Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

1.

Reforming the Management Structure

Chapter 31) Inauguration of Shigeru Murayama as President

Using Cutting-edge Technology to
Build a Brighter Future
2013–2018

In the year preceding the start of its MTBP 2013 medium-term businessplan, Kawasaki saw orders increase across the board, with both net sales
and profits in fiscal 2013 and 2014 growing substantially year on year.
However, as orders increased, so did interest-bearing debt, while free
cash flow dropped significantly. Kawasaki, then turned to KawasakiROIC Management to save the day by boosting ROIC and corecompetencies at the business unit level. As a result, ROIC jumped to
10.4% in fiscal 2014, and both sales and profits reached record highs infiscal 2015.
In April 2016, Kawasaki launched its MTBP 2016 (FY2016–2018)
amid a slump in the Japanese economy triggered by declining foreign
demand and sluggish consumer spending. The company allocatedmanagement resources primarily to the aerospace system, energy, robot,
and other businesses that were expected to grow significantly in themedium to long term. In 2018, it reorganized three internal companies
operating aerospace and energy-related businesses into two in order togenerate greater synergy through the integration of their technologies. It
also bridged the boundaries of internal companies to pioneer new
product technology.
In the 2010s, companies were feeling the pressure to address energy andenvironmental issues, strengthen governance, promote diversity,transform the way employees worked, and more. The Kawasaki Group
promoted environmental management aimed at achieving a sustainable
society, invited in outside directors, and instituted work style reforms
with the input of all employees.

98

At its extraordinary meeting held on June 13, 2013, the Board of
Directors unanimously passed a resolution to dismiss three directors
from the positions of president, senior executive vice president, andsenior vice president respectively and reappoint them as directors under
the supervision of the president. The Board determined that these three
persons were not qualified to play a central role in the management of
the company. It believed their arbitrary management decisions
neglected the majority view of the Board and were in misalignment
with what the Board considered good corporate governance. During thesame meeting, the Board also passed resolutions to terminate
negotiations regarding a merger with Mitsui Engineering andShipbuilding Co., Ltd. as well as to revamp the management structure.
It was then that Shigeru Murayama, Senior Vice President, wasappointed as the new president.
At a meeting of the Board of Directors held after the annual general
meeting of shareholders on June 26, Murayama, who was re-electedpresident, urged employees to embrace a free and open corporate
culture. He said, "As companies become increasingly globalized, thepublic is making greater demands on them in terms of corporate social
responsibility and compliance. It is vital that we continue to question
what enterprise value means from these perspectives as well, as wemove forward to further enhance our Group's enterprise value."Message from President Murayama in thecompany newsletter

2) Appointing Outside Directors
Kawasaki appointed its first outside director in 2013. Since then it has
worked to bolster the external supervisory function of outside directors,
who have no vested interest in the company, with the aim of enhancing
management transparency and objectivity. Outside directors fromvarious backgrounds attend Board of Directors meetings and provide
opinions and advice on the Kawasaki Group’s business operations froman independent standpoint, thereby strengthening its supervisory
function. They also actively participate in and provide advice on thecompany’s management by chairing the Nomination Advisory
Committee and the Compensation Advisory Committee, which will be
discussed later.
The first person to be appointed outside director in June 2013 was
Yoshihiko Morita. Having served as the president of the Japan Institutefor Overseas Investment, a corporate auditor of Tokyo Gas Co., Ltd.,and an advisor at Sumitomo Mitsui Banking Corporation, Morita
provided input drawn from his wealth of international experience andfinancial expertise.
After that, Kawasaki decided to appoint two outside directors in June
2015, and later increased the number of outside directors to three inJune 2018.

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Chapter 3 Using Cutting-edge Technology to Build a Brighter Future3) Introducing the Position of Fellow
In April 2014, Kawasaki created the position of fellow. It is the highest
professional rank one can achieve. Employees with outstandingknowledge and expertise, mainly in a technical field, who havecontributed to improving the company's business performance andenterprise value are appointed fellows and accorded the same treatment
as an executive officer.
The introduction of this position was designed to boost employee
morale as well as instill a desire to become a fellow that would serve asa shining star for all to follow. It would be the foundation for taking
professionalism to new heights.

4) Strengthening the Energy and Environmental
Engineering Business
Kawasaki’s energy plant business started to see the entire business
unit’s product profit margin tank in fiscal 2012 and go on to suffer arecurring loss in fiscal 2013. In order to improve its performance,
Kawasaki consolidated the business unit and transferred common backoffice operations being conducted at the Tokyo head office to Kobe in amove to strengthen and streamline the organizational functions of thecompany. This major organizational shift was the culmination of aseries of reform initiatives, focusing on four areas (awareness,
operations, organization, and products), that had been ongoing since thespin-off in 2005.
Kawasaki needed to strengthen the energy plant business in order tobuild a stronger foundation in the energy and environmental
engineering sector, which was designated as a focus area in the GroupManagement Model 2018 formulated in October 2014. That meant
integrating it into other Plant & Infrastructure Company divisions in
Kobe.
Out of 369 employees at the Tokyo Head Office, a total of 239,
including 123 senior executives and 116 general employees, weretransferred to the Kobe Works in April 2015.

The shareholder claimed that the defendants were negligent in either
knowingly breaking the law, overlooking any misconduct, or tacitly
condoning a violation of the law. The plaintiff demanded damages in
the amount of 4,628 million yen in total for the loss caused by theinvalidation of the contract, etc. resulting from the criminal
investigation.
Having determined that the defendants were not derelict in their duty as
alleged by the plaintiff, Kawasaki decided to join the defendants in thislawsuit to assist them in clarifying, among other things, that there were
no deficiencies in the company’s management.
The lawsuit was concluded at the Kobe District Court in October 2019,with a ruling against the plaintiff. The plaintiff lost his rights as ashareholder and the lawsuit was dismissed, effectively handing a
victory to the two defendants.

5) Behind the Shareholder Derivative Suit
In September 2012, the Tokyo District Public Prosecutors Officeconducted an investigation into a violation of the Act on Elimination
and Prevention of Involvement in Bid Rigging, etc. and Punishments
for Acts by Employees that Harm Fairness of Bidding, etc. inconnection with the development of a new multi-purpose helicopter(UH-X) for which Kawasaki won a contract from the Ministry of
Defense in March 2012. In the end no charges were filed against
Kawasaki and its associates. However, the company was suspended by
the Ministry of Defense for two months from July 31, 2013 forinappropriate conduct during the bidding process.
In connection to this matter, one of Kawasaki’s shareholders filed ashareholder derivative suit against a director and a former director of
Kawasaki in July 2014, demanding compensation for damages.

100

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Part 2/The Last 25 Years (Overall History)

2.

Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

To Become a Truly Global Company
1) Formulation of MTBP 2016

Explanation of the MTBP 2016 in the company newsletter

In fiscal 2015, the final year of the MTBP 2013 medium-term businessplan, the Kawasaki Group earned 1,541 billion yen in net sales, 95.9
billion yen in operating income, and 93.2 billion yen in recurring
profit, with all figures hitting record highs. Although sales and beforetax ROIC fell slightly short of the targets set in the medium-termbusiness plan, operating income and recurring profit both exceeded theset targets.
Following this achievement, Kawasaki launched the MTBP 2016
medium-term business plan in April 2016. The company reaffirmed thegoals spelled out in the Group Mission and Group Vision statements,and set specific strategies and quantitative targets for the next three
years while painting a picture of how the business should look ten
years down the road.
[Basic Policy](1) Further progress on Kawasaki-ROIC Management• All employees engaged in Kawasaki-ROIC Management: Set
KPIs* that contribute to improving enterprise value based on thecharacteristics of each business segment.
• Enhance risk management position: Ensure risk management at
each phase of the project in order to take the next step as quickly
as possible.
* *Key performance indicators (KPIs) are quantitative metrics used toevaluate progress in reaching business goals.

[Quantitative Targets] (FY2018)
Net sales
Operating income

Recurring profit
Before-tax ROIC

102

1.74 trillion yen
100 billion yen(Ratio of operating
income to sales: 5.7%)
97 billion yen(Ratio of recurring
profit to sales: 5.5%)
11.0%(2) Investments targeting medium- to long-term growth
Continue to aggressively make capital investments and conduct
R&D for medium- to long-term growth, as done under the previous
mid-term plan.
(3) Business realignment• Ship & Offshore Structure Business: (1) Maximize profits
through integrated operation of Sakaide Works and
NACKS/DACKS; (2) Achieve stable business activities at Kobe
Works by focusing on submarine-related operations; (3) Shrink
the offshore service vessels business• Hydraulic Machinery Business: (1) Make Kawasaki the top
brand in the hydraulic market; (2) Develop business beyond
excavators, to construction and agricultural machinery; (3) Seek
synergies and enhanced efficiency through integrated operations
with the Robot Division[Financial Strategy]
Increase operating cash flow to aggressively make investments for
future growth, return profits to shareholders, and strengthen thecompany’s financial position all with an aim for medium- to longterm growth.

2) Inauguration of Yoshinori Kanehana as
President
In June 2016, Kawasaki’s president, Shigeru Murayama, became its
chairman, and Yoshinori Kanehana, its senior executive vicepresident, became president. In his inaugural address, Kanehana,
who took over the reins on the occasion of Kawasaki's 120th
anniversary, said, "I believe it is my mission to ensure thesustainable growth of our Group so that we can continue to be acompany that inspires our employees and makes them proud. I will
carry the torch that has been handed to me by President Murayama
and pass it on to the next generation in an unbroken chain that over
the years has linked us to the philosophy espoused by our founder,
Shozo Kawasaki, of ‘contributing to the nation—to society—throughexpertise.’" The new leader pledged to steadily implement various
measures that would enable the Kawasaki Group to continue to growin the years following its 120th anniversary.

Chairman Murayama (left) and President Kanehana (right)

3) Taking Kawasaki-ROIC Management to New
Heights
The Kawasaki Group has been promoting its own ROIC
management since fiscal 2000, with a focus on striking the optimalbalance between enterprise value, employee value, and customer
value, while making the most of the various types of technology andintellectual strengths it has cultivated through its wide-ranging
businesses encompassing land, sea and air transportation systems,
energy and environmental engineering, and industrial equipment.
As a result, the company's operations have remained strong, and thetotal free cash flow (operating cash flow + investing cash flow)
increased by 140 billion yen from fiscal 2001 to fiscal 2007, whileinterest-bearing debt of 420 billion yen was reduced to 280 billion
yen. The company began to see its ROIC management efforts bear
fruit around 2006 as the financial performance of each businesssegment started to recover and grow.
Subsequently, however, due in part to growing economic bubbles inemerging markets triggered by monetary easing measures
implemented in the wake of the Lehman Brothers collapse, thecompany changed its management course toward expanding
operations. This shift was accompanied by a renewed increase ininterest-bearing debt resulting in a significant deterioration of free
cash flow by the end of fiscal 2012. In response, the company
decided to focus on ROIC management from June 2013 onward. It
aimed at improving ROIC and core competencies (competitive
advantages) at the business unit (BU) level, in order to enhance its
enterprise value. Emphasis was placed on strictly applying a hurdle
rate of 8%, enhancing risk management, and using KPIs.
The objectives of ROIC management were to leverage Kawasaki’s
advantages as a conglomerate and ensure stable operations via BU
portfolio management, focus on capital cost management by
thorough control of the balance sheets of each BU, and enhance corecompetencies while fostering growth-inducing synergy.
The company allocated more business resources to BUs with higher
investment efficiency. In addition to that, it identified hurdles andissues facing each BU in their markets, growth potential, corecompetencies, etc. as well as their financial challenges and enlisted
the support of the entire company to achieve its targets.

President Kanehana's 2017 New Year's
address in the company newsletter

Explanation of Kawasaki-ROIC
Management in the company newsletter

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Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

The company also sought to enhance enterprise value by leveraging thesynergy created from combining businesses across internal company
boundaries.
As a result, free cash flow improved significantly, and before-tax
ROIC, which was 8.1% in fiscal 2013, increased to 10.4% in fiscal
2014. Furthermore, the company achieved the goal of reaching a net
debt-to-equity (D/E) ratio* of 100% by fiscal 2015 in fiscal 2014, a
year ahead of schedule. Under the MTBP 2016 medium-term businessplan, the company set fiscal 2018 quantitative targets of a before-tax
ROIC of 11% and operating income of 100 billion yen.
*Net D/E Ratio = (Interest-bearing liabilities as of previous fiscal year-end - Cashand cash equivalents as of previous fiscal year-end)/Equity as of the previous fiscal
year-end × 100

4) Kawasaki Celebrates Its 120th Anniversary

120th anniversary logo

Restored Hien fighter aircraft on display at the Kawasaki
Heavy Industries 120th Anniversary Exhibition

Kawasaki marked its 120th anniversary on October 15, 2016 withvarious commemorative events.
In January of the same year, the company unveiled a 120th anniversarylogo. Combining the kanji character for “kawa” and the number 120 in
the base colors of gold and silver, the logo design visualized a symbolof trust backed by history and tradition. The logo was used for public
relations activities to further enhance Kawasaki’s corporate brandvalue as well as to express gratitude to its stakeholders.
On October 14, 2016, Kawasaki hosted its 120th anniversarycelebration at the Kobe Portopia Hotel. The event was attended by
Kawasaki executives, directors, former executives, presidents ofdomestic affiliates, representatives of the Kawasaki labor union (headoffice and branch office executive committee members), and membersof the prefectural and city assemblies (who were former Kawasaki
employees).
On the following day of October 15, “Kawasaki Heavy Industries
120th Anniversary Exhibition: Passion and Pride for Being the Fastest
in the World” opened at Kobe Port Terminal Hall. The exhibition
featured photo panels of Kawasaki products that had been behind thedevelopment of modern industries in Japan over the last 120 years. It
also showcased a restored model of the Hien, a fighter aircraft
developed and manufactured by Kawasaki Aircraft Co., Ltd. for the
Imperial Japanese Army during World War II. Over 44,000 people
attended the exhibition, which ended on a high note on November 3.
From September 17 to November 27, the Kobe City Museum held the"Matsukata Collection Exhibition—Tracing the Dream of Kojiro
Matsukata," bringing together a large collection of ukiyoe and Western
art that Kawasaki's first president, Kojiro Matsukata, had collected at
his own personal expense.

5) Establishing a Companywide Quality Control
Committee
On December 11, 2017, a crack was found in the bogie frame of theseries N700 Shinkansen train manufactured by Kawasaki at Nagoya
Station on the Tokaido Shinkansen line. This was the first serious
incident of its kind involving the Shinkansen.

104This bogie frame was manufactured at the Kawasaki Rolling Stock
Company’s Hyogo Works in February 2007. The investigation resultsfond that the crack was caused by manufacturing defects.
In April 2018, Kawasaki established the Companywide Quality Control
Committee with outside experts to investigate the causes of the
manufacturing defects and discuss measures to prevent their recurrence.
The company also put together an investigative team consisting ofinternal and external experts that answered to the committee.
Based on the findings of the investigative team, the Companywide
Quality Control Committee identified the problems and hammered out
the corrective measures to take. The implementation of corrective
measures at the Rolling Stock Company was regularly monitored by theManagement Committee and supervised by the Board of Directors.
The results of the investigation conducted by the Companywide Quality
Control Committee revealed that manufacturing defects were due tovulnerabilities in quality control and management. There was too muchreliance on the manufacturing lines and not enough risk management toprevent defects.
Kawasaki took the investigation results seriously, and in September
2018, announced that it would (1) review work processes, (2) tighten
risk management, (3) promote close cooperation and communication
between related departments, and (4) review the internal education andtraining curriculum as corrective measures to enhance quality
management and prevent any recurrence. In order to make sure these
efforts took root throughout the company, Kawasaki decided to
introduce total quality management (TQM) and set up the Companywide Quality Committee to implement it.

Board of Directors
Present
President
Establish

ReportCompanywide Quality Control Committee(Established on April 6, 2018)● Identify the root causes of the defects during manufacturing process ofseries N700 Shinkansen bogie frames, and examine and review theappropriateness of the corrective measures developed by the Rolling Stock
Company● Comprehensively audit the entire quality management system in all
business units

ReportDevelop corrective
measures

Examine and review thecorrective measures

Investigation
team

Quality Control Committeeof Rolling Stock Company● Investigate in detailthe actual situation
regarding the quality
management system

Chairperson: President● Investigate the root causes of the defects
during manufacturing process of series N700
Shinkansen bogie frames.
● Develop corrective measures(Established on March 1.2018)

Functions and Relationship of Committees

6) Reorganizing Internal Companies
Priority Allocation of Company Resources and Promotionof Synergies
In following the Business Portfolio Strategy outlined in the MTBP 2016
medium-term business plan, Kawasaki allocated extensive management
resources to businesses that displayed significant growth potential in themedium to long term, such as aerospace systems, energy solutions, androbots. The company also worked on maximizing synergy andaccelerating growth through integrated operations of the aircraft fuselage
and jet engine businesses as well as various energy-related businesses.
In fiscal 2017, the Kawasaki Group's sales reached a new record highdue to increases in sales in the precision machinery, gas turbine andmachinery, and motorcycle and engine businesses. The ROIC, however,hit 3.9% due to the impact of an extraordinary loss caused by thetermination of a shipbuilding contract for a Norwegian offshore service
vessel, falling below the Group’s hurdle rate of 8% for the next twoconsecutive years of fiscal 2016 and 2017.
Kawasaki responded to these changes in the business environment inApril 2018 with the introduction of Kawasaki-ROIC Management andthe reorganization of three internal companies, in the growth areas ofaerospace and energy, into two.

Priority allocation of company
resources• Into the businesses which big
growth can be expected in
mid-long term, such as the
Aerospace Systems, Energy
and Robots.

Four business sectors
Aerospace System

Aerospace

Pursuing group synergy
Jet Engine• Maximize the synergy andaccelerate growth byperforming integral
administration in
Aerospace/Jet engine and avariety of energy- related
businesses.
Reorganization• Partial reorganizationaccording to business sectors
is under consideration with an
April 2018 target.

Precision
Machinery/Robot

Energy/Environment Plant

Plant & Infrastructure
Gas Turbine &MachineryTransportation

Hydraulic Component

Ship & Offshore
Structure

Robot

Motorcycle & Engine

Rolling StockBusiness Portfolio Strategy

105Part 2/The Last 25 Years (Overall History)

Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

Establishing the Aerospace Systems Company
Aerospace Company
Gas Turbine & Machinery
Company Jet Engine Business
Gas Turbine & Machinery
Company Energy Business
Plant & Infrastructure Company

Integrated in April 2018
Aerospace Systems
Company

Integrated in April 2018
Energy System &Plant Engineering
Company

Reorganizing three internal companies into two

In the area of aerospace, Kawasaki merged the Aerospace Company
and the Gas Turbine & Machinery Company’s jet engine business into
the Aerospace Systems Company. In streamlining the organization, thecompany aimed to strengthen its global cost competitiveness andcreate new businesses through the integration of technologies. It also
stipulated operational rules for production and quality control systems,
which previously existed in both companies, to facilitate
manufacturing operations.

Establishing the Energy System & Plant Engineering
Company
In the area of energy, Kawasaki integrated the Gas Turbine &Machinery Company’s energy business and the Plant & Infrastructure
Company into the Energy System & Plant Engineering Company. The
establishment of the new internal company was designed toincorporate energy-related products and technologies into optimum
energy systems that could meet a world of customers' needs.

Precision Machinery Company Renamed Precision
Machinery & Robot Company
In the robot business, the Precision Machinery Company was renamed
the Precision Machinery & Robot Company with an aim to expand
operations even further.
The robot business, which was poised to take off, needed more design
and production space. While Kawasaki had a showroom at its NishiKobe Works, it used the Akashi Works for pre-delivery inspections bycustomers.
The solution to these problems that Kawasaki came up with included
transferring the factory automation and clean robot divisions of the
Akashi Works to the Nishi-Kobe Works between fiscal 2016 and 2017.
Of the 456 employees at the Akashi Works, 92 employees, including
senior executives, were transferred to the Nishi-Kobe Works in
October 2016, and 40 employees, including senior executives, weretransferred in October 2017.

7) Trends at Overseas Locations
KMM Begins Aircraft Parts Production

Kawasaki Motors Manufacturing Corp., U.S.A.(KMM)
Lincoln Plant rolling stock production line

In 1975, KMC began mass production of motorcycles at its Lincoln
Plant in the U.S. Kawasaki Motors Manufacturing Corp., U.S.A.
(KMM), which was split off from KMC in December 1981, opened arolling stock factory at its Lincoln Plant in 2001. It is the Kawasaki
Group’s only overseas production base that manufactures products for
multiple internal companies.

In May 2017, KMM completed a production line for the cargo doorsof the Boeing 777X, Boeing's newest commercial airliner. It was thefirst aircraft parts production line operated by a Japanesemanufacturer in the United States, and full-scale operation kicked off
in autumn of the same year. Kawasaki seized this opportunity toposition the Lincoln Plant as a major production base for aircraft
parts in the United States and has been working to expand its
commercial aircraft business ever since.

Boosting Motorcycle Sales in Southeast Asia
and Establishing a Sales Company in Vietnam
Kawasaki's motorcycle sales are growing year by year in countries
throughout Southeast Asia.
Annual motorcycle production at Kawasaki Motors (Phils.)
Corporation (KMPC) in the Philippines skyrocketed in just three
years as it jumped from 170,000 in 2017 to 250,000 in 2020. This
includes the BARAKO II, an overwhelmingly popular model used as
the motorized element of the tricycle (a three-wheeled taxi consistingof a small motorcycle and a sidecar). This was the highest production
volume of any factory operated by the Motorcycle & Engine
Company in the world.
The motorcycle market in Vietnam is expected to keep pace with thecountry’s economic growth. Sales exceeded 3.3 million units in
2018, trailing just behind China, India, and Indonesia. In January
2019, Kawasaki established Kawasaki Motors Vietnam Co., Ltd.
(KMV) to import and sell motorcycles. The company is Kawasaki's
twelfth overseas motorcycle sales subsidiary.

Accelerating Global Expansion of Robot BusinessIn the 2000s, China's robot market expanded quickly in step with thecountry’s rapid economic growth. In 2006, the Kawasaki Groupestablished Kawasaki Robotics (Tianjin) Co., Ltd. (KRCT) in
Tianjin. Kawasaki’s first robot business location in China, KRCT
built and delivered robots to major Japanese automaker’s factories in
China. In 2013, Kawasaki Robotics (Kunshan) Co., Ltd. wasestablished to promote local production and consumption. In 2015,
Kawasaki Precision Machinery (Suzhou) Ltd. (KPM Suzhou) began
manufacturing robots. The company worked to improve production
efficiency based on the concept of robots making robots.

Aircraft parts production line at Lincoln Plant

Production line at Kawasaki Motors (Phils.) Corporation(KMPC)

Kawasaki Motors Vietnam Co., Ltd.
(KMV) office building

Exterior view of Kawasaki Robotics (Tianjin) Co., Ltd.
(KRCT) when it first opened

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Part 2/The Last 25 Years (Overall History)

Opening ceremony of Kawasaki Robotics (Tianjin) Co., Ltd.
(KRCT) Kunshan Branch [currently
Kawasaki Robotics (Kunshan) Co., Ltd. (KRCK)]

Robot factory at Kawasaki Precision Machinery (Suzhou) Ltd.
(KPM Suzhou)

Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

In the same year, Kawasaki (Chongqing) Robotics Engineering Co.,
Ltd. (KCRE) was established in Chongqing, the world capital forelectronics manufacturing services (EMS). In addition to
manufacturing and selling robots, KCRE expanded into the production
line building business, handling everything from design to the start-up
of factory assembly lines for automobile manufacturers.
Kawasaki established locations across Asia, from South Korea to
Taiwan and Thailand. In Singapore, it launched the Singapore
Kawasaki Robot Center (SKRC) in 2014 to provide after-sales
services, and in 2017, the Singapore Kawasaki Robot Engineering
Center (SKRE) to provide support for industrial robot applications
development and training for engineers. In 2015, Kawasaki establisheda robot division (KIRD) at its Indian subsidiary, Kawasaki Heavy
Industries (India) Pvt. Ltd.
In the United States, a local subsidiary of Medicaroid Corporation, ajoint venture between Kawasaki and Sysmex Corporation, which has abroad network in the medical field, began operating in Silicon Valley
in 2016. The company works jointly with Medicaroid on medical robot
technology development, marketing activities, and regulatory affairs
for approval by the U.S. Food and Drug Administration (FDA), withthe aim of expanding the sales of medical robots.
Since the 2010s, the Kawasaki Group has been accelerating the
introduction of robots around the world that contribute to a wide range
of industries.

3.

Toward the Sustainable Development of
the Group(Harmonious Coexistence with Stakeholders)

1) Corporate Governance

General Meeting of Shareholders
Resolution on appointment

Resolution on appointment

Basic Stance on Corporate Governance

Resolution on appointment

Audit

Directors (Board of Directors)
Compensation Advisory Committee
Nomination Advisory Committee

Corporate auditors (Board of Auditors)

Independent auditor(advice/recommend)

Appointment(advice/recommend)

Supervision

Cross-sectional cooperation

Audit

Supervision
Instructions

President

Auditing Department
ReportThe Kawasaki Group has established a corporate governance systemthat is suitable for a corporate group that operates globally, withdirectors and corporate auditors playing central roles.
Kawasaki believes corporate governance can raise enterprise value
through effective and sound management while forming solid
relationships with all stakeholders through highly transparent
management practices.

Establishment of the Nomination Advisory Committee
and Compensation Advisory Committee

Key Internal Committees
Management Committee

Corporate CSR Committee
Corporate Risk Management Committee

ReportBusiness operation execution divisions(Head office, Internal companies)

Audit

Discussion
Audit

Affiliated companies

Inspection

Corporate CSR Committee
Corporate Risk Management Committee

General Meeting of Shareholders
Resolution on appointment

Directors (Board of Directors)

Resolution on appointment

Audit/
Supervision

Statement of opinion

Audit & Supervisory Committee

Resolution on appointment

Independent auditor

AssistanceNomination Advisory
Committee

Consultation/ Advice

Compensation Advisory
Committee

Consultation/ Advice

Supervision

Appointment

Audit/
Supervision

Office of Audit &Supervisory Committee

Instruction

Instruction

President

ReportReportAudit

Mutualcooperation

Audition Department

ReportInstruction

Key Internal Committees
Discussion

Instructions

Management Committee
ReportRefer/Report

In May 2015, Kawasaki established the Nomination Advisory
Committee and the Compensation Advisory Committee as advisory
bodies to the chairman of the Board of Directors. With chairs and amajority of members who are outside corporate officers, thecommittees are designed to improve the transparency and objectivityof board decisions.
The Nomination Advisory Committee deliberates on theappropriateness of policies and proposals for the election of corporate
officers while the Compensation Advisory Committee deliberates on
the appropriateness of executive compensation policies and plans.
Both committees then report to or advise the Board of Directors.

Discussion Instructions

Instructions

Major Project Committee

Executive Officers Committee

Deliberative bodies related tobusiness risk
Short-Term Plan Conference, * MidYear Review Conference, * Major
Project Committee

Executive Officers Committee

ReportCompany-wide Quality Committee

ReportInstructions

Business operation execution divisions(Head Office, internal companies)

Sustainability Committee
Company-wide Compliance Committee

Audit

Instructions
Discussion

Affiliated companies

Audit

Instructions

Head Office and business segment compliance committees

Inspection*Internal conferences that consider the formulation andrevision of management plans

Kawasaki's Governance Structure (Top: As of June 25,
2015, Bottom: As of June 25, 2021)

Revising the Director and Executive Officer Positions

Robot sales office of Kawasaki Heavy Industries (India) Pvt. Ltd.

108

On April 1, 2018, Kawasaki revised the director and executive officer
positions in order to separate the supervisory and monitoring functionof the Board of Directors from its execution function with an eye tofurther strengthening corporate governance.
(1) With the exception of the chairman, vice chairman, and president,
the company would no longer appoint managing directors but
appoint representative directors and directors instead.
(2) The positions of president, senior executive vice president,
executive vice president, and senior vice president wererespectively changed to president and chief executive officer, vicepresident and senior executive officer, senior managing executive
officer, and managing executive officer positions.
The company also increased the number of outside directors by one inorder to strengthen the board’s ability to oversee business operations.

109Part 2/The Last 25 Years (Overall History)

Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

Kids science class in Minami-sanrikucho, Iwate
Prefecture

Kawasaki Robostage3) Sustainability and SDG Initiatives
Establishing a Code of Conduct

Participating in Hyogo Prefecture’s forest conservation
activities

The Kawasaki Group drafted the Kawasaki Corporate Code of Ethics
in 1999 and the Global Business Ethics Guidelines for its overseas
subsidiaries in 2011 to ensure total compliance. In an effort to geteveryone across the Group on the same page, Kawasaki set forth the
Kawasaki Group Code of Conduct in September 2017. It is the
Kawasaki Group’s ethics bible to be followed religiously by all
officers and employees.

Focusing on corporate and societal rules, section 1 of the Code of
Conduct, entitled “In Order to Ensure Correct Conduct,” covers
twelve areas that are strictly regulated around the world (including
fair business practices, prohibition of improper gifts andentertainment, information security, and personal information
protection). Section 2, entitled “In Order to Face Stakeholders,”
covers ten areas related to the Kawasaki Group’s responsibilities andethical duties to society and its stakeholders (which includes
providing safe, top-quality, high-performance products and services,
respecting human rights, ensuring a safe and healthy work
environment, and protecting the global environment). As of April
2021, the Code of Conduct has been published in ten different
languages (i.e. Japanese, English, simplified and traditional Chinese,
Korean, Thai, Indonesian, Portuguese, German, and Russian) anddistributed to employees around the world.

Identifying Material Issues
Today stakeholders are demanding companies be more responsible
than ever for the impact their operations have on the environment
while keeping pace with changes in society. The Kawasaki Group
took heed of those demands, and in 2018 reassessed how its
corporate activities would affect society and the environment. For the
first time ever, it pinpointed social issues and material issues itshould address so that it could develop and implement businessstrategies with these issues in mind. The company divided its
material issues into the two broad categories of social value createdthrough its business and the foundation of its business activities. This
move was aimed at stepping up efforts to solve issues facing society
through products and services and address CSR issues such as
corporate governance, supply chain management, compliance, andhuman rights.
Following the formulation of the Group Vision 2030, the company
reassessed materiality and identified its material issues in 2021 (seethe figure on the right). The company has set KPIs for the identified
material issues and designated departments responsible for steadily
implementing necessary measures and follow-up activities to achievetargets.
In 2021, the Sustainability Committee and the Company-wide
Compliance Committee, chaired by the president, were established inplace of the Corporate CSR Committee in order to address thegrowing importance of sustainability worldwide against the backdrop
of intensifying climate change due to global warming, and to further
strengthen compliance in corporate activities.

Efforts to Achieve SDGs
Participating in Team Tyura Sango

110

The Sustainable Development Goals (SDGs) were adopted by all 193
UN member states at the United Nations summit held in September
2015. The SDGs are composed of 17 goals to be achieved by 2030
that address eradicating poverty, inequality, injustice, and fighting
climate change, along with 169 specific targets aimed at achieving
them.

Kawasaki Group Code of Conduct

High

Material issues
Social and environmental value
created through our businessA safe and secure remotelyconnected society
Near-future mobility
Energy and environmental solutions

The foundation of our business activities
 Sustainablesupply-chain
management
 Business andhuman rights

Importance to society and stakeholders

Cumulative number of visitors to Kawasaki Good
Times World reaches three million

In November 2018, Kawasaki established the Kawasaki Group Social
Contribution Activities Policy in order to clarify its official position
regarding community engagement and its impact. Kawasaki is a good
corporate citizen committed to fulfilling its corporate social
responsibility through engagement and coexistence with local
communities with a focus on the following areas.
(1) The Kawasaki Group, as a corporate citizen, constructs a good
relationship with local communities and contributes to theirdevelopment.
• Operating Kawasaki Good Times World• Operating the Kawasaki Good Times Foundation in the U.S.
• Donating money and Kawasaki products to aid victims andareas hit by disasters around the world(2) The Kawasaki Group supports the next generation who lead thetechnology of the future.
• Hosting science classes for elementary school students• Participating in the Youngsters’ Science Festival that provides
elementary, junior high, and high school students with
opportunities to experience the fun of science• Operating Kawasaki Robostage, where visitors can experience
the cutting-edge technology and know-how behind Kawasaki
robots(3) The Kawasaki Group preserves the environment and achieves asustainable society.
• Conducting forest protection and restoration activities via
Kochi Prefecture’s afforestation project, Hyogo Prefecture’s
corporate forest restoration project, etc.
• Participating in Team Tyura Sango activities to restore coral
reefs in Onna-son, Okinawa Prefecture Promotion ofhuman resource  Energy and environmental
activities
solutions (Value chain) Compliance Product
liability/safety Occupational
health and safety
 Corporate
governance Information
security Technology
development andDX

Importance to the Kawasaki Group

High

Low

Materiality Matrix
Social and environmental value created through our businessA safe and secure remotely connected society: Scope of initiatives
Energy andenvironmental
solutions (value chain)

The foundation of our business activities

2) Establishment of the Social Contribution
Activities Policy

Especially importantmatters going
forward (mattersexerting an
increasing impact on
future financial
conditions)

Near-future mobility

Energy and environmental solutions
Kawasaki Group

Suppliers

Customers

Decarbonization
Improvement of resilience to climate change
Effective use of resources

Business andhuman rights

Implementation of human rights due diligence

Promotion of humanresource activities

Personnel system reform and humanresource development

Promotion of diversity
Technology
development and DX

Co-creation intellectual property strategy toward new
business creation

Open innovation
Promotion of DX
Product liability/safety

Product liability/safety

Compliance
Matters given
importance until
now but to be
steadilystrengthened going
forwardCompliance with the
Kawasaki Croup CSR
Procurement Guidelines

Compliance with the
Kawasaki Croup Code of
Conduct
Anticorruption measures

Occupational healthand safety

Information security

Occupational health andsafetyStrengthening of productsecurityStrengthening of information
securityStrengthening of cyberdefensePersonal information protection
Corporate governance (all mechanisms to be improved as business foundations

KHI Group Crisis Management System

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Applicable SDGs

COOD HEALTH
AND WELL-BEING

DECENT WORK AND
ECONOMICCROWTH

INDUSTRY.NNOVAION
AND NFRASTRUCTURE

PARTNERSHIPSFOR THE GOALSCOOD HEALTH
AND WELL-BEING

INDUSTRY.NNOVAIONANDNFRASTRUCTURE

SUSTANABLE CITESAND COMNUNTTESPARTNERSHIPSFOR THE GOALSAFFDRDABLE AHD
CLEAN FNERGY

INDUSTRY.NNOVAION
AND NFRASTRUCTURE

SUSTANABLE CITESAND COMNUNTTES

CLMATE ACTIONPARTNERSHIPSFOR THE GOALS

A safe and secure remotelyconnected Society

Near-future mobility

Energy and environmental
solutionsRESPONSIBLE
CONSUNPTON AND
PRCDUCTON

Kawasaki Group's Approach to the SDGs

4) Addressing Climate Change Risks and theComing Decarbonized Society
Promoting Kawasaki Green Products
Since June 2014, the Kawasaki Group has evaluated its own
products, designated those with superior environmental performanceas Kawasaki Green Products, and made a list of these products
public. Once selected, they are re-evaluated every three years todetermine whether they will remain listed as Kawasaki Green
Products. The first set of Kawasaki Green Products included ten
products, of which nine were Kawasaki Super Green products
boasting the industry’s most outstanding environmental
performance. The list of Kawasaki Green Products has beenannounced annually since then.

As its value chain was expanding worldwide in step with theglobalization of its operations, Kawasaki established the Kawasaki
Group Human Rights Policy in 2019, recognizing the growing
importance of respect for human rights in corporate activities. The
Human Rights Policy states that it is essential that the human rights ofall stakeholders be fully respected in order to achieve the Group
Mission and that all Kawasaki Group employees must act inaccordance with the highest of ethical standards. It stipulates that theGroup will actively outline Kawasaki’s commitment to actively
addressing the key areas of human rights, including diversity, equal
opportunity, forced labor, child labor, discrimination, harassment,
freedom of association and collective bargaining rights, andoccupational health and safety, in fulfilling its responsibility to respect
all human rights.
Following the establishment of the Human Rights Policy, Kawasaki
signed and joined the United Nations Global Compact (UNGC) in
January 2020. The UNGC is a global initiative calling on leaders ofprivate companies and organizations to solve social issues and achievesustainable growth in the face of global conflicts, poverty, andwidening disparities caused by economic globalization. As a signatorycompany, Kawasaki supports the ten principles advocated by the
UNGC in the four areas of human rights, labor, environment, and anticorruption, and continues to work towards their achievement.

In the 9th Environmental Management Activities Plan, Kawasaki
picked up where the 8th Environmental Management Activities Plan
left off and continued to focus on aligning its business managementwith environmental management. The company also placed anemphasis on responding to the diversification of procurement
associated with energy liberalization, coordinating with Japan's
nationally determined contributions (NDCs) that were adopted after
being presented at the 21st session of the Conference of the Parties(COP 21) to the United Nations Framework Convention on Climate
Change, and ensuring appropriate disclosure and transparency ofenvironmental information to institutional investors, corporate
evaluation agencies, and others. Moving forward to achieve its
Environmental Vision 2020, the company worked to improve its
environmental brand by promoting Kawasaki Green Products andfocusing on four key issues: (1) reducing CO2 and energy costs; (2)promoting the 3Rs; (3) reducing environmentally hazardous
substances and conserving resources; and (4) enhancing the Group's
environmental management system.

Coordinate with business
management and promote
steps to contribute to theenvironment
Secure the practice ofenvironmental• Reduce CO2 emissions andmanagement
energy consumption

Mission Statement(established in 2007)

Undertakeenvironmental
management activities

Prepare andimplement
environmental
management systems

Environmental Vision 2010
(established in 2003)(1) Environmental management(2) Environmentally conscious
products(3) Environmentally conscious
manufacturing(4) Environmentally conscious
communication

Implementation Phase

Taking Root Phase

First to third environmental
management activities plans

Fourth to seventh environmental
management activities plans• Promote the 3Rs• Reduce environmental loads,
and promote resource
conservation• Enhance EMS operation• Promote green products

Environmental Vision 2020
(established in 2010)

Establishment of environmental
management systems

Development Phase
Eighth Environmental
Management Activities Plan

Ninth Environmental
Management Activities Plan

Kawasaki Group’s Environmental Management Activities

Formulating the Kawasaki Global Environmental
Vision 2050
Pledging to achieve a sustainable society in the future, the Kawasaki
Group formulated Kawasaki Global Environmental Vision 2050 inAugust 2017.
At this time the Paris Agreement following COP21, the UN SDGs,
and other global measures to combat global warming were coming
into effect, and corporations, public pension funds, and institutional
investors in Europe and the United States began to moveaggressively to reduce greenhouse gases, especially CO2. Leading
Japanese companies, including Toyota Motor Corporation, followed
suit with long-term visions and public disclosures of long-term
environmental management strategies.
CO2 FREE• Aim for zero CO2 emissions in business activities• Provide products and services that greatly curb CO2
emissions112

First Set of Kawasaki Green Products

Realization of a society
coexisting with nature

The 9th Environmental Management Activities Plan
(FY2016–2018)

Realization of a lowcarbon society

Establishing a Human Rights Policy and Joining theUnited Nations Global Compact

Realization of arecycling-oriented
society

UN Global Compact membership certificate

Corporations are also required to contribute to solving issues facing
the world through their business activities. The Kawasaki Group’s
mission statement, "Kawasaki, working as one for the good of theplanet” and the SDGs have a strong affinity. Kawasaki is working to
do its share in achieving the SDGs and believes that it can make asignificant contribution toward achieving them.
When looking at its material issues in 2018, Kawasaki identified thecorporate group’s most important long-term goal as creating social
value through its business operations. In light of that goal, it picked theSDGs it should contribute to achieving and set non-financial targets
for 2030. The company revised these targets when it reassessedmateriality in 2021. While regularly disclosing the progress towardachieving the targets, the company aims to maximize social value andsustainable growth, while contributing to the achievement of the
SDGs.

Value creation

Created Social andEnvironmental Value

Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

Explanation of Kawasaki Global
Environmental Vision 2050 in thecompany newsletter

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Chapter 3 Using Cutting-edge Technology to Build a Brighter Future

Waste FREE
• Aim for zero waste emissions in business activities• Thoroughly enforce conservation and the recycling ofwater resources
Harm FREE• Aim for zero harmful chemical substance emissions inbusiness activities• Develop business with respect for biodiversity
The Annual Report on the Environment in Japan 2020 highlighted
frequent natural disasters and used the term "climate crisis" to refer toclimate change risks. Social demands for a decarbonized society
gradually increased, as evidenced by the 2017 TCFD
recommendations (which was endorsed by Kawasaki in 2019).
Takumi Juku, a professional skills training center5) Nurturing a Vigorous Workplace Culture
Efforts to Strengthen On-site Capabilities

Manabiya, a manufacturing skills creation center at the
Akashi Works

Employee training at Manabiya

Nadeshiko Brand markKurumin mark114

Eruboshi markPride Index Gold mark

● Opening Takumi Juku and Manabiya skills training
centers
Kawasaki opened training centers to actively pass down technicalskills with an eye to strengthening its manufacturing capabilities thatare the business foundation of its corporate group.
In March 2012, Takumi Juku, a professional skills training center, wascompleted at the Harima Works. The center offers various skill
development programs for young and mid-career workers, educational
training for trainees and new employees, and production technology
education for engineers. It serves as a facility that teaches both skills
and techniques.
In April 2014, Manabiya, a manufacturing skills creation center,
opened at the Akashi and started providing skills training. In addition
to skills training for new production workers, Manabiya provides
production staff with classroom and hands-on training designed toacquire basic skills. Its training programs include special educationand training for selected workers in preparation for various skills
competitions and support for acquiring qualifications required at
production sites.
Working in synergy with the technical skills education system
implemented so far, these training centers are not only successfully
passing on technical skills but also helping employees acquire newskills or develop technical and leadership skills in a short period oftime, and providing employees with opportunities to enhance eachother's skills.
Promoting Diversity
In April 2010, the Diversity Promotion Section was established within
the Personnel & Labor Administration Division. To enable diverse
human resources, regardless of race, gender, age, or faith, to make themost of their abilities, Kawasaki is taking various steps, such asallowing employees to embrace diverse workstyles to help them strikean optimal work-life balance, promoting the active participation of
women, facilitating the employment of people with disabilities,
extending support for the next generation and those engaging in
nursing care, promoting the active participation of non-Japanesenationals, and creating an LGBT-friendly work environment.

Kawasaki was recognized for its efforts to support the professional
development of women and named a Nadeshiko Brand by the
Tokyo Stock Exchange and the Ministry of Economy, Trade andIndustry in March 2015. It was also awarded Eruboshi certificationby the Ministry of Health, Labour and Welfare in May 2016. In
2010, the company was awarded the Kurumin mark from thedirector of the Hyogo Labor Bureau in recognition of its efforts to
support and nurture the next generation. In 2018, it won the highest
rating of Gold in Work with Pride’s Pride Index for its outstanding
LGBT-related workplace initiatives.

Workstyle Reform: Promoting K-Win Activities
In 2016, Kawasaki launched Kawasaki Workstyle Innovation
Activities (K-Win Activities) to embrace diverse and flexible
working styles. K-Win Activities are aimed at changing the way
people work, in mainly administrative and technical positions, withan eye to further enhancing enterprise value. These activities aredesigned to help employees reach their full potential and increase
productivity in order to improve profitability and achieve growthover the medium- to long-term while maximizing individuals’
abilities in the workplace and enabling them to lead rich andrewarding lives.
K-Win Activities are conducted with the participation of all
employees in a concerted effort to change three areas:organizational culture, operations, and personnel systems. As partof this initiative, Kawasaki introduced a remote working program in
January 2018. The program is designed to set working hours withincertain limits and improve work productivity by allowing flexible
work styles that are not restricted by location or time constraints.
Starting in fiscal 2018, the company revised its personnel
assessment method to raise awareness of its efforts to improve
productivity, as well as actively shared information with all
employees about tools that could help them visualize tasks, manage
time, and improve communication.
In fiscal 2020 Kawasaki took K-Win Activities to the next level inline with the Group Vision 2030 and has been working to transform
its corporate culture with the aim of achieving this vision.

Health and Safety Initiatives
The Kawasaki Group believes that ensuring the safety as well as
maintaining and improving the health of its employees are key
foundational components of corporate activities that enhance its
enterprise value. Its clearly defined Philosophy, Declaration, andBasic Policy on Safety, Sanitation and Health is the basis of its
three-year Medium-term Safety and Health Management plans aswell as its Safety and Health Management Platform (a one-yearplan) for occupational safety and health activities. These planscover the prevention of work-related accidents and illnesses, as wellas health maintenance and improvement, along with thedevelopment of comfortable workplaces.

Intranet site for K-Win Activities

Goals of K-Win Activities

Safety dojo

Inside the safety dojo

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Announcement of the Kawasaki
Health Challenge in the company
newsletter

Chapter 3 Using Cutting-edge Technology to Build a Brighter Future● Opening of the Safety Dojo
Kawasaki opened a safety dojo, its corporate safety education facility,
at the Kobe Works in July 2015. It’s a place that provides all
Kawasaki Group employees with training on safety basics and refines
their risk sensitivity with the objectives of learning from past
incidents, raising safety awareness, and developing the capabilities
needed to ensure safety.
● Named Certified Health & Productivity Management
Outstanding Organization
Kawasaki was named a Certified Health & Productivity Management
Outstanding Organization for three years running, from 2017 to 2019.
The certification is awarded in recognition of efforts to take strategic
measures to manage workplace health and productivity from abusiness-management perspective. Operated jointly by the Ministry of
Economy, Trade and Industry and Nippon Kenko Kaigi, the CertifiedHealth & Productivity Management Outstanding Organizations
Recognition Program recognizes companies that implement
outstanding health and productivity management initiatives that
address local health issues and Nippon Kenko Kaigi’s efforts topromote health.
Adhering to the core principle of respect for human life and promoting
good health, Kawasaki offers health education classes aimed atpreventing lifestyle diseases, including an eating habit improvement
seminar and exercise seminar. The company works with the healthinsurance union and labor union to hold the Kawasaki Health
Challenge, a health promotion campaign for employees and theirfamilies, and encourages everyone to participate.

6) Creating the Innovation Department

Innovation Department’s San Jose Office (photo taken in 2016)

The program received more than 100 submissions within a year of its
launch, from which the noslisu, a new three-wheeled electric vehicle,
and the iPNT-K, an indoor location information service, werecommercialized in no time. As these ideas, born from the passion of
employees, have taken shape and turned into real-world products, they
have inspired others across the Group to seize the opportunity thisprogram offers.

7) Toward the Achievement of a Hydrogen Society
Joining the Hydrogen Council
Aiming to build a CO2-free hydrogen supply chain, Kawasaki
developed the first industrial hydrogen liquefaction system using its
home-grown proprietary technology. After beginning hydrogenliquefaction testing at its Harima Works in November 2014, thecompany worked on building a hydrogen supply chain, with a focus
on liquefied hydrogen.
In February 2016, Kawasaki, working jointly with Iwatani
Corporation, Shell Japan Limited, and Electric Power Development
Co., Ltd., established the CO2-free Hydrogen Energy Supply-Chain
Technology Research Association (HySTRA) to promote theconstruction of a CO2-free hydrogen supply chain and began moving
full-steam ahead.
In January 2017, the Hydrogen Council was formed as a global
initiative by 13 leading energy, transport, and manufacturing
companies, including Kawasaki, with the shared vision and long-term
ambition to foster a transition to hydrogen energy. As of 2018, thecouncil is comprised of 39 companies (including steering members
and supporting members).

Hydrogen Council

Kawasaki started conducting ICT/IoT research in January 2015, andopened a corporate office in the United States’ Silicon Valley in
October 2016 with the aim of gathering innovation-related
information and cultivating business partnerships. Having observed
cutting-edge technologies, marketing methods, and the entrepreneurial
ecosystem in Silicon Valley, Kawasaki decided that Japan needed an
innovation organization.
The company then established the Innovation Office within theMarketing Division in April 2017. It was renamed the Innovation
Department in June of the same year and placed under the Corporate
Planning Division in April 2019. The department was established withan aim to create value through collaboration with external startups,
etc. (promote open innovation) and foster a culture of innovation. The
company worked with several startups, including Global Mobility
Service, Inc., a Japanese company that provides credit services totricycle drivers, in 2018, and OSARO, Inc., an American company
that develops AI for robots, in 2019.
In April 2020, Kawasaki launched an in-house program for soliciting
business ideas in an effort to spark innovation throughout theorganization. The program serves as a tool that can be used to tap into
employees’ creative side and passions.

The noslisu three-wheeled electric vehicle

116

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