Compliance and Anti-corruption Measures

Compliance

Strict compliance should be at the foundation of all Kawasaki Group business activities, and all Group officers and employees must engage in business with a proper awareness of compliance. The Group engages in diverse business, and as a result, the compliance required in each business division varies. For this reason, proper conduct is required at all times depending on the circumstances. In order to make proper decisions in a timely manner, it is optimal that each employee is able to take it for granted that he or she will unconsciously engage in proper conduct within his or her area of responsibility, that is, that compliance on a deeper level is achieved. To achieve compliance on a deeper level, the Kawasaki Group will continue to undertake a variety of initiatives in the future. Through these initiatives, each employee will become aware of the fundamentals of compliance, which is not merely following laws, regulations, and rules, but also always acting correctly to gain the trust of society, and we will promote the accumulation and deepening of actions based on a constant awareness of the fundamentals of compliance in order to make the Kawasaki Group a sustainable group that is trusted by society even more and where every employee can work with pride.

In July 2017, we established the Kawasaki Group Code of Conduct as a set of ethical standards to guide the decision making of Kawasaki Group officers and employees. The code was amended in January 2019, and a second version was established in April.
In the statement by the president at the beginning of the Code, he implores Group officers and employees to work as one and uphold the Code, stating, "The Kawasaki Group Code of Conduct shall serve to help all Group officers and employees in each country and region come together in unity, with a deep awareness that the Code will serve as the foundation for ensuring the highest standards of conduct in our business activities at all times and that we shall maintain steadfast compliance, engage in dialogue with stakeholders, and adhere to the Code in making decisions and taking action, even in difficult circumstances."

Kawasaki Group officers and employees

The Company-wide Compliance Committee is chaired by the Kawasaki president. The committee meets at least twice a year (two meetings in fiscal 2021). Its functions are to discuss and determine measures to ensure that the Kawasaki Group fulfills its corporate social responsibilities and maintains thorough compliance, and to monitor compliance efforts. To ensure that the objectives of the Company-wide Compliance Committee extend to all corporate structures, Business Segment Compliance Committee meetings are held at the Head Office and internal companies at least twice a year to promote compliance throughout the Group.
In addition, the Kawasaki Group formulates annual Group-wide compliance activity plans with various measures that, following the approval of the Company-wide Compliance Committee, it carries out. Furthermore, the internal companies each formulate annual activity themes that they use to carry out compliance-related initiatives.

Chair of Company-wide Compliance Committee: Yasuhiko Hashimoto, Representative Director, President and Chief Executive Officer

To ensure rigorous compliance throughout the Kawasaki Group, we maintain a Company-wide Compliance Committee, comprising the Directors (excluding the Audit & Supervisory Committee Members and Outside Directors), the internal company presidents, the executive officer in charge of compliance, the general managers of the Head Office divisions, and others, with the President serving as presiding officer. The Company-wide Compliance Committee discusses and decides measures to ensure thorough compliance and monitors the achievement of targets and compliance with such policy.
For the sake of auditing business execution and to reflect a broad range of external insights and opinions in the committee’s decisions, Directors who serve as Audit & Supervisory Committee Members as well as the remaining Outside Directors also attend the committee’s meetings.
Corporate regulations provide that the committee shall meet at least twice annually. In fiscal 2021, the committee met twice.

The state of compliance is audited by Audit & Supervisory Committee Members and independent auditors.

To raise awareness of compliance, we conducted e-learning-based training for all Kawasaki Group employees in Japan. In fiscal 2021, 17,393 employees underwent training (73.1% of IT users). At overseas subsidiaries, we suspended group activities because of restrictions imposed on business activities at individual sites due to the COVID-19 pandemic, but we made preparations to conduct e-learning and administer the Compliance Awareness Survey using IT infrastructure, which is not affected by the restrictions on activities at business sites.

The president issued the President’s Statement of Compliance as an internal and external expression of the entire Kawasaki Group’s commitment to compliance. The declaration is included in the initial part of the Kawasaki Group Code of Conduct.

Each officer and managerial staff member of the Kawasaki Group, at his or her appointment, is required to prepare and submit to the Company a completely handwritten Declaration to Observe Laws and Regulations to reconfirm the awareness that he or she will never commit a violation and will cause other employees to ensure compliance. This Declaration includes the representation that they understand that they may be subject to a penalty or punishment if they commit a violation.

The Compliance Guidebook provides information that is necessary and useful for ensuring thorough compliance within the Company in an easy-to-understand way. The guidebook is distributed to officers and employees at Kawasaki Group companies in Japan. The Compliance Guidebook outlines the Group’s compliance system and activities as well as the Compliance Reporting and Consultation System, which serves as the Group’s internal whistle-blower system. The guidebook uses illustrations to present easy-to-understand examples of important compliance-related matters.
The guidebook also contains an index of the corresponding sections of the Kawasaki Group Code of Conduct and serves as a text for increasing compliance awareness. The Compliance Guidebook is used in internal compliance training and educational activities. Since the first edition was issued in 2003, its content has been constantly updated in light of evolving compliance requirements around the world. The current edition is the sixth (issued in April 2021).

October of each year is designated Compliance Month with the aim of reaffirming and enhancing awareness of compliance, and various compliance-related activities are conducted. In fiscal 2021, the President issued a message and Kawasaki, the Group newsletter, included articles intended to raise compliance awareness as well as an overview of the Compliance Reporting and Consultation System (whistle-blowing system). In addition, announcements were made encouraging utilization of the Compliance Reporting and Consultation System, compliance training was conducted via e-learning, and other activities were conducted.

The Kawasaki Group implements periodic employee awareness surveys to monitor internal compliance violation risks. Beginning in fiscal 2020, questions about compliance awareness have been made part of the employee engagement survey and the survey frequency has been increased each year. We analyze changes and trends in employee awareness based on multiple factors including by company and position and reflect the results in the development of necessary compliance measures and other initiatives.

1. Scope: The Kawasaki Group (domestic)

2. Scope: Kawasaki Heavy Industries, Ltd. (non-consolidated)

3. Scope: Kawasaki and main domestic subsidiaries

We have established the Compliance Reporting and Consultation System, with an outside lawyer acting as the contact, so that executives and employees of the Company and domestic subsidiaries can report or seek consultation regarding suspected violations of compliance practices relating to their operations. The system has been easier to use since October 2019, when the capability to accept anonymous reports and consultations was added with the aim of fostering a corporate culture and mechanisms that effectively self-correct.
Under the Compliance Reporting and Consultation System, employees report to or consult with an outside lawyer directly. For anonymous reports, responses are determined based solely on the content of the reports themselves. The lawyer then investigates to determine whether or not there is in fact a compliance problem, and, if a problem is found, advises the Company on how to remedy it. During the investigation of reports or consultations not made anonymously, the name of the employee who used the system is not disclosed to the Company without his or her permission.
The lawyer contacts the person who made the report or sought consultation directly to explain the results of the investigation. For anonymous reports, summaries of the reported issues and progress in addressing them are posted on the Company intranet.
The Group works to ensure that employees know how to use this system by regularly providing information about it in the Company intranet, leaflet inserts in Kawasaki Group Code of Conduct pamphlets, the Compliance Guidebook, the Kawasaki Group newsletter, and other publications.
Also, to enhance the efficacy and reliability of this system, we revise it as needed, working to make it easier for employees to use.
The number of reports made to the Compliance Reporting and Consultation System as well as the details of specific consultation matters are reported to the Company-wide Compliance Committee, ensuring that the system is operating effectively.

Compliance Reporting and Consultation System Flow Chart (domestic)

* The numbers of cases listed above refer to reports and consultations received, not those identified as actual compliance violations.

Since 2020, we introduced a Global Internal Reporting System for some overseas subsidiaries.
Under the Global Internal Reporting System, external law firms and internal administrative offices function jointly as contact points, accepting both anonymous and non-anonymous reports.

When reports are delivered in writing, by email or by other means to persons or offices other than the Compliance Reporting and Consultation System contact points, if a compliance violation is suspected, an investigation is conducted and corrective measures are taken as needed.

Frequency of Serious Compliance Violations per Year Over the most recent five years, there have been no cases of corporate misconduct that were subject to administrative disciplinary action or sanction.

• Target: Zero serious compliance violations

* COP (coefficient of performance): Indicates the efficiency of absorption refrigerators. Figure obtained by dividing the cooling capacity by the sum total of the heat source calorie consumption and power consumption.

Anti-Corruption

The Kawasaki Group's business entails numerous opportunities for contact with government agencies and public officials, creating a high likelihood of exposure to corruption risk. To prevent corruption, the Kawasaki Group conducts business activities in line with related policies and provides education for employees as part of the operation of compliance systems.

The Kawasaki Group has set up and operates the following framework to prevent bribery.

1. The Kawasaki Group Code of Conduct To ensure that each individual Kawasaki Group officer and employee acts correctly to prevent bribery, the Kawasaki Group Code of Conduct specifies that Kawasaki Group does not provide any inappropriate entertainment or gifts or otherwise tolerate bribery and lays out how individuals should behave.
2. The Kawasaki Group Policy on Anti-Bribery To gain the understanding of stakeholders regarding the Kawasaki Group’s anti-bribery initiatives, the Group publicly provides information on its anti-bribery systems and measures.
3. Bribery Prevention Regulations We established the Bribery Prevention Regulations, the basic policy of which states that the Kawasaki Group will uphold laws in the execution of business activities and that bribes to public officials in Japan or overseas will not be tolerated.

We also established the following internal regulations in addition to the Bribery Prevention Regulations.

• Rules on Entertainment and Gifts to Public Officials in Japan
  In line with Japan’s laws and regulations concerning public official ethics (including the National Public Service Ethics Act and the National Public Service Ethics Code), these rules establish application procedures, approval guidelines, and record keeping requirements for entertainment and gifts.
• Rules on Preventing Bribery of Foreign Public Officials
  These rules establish application procedures for entertainment, gifts and expenses; approval guidelines; record keeping requirements; and check list items for the selection and continued use of intermediaries, such as sales agents and consultants.

We provide overseas bribery prevention training for employees involved in overseas businesses every year. In fiscal 2021, 1,537 employees took part in e-learning for employees in Japan, and 300 took part in e-learning for employees stationed overseas. We conduct surveys of participants in e-learning to confirm their understanding of the material. Furthermore, compliance training on bribery prevention is included in training programs for employees in charge of overseas businesses.

Over the most recent five years, there have been no cases of bribery that were subject to administrative disciplinary action or sanction.

* In reporting fiscal 2021 activities, we changed the method of calculation. Accordingly, we have altered past performance figures.

* In reporting fiscal 2021 activities, we changed the method of calculation. Accordingly, we have altered past performance figures.

Compliance with Antimonopoly (Competition) Laws

The Kawasaki Group is focusing efforts on compliance with the Antimonopoly Act. Since 2006, the Board of Directors has adopted a resolution to comply with the Antimonopoly Act and strive to maintain and improve the Company’s enterprise value in society at the first Board of Directors meeting held immediately following each year’s general meeting of shareholders. The Kawasaki Group Code of Conduct also states that the Group will not obstruct free and fair competition and will work to maintain a healthy market.

Kawasaki Group officers and employees

The Company publishes a variety of guidebooks on the Antimonopoly Act for employees to ensure a broader awareness of situations at the Kawasaki Group that could become problematic and conducts regular training on the Antimonopoly Act. In fiscal 2021, we conducted training on the subject matter of the above guidebooks via streaming video, and 2,286 employees underwent training.

Since 2010, there have been no serious violations that were subject to administrative disciplinary action by the Fair Trade Commission. Since 2006, there have been no serious violations that were subject to criminal penalties.

Other Compliance Risks

The Kawasaki Group has prohibited insider trading, and the Kawasaki Group Code of Conduct contains provisions on the prohibition of insider trading. To prevent insider trading, Kawasaki has established corporate regulations titled the Insider Trading Control Rules that it uses to implement and regulate related actions. To further ensure the prevention of insider trading, the Company established a new system in fiscal 2013 that obligates Company officers and employees who intend to trade Company shares to notify the Company by a prescribed date (the Treasury Stock Trading Prior Notification System).

Since 1989, when the amended Securities and Exchange Act, which regulates insider trading, was enacted, there have been no serious violations by the Kawasaki Group or Group employees that were subject to penalties or administrative monetary penalties.

The Kawasaki Group resolutely rejects inappropriate requests from antisocial forces and undertakes various measures to break off any relationship with such forces.
Specifically, in addition to what is described in the Kawasaki Group Code of Conduct and the Compliance Guidebook, we publish the Manual of Responses to Antisocial Forces and strive to promote awareness and full compliance with established internal practices and systems as well as with prescribed procedures of response. In addition, we have established a unit at the Head Office Compliance Department to supervise responses associated with the elimination of antisocial forces. This unit works closely with the police and other external specialist organizations to establish an internal structure to systematically deal with inappropriate requests from antisocial forces.

All inappropriate requests and requests for meeting appointments from antisocial forces and other similar organizations have been denied and eliminated, and there have been no instances of violations since 1997.

There is a tendency for compliance risk to be higher at small-scale operating sites, such as sales offices and satellite branches. These organizations may be ill-equipped to perform sufficient checks or may have particular individuals within the organization who have become fixed to a particular position due to difficulties in implementing personnel rotation. The Company has carried out reviews, improved the manuals for checking procedures and enhanced audits in order to reduce risks, particularly as they relate to the handling of money.

Over the five years in the immediate past, there have been no cases of corporate misconduct that were subject to administrative disciplinary action or sanction.