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 we are required to comply with various laws and regulations in each business area and to act properly at all times according to 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 various 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, and we also issued an explanatory pamphlet concerning the code at that time. The code was amended in January 2019, and a second version of the explanatory pamphlet was produced in April 2019. The code was established following consultations with the Management Committee and approval by the Board of Directors, and the same procedure is followed when making revisions as needed.
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 were held in fiscal 2023). Its functions are to discuss and determine measures to ensure strict compliance within the Kawasaki Group and to monitor the status of achievement and compliance. All members of the Board of Directors attend meetings of the Company-wide Compliance Committee and supervise compliance-related matters. 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 business segments 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 business segments each formulate annual activity themes that they use to carry out compliance-related initiatives. The main initiatives carried out in fiscal 2023 in accordance with the company-wide action plan are listed below.

Chair of Company-wide Compliance Committee: Yasuhiko Hashimoto, Representative Director, President and Chief Executive Officer
Executive officer in charge of compliance: Takeshi Kaneko, Managing 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, and supervision of compliance-related matters is performed by all members of the Board of Directors. Corporate regulations provide that the committee shall meet at least twice annually. In fiscal 2023, the committee met twice.

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

To raise awareness of compliance, we conducted compliance training including e-learning-based training on the Kawasaki Group Code of Conduct.
In fiscal 2023, we implemented measures involving reading compliance materials together at each worksite for all Kawasaki Group employees in Japan, and 29,422 employees participated. Also, at overseas subsidiaries, we conducted e-learning on the Kawasaki Group Code of Conduct in nine languages from October to December 2022, and 3,447 employees underwent training.

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 seventh (issued in October 2023).

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 2023, the President issued a message, and Kawasaki, the Group newsletter, included articles, such as explanations of examples of compliance violations, 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 through measures that involve reading compliance materials together at each worksite 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 is conducted each year. We analyze changes and trends in employee awareness based on multiple factors including by business segment and position and reflect the results in the development of necessary compliance measures and other initiatives. In fiscal 2022, we also conducted awareness surveys on compliance for employees at overseas subsidiaries. In addition to the above survey, in October 2022, we conducted compliance awareness surveys with a focus on quality and inspection related issues at Kawasaki Group companies in Japan in response to incidents of improper inspections at Kawasaki Thermal Engineering Co., Ltd. An analysis of the results was explained to employees in the internal bulletin in 2023.

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

*2 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 accepts anonymous reports and consultations with the objective of fostering a corporate culture and creating mechanisms that effectively self-correct by making the system more user friendly.
Under the Compliance Reporting and Consultation System, an outside lawyer responds directly to inquiries from employees reporting or consulting by email or other means. 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. If a compliance violation is discovered as a result of investigation, company rules provide for the imposition of strict disciplinary measures on the offending employee in accordance with the employment regulations or other rules. The Group works to ensure that employees know how to use this system by regularly providing information about it on the Company intranet as well as through 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. In addition, 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)

In fiscal 2023, a total of 76 reports were submitted via the Compliance Reporting and Consultation System.
Of these reports, 18 of the matters were determined to be compliance violations, and corrective measures were required concerning 18 reports.There were no major violations.

Since 2020, we have been introducing the Global Internal Reporting System at overseas subsidiaries, and introduction at more than 90% of overseas subsidiaries was completed through fiscal 2023. 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.

Global Internal Reporting System Organizational Chart

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. Also, Kawasaki Heavy Industries, Kawasaki Railcar Manufacturing, and Kawasaki Motors have established internal and external harassment consultation points for employees.

• Target: Zero serious compliance violations

See below for information on the details of the serious violation that occurred in fiscal 2021 and the measures taken to prevent reoccurrence.

Anti-Corruption

The Kawasaki Group's business entails numerous opportunities for contact with government agencies and public officials, and we are aware that there is a high likelihood of exposure to corruption risk. Accordingly, the Group takes action through its business activities and employee training under a compliance system in accordance with various policies to prevent all forms of corruption including bribery of domestic and foreign public officials, bribery of business partners, embezzlement, and money laundering. The Group has been a signatory to the United Nations Global Compact since 2020, and we strive to promote and raise awareness concerning the Compact’s 10 principles in four areas including anti-corruption.

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 use a risk-based approach that makes reference to the Corruption Perceptions Index from Transparency International to identify high-risk sites, and we take measures including the establishment of anti-bribery rules at Kawasaki Group overseas subsidiaries in Asia and South America. In June 2023, all 35 subject subsidiaries in Asia and South America completed the adoption of rules.

Each year, we conduct bribery prevention training for employees in Japan. In fiscal 2023, we conducted employee training in Japan through e-learning on internal rules intended to prevent bribery. Participants in e-learning take a test 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.

Compliance with the Antimonopoly (Competition) Act

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. In light of the Company’s current governance structures, under which execution and supervisory functions are separate, in fiscal 2024, the Board adopted a resolution to confirm that status of implementation of measures to ensure compliance with the Antimonopoly Act on the business execution side. 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 2022, we conducted e-learning on competition laws in three languages for employees of overseas subsidiaries in Europe and North America from February to March 2023, and 973 employees underwent training. Also, since January 2024, Kawasaki Heavy Industries has conducted training on the Act for all officers and employees of Kawasaki Heavy Industries, Kawasaki Railcar Manufacturing, and Kawasaki Motors who are able to participate online (excluding production workers) with a target participation rate of 100%, and the participation rate target was achieved. Since March 2024, other Group companies have been broadly informed about the training on the Act.

Since 2010, there have been no serious violations that were subject to administrative disciplinary action by the Japan 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 its officers and 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 relating to antisocial forces as well as with prescribed response procedures. 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 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.