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Social Report

Engagement with Stakeholders

Date: June 2, 2015
Attendee : Keisuke TakegaharaGeneral Manager, Environmental Initiative & Corporate Social Responsibility – Support Department, Development Bank of Japan Inc.
Naomi YamazakiRepresentative Director, ESG Network of Shareholders & Companies
Hisashi Maruyama Vice President and Executive Officer, General Manager Corporate Business Strategy Headquarters
Hiroyuki Takei Executive Officer, General Manager, Marketing & Sales Operations

To mark its 50th anniversary in 2012, Hitachi Chemical took on a number of challenges, with an eye on what we should look like 50 years from now: the WOW-BB activities are aimed at our ideal form a decade in the future. We also launched the Open Laboratory at the Tsukuba Research Laboratory and implemented a global coaching program. What do external stakeholders think of Hitachi Chemical’s stance and initiatives? Our Executive Offi cers exchanged opinions with external experts.

Keisuke Takegahara General Manager, Environmental Initiative & Corporate Social Responsibility – Support Department, Development Bank of Japan Inc.

Naomi Yamazaki Representative Director, ESG Network of Shareholders & Companies

Hisashi Maruyama	Vice President and Executive Officer, General Manager Corporate Business Strategy Headquarters

Hiroyuki Takei Executive Officer, General Manager, Marketing & Sales Operations

Maruyama:

The Group marked its 50th anniversary in 2012. All of our employees took part in discussions on what the future shape of Hitachi Chemical should be for the next 50 years. Responding that, Hitachi Chemical began Working On Wonders Beyond Boundaries (WOWBB for short) activities as first step. This comprises a 10-year strategy which talks of our aspirations for the next decade and a WOW Global Award which recognizes the efforts of those who put words into action.

Takegahara:

This fifty-year perspective on the future gave me a fresh impression. Japan is said to have a number of resilient firms which are over 100 years old. Thinking about what a resilient nature means, I would say that it entails having a solid philosophy which enables a constant return to the company’s founding origins. It is possible to jump forward 50 years and paint a picture of the future precisely you have such a philosophy. I feel this is where your company’s strength lies.

Yamazaki:

I feel that WOW-BB activities—getting each employee to talk about their dreams for the next 10 years and discuss them with each other and share them across the entire company as a vision–are extremely unique. I think that will make the strategy you implement towards realizing the vision highly effective.

Maruyama:

While we do need to achieve results every quarter, it is also necessary to have discussions and strategies with an eye more towards the future. For example, our own unique style involves very close relationships with our customers. This enables us to discover issues they face and offer solutions with advanced materials technology. This sort of approach is not possible from a short-term viewpoint alone.

Takegahara:

Uncovering underlying needs through relationships with customers is really the thinking behind open innovation, isn’t it?

Maruyama:

As part of our new open innovation initiatives, we launched the Open Laboratory at the Tsukuba Research Laboratory. The objective is that using the very latest technical equipment at the lab with our customers will shorten semiconductor packaging process development times. It should also enable us to anticipate their emerging needs. We will work with our customers and device and materials manufacturers to develop new processes. When our own materials do not have the requisite characteristics, we may test materials from our competitors. This is an unprecedented experiment.

Since the lab opened last year, many customers and device and materials manufacturers have visited the facility, and this has already led to product finalization and joint development projects. The interest is intense and palpable.

Takei:

With rapid shifts in the market environment and evolving customer requirements, it is becoming difficult to discover underlying needs and innovate with internal resources alone. To our way of thinking, we need to use external resources more than ever to assist in innovation.

Using the Open Laboratory will lead to changes in the relationship with our customers, device manufacturers and competitors in the medium and long terms. Hitachi Chemical hopes to use the Open Laboratory to obtain the latest information. Forming consortia with companies that have particular areas of expertise in the device and material fields will enable us to meet our customers’ expectations.

Maruyama:

The thinking behind the Open Laboratory is applicable to fields other than packaging materials. We are investigating its use in other business areas as well.

Takei:

In fiscal year 2014 overseas net sales reached 53% of the total. We intend to accelerate our globalization. We intend to strengthen and expand our overseas locations and boost our presence, including via M&A, and tap into undeveloped territories such as Africa and the Middle East. We realize that expanding overseas requires closer communications with our local partners and respecting their corporate culture.

Takegahara:

If the personnel resigns a company that has been acquired, it defeats the purpose. Knowing how to delegate authority to the local business while maintaining group cohesiveness will be one of the elements of your company’s nonfinancial strengths, in my view.

Maruyama:

With the acquisition in January this year of CSB Battery, non-Japanese people make up the majority of the workforce. In the process of globalization, promoting diversity is essential. The only way for individual employees from a great variety of backgrounds to have a unified purpose is to share our management vision.

We also think that in our next Medium-term Management Plan it will be necessary to clarify what sort of role headquarters will play in our global development.

Yamazaki:

Recently, the adequacy of measures to deal with public officials taking bribes or tax avoidance overseas is being called into question in no uncertain terms. It is important for companies to clearly reveal their thinking on these issues and what measures they are taking to prevent such behavior.

Maruyama:

We have a clear policy of never paying bribes, and are conducting extensive awareness campaigns. Also, our mission is to make fair profits and pay taxes and provide values to the world, which is one area where we must hold firm. Takei: We realize that neglecting CSR and compliance issues is a major risk in expanding overseas. In addition to regular audits under our policy initiatives, we are continually educating our employees.

Maruyama:

Within the Group, we have a term for employees who share our vision and take the initiative to grow by upgrading their knowledge and skills: World- Class Professionals (WCPs). This is not just for Japanese; we demand the same effort from our overseas employees. Hitachi Chemical is fostering the development of these WCPs through numerous training programs.

Takei:

We present what we call a WOW Global Award to people who work hard to achieve our vision. In the first year of the award four of the 10 finalist teams were from overseas. This gives us the feeling that the corporate philosophy of Hitachi Chemical cultivated in Japan is taking hold globally and starting to put down roots.

Takegahara:

If companies acquired take on board the management philosophy of Hitachi Chemical and are able to develop human resources sympathetic to your philosophy, that would certainly be a significant outcome, wouldn’t it?

Takei:

Even if we head-hunt talented human resources, they will not necessarily deepen their understanding of our company’s culture in the short term. We really do feel a sense of loyalty from people who have a long tenure with Hitachi Chemical. We are very keen to foster the careers of those people who have worked with us for a long time and understand Hitachi Chemical’s vision.

Yamazaki:

In globalization, corporate philosophy certainly plays an important role. There is no point having it just as decoration. It starts to become a strength of the company once it is taken up among the employees and reflected in actual actions. Investors place a great deal of importance on this when looking at a company’s sustainability. A key consideration is how to explain these sorts of nonfinancial strengths.

Yamazaki:

It appears that the next Medium- term Management Plan (covering fiscal years 2016–2018) will be drafted with a 10-year horizon as a WOW-BB strategy.

Maruyama:

We have a business strategy conference every autumn. The focus had been confirming basic strategies for setting the budget for the next fiscal year. Last year however, it was a forum for major divisions to announce their 10-year strategies. At this autumn’s business strategy conference, we want to have deep discussions about where we want to be in 10 years, and based on that, think about what we need to do in the next three years. We will incorporate this into our next Medium-term Management Plan.

Our typical plans used to be drafted using the past as the departure point, and focused on building up financial figures from this numerical base. This year we will be adopting a new style with nonfinancial targets as well.

Takegahara:

Investors including me want to know why Hitachi Chemical is able to achieve profit margins above the industry average and its rivals. We do not hear much about nonfinancial information in Medium-term Management Plan. But if you explain this as a point of difference with other firms, I think that might resonate with investors. In my personal opinion, your company’s strengths lie in how your technologies, human resources, and customers relate to one another.

Yamazaki:

What investors want to know about is the Big Picture that managers have in their mind, along the following lines: 1) Where are they headed? (corporate philosophy); 2) What issues are there? (mission); 3) What sort of future are they going to create? (business objectives); 4) How will they get to their destination? (strategy); 5) Key resources and how to recycle them (business model); 6) How will they manage in a sound manner? (governance); 7) What sort of risks and opportunities do they envisage and how will they respond? (sustainability/ESG); 8) Where are they now and where are they going? (medium-term business plan). Investors often say they want to hear about long time periods of 10 to 20 years. The medium-term plan, which covers the short term, comes last. I get the feeling that once the destination is determined, all else becomes clear and falls into place as a matter of course.

Maruyama:

Our company wants to cultivate a culture of dialogue within the Group. We view this as a major issue. Facing a single target, aiming for growth and holding discussions is a dialogue. This is something we must do with all of our stakeholders starting with our employees and shareholders.

Yamazaki:

I think investors are looking for the kind of attitude where the CEO himself is open about failures to meet targets and reasons why, winning them over and getting them involved in management. Accomplishing this would deepen investors’ confidence in the company.

Investors are not the only stakeholders. It is important to have dialogues with other stakeholders including NGOs and NPOs and absorb their different ways of thinking. This is what we mean by “open innovation” in the area of IR.

Maruyama:

Another important stakeholder group is our employees. We are trying to inculcate a culture of dialogue through our Global Coaching Program and Town Meetings. Without dialogue between management and employees or among employees themselves, we cannot complete our Medium-term Management Plans the way we wish. The plan-setting process is an ideal opportunity for all employees to think about the next decade. We take this seriously.

Yamazaki:

The process is the most important thing in motivating employees to aim at targets, isn’t it?

Takei:

Once the Medium-term Management Plan has been finalized, we must create disclosure documents.

Yamazaki:

The raw materials are already there, so the next task is working out how to combine these raw materials in a story that is well accepted by investors.

Takegahara:

The material needed to paint the next picture of Hitachi Chemical, including nonfinancial elements, has already been identified. Next issue is how to show this internally and externally. While it is difficult, we would like to see your company prepare something like social contribution key performance indicators (KPIs).

Maruyama:

I would like some day to be able to say that if Hitachi Chemical’s sales increase the world will be a better place. It is necessary to put all of the above elements together and integrate them with the right spirit. Today we talked about extremely important issues and learned a great deal. Thank you very much for your participation.

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