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Environmental Management Sustainability Report 2007 Corporate Governance and Compliance Corporate Ethical Principles Our Corporate Ethical Principles define a set of guidelines that Kobe Steel, Ltd., including all officers and employees, must follow when conducting its diverse business activities. Top company executives in particular play an especially important role in implementing this code, and are expected to both take the initiative and set an example for others. As such, they are responsible for doing everything in their power to thoroughly disseminate understanding of and adherence to the Corporate Ethical Principles throughout the Company. We are committed to listening to suggestions by people both inside and outside our organization in order to create an effective in-house system that thoroughly enforces ethical behavior. If at any time we discover that people's health and safety are being threatened by our business activities, we pledge to quickly and accurately provide the public with all pertinent information. The following Corporate Ethical Principles are based on our commitment to corporate compliance and concern for the environment. It is intended to govern our interaction with our many stakeholders, including customers, business partners, shareholders, investors, administrative agencies, employees, and local communities. By following these principles, we are committed to fulfilling our corporate social responsibility. Kobe Steel will: 1. Operate business fairly and honestly and comply with applicable laws, rules, and principles of society. 2. Contribute to society by offering excellent products and services; in particular, pay particular attention to product safety and protection of personal information of customers and partners. 3. Create a safe, comfortable and productive workplace and respect the individuality and differences of employees. 4. Respect the interest of stakeholders. Maintain a friendly and healthy relationship with its stakeholders including customers, suppliers, employees and shareholders. 5. Be a good corporate citizen that contributes to local communities. 6. Devote itself to protecting the environment and creating a comfortable society. 7. Respect the culture and customs of other nations and contribute to the growth and development of their communities. Strengthening and Enhancing Corporate Governance Kobe Steel understands that executive decision-making and day-to-day operations are inseparable. Therefore, company officers who are selected by stockholders at general stockholder meetings bear legal responsibility in their dealings with stockholders and business partners and are the core implementers of business operations. In this capacity they oversee the running of all major business divisions. To further ensure the transparency and fairness of company management, two outside directors were invited to join the Board of Directors in June 2007 with the aim of strengthening the Board's monitoring function. From June, then, the Board has been composed of: senior management and executives responsible for head office functions; the heads of key business divisions that have major managerial influence; the presidents of internal companies; and outside directors. Corporate officers are selected by the Board and carry out the duties that the Board assigns to them. Although corporate officers do not constitute a legal entity, they are appointed by the Board and entrusted by the President and CEO to fulfill their duties as directors of company operations. While establishing this corporate officer system, which integrates executive decision-making with daily operations, Kobe Steel also has adopted an auditing system that employs four statutory auditors, two of whom come from outside the company. By strengthening auditing functions, we have heightened the efficacy of corporate governance. Internal audits are conducted by auditors who maintain their autonomy by belonging to an independent Audit Department. * Shareholders were consulted concerning the appointment of outside directors at the 154th General Meeting of Stockholders. Corporate Governance System Compliance System Kobe Steel has a Compliance Committee that advises the Board of Directors. Four of its members are company directors; five come from outside the company and are appointed in order to maintain fairness and neutrality. The Committee proposes recommended plans, checks on progress, and deliberates cases reported through the internal reporting (whistle-blowing) system. In addition, one of the company directors is placed in charge of corporate compliance, and we have established the Compliance Planning & Administration Section in our Legal Department. This section maintains contact with administrative departments in the internal companies and compliance leaders (i.e., line general managers) in the departments. Diagram of Kobe Steel's Compliance System Adopting a Corporate Code of Ethics and Preparing Ethics Manuals In June 2000, Kobe Steel formulated a Corporate Code of Ethics, which concretely embodies the policies we follow to ensure compliance with the law. The Code was amended in 2003, 2005, and again in 2006. The Corporate Code of Ethics embodies our corporate philosophy and delineates concrete behavioral policies that we follow both to fully comply with all laws, regulations and societal norms, and to become a better corporation. The Code is comprised of two sections: Corporate Ethical Principles, and Standards of Corporate Conduct. Major group companies have also formulated their own corporate ethical principles and standards of corporate conduct. The Corporate Ethical Principles set forth standards with which Kobe Steel, Ltd., including its directors, officers, and employees, must comply when conducting their various business activities. The Standards of Corporate Conduct provide a basic guide to help implement the Principles in day-to-day business operations. Guidelines for Employee Behavior and Other Detailed Manuals The "Conduct Guide for Employees" offers clear-cut, detailed explanations that help employees comply with the Standards of Corporate Conduct. An even more detailed breakdown of the content is presented in a series of operational manuals, as shown below. Detailed Manuals - Manual for Complying with Anti-Trust Laws - Compliance Manual for the Subcontractors Law - Manual for Handling Electronic Data and Peripheral Equipment - Intranet for Intellectual Property Information - Corporate Secrets Guide and Management Manual - Web site for Managing Security Trade Control - Manual to Reject Extortion Against Companies - Manual for Dealing with Public Officials - Manual for Preventing Sexual Harassment - Manual for Managing Personal Information Internal Reporting System The internal (whistle-blowing) reporting system is one method we use to prevent the emergence and expansion of risks associated with legal violations or unethical behavior, and to enable us to quickly grasp a problem and formulate appropriate countermeasures. If an employee discovers unfair practices within the Company that violate the law, or if it is reasonable to believe that such practices are happening, this system allows the employee in question to report the matter directly to lawyers outside the Company. Diagram of Kobe Steel's Internal Reporting System Compliance Education Every year, Kobe Steel holds a "Compliance Top Seminar" and conducts compliance training sessions aimed at Kobe Steel's directors and management personnel working at Group companies. In addition, e-learning programs focusing on legal and statutory education are provided to all directors, managers and planning staff, and compliance education programs are conducted in various personnel training programs for employees at all company levels. In this way, we work to ensure that the issue of compliance is thoroughly understood by all employees. Compliance Top Seminar Protecting Personal Information Kobe Steel has established a Privacy Policy and Personal Information Management Regulations as part of a management system we are creating, which also includes an officer in charge of personal information protection and managers responsible for personal information in each department. Personal information is managed appropriately on the basis of the Personal Information Management Regulations and the Personal Information Management Manual. Adherence to the regulations and manual is confirmed through regular monitoring. Group-Wide Measures All Kobe Steel Group member companies* are establishing their own compliance committees, formulating corporate codes of ethics, and introducing internal reporting systems. They are also establishing the posts of "compliance director" and "compliance promotion manager," who pursue compliance programs while maintaining contact with Kobe Steel itself. In addition, our Japanese-language in-house magazine, KOBELCO Newsnet, for employees of Kobe Steel and all Group companies, runs a comic section dedicated to compliance themes. Kobe Steel organizes training sessions within the Group for personnel responsible for promoting compliance. In these and other ways, we are making sure that all Group employees are aware of the importance of corporate compliance. Compliance comics in KOBELCO Newsnet Diagram of the Kobe Steel Group's Compliance System * Kobe Steel Group companies include Japan-based, consolidated subsidiaries and equity-valued affiliates in which Kobe Steel is the largest shareholder. Takashi Matsutani Company-wide Compliance Director (Senior Managing Director, Kobe Steel, Ltd.) The Importance of Conscientiousness in Compliance Companies are built on a foundation of public trust. There are various conditions that must be fulfilled if a company is to enjoy that trust, but one essential element is reliable corporate compliance. Last year, soot and smoke emissions at two of our steel works exceeded permissible limits, causing Kobe Steel to adversely affect not only local residents but all others with a stake in the company. From this experience it became painfully clear just how important it is for an awareness of compliance to permeate the entire corporate group. In recommitting ourselves to the task of thoroughly disseminated the concept of compliance, we have adopted "conscientiousness" as our key word. Our goal is to firmly ground Kobe Steel's corporate culture in the reliable observance of all laws and social standards. We believe that this commitment to "conscientiousness" will enable us to maintain a relationship of trust between Kobe Steel and all of our stakeholders.