Risk Management

Risk Management Basic Policy

In accordance with the Companies Act, the Kawasaki Board of Directors has adopted a basic policy for internal control systems. The policy makes it clear that risk management should be addressed in accordance with the Risk Management Regulations by seeking to anticipate and avoid loss caused by risk, and to minimize risk through appropriate preparation and operation of the risk management system.
In addition, to achieve sustained improvement of profitability and corporate value, the Kawasaki Group Mission Statement identifies risk management as a guiding theme of the Kawasaki Group Management Principles.
To support these policies, the Risk Management Regulations established in 2008 lay down the following basic policy for the Kawasaki Group in the field of risk management:

  1. Aiming to realize its Group Mission—“Kawasaki, working as one for the good of the planet”—Kawasaki and the Kawasaki Group will facilitate global and sustained business execution by continuously implementing risk management.
  2. In implementing risk management, Kawasaki and the Kawasaki Group will put in place a risk management system, for which ultimate responsibility lies with the company president, as a means of preventing risks that may hinder business execution.
  3. In the event that a risk situation emerges, Kawasaki and the Kawasaki Group will work to minimize loss to customers, employees, local communities and other stakeholders, and to prevent recurrence.
  4. Each individual corporate officer and employee will engage actively with risk management and will work to maintain the risk management system and improve response capabilities of risk management.

The Corporate Risk Management Manual sets forth the following procedures for Group-wide integrated risk management based on these basic policy and guidelines: the respective operating divisions will strengthen their risk management measures, identify major risks that may have a serious impact on operations (Group-level risks) every year, monitor the response to them, and from among such risks determine a few items especially requiring Group-wide actions (risks requiring Group-wide action), implement such actions, and after the head office division in charge monitoring the results, discuss them at the Corporate Risk Management Committee.
On the other hand, with regard to the risks associated with individual business execution, the relevant divisions carry out assessments and analyses and sufficiently examine countermeasures in advance in accordance with the Kawasaki Group's Board of Directors Regulations, Management Meeting Regulations, Approval Regulations, etc., and for important projects which may have especially great impacts on operations, not only at bidding and contracting for received orders but after starting the projects, too, necessary measures to further ensure risk management are taken in accordance with Kawasaki Group's Regulations concerning Risk Management for Important Projects, etc. including the head office and the respective business segments following up on them regularly.
Concurrently, the actions to be taken when a risk situation emerges are set out in the crisis management provisions of the Risk Management Regulations, which stipulate that emergency action guidelines should be clearly identified, a Crisis Management Officer should be appointed for each operating site, and a system should be established promptly and appropriately to respond to risks.

Scope of Risk Covered

The Kawasaki Group defines risk as “phenomena that hinder the conduct of business operations or the achievement of organizational goals,” and is committed to giving due consideration to strategic risk and other risk items, as well as to phenomena that have a beneficial effect on the organization.
In concrete terms, this means all risk listed below, classified into external risk and internal risk (strategic risk and business risk), is included in the scope.

List of Risks Covered

Risk category Risk name
External risk
Hazard Major disaster
Accident (caused by third party)
Politics/Society Government or social stability
Legal or regulatory amendment
Technology Technological innovation
Market environment Competitor companies
Customer needs
Economic Economic recession
Stakeholders Shareholders/activists
Harmful rumors
Human rights issue Child labor/forced labor
Internal
risk
Strategic
risk
Vision Effectiveness of vision
Decision making Expansion into new business areas
Capital investment
Research and Development
Corporate acquisition/merger
Organization Effectiveness of organizational structure
Brand Kawasaki Value (brand)
Corporate governance Supervising of management
Business risk
(by division)
Sales Sales strategy
Collection of accounts receivable
Customer response
Development Development themes
Development capabilities
Design Design not coordinated with other
relevant divisions
Design capabilities
Design quality
Procurement Enforcement of CSR Procurement
Guidelines
Procurement at appropriate price
Securing of stable procurement
partners
Management of procurement
partners
Warehouse Inventory management
(materials, work in process, products)
Production Insufficient production capacity
Production process management
Production facilities
Engineering operations Management of individual
commissioned projects
Quality assurance Deficient product servicing
Logistics Management of logistics channels
Export and import procedures
Overseas Country risk
Business customs
Domestic operating
sites
Operation/maintenance
Specific local conditions
Accounts Accounting methods
Financial reporting
Tax affairs
Financial affairs Interest rate rise
Foreign exchange rate fluctuation
Capital procurement
Financial management
Management of pension assets
Company stock
Credit rating
Management Budget/planning/management
Evaluation of business performance
Consistency of goals and strategies
Public relations Media response
Legal affairs Contract conditions
Response to legal action
Information processing/
IT
Information leakage
Network/system failure
Information infrastructure
CSR CSR activity
External reporting Evaluation of internal controls
Information disclosure
Environment CO2 emissions
Environmental pollution
Compliance Irregular action by organization
Irregular action by employees
Harassment
Compliance with corporate ethics,
social norms, laws and regulations
Anti-monopoly and fair trade laws
Export management
Social contribution Social contribution activity
Business risk
(crossdivisional)
Personnel/labor Human resources/
personnel deficiency
Safety and health management
Labor management
Personnel employment conditions
Human rights issues
Business operations Management capabilities
Affiliated company management
Communication
Powers/restrictions
Operational efficiency
Outsourcing
Intellectual assets
(knowledge/expertise)
Intellectual property
Operational alliances
Security
Information sharing
Credit management
Work environment

Corporate Risk Management System

The Kawasaki Group has established a Corporate Risk Management System to ensure a uniform level of risk management across the Group, through which it identifies and responds to major risk with potential serious impact on operations and works to enhance risk management as outlined in the Kawasaki Group Management Principles.
To engage in continuous activities through implementation of the Corporate Risk Management System, we highlighted reinforcement of Group-wide risk management as one of the key strategies of our Medium-term Business Plan.
The Kawasaki system places ultimate responsibility for risk management with the company president, and responsibility for coordinating risk management operations with the Managing Executive Officer. The Kawasaki system also seeks to reinforce the risk management system by setting up a Risk Management Committee with the function of discussing important matters relating to risk management and monitoring implementation status. Meanwhile, a Risk Management Unit has been set up within the Head Office Corporate Planning Department to implement and support corporate risk management, and each business division operates a similar system, for which the general manager of the business division is responsible. These measures are designed to reinforce a system that takes a Group-wide approach to risk management.
In October 2011, risk management initiatives similar to those applied in each business segment were launched at key domestic subsidiaries, and with efforts extended to affiliated companies in Japan as well, a Corporate Risk Management System covering all the domestic companies in the Kawasaki Group was established by the end of fiscal 2013. In addition, from 2015 we began rolling out measures at some overseas affiliated companies—model companies—similar to those introduced at domestic affiliated companies, and this process will continue to gradually unfold.

Corporate Risk Management System

Corporate Risk Management System

Responding to Significant Risks

Under the Corporate Risk Management System, major risk that could have a potentially serious impact on Group-wide operations is identified each year using uniform metrics and subjected to continuous management from a Groupwide perspective using efficient and optimal methods.
In concrete terms, this means that management of major risk at the Group-wide level is carried out by applying the following Plan-Do-Check-Act (PDCA) cycle to Group-wide risk management programs:

  1. screening and evaluation of risk;
  2. identification of major risk and specification of risk requiring action;
  3. formulation and implementation of risk response measures; and
  4. monitoring.

Corporate Risk Management Programs

Corporate Risk Management Programs

1. Screening and evaluation of risk

Risk reviews are undertaken each fiscal year by division, and major risks are then pinpointed for each business segment by the Corporate Risk Management Committee.

2. Identification of major risks and specification of risk requiring action

(Identification of major risks)

Major risks identified in each business segment are compiled, and the Corporate Risk Management Committee then discusses the consequences of these risks—Group-level risks—and classifies them into about 20 categories based on the severity of impact that each risk could have on the Group’s operations.
Risk items other than Group-level risks are categorized as risks specific to business segments, and each business segment acknowledges and addresses respective risks.
For Group-level risk, a division at the head office responsible for monitoring risk is assigned to monitor risk on a regular basis.

(Specification of risk requiring action)

Within Group-level risk, the head office division responsible for monitoring risk deems that certain risk items require urgent, Group-wide action, as previous responses were insufficient (Group-level risk).
In addition, each business segment will concurrently specify risk items that require a response (risk requiring business segment action).

3. Formulation and implementation of risk response measures

For risk identified as Group-level risk, a division at the head office responsible for risk responses is assigned to formulate response measures, which are discussed by the Corporate Risk Management Committee, approved, and then implemented. Similarly, for risk requiring business segment action, each business segment formulates responses and then puts measures into practice.

4. Monitoring

(Monitoring major risk)

At the end of each fiscal year, the risk management unit in each business segment undertakes a review of major risk for the following fiscal year and monitors significance, level of action, and urgency of each risk item.
Of note, with regard to Group-level risk, the division at the head office responsible for risk monitoring checks at the beginning of each fiscal year to see if the measures and structures introduced to reduce relevant risk in each business segment are functioning effectively, from a Group-wide perspective, based on the monitoring results compiled by each business segment.

(Monitoring of risk requiring action)

Risk requiring action—both Group-level risk and business segment risk—is subject to a twice yearly self-evaluation by the division responsible for executing relevant measures, at the end of the first half and at the end of the second half of the fiscal year. Results of these assessments are tracked by the risk management unit in each business segment.

(Report of monitoring results to the Corporate Risk Management Committee)

The results from major risk and risk requiring action monitoring are provided to the Risk Management Committee in each business segment.
The results from Group-level risk and risk requiring Group-wide action monitoring are provided to the Corporate Risk Management Committee.

Risk Identified as Group-Level Risk

Data on major risk identified at the business division level were collated, and the Corporate Risk Management Committee then identified major risk that could have a serious impact on operations under 20 item headings.
These risks are subject to monitoring in March of every year by the Head Office division responsible for monitoring. Meanwhile, taking Group-level risk as the basis, decisions are made on which risk items to disclose as “business risk and other risk” in the Securities Report, this report, and other information sources.
The risk items are subject to yearly review.

Risk Identified as Group-Level Risk in Fiscal 2019

Name of risk Head Office division responsible
for monitoring
Human risk Personnel Department / Human Capital Development Department
Procurement risk Procurement Division
Foreign currency risk Finance Department / Corporate Planning Department
Individual commissioned project
management risk
Corporate Planning Department
Incomplete market response risk Corporate Planning Department
Major disaster risk Corporate Planning Department
Quality management risk KPS Improvement Department / ICT Manufacturing Improvement Department
Labor, safety and health risk Safety & Health Management Department
health risk  
Information leakage risk Information Planning Department
Contract risk Legal Department
Revised law and regulation risk Corporate Planning Department
Country risk Marketing Division
Aging equipment risk Corporate Planning Department / Construction Control Department
Production management risk KPS Improvement Department / ICT Manufacturing Improvement Department
Litigation risk Legal Department
Intellectual property risk Corporate Technology Division
Development and design risk Corporate Technology Division
Compliance risk CSR Department
Capital investment plan risk Corporate Planning Department
Environmental contamination risk Environmental Affairs Department

Risk Specified as Risk Requiring Group-wide Action

Within Group-level risk, we specified the five items listed below as areas where response was insufficient and Group-wide action was urgently necessary. To deal with these risks, a Head Office division responsible for action was designated to take the main role in formulating and implementing response measures.

Risk Specified as Risk Requiring Group-wide Action in Fiscal 2019

Name of risk Head Office division responsible for monitoring
Human risk Personnel Department / Human Capital Development Department
Procurement risk Procurement Division
Information leakage risk Information Planning Department
Individual commissioned project management risk Corporate Planning Department
Quality management risk KPS Improvement Department / ICT Manufacturing Improvement Department

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