Corporate Governance

Basic Views

The Kawasaki Group’s basic stance on corporate governance is to raise enterprise value through effective and sound management while forming solid relationships with all stakeholders, including shareholders, customers, employees, and communities, through highly transparent management practices. Our Group is striving to further strengthen and enhance corporate governance systems as appropriate for its businesses and scale.

Overview of Corporate Governance Systems

Kawasaki is a company with an Audit & Supervisory Committee and has voluntarily established a Nomination Advisory Committee and a Compensation Advisory Committee as advisory bodies to the Board of Directors as a well as a Management Committee, an Executive Officers Committee, and other governance bodies.
　Our main deliberative bodies and their details are as follows.

Board of Directors

The Board of Directors comprises 13 Directors (of whom, five serve as Audit & Supervisory Committee Members), with the addition in June 2023 of one Outside Director who is independent from business execution. As a result, seven of the 13 Directors are Outside Directors (of whom three serve as Audit & Supervisory Committee Members), comprising a majority of the Board. In addition, three of the Directors are women, and two are foreign nationals, providing a balance of knowledge, experience, and skills and enhancing diversity. By avoiding having Directors serve concurrently as officers responsible for specific businesses (the internal company presidents, etc.), the Company seeks to enhance the separation of management oversight and business execution and thereby further reinforce the Board of Director’s oversight functions. Chairman of the Board serves as presiding officer pursuant to a resolution of the Board.
　In addition to deliberating on individual proposals submitted in accordance with the decision-making rules, the Board of Directors also discusses topics set based on the results of evaluations of the effectiveness of the Board. In the fiscal year 2022, the Board examined business reforms, policies to reinforce compliance, succession plans, ensuring the diversity of the Board, DX strategies, and other issues. We also created a system whereby the Board discusses fundamental policies on key management issues, such as sustainability, compliance, risk management, and quality control, and can request reports on the status of these issues from the business execution side.
　In addition to the above, the Nomination Advisory Committee and the Compensation Advisory Committee have been established for the purpose of improving the transparency and objectivity of its deliberations. The Nomination Advisory Committee deliberates on the policies and standards regarding the appointment and dismissal of Directors and the appropriateness of such, and the Compensation Advisory Committee deliberates on the policies and systems regarding the compensation of Directors and the appropriateness of the individual compensation, and reports or advises the Board of Directors, respectively.

Audit & Supervisory Committee

The Audit & Supervisory Committee comprises five Directors, including three Outside Directors. To secure effective oversight, the two Internal Directors have been appointed as full-time Audit & Supervisory Committee Members. To ensure the reliability of financial reports, at least one person with sufficient knowledge of finance and accounting is appointed to the Committee.

Business Execution Framework

Kawasaki has adopted an executive officer system in order to facilitate response to rapid changes in the business environment. To accelerate decision making, a great deal of authority over business execution decisions is delegated to the executive officers, who are appointed by the Board of Directors.
　In addition, the Company has established a Management Committee consisting of Representative Directors and presidents of internal companies, etc., as an advisory body to the President, to deliberate on important matters related to business execution, thereby creating a system that enables more appropriate and efficient decision making and business execution.
　The Executive Officers Committee, chaired by the President and consisting of all executive officers, has been established. In addition to issuing business execution policies based on decisions made by the Board of Directors, the Committee also exchanges opinions on management issues in an effort to unify decision making in Group management.

Corporate Governance System Diagram (as of July 4, 2023)

Corporate Officers (As of June 28, 2023)

* Years of service figures in parentheses for Audit & Supervisory Committee Members include years of service as Audit & Supervisory Board Members when Kawasaki was a company with an Audit & Supervisory Board. Note that Kawasaki transitioned from a company with an Audit & Supervisory Board to a company with an Audit & Supervisory Committee on June 25, 2020.

The Chairman of the Board of Directors serves as the presiding officer of the Board of Directors.

Corporate Governance Functions (organizations, committees, etc.)

Director Appointment

Candidates for Director are nominated by the Board of Directors in accordance with its established “Qualifications Expected of Directors.” As the Company has various business segments with different business activities, the Board of Directors appoints Internal Directors with broad experience as managers of each business and head office function, and external directors with rich experience in corporate management, legal affairs, and public administration, respectively. As a result, the Company has secured a diverse Board of Directors, taken on the whole, with the needed balance of knowledge, experience, and ability, as well as gender, race, nationality, and other attributes, as summarized in the following table. The items listed in the skills matrix are based on the definition of the areas of supervision necessary to realize Vision 2030 as “vision, strategic thinking, and governance to increase enterprise value,” “business structure transformation,” and “growth initiatives related to infrastructure development.” To realize Vision 2030, the following areas* designate expectation and experience required of each director.

* An area in which the Board of Directors is expected to use its knowledge and experience to lead discussions.

Qualifications Expected of Directors

1. Possess in-depth understanding and support for the Kawasaki Group’s management philosophy and vision.
2. Be able to make positive contributions towards sustainable growth and the enhancement of enterprise value over the medium and long term.
3. Maintain a Company-wide perspective and bring the wealth and breadth of experience, insight and expertise to do so.
4. Be able to supervise the management and execution of business operations from an independent and objective position as a member of the Board of Directors.
5. Be able to exercise one’s authority in an active and positive manner, and appropriately voice opinions at Board of Directors meetings or to management.

Note: To ensure the effectiveness of audits, Directors serving as Audit & Supervisory Committee Members must be familiar with the Company’s business or have deep insight and expertise in corporate management, legal affairs, finance and accounting, government and other fields. At least one Director serving as an Audit & Supervisory Committee Member must have sufficient knowledge of finance and accounting.

If none of the following items apply, the Company judges that an Outside Director is sufficiently independent.

1. In the event that a company (including an important subsidiary as defined by the Company) in which the Outside Director is currently employed or has been employed in the past 10 years as an executive director, executive officer, manager or other important employee (hereinafter referred to as the “originating company”) conducts business with the Kawasaki Group, the average transaction amount for the past five fiscal years exceeds 2% of the average net sales of the Group and the originating company for the past five fiscal years.
2. The average amount of compensation (excluding compensation as an officer of the Company) received by such Outside Directors directly from our Group as a legal, accounting or tax specialist or consultant (or a corporation if the Outside Director has legal personality) for the past five fiscal years exceeds ¥10 million.
3. The average amount of donations, etc. from the Group to the non-profit organization for which the Outside Director serves as executive officer for the past five fiscal years exceeds ¥10 million and exceeds 2% of the organization's total revenue or ordinary income/expenses.
4. The company from which the Outside Director hails is a major shareholder holding 10% or more of the Company’s total outstanding shares.
5. A relative within the second degree of kinship of the Outside Director is a person who meets the conditions set forth in the preceding four items or is an executive director, executive officer, manager, or other important employee of our Group.

The Effectiveness of the Board of Directors

The Board of Directors strives to ensure that its members, including independent Outside Directors, engage in free, vigorous discussion based on their insights and experience and reach appropriate management decisions. As part of these efforts, since fiscal 2015, the Board of Directors annually evaluates and analyzes the effectiveness of its operations.

The evaluation was conducted via anonymous questionnaire to all directors with the advice and assistance of external experts. The specific evaluation procedure is as follows.

1. Confirm the status of initiatives to address issues identified via the previous evaluation of the Board of Directors and determine evaluation methods to be used, key items to be surveyed and other matters pertaining to the upcoming evaluation
2. Conduct a survey of all of the members of the Board of Directors
3. Compile and analyze the survey results for discussion at Board of Directors meetings
4. Determine issues to be addressed at Board of Directors meetings and policies for countermeasures based on findings from analysis and results of the Board of Directors’ discussion

The survey questions (main items) are as follows, with a 5-point scale and free writing section. Also, these questions take into account the changes made in the revision of the Corporate Governance Code while maintaining continuity with previous surveys.

• Survey Question Items

1. (1)Optimal status of the Board of Directors
2. (2)Composition of the Board of Directors
3. (3)Operation of the Board of Directors
4. (4)Discussions of the Board of Directors
5. (5)Monitoring function of the Board of Directors
6. (6)Training
7. (7)Interactions with shareholders (investors)
8. (8)Actions by the respondent
9. (9)Audit & Supervisory Committee
10. (10)Summary

The analysis of survey results found that the Board of Directors’ operations were evaluated highly overall, as was the case in the previous year, and the weighted average values for all questions (excluding the free writing section) were higher than the previous year.
　The item with the highest score was that relating to “Enhancing the content of the Board of Directors’ discussions regarding medium- to long-term management policies,” and many respondents highly evaluated the structure that enables regular deliberation of important issues by the Board. Also, the item with the greatest score improvement was that relating to “Strengthening risk management structures.” This was the result of high evaluations of measures to improve systems for reporting to the Board of Directors.
　In addition, among the items raised as issues for the Board in the previous fiscal year, “Committing to the fulfillment of the requirements for Director candidates” and “Formalizing leadership succession plans” continued to receive high scores. It is believed that this is the result of steady progress on these firmly establishing processes that were newly introduced.
　On the other hand, the item relating to “Strengthening group-wide internal control systems” received the lowest score. As a result, it is desirable that the Company reinforce systems that can oversee and control compliance issues and scandals for the entire group including overseas subsidiaries (for details of specific measures, referred to “Measures to Address Prior Issues”).

In light of these results, we will continue to make efforts for improvement.

Please refer to “Initiatives to Further Improve Effectiveness” for details.
　As a result of discussions at the Board of Directors meeting based on the results of the above analysis and other factors, the operations of the Board of Directors have been deemed effective.

The status of initiatives undertaken to address the five issues raised based on the results of last year’s survey is as follows.

1. Committing to the fulfillment of the requirements for Director candidates
   We elected Directors for the next term in accordance with our policy of enhancing human resources in terms of both diversity of attributes, such as gender, race, and nationality (demographic diversity) and diversity of perspectives and ways of thinking (cognitive diversity). By preparing a skills matrix, a method of selecting human resources that balances business strategies and the Board of Directors is taking root, and we will continue our efforts to recruit human resources appropriate for conditions.
2. Firmly establishing leadership succession plans
   We are creating a system by making repeated improvements to the human resource hiring process for selecting the President, Vice President, company presidents, and executive officers and report on the progress to the Board of Directors.
3. Strengthening internal control systems and risk management structures
   With regard to confirmation of the status of overseas subsidiaries, which was a concern with the internal control system, we are moving forward with the introduction of hybrid operation of remote audit methods and on-site audits for business audits. Also, the President has taken responsibility and each internal company president as well as the Presidents of Kawasaki Railcar Manufacturing and Kawasaki Motors serve as deputies, promoting group-wide quality control and compliance enhancement. Issues identified through monitoring are reported to the Board of Directors as appropriate, and the Board deliberates on measures to prevent reoccurrence.
   　To strengthen risk management structures, we created a system for regular risk monitoring reports to the Board of Directors, and that system has taken root. Also, we established and put into operation a system that enables immediate reporting of emergency situations to Directors in accordance with established reporting routes and reporting criteria.
4. Securing diversity among core human resources
   In accordance with the policy of hiring diverse human resources, including women, foreign nationals, and mid-career personnel with varied work histories in excess of 20% of leaders and professionals who are involved in management on the general manager level and higher by 2030, in fiscal 2022 we conducted mid-career hiring in priority fields, such as the hydrogen business, based on securing human resources in line with our business strategies. We also established a system for actively supporting the empowerment of women by setting a quota for women in executive training with the objective of developing core female human resources internally.
5. Enhancing the content of the Board of Directors’ discussions regarding medium- to long-term management policies
   In the previous fiscal year, we raised and discussed reinforcing compliance, leadership succession plan, the diversity of the Board of Directors, DX strategies, reinforcing external affairs, business reforms, and financial strategies for raising corporate value as important issues.

Based on the results of this evaluation and the discussions at the Board of Directors meeting, the main issues to be addressed are as follows. We will continue our efforts to further improve the effectiveness of the Board of Directors.

1. Firmly establishing leadership succession plans
   The details of initiatives to be undertaken in the future are as follows.
   • We will continue to firmly establish succession plan by developing the human resource recruiting system currently being implemented and establishing stable operations.
   • We will promote the systemization of training measures for future successor candidates and raise the effectiveness of training and assessments.
   • We will take action to expand the competencies (behavioral characteristics) needed for management to all officers by thoroughly informing them.
   • We will reinforce systems and operations by regularly creating opportunities for information sharing and discussion with members of the Board of Directors.
2. Securing diversity among core human resources
   We will investigate mechanisms for developing diverse human resources through succession plans, discuss specific action plans in the Board of Directors, and take action to ensure diversity suited to the Company’s management status of business characteristics.
3. Strengthening group-wide internal control systems within quality control
   With the objective of reinforcing governance further, this fiscal year we will again position quality as an important management issue, review business processes, foster a quality-first organizational culture, create a system for reporting to the Board of Directors, and reinforce monitoring of internal control system development and operating evaluation results for the entire Group, including subsidiaries.
4. Enhancing the content of the Board of Directors’ discussion regarding medium- to long-term management policies
   This fiscal year, we will continue to select themes in line with important issues for achieving the Group Vision 2030, conduct deliberations in the Board of Directors, implement set policies on the executive side, and take further measures that will lead to specific action.
   Priority Themes That We Plan to Investigate This Fiscal Year
   Review of the portfolio, enhancement of human capital, diversity, securing diversity among core human resources, human resource development policies, development of the internal environment, implementation of DX, intellectual property strategies, etc.

Audits

With regard to independent auditing, Kawasaki undergoes audits of its financial statements by the independent auditor KPMG AZSA LLC. The Audit & Supervisory Committee receives an outline of the audit plan and a report on important audit items from the independent auditor, and the Audit & Supervisory Committee explains its auditing plan to the independent auditor. The Audit & Supervisory Committee periodically receives reports on the results of audits by the independent auditor and, conversely, the independent auditor receives reports on the results of audits by Audit & Supervisory Committee, which strives to keep lines of communication open with the independent auditor by also exchanging information and opinions. When necessary, Audit & Supervisory Committee Members take part in the audits performed by the independent auditor, and may also receive reports from the independent auditor concerning audits when appropriate.

Director Compensation

The compensation system for Directors (excluding Audit & Supervisory Committee Members and Outside Directors) is based on the following basic policy with the aim of achieving the Group Vision 2030, “Trustworthy Solutions for the Future,” established in November 2020.

Placing stronger emphasis on contribution to the Company’s goals, the revised compensation system is designed to reward each recipient based on their responsibilities and accomplishments. To this end, it not only provides short-term incentives but also rewards Directors for their contributions to medium- to long-term improvement in corporate value. In this way, we aim to promote the sharing of value between Directors and stakeholders, including shareholders.

Compensation for Directors consists of basic compensation, short-term incentives, and long-term incentives. Basic compensation and short-term incentives are paid in cash. Long-term incentives are paid in the form of performance-based stock compensation to promote the sharing of benefits and risks between the Directors and shareholders in addition to more strongly incentivizing medium- to long-term contribution to corporate value.
　For long-term incentives, points granted may be revoked in whole or in part by resolution of the Board of Directors, in given circumstances such as when an eligible Director is dismissed or resigns due to damage caused to the Company.
　These three components of Director compensation account for approximately 50%, 30%, and 20%, respectively, of the total, assuming that the Group's consolidated operating results in the preceding fiscal year reached target levels and that each Director’s individual performance targets for said fiscal year are fully met.

Compensation levels are set appropriately, taking into consideration conditions at other companies and officer compensation survey data from an external specialized organization. Compensation levels for each position are generally as indicated below, with compensation for the Director, President, and Chief Executive set at 100.

Chairman of the Board: 87
Director, President, and Chief Executive: 100
Director, Senior Corporate Executive Officer: 65
Director, Managing Executive Officer: 44

* In the case where the Group’s consolidated operating performance in the preceding fiscal year reached target levels and each Director’s degree of achievement of targets set for the preceding fiscal year is 100%.

(i) Payment Ratio Based on Profit Attributable to Owners of Parent

* Considering that current WACC is in the 4% to 5% range, the targets for profit attributable to owners of parent have been set at ¥45 billion, the level that will enable the Group to achieve after-tax ROIC commensurate with the WACC, and ¥70 billion, the level that will result in after-tax ROIC that exceeds the WACC by approximately 3%.

(ii) Process for Determining Level of Achievement of Individual Performance Targets

Setting of Targets

Each Director sets their own targets in terms of addressing short-, medium- and long-term issues, including those associated with business units and operations under their supervision and Company-wide issues, with the degree to which these are achieved reflected in short-term and long-term incentives. These include targets pertaining to important financial indicators as well as targets associated with initiatives aimed at realizing the United Nations Sustainable Development Goals (SDGs), efforts to improve employee engagement, and other aspects of non-financial performance. Targets for the short- and medium-term issues are as described below, and actions and achievement levels for respective targets to be implemented by each Director toward their realization are established.

• Targets for short-term issues: Targets to be achieved by the end of the fiscal year
• Targets for medium- to long-term issues: Targets to be achieved in light of the Group Vision 2030

Methods for Assessing the Level of Target Achievement

The targets set by Directors are assessed at the end of each fiscal year, and the degree of achievement is reflected in compensation. The assessment of each Director is determined as described below.

• President: All Outside Directors who serve as members of the Compensation Advisory Committee conduct individual, face-to-face interviews with the President and make a determination through deliberations among those Outside Directors.
• Senior Corporate Executive Officers: Outside Directors who serve as members of the Compensation Advisory Committee conduct individual, face-to-face interviews with the Senior Corporate Executive Officers and make a determination through deliberations among those Outside Directors and the President.
• Other Directors: The President conducts individual, face-to-face interviews with the individual Directors jointly with the Senior Corporate Executive Officers, and formulates an assessment through deliberations with the Senior Corporate Executive Officers, before referring the matters to the Compensation Advisory Committee for a decision.

At a meeting held on May 9, 2024, the Board of Directors adopted a resolution to revise the compensation system for the Company’s Directors (excluding Audit & Supervisory Committee Members and Outside Directors) and executive officers as set forth below.

*1 A share index developed jointly by S&P Dow Jones Indices and RobecoSAM

To ensure their professional independence, compensation for these individuals consists only of fixed compensation and is not linked with performance.

The total maximum amount of compensation for Directors (excluding Audit & Compensation Committee Members) is set by a resolution passed at the General Meeting of Shareholders. Within this limit, the amount of compensation is determined by the resolution of the Board of Directors based on the deliberations of the Compensation Advisory Committee. The presiding officer and a majority of the members of the Compensation Advisory Committee are Outside Directors.
　The Board of Directors may also resolve to entrust the President with the responsibility of determining the amount of compensation for each Director. In such cases, however, the President is required to honor the conclusions reached via the deliberations of the Compensation Advisory Committee and comply with policies regarding the determination of the amounts of Director compensation and methods for calculating such compensation.
　Compensation for Audit & Supervisory Committee Members is determined by deliberations among Directors who serve as Audit & Supervisory Committee Members.