Key Facts Revealed by the Independent Investigation Committee’s Investigation

Based on the causal analyses above, Kobe Steel has compiled the following measures to prevent recurrence of the Misconduct.

Ⅰ　Governance — Building a Quality Governance System

Ⅱ　Management — Ensuring Quality Control

Ⅲ　Process — Strengthening of Quality Control Processes

1. Penetration of the Corporate Philosophy

Under the Next 100 Project that started in April 2017, by further strengthening and reinforcing areas that are deficient, we aim to communicate and share Kobe Steel’s values and attitude toward the quality issues with all employees of the Kobe Steel Group.

2. Desirable State of the Board of Directors

In order to strength the governance over quality as well as to improve the fairness and transparency of the Board of Directors, we will reinforce the monitoring function of the Board of Directors by restructuring the composition of the board members. Specifically, we will: (1) increase the number of independent outside directors to make up at least one-third of the Board of Directors; (2) establish the Nomination and Compensation Committee; (3) abolish the office of chairman; (4) elect the chairman of the Board from the independent outside directors; (5) revise the current structure under which all division heads are directors; and (6) appoint directors to be in charge of risk management and quality control.

3. Restructuring of the Risk Management System

We will revise the current risk management practices in order to ensure their feasibility. Specifically, we will, among other things, conduct a compliance awareness survey on a regular basis; create the “Kobe Steel Group Standard” upon which each Group company sets individual policies; and establish the Compliance Management Department.

4. Restructuring of the Divisions

To correct the insular nature of each unit in the Aluminum & Copper Business, where the misconduct had continued for many years and to improve the level of quality control and the corporate culture, we will reform our quality control systems and promote awareness among our employees. We will shift from a traditional business structure based on types of metals to a business structure that corresponds to market segments.

5. Restructuring of the Group Companies

We will proceed to restructure the Group companies with the goal of creating a system that will enable the Head Office to provide support and management to each Group company and strengthen the corporate structure of our Group companies.

6. Rotation of Personnel among Divisions

To rectify the insular nature of our organization (i.e., the lack of mobility of people), which was one of the causes that created the quality problems, we must consciously change the mindset that created the insular organization, increase the added value of the organization and educate managers and executives to lead the company in the right direction.

7. Understanding Issues Occurring at Worksites

We will implement measures whereby the top management can “listen to employees’ voices directly” beyond merely “communicating their thoughts.” We will also conduct the “Employee Awareness Survey” and initiate the “Quality Caravan Team,” which will visit domestic and overseas business locations on a regular basis.

8. Issuance of the Quality Charter

We will newly issue the Quality Charter. All of the employees of the Kobe Steel Group shall follow the Quality Charter and commit themselves to restoring trust in the Kobe Steel Group.

9. Restructuring of the Quality Assurance System

We will reinforce the quality assurance system in three categories: works and plants; business divisions; and the head office. We will appoint an Executive Officer to be responsible for the Quality Management Department.

10. Revision of Our Strategy for Managing the Business

In order to increase our sustainable corporate values, we will change our attitude that over prioritized profitability and adopt a management strategy that will aim at implementing a well-balanced internal control system throughout the organization and being capable of detecting risks and taking remedial measures.

1. Measures for Quality Management

We will strengthen quality assurance management at each business location by utilizing the quality guidelines, and we will hold group quality leader conferences, which will be organized by the Quality Management Department.

2. Rotation and Development of Quality Assurance Personnel

We will position the quality assurance personnel as company-wide expert personnel and will develop rotating assignments and training among them across business divisions.

3. In-house Education Programs Regarding Quality

We will offer training to all personnel who engage in quality-related tasks in the Kobe Steel Group, and encourage them to follow the Quality Charter.

4. Support by the Head Office

The Quality Management Department will carry out audits. The head office will respond to problems that arise in each location through the Quality Caravan Team.

1. Preventing Anyone from Improperly Treating Test or Inspection Results and Standardize the Conditions for Shipment

While proceeding with the automation of testing and inspection procedures, we will eliminate one-person manual entry of data to the greatest extent possible. In addition, by unifying shipping standards, we will eliminate opportunities for misconduct arising from the existence of double standards (i.e.; customer specifications and an internal standard).

2. Understanding Process Capabilities and Operating within Them (with respect to the materials businesses)

The degree of variation found in the quality properties of manufacturing processes will be used for deciding whether to accept or reject sales orders.

3. Reviewing the Approval Process for Accepting New Purchase Orders

For the purpose of preventing a situation where we produce products that do not satisfy customers’ requirements in each business division, from now on we will decide whether to accept a purchase order after going through an authorization process for reviewing capabilities for development and mass production, among others (i.e., design review).

4. Reviewing the Approval Process for Introducing a New Manufacturing Process

We will review the authorization process when making changes to the 4Ms (i.e., manpower, machine, material and method), which affects product quality.

5. Promoting Quality Risk Management in Capital Investment

We will implement an investment standard that takes into account mitigation of the quality risks.

Link to Report on Misconduct in Kobe Steel Group, dated March 6, 2018