Corporate Governance Guidelines

Preamble

The Corporate Governance Guidelines are adopted by the Board of Directors (“the Board”) and related Committees of Hitachi Construction Machinery Co., Ltd. (“the Company”), to provide the framework for the corporate governance of the Company in addition to the Board of Directors Regulations and the Regulations of each Committee.
The Board and the Committees continue to assess the appropriateness and effectiveness of these guidelines and amend them if necessary

Article 1. (Function of the Board)

The Board shall seek to sustainably enhance corporate value and the shareholders’ common interests.
In order to achieve the objective above, the Board shall approve basic management policy for the Hitachi Construction Machinery Group and supervise the execution of the duties of executive officers and directors.
“Basic management policy” includes medium-term management plan and annual budget compilation. The Board shall focus 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 Board of Directors Regulations.
Each director has a duty of loyalty and a duty of confidentiality to the Company inside and outside the Board in order to enable the Board to fulfill the function above.

Article 2. (Size of the Board)

Given the need for diversity of the Board views and efficiency of the Board, the number of directors shall be no more than 15.
The Nominating Committee shall consider the optimal size of the Board following the policy described above in deciding the matters relating to a proposal concerning election and removal of directors to be submitted to the General Meeting of Shareholders.

Article 3. (Composition of the Board)

In nominating a director candidate, the Nominating Committee shall consider:

1. diversity in the experience, expertise, sexuality and nationality, etc. of the director candidates, the composition ratio between outside directors and other directors (directors concurrently serving as executive officers and non-executive directors from within the Hitachi Construction Machinery Group), and other such matters in order to ensure the effectiveness of the management supervision and decision-making functions of the Board;
2. that to maintain the continuity of the Board, new candidates do not constitute all or almost all of the candidates; and
3. the period of time since the candidate’s assumption of office as the Company’s director and the candidate’s age to keep bringing fresh ideas and viewpoints regularly to the Board.

In principle, a person shall not be nominated as a director candidate after his or her 75th birthday. However, the Nominating Committee may nominate a person over 75 as a director candidate in special circumstances.

Article 4. (Composition of Committees)

To ensure the transparency and objectivity, the Nomination Committee and Compensation Committee shall consist of a majority of outside directors, and the Audit Committee shall consist of a majority of independent outside directors.

Article 5. (Qualification for Directors)

In nominating a director candidate, the Nominating Committee shall consider that:

1. such candidate has the highest personal and professional ethics, integrity and insight; and
2. such outside director candidate has distinguished records of leadership or experience at policy making levels in business, law, administration, finance, accounting or education, etc.

Article 6. (Criteria for Independency)

The Nominating Committee considers an outside director to be independent unless:

1. his or her immediate family member* is, or has been within the last three years, a director or an executive officer of the Company or any of its subsidiaries;
2. he or she is currently an executive director, an executive officer or an employee of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds 2% of any of the companies’ consolidated gross revenues;
3. he or she has received during any of the last three fiscal years more than ¥10 million in direct compensation for his or her service as a specialist in law, accounting or tax, or as a consultant from the Company, other than director compensations; or
4. he or she serves as an executive officer or director of a not-for-profit organization, and the Company’s discretionary charitable contributions to the organization in any of the last three fiscal years are more than ¥10 million and 2% of that organization’s annual gross revenues.

* An “immediate family member” includes a person’s spouse, parents, children, siblings, grand-parents, grand-children, mothers and fathers-in-law, sons and daughters-in-law, spouses of siblings, grand-parents-in-law, grand-children-in-law, and brothers and sisters-in-law.

Article 7. (Service in Other Companies)

Directors are encouraged not to serve as more than 4 listed companies’ director, corporate auditor, or executive officer in addition to the Company’s director because they are expected to invest the time necessary to understand the Company’s business, participate in and prepare for the Board’s meetings.
Directors shall advise the director as set forth in the Article 8 when receiving an invitation to serve as an officer from other companies.

Article 8. (Chairman of the Board)

By resolution of the Board, a director who convenes and presides over the meeting of the Board shall be selected.
The director as set forth in the preceding paragraph shall aim to enhance the quality of debates among the Board and to operate the Board effectively and efficiently.

Article 9. (Board Materials Distributed in Advance)

Documents related to agenda items shall be distributed sufficiently in advance to enable directors to actively participate in discussion at the meeting. Very sensitive subjects may be discussed without distribution of the materials in advance.
Directors shall observe strict confidentiality with regard to the content of discussions and documents.

Article 10. (Access to Independent Advisors)

The Board and the Committees may seek the advice from independent outside advisors if necessary.

Article 11. (Education of Directors)

The Company shall provide directors with an orientation upon assuming office as well as other opportunities, if necessary, in order for them to acquire knowledge, such as of the Hitachi Construction Machinery Group’s business, necessary for discharging their duties as directors.

Article 12. (Board Evaluation)

The Board shall evaluate its effectiveness annually.

Article 13. (Compensation for Directors and Executive Officers)

The Compensation Committee shall set forth the policy on the determination of the amount of compensation, etc. of each director and executive officer.
The above-mentioned policy shall be periodically reviewed by the Compensation Committee.

Article 14. (Policy on Selection and removal of Executive Officers)

The Board shall, referring the opinion of Nominating Committee, determine the selection and removal of executive officers in consideration of the following standards:
1) Standards of Selection

1. that such person has the highest personal and professional ethics, integrity, insight and leadership; and
2. that such person is believed to be the one most qualified to realize sustainable enhancement of the Company’s corporate value and the shareholders’ common interests, with rich experience and a distinguished record in the area of corporate management.

2) Standards of Removal

1. in the event of any act against public order and morals;
2. in the event of difficulty to continue the work assigned due to any health problem.
3. in the event that such person damages the Company’s corporate value by negligence or omission of the work assigned.
4. in the event that such person is judged as not to meet the Standards of Selection provided hereinabove.

Article 15. (Conflicts of Interest)

All directors and executive officers shall not pursue interests of themselves or third parties that would constitute a real or perceived conflict of interest with the Company.
Even without intentions to pursue interests described above, all directors and executive officers shall obtain approval by the Board resolution to conduct any transactions that would constitute a conflict of interest or competition with the Company stipulated by the Companies Act of Japan.
Directors and executive officers who have their personal or professional interests in the above-mentioned transactions may not participate in the vote in the Board resolution.

Article 16. (Policy for holding shares of listed companies)

The policy for holding shares of listed companies shall be as follows:

1) The policy for holding shares
The Company shall not hold shares of listed companies other than the case where such holding is recognized to contribute in increasing the Company’s corporate value in the medium and long term such as stable supply for the material and strengthen relationship in sales. In the event that each holding share does not meet the above policy, such share shall be sold to reduce the holding shares as necessary.

2) Validation of reasonability of holding shares
The reasonability of each holding shares shall be concretely verified referring the Company’s policy for holding shares hereinabove and capital costs, and the results of such validation shall be disclosed.

3) Standards for voting
With respect to the voting right of holding shares, the Company shall exercise its voting right with a comprehensive judgment in accordance with holding purpose, in consideration of the continuous growth and enhancement of corporate value of the share issuing company in the medium and long term, and the contribution onto the enhancement of the shareholder’s value of the Company.

4) Relationship with shareholders which holds the Company’s share
Each transaction with the shareholders which holds the Company’s share shall be continued considering the conditions of transaction from the view point of the economical reasonability. In the event that the shareholders which holds the Company’s share shows the intention to sell the Company’s share, the Company shall not interfere such intention.