate governance

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

Basic Concept

We recognize 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, it is our belief 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, we have 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 our corporate governance by separating the management supervision functions and the business execution functions.

In addition, the Hitachi Construction Machinery Group Code of Conduct, is positioned as the basis of the brand and our sustainability promotion activities, and we work 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. We have greatly strengthened our system of corporate governance through this separation of management oversight from business execution. The Board of Directors comprises ten (10) 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 Representative Executive Officer and President 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 ten (10) Directors in Hitachi Construction Machinery, of which one director serves as the COO of Social Infrastructure Systems business unit, Hitachi, Ltd and another is the representative director of HCJI Holdings G.K.. As a result, those major shareholders are able to exert influence on decisions on our 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, we are in a position to be able to make our own management decisions. The Company entered into the contract with Hitachi, Ltd. regarding the license of Hitachi brand, and into the contract for capital alliance with HCJI Holdings G.K.. Also, terms and conditions of transactions with Hitachi, Ltd. and its group companies are determined reasonably referencing market prices and other factors.

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

1. Method for determination of policies
Our Compensation Committee 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 our 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) Matters relating to Directors
Compensation for Directors consists of a monthly salary.

• A monthly salary 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 salary, 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) Matter relating to Executive Officers
Compensation for Executive Officers consists of a monthly salary and performance-linked compensation.

• A standard yearly compensation is set in accordance with societal standards by taking into account the scope and range of the Company’s business, the abilities required of, and the responsibilities and risks to be borne by the Company’s Executive Officers.
• Monthly salaries are set to standard amounts according to job positions.
• The standard amount for performance-linked compensation is roughly 40% of standard yearly compensation for the President. For other Executive Officers it is roughly 30% of standard yearly compensation. It is determined within a certain range depending on the degree of achievement of standard performance targets and achievement of individual roles. The fluctuation range is about 0 to 200％. The evaluation method will be carried out at the following ratio.

• The Evaluation Item and the component Ration for performance-linked compensation for other Executive Officers are as follows.

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 September 1, 2022)

Directors

Executive Officers

Reasons for appointing Outside Directors

We have appointed Toshiko Oka as Outside Director so that she can provide advice on our 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.

We have appointed Kazushige Okuhara as Outside Director so that he can provide advice on our 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.

We have appointed Maoko Kikuchi as Outside Director so that she can provide advice on our 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.

We have appointed Haruyuki Toyama as Outside Director so that he can provide advice on our company’s overall management and supervise the execution of duties by Executive Officers from an independent position, utilizing the extensive experience and knowledge in the fields of monetary affairs and finance that he has cultivated to date.
Mr. Toyama is a constituent member of the Nominating Committee, Compensation Committee and Audit Committee.

We have appointed Hidemi Moue as Outside Director so that he can provide advice on our 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.

We have appointed Yoshinori Hosoya 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 and his extensive experience and deep insight as a top executive. Mr. Hosoya is a constituent member of the Audit Committee.
The four (4) of Ms. Toshiko Oka, Mr. Kazushige Okuhara, Ms. Maoko Kikuchi and Mr. Haruyuki Toyama 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 6 persons in total: Outside Director Kazushige Okuhara, who is the chair, 4 Outside Directors made up of Toshiko Oka, Maoko Kikuchi Haruyuki Toyama and Hidemi Moue and President 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 6 persons in total:Outside Director Kazushige Okuhara, who is the chair, and 4 Outside Directors made up of Toshiko Oka, Maoko Kikuchi, Haruyuki Toyama and Hidemi Moue and President 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 6 persons in total: Director Tetsuo Katsurayama, who is the chair, 5 Outside Directors made up of Toshiko Oka, Kazushige Okuhara, Maoko Kikuchi, Haruyuki Toyama and Yoshinori Hosoya.

We set targets to make Outside Directors more than one third (1/3) of the total number of Directors, and two (2) or more female or foreign Directors in the final year of the current mid-term management plan, FY2022, As of September 1, 2022, there are six (6) Outside Directors of ten (10) Directors, and two (2) of the ten (10) Directors are female, and each of these targets has been cleared.

Corporate Governance Guidelines

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 our securities report, we disclosure corporate tax and other tax obligations for the Hitachi Construction Machinery Group and also disclose 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 our 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