Corporate Governance System

Basic Stance on Corporate Governance

Guided by the Group Mission “Kawasaki, working as one for the good of the planet,” Kawasaki established a corporate governance system centered on directors and corporate auditors, with content appropriate for the activities that the Group undertakes, and efforts are made to further improve the system. The basic stance on corporate governance for the Group as a whole is to raise enterprise value through effective and sound business activities while forming a solid relationship with all stakeholders, including shareholders, customers, employees and communities, through highly transparent management practices.


Overview of the Corporate Governance System

Kawasaki adopts the statutory auditor system with a Board of Directors and Board of Auditors, and appoints an independent auditor. The Company also has the discretionary Nomination Advisory Committee, Compensation Advisory Committee, Management Committee, and Executive Officers Committee. The composition and role of each of these organizations are described below.

Board of Directors

The Board of Directors comprises 12 directors (authorized number: 18), with the chairman serving as the presiding officer. The Company has increased the number of its outside directors (independent officers, as required by the Tokyo Stock Exchange) from two to three. These directors are independent of any role in the execution of business activities. As a result, eight of the 12 directors concurrently serve as executive officers.
The Company is seeking to strengthen the supervisory function of the Board of Directors with regard to overall management, while paying attention to the balance with its business execution function. Furthermore, the Nomination Advisory Committee and Compensation Advisory Committee have been established as advisory bodies to the Board of Directors, in an effort to strengthen the transparency and objectivity of the Board of Directors. A majority of the committees' members are outside officers, and the presiding officers of each are outside directors.
In fiscal 2018, the Board of Directors' Meeting was held 15 times (including extraordinary meetings), and the attendance rate was 97% or above for internal and outside directors and audit & supervisory board members.

Number of Board of Directors' Meetings, and Directors' and Corporate Auditors' Attendance Rates (Includes Extraordinary Meetings)

April 2014–
March 2015
April 2015–
March 2016
April 2016–
March 2017
April 2017–
March 2018
Number of meetings 18 16 14 15
Directors' attendance rate 98.6% 96.9% 99.4% 99.4%
Outside director's attendance rate 100.0% 96.7% 100.0% 100.0%
Auditors' attendance rate 100.0% 98.4% 100.0% 98.6%
Outside corporate auditors' attendance rate 100.0% 100.0% 100.0% 97.7%

Reason for Appointment of Outside Director

Name Reason for Appointment
Michio Yoneda Mr. Yoneda has expressed useful opinions and given advice in determining important matters of the Company’s management from a position independent of any role in the execution of business activities, based on his abundant management experience and high level of knowledge regarding corporate governance acquired over a career including President & CEO (Member of the Board) of Osaka Securities Exchange Co., Ltd., Director & Representative Executive Officer and Group COO of Japan Exchange Group, Inc., and other important positions. In consideration of these points, the Company believes he would be able to fully perform his roles as an Outside Director in supervising the execution of duties of the Company and increasing its enterprise value.
Yoshiaki Tamura
(newly appointed)
Mr. Tamura served as Representative Director and Executive Vice President, Asahi Glass Co., Ltd. (currently, AGC Inc.), GM of Technology General Division, Deputy Leader of AGC Group Improvement Activities and President of Glass Company and other important positions. He has extensive experience in corporate management and deep insights into manufacturing. In consideration of these points, the Company believes he would be able to fully perform his roles as an Outside Director in supervising the execution of duties of the Company and increasing its enterprise value.
Jenifer Rogers
(newly appointed)
Ms. Rogers has extensive international experience and deep insights into legal affairs, compliance, and risk management, having served as an in-house lawyer and counsel at international financial institutions for many years. In consideration of these points, the Company believes she would be able to fully perform her roles as an Outside Director in supervising the execution of duties of the Company and increasing its enterprise value.

Board of Auditors

The Audit & Supervisory Board comprises five audit & supervisory board members (authorized number: five). To ensure the reliability of financial reports, the Company appoints internal audit & supervisory board members who have considerable knowledge of finance and accounting. Furthermore, to ensure the objectivity and neutrality of the supervisory function, the Company appoints three outside audit & supervisory board members (independent officers, as required by the Tokyo Stock Exchange) with no business relationships or other vested interests in the Company. The internal and outside audit & supervisory board members share information closely and work to enhance the supervisory function.
In fiscal 2018, the Audit & Supervisory Boards Meeting was held 17 times, and the attendance rate was 100% for internal and outside audit & supervisory board members.

Number of Board of Auditors' Meetings, and Corporate Auditors' Attendance Rate

April 2014–
March 2015
April 2015–
March 2016
April 2016–
March 2017
April 2017–
March 2018
Number of meetings 19 17 17 17
Corporate auditors' attendance rate 100.0% 100.0% 100.0% 100.0%
Outside corporate auditors' attendance rate 100.0% 100.0% 100.0% 100.0%

Reason for Appointment of Outside Corporate Auditors

Name Reason for Appointment
Takashi Torizumi The Company has judged that Mr. Torizumi would be able to fully perform his roles as outside corporate auditor from an independent position, based on his abundant experience as a corporate manager.
Satoru Kohdera
(newly appointed)
The Company has judged that Mr. Kohdera would be able to fully perform his roles as outside corporate auditor from an independent position, based on his abundant experience as an attorney and high level of knowledge of legal affairs.
Atsuko Ishii The Company has judged that Ms. Ishii would be able to fully perform her roles as outside corporate auditor from an independent position, based on her abundant experience and high level of knowledge of labor administration.

Key Internal Committees Other Than Board of Directors and Board of Auditors

Name Activities
Nomination Advisory Committee
  • An advisory body on nomination of directors and corporate auditors
Compensation Advisory Committee
  • An advisory body on compensation for directors
Management Committee
  • Includes executive directors and internal company presidents
  • Assists the president as an advisory body with regard to Group management
  • Discusses important management policy, management strategy, management issues, and other matters from a Group perspective
Executive Officers Committee
  • Comprises all executive offi cers appointed by the Board of Directors
  • Conveys business execution policy based on management policy and management plans determined mainly by the Board of Directors and the Management Committee
  • Venue for communicating necessary and important information regarding business execution and exchanging opinions
Corporate CSR Committee
  • Discusses and decides on basic policy and important matters related to CSR for the Group as a whole and monitors implementation status
Corporate Risk Management Committee
  • Discusses important issues pertaining to risk management for the Group as a whole and monitors implementation status
Major Project Committee
  • Assesses risk and considers appropriate responses before acceptance of major projects
Project Risk Management Committee
  • Regularly follows up on major projects during execution

Kawasaki Group’s Governance Structure (As of June 27, 2018)

Kawasaki's Governance Structure

Audit Status

Internal Audit

The Auditing Department, which is an internal audit division and consists of around fifteen (15) persons, makes efforts to improve the internal control function such as regularly auditing whether our group's execution of general business activities is properly conducted in accordance with laws and internal rules etc. Furthermore, corporate auditors and the Auditing Department exchange information and share information such as each audit results and findings.

Auditor's Audit

Corporate auditors attend board of directors meetings and management meetings, etc. (Outside corporate auditors attend management meetings etc. as needed.) In addition, corporate auditors inspect important documents, meet directors and executive officers, conduct operational audits on the head office and operating division, and investigate the status of business and assets through an investigation on the subsidiaries, etc. Furthermore, by three (3) outside corporate auditors, further objectivity and neutrality of audit function are ensured. In addition, information is shared with full-time corporate auditors and outside corporate auditors, and the audit function is enhanced.

Independent Auditing

With regard to independent auditing, Kawasaki undergoes audits of its financial statements by the independent auditor KPMG AZSA LLC. Corporate auditors and the Board of Auditors receive an outline of the audit plan and a report on important audit items from the independent auditor, and the Board of Auditors explains the Company’s auditing plan to the independent auditor. Corporate auditors and the Board of Auditors periodically receive reports on the results of audits by the independent auditor, and conversely, the independent auditor receives reports on the results of audits by the corporate auditors and the Board of Auditors, who strive to keep lines of communication open with the independent auditor by also exchanging information and opinions. When necessary, corporate auditors take part in the audits performed by the independent auditor, and may also receive reports from the independent auditor concerning audits when appropriate.

Independent Auditor Compensation

(Millions of yen)

Subject of audit Fiscal 2018
Compensation based on
audit certification services
Compensation based
on non-audit services
Kawasaki Heavy Industries Ltd. 185 5
Consolidated subsidiaries 46 2
Total 231 8

Compensation to Corporate Officers

The compensation system for Kawasaki directors and audit & supervisory board members—which is designed to promote sustained improvement in corporate performance and enterprise value and to secure outstanding human resources—ensures a level of compensation in line with the duties of the individual officer. Compensation for directors, excluding outside directors consists of basic compensation, performance-based compensation, and a stock purchase fund. Among these, performance-based compensation is determined by linking corporate performance with the aim of using compensation as an incentive for achieving business goals. The stock purchase fund is distributed in fixed amounts each month for the purpose of sharing value with shareholders and incentivizing directors to enhance medium- to longterm enterprise value, with the entire amount contributed to the officers' stock ownership plan in order to purchase shares of the Company on a continuous basis. Compensation for outside directors is set at a fixed level not tied to corporate performance, from the perspective of professional independence. These types of compensation for directors are determined by the President as delegated by the Board of Directors, after consultation with the Compensation Advisory Committee. The compensation of audit & supervisory board members is set at a fixed level not tied to corporate performance, from the perspective of professional independence. This compensation is determined by the Audit & Supervisory Board.

Amount of Corporate Officers’ Compensation in Fiscal 2018

(Millions of yen)

    Directors 13 people Audit & supervisory bord members 6 people Total 19 people
(Including 6 people from outside)
Total amount of compensation       675 103 778 (60)
Total amount of compensation, etc.
by category (Fiscal 2018)
Basic compensation 473 103 576 (60)
Performance-based compensation 134 - 134 (-)
Stock purchase fund 67 - 67 (-)
Note:
1. The number of officers includes four directors and one corporate auditor who retired at the conclusion of the General Meeting of Shareholders held in June 2017.
2. The maximum amount of compensation for directors is ¥1,200 million per year (as resolved at the 189th Ordinary General Meeting of Shareholders held on June 27, 2012). The maximum amount of compensation for corporate auditors is ¥120 million per year (as resolved at the 194th Ordinary General Meeting of Shareholders held on June 28, 2017).

TOPICS
Efforts to Enhance the Supervisory Function of the Board of Directors

The Company modified the Board of Director and Executive Officer System effective April 1, 2018, in order to further strengthen corporate governance. This change has made it clear that business execution is carried out by executive officers to promote separation from the supervisory function of the Board of Directors.
Furthermore, seeking to strengthen the supervisory function of the Board of Directors with regard to overall management, the Company increased the number of outside directors by one. The Company appoints outside directors who are capable of providing appropriate opinions and advice from an objective perspective, independent of any role in the execution of business activities, based on abundant experience and specialized knowledge in fields different from the Company's business fields, while ensuring diversity of their professional background, nationality, gender, and so forth.
We will continue working to strengthen the supervisory function of the Board of Directors and establish the corporate governance system suitable for the Kawasaki Group.


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