Kawasaki Kisen Kaisha : Corporate Governance Report

1. 1. Harmony in the international society
   2. No relations with anti-social forces
2. [Supplementary Principle 4.11.1 Principles on the Appropriate Balance Between Knowledge, Experience and Capabilities of the Board of Directors as a Whole, on Diversity and Appropriate Board Size, and Policies and Procedures for Appointing Directors]

and

6) [Principle 3.1 (iv) Principles and Procedures in the Appointment/Dismissal of the Senior Management and the Nomination of Director and Audit & Supervisory Board Member Candidates by the Board of Directors]

To achieve the management plan, the Company's Board of Directors shall consist of a variety of individuals of different genders, nationalities, careerswork histories, and ages, including those with experience in managing corporations and other large organizations and those with expertise in the operational, technical, financial, and other aspects of the shipping industry. This is to ensure constructive discussions and supervision based on diverse backgrounds and knowledge. The Company shall consider to such diversity when selecting candidates for Directors and the Audit & Supervisory Board Members and create and disclose a skill matrix for Directors. In addition, with respect to the size of the Board of Directors, there are currently nine Directors in office, of which four of them are Independent Outside Directors who satisfy the Company's criteria.

The skill matrix of directors is described as follows and disclosed in the Notice of the 155th Ordinary General Meeting of Shareholders.

• Notice for the General Meeting of Shareholders (page 23)

https://www.kline.co.jp/en/ir/stock/meeting/main/014/teaserItems1/0/linkList/0/link/Notice%20of%20the%20155th%20

Ordinary%20General%20Meeting%20of%20Shareholders.pdf

The Guidelines stipulate the following regarding the qualifications required of officers.

1. The Company shall appoint to its Directors and Audit & Supervisory Board Members individuals possessing such broad and deep experience and knowledge as to be able to contribute to the monitoring of business execution, superior in personal quality, and highly conscious of complying with laws and regulations and prescriptive social norms. Also, the Company shall appoint those with expertise in finance, accounting, and legal affairs as Audit & Supervisory Board Members, and of which at least one person shall possess appropriate expertise on corporate finance and accounting.
2. The Independent Outside Directors shall be persons capable of performing the following roles and responsibilities, in addition to the aforementioned.

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1. Provide advice on business policies and business improvement based on their knowledge and experience with the aim to promote sustainable corporate growth and increase its corporate value over the medium- to long-term;
2. Evaluate management's performances as needed and express views, as members of the Nominating Advisory Committee and the Remuneration Advisory Committee, on management nominations and remunerations;
3. Monitor the management through important decision-making at the Board of Directors;
4. Monitor conflicts of interest between the Company and its management or controlling shareholders, etc.; and
5. Appropriately represent the views of stakeholders at the Board of Directors from a standpoint independent of the management and controlling shareholders.

1. The Company shall appoint to its Executive Officers individuals who are familiar with the shipping industry, who have abundant international sensibility and business acumen, who are highly esteemed inside and outside of the Company, who are capable of contributing to the implementation of the medium-term management plan as managers, and who are highly conscious of complying with laws and regulations and prescriptive social norms. When re-appointing the Executive Officers, the Company shall take into account the performance, etc. of the business units and departments of which they are in charge.

The Guidelines stipulate procedures enlisted by the Board of Directors with respect to appointing and dismissing senior management, and also with respect to nominating Director and Audit & Supervisory Board Member candidates, as determined by the Board of Directors. Such procedures are based on the aforementioned nomination policy, and subject to the fair, transparent and rigorous deliberations and recommendations of the Nominating Advisory Committee, and also subject to the consent of the Audit & Supervisory Board with respect to the candidates for Audit & Supervisory Board Member. When making such decisions, the Board of Directors shall respect the recommendations of the Nominating Advisory Committee.

The Nominating Advisory Committee shall furnish recommendations and advice to the Board of Directors, upon having deliberated on the reasonableness of proposals for appointment or dismissal of the Company's officers, as well as any other matters subject to inquiry of the Board of Directors concerning appointment or dismissal of the Company's officers. The Nominating Advisory Committee shall comprise all Independent Outside Directors, the Chairman, and the President & CEO, and its chairperson shall be appointed from among committee members who are Outside Directors. (Response to Supplementary Principle 4.11.1 with subsection I. 1. 12) )

7) [Principle 3.1 (v) Explanations with Respect to Individual Appointments/Dismissals of the Senior Management and Nominations of Director and Audit & Supervisory Board Member Candidates by the Board of Directors]

The Company shall disclose reasons for appointment of its currently serving Directors and Audit & Supervisory Board Members in its Notice for the General Meeting of Shareholders. Moreover, reasons for appointment of the Outside Directors and Outside Audit & Supervisory Board Members are explained in this Corporate Governance Report, as well as in the Notice (Refer to section II-1 of this Report).

8) [Supplementary Principle 4.1.1) Scope of Matters Delegated to the Senior Management]

The Company shall stipulate in the Guidelines the following duties, such that are to be carried out by the Board of Directors which is to consist of a diverse range of Directors who are to be accordingly appointed based on the aforementioned policy for nomination.

1. Set strategic direction by examining and deciding upon matters relating to the Company's business policy and strategy including business principles, corporate vision and medium-term management plan;
2. Conduct multifaceted and close examinations of, and decide upon the matters which are prescribed to be decided upon by the Board of Directors, from an independent and objective standpoint in light of the Company's business policy and business strategy, and receive reports on those matters which are required to be reported to the Board of Directors;
3. Conduct multifaceted and close examinations of proposals from the Executive Officers based on healthy entrepreneurship, from an independent and objective standpoint, in order to establish an environment that supports appropriate risk-taking by the Directors and the Executive Officers, and support the timely and bold decision- making by the Directors and the Executive Officers when approved plans are implemented;
4. (i) Oversee the execution by the Directors and the Executive Officers of their duties from an independent and objective standpoint, (ii) monitor the progress of the management plan and evaluate the status of achievement; (iii) analyze the causes if the management plan is not achieved and reflect such analysis on future plans; and (iv) disclose said causes of non-achievement and analysis to the shareholders;
5. Develop and improve the risk management system and the corporate governance structure including the internal control system in order to ensure the rationale of the Company's decision-making process; and
6. Secure its fiduciary accountability to the shareholders on the Company's management, and oversee the Directors in order to ensure that information will be disclosed in a timely and accurate manner.

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As such, the Regulations on Decision-Making Standards shall limit matters to be determined by the Board of Directors to those listed under items 'i.' to 'vi.' as follows, and decisions on matters of business execution otherwise shall be entrusted to the Executive Officers.

1. 1. Matters to be decided upon by the Board of Directors under laws and regulations;
   2. Matters relating to the Company's business policy and strategy including business principles, corporate vision and medium-term management plan, strategic direction of the Company, and a single-year budget;
   3. Important internal rules including Regulations on Decision-Making Standards;
   4. Response guidelines to deal with any serious law violation committed by the Company;
   5. Matters relating to significant lawsuits; and
   6. Significant matters comparable to any of the matters set forth above.
2. [Principle 4.9 Independence Standards and Qualification for Independent Outside Directors]

In addition to requirements stipulated by the Companies Act, the Company has established specific standards relating to independence in selecting Outside Directors and Outside Audit & Supervisory Board Members, which are provided below. Persons for which none of the criteria listed in the below items apply are deemed to be independent.

1. A person who has been a business executor (meaning a business executor as provided for in Article 2, Paragraph (3), Item (6) of the Regulation for Enforcement of the Companies Act; the same shall apply hereinafter) of a corporate group for whom the Company is a major client within the past three years.
   "A corporate group for whom the "K" LINE Group is a major client" refers to a corporate group that has received payment from the Group in each of the years in this three-year period accounting for over 2% of consolidated sales in each such year for that corporate group.
2. A person who has been a business executor of a corporate group that is a major client of the "K" LINE Group within the past three years.
   "A corporate group that is a major client of the "K" LINE Group" refers to a corporate group who made payment to the Group in each of the years in the three-year period accounting for over 2% of the Group's consolidated sales in each such year.
3. A person who has, within the past three years, been a business executor of a financial institution or another principal creditor, or its parent company or important subsidiary that plays a critical role in the "K" LINE Group's financing to such a degree that it is irreplaceable for the Group.
4. A person who has been paid ¥10 million or more or has received other assets in an amount equivalent thereto other than officer's remuneration from the Group in the past three years; or a person who has, within the past three years, belonged to an audit firm, tax accounting firm, law firm, consulting firm or other professional advisory firm that has been paid ¥10 million or more or other assets in an amount equivalent thereto by the Group in each of the years in the three-year period accounting for over 2% of the total revenues of such juridical person, etc. However, this shall not apply to a person who belongs to such juridical person in outline but has substantially no conflict of interest with the Group (a person who does not receive any compensation from such juridical person, for example).
5. A shareholder holding over 10% of the voting rights of the Company. If the shareholder is a juridical person, a person who has been a business executor of the shareholder or its parent company or subsidiary within the past three years.
6. Spouses or persons who are a relative of the second or less degree of a person falling under any of the above criteria.
   The Guidelines stipulate that the Board of Directors shall endeavor to select the Independent Outside Director candidates who can contribute to the Company's sustainable growth and increase of corporate value over the medium- to long-term and can be expected to contribute to frank, active and constructive discussions at the Board of Directors.

1. [Supplementary Principle 4.11.2) Status of Concurrent Positions of Directors and Audit & Supervisory Board Members with Other Listed Companies' Officers]

For details regarding Directors and Audit & Supervisory Board Members who are concurrently serving as officers of other listed companies, please refer to the Company's Notice of the 155th Ordinary General Meeting of Shareholders, pages 10 to 28 and pages 51 to 52.

https://www.kline.co.jp/en/ir/stock/meeting/main/014/teaserItems1/0/linkList/0/link/Notice%20of%20the%20155th%20

Ordinary%20General%20Meeting%20of%20Shareholders.pdf

1. [Supplementary Principle 4.11.3) Overview of Analysis and Evaluation of Effectiveness of the Board of Directors as a Whole]

With the aim of improving functions of the Board of Directors, the Board of Directors analyzes and evaluates its effectiveness as a whole, which involves referring to self-evaluation conducted annually by each of the Directors.

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• Medium- to long-termperformance-based remuneration (stock)
  The medium- to long-termperformance-based remuneration (stock) shall be linked to the total shareholder return (TSR) and other indicators in order to further share value with shareholders and make the incentives for Directors to

enhance corporate value over the medium- to long-term function effectively.

Note: The Company's TSR = The rate of increase of the Company's shares over a fixed period + The dividend rate over the fixed period (Total dividend ÷ Initial share price)

For TSR-based indicators, a combination of the ratio of the Company's TSR to the TOPIX growth rate (hereinafter, the "TSR Ratio") and the ranking of the Company's TSR to the TSR of other companies shall be used to determine the coefficient for multiplying the base amount for each position.

If the TSR Ratio is 50% or less, the coefficient for multiplying the base amount for each position shall be 0 (the minimum value); if the TSR Ratio is 100%, the coefficient shall be 1 (when set targets were achieved); if the TSR Ratio is 150% or more, the coefficient shall be 1.62 (the maximum value); and if the TSR Ratio is more than 50% but less than 150%, the coefficient shall be calculated through a certain formula.

Apart from TSR-based indicators, the Company introduces coefficients based on the level of achievement of the targets in the medium-term management plan and the ranking of the Company to other companies as ROE indicators, and coefficients that assess the improvements in CO2 emissions efficiency as ESG indicators.

The degree of linkage to performance is designed to increase in accordance with management responsibility. The composition ratio for TSR indicators: ROE indicators: ESG indicators (CO2) is set at 90:5:5.

The total values of each coefficient (the minimum value 0, the maximum value 1.8) calculated as detailed above shall be multiplied by the base amount for each position to calculate the amount of medium- to long-termperformance-based remuneration, which will be converted into points and awarded to Directors each fiscal year. In principle, the Company's stock, etc. will be delivered at the time of retirement in proportion to the accumulated number of the points awarded.

15) [Supplementary Principle 4.14.2) Policy on Training of Directors and Audit & Supervisory Board Members]

The Company's Guidelines stipulate training policy, as follows, with the aim of facilitating appropriate performance of the roles and responsibilities expected of Directors and Audit & Supervisory Board Members who constitute a critical element of the governance body.

1. Within three months from their appointment, the Company's newly-appointed Directors shall participate in an outside seminar primarily addressing the issues of legal liability under the Companies Act, the Financial Instruments and Exchange Act and other relevant acts. In addition, the Company shall provide the newly-appointed Directors with commentary books on directors' responsibilities.
2. Each year, the Company's Directors and Audit & Supervisory Board Members shall attend a training session on compliance matters including competition laws, insider trading regulations and anti-bribery.
3. When Outside Directors and Outside Audit & Supervisory Board Members take office, the Company shall ensure they gain a full understanding of the Group's business, corporate finance, organizational status, business environments and management issues by having its departments and officers in charge offer explanations about such subjects.
4. The Company's Directors and Audit & Supervisory Board Members including outside officers shall actively gather information at any and all times, and shall devote themselves to the studies of the Company's financial condition, status of compliance, corporate governance and other relevant matters.

16) [Principle 5.1 Policy for Constructive Dialogue with Shareholders]

From the perspective of achieving sustained growth and increasing corporate value over the medium- to long-term, the Company engages in constructive dialogue with its shareholders, investors and its Guidelines and IR Policy furthermore stipulate policy, as follows, on establishing frameworks and engaging in efforts to facilitate such dialogue.

1. To achieve sustained growth and increased corporate value over the medium- and long-term, "K" LINE considers and executes measures that promote constructive dialogue with shareholders, investors etc.
2. The Executive Officer in charge of the Company's Corporate Sustainability, Environment Management Promotion, IR and Communication shall be responsible for overseeing constructive dialogue with shareholders, investors, etc. The relevant departments in corporate such as Corporate Sustainability, Environment Management Promotion, IR and Communication, Corporate Planning, General Affairs, Finance, Accounting, and Legal shall ensure positive cooperation with each other and endeavor to enhance measures to promote constructive dialogue.
3. "K" LINE seeks to enhance promoting our shareholders and investors' understanding of our financial situation and having dialogue with them through proactive disclosure and polite questions and answers in General Meeting of
   Shareholders, sessions, facility tours, the Company' website, Integrated Report, and FACT BOOK, and brochures issued for shareholders and investors. We also explain our business strategy, business description and financial results, etc. to institutional investors through quarterly financial results briefings, briefings on our management plan and sessions held by security companies, etc. In addition, we seek to enhance dialogue with them through small meetings for such investors, conferences, and overseas investors' road show meetings, etc.

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1. As for views and concerns of shareholders, investors etc. which "K" LINE has received through the above opportunities, we shall compile them according to their respective importance as appropriate and report them collectively to the Board of Directors, etc.
2. "K" LINE appropriately controls insider information in accordance with Financial Instruments and Exchange Act and relevant laws and regulations as well as internal rules.
3. The Company shall respect the intent and meaning of the Fair Disclosure Rules specified in the Financial Instruments and Exchange Act and other related laws, and shall furthermore strive to ensure fair information disclosure in accordance with the Fair Disclosure Policy stipulated in its IR Policy.

Please refer to the Company's website via the link below to access its entire IR Policy. https://www.kline.co.jp/en/ir/management/policy.html

17) [Principle 1.4 Cross-Shareholdings]

The Company owns and operates numerous high-cost assets in the form of marine vessels over extended durations of time. The Company furthermore operates against a backdrop of a business environment epitomized by business performance that is highly volatile due to foreign exchange, market conditions and other such factors that are beyond corporate efforts of individual companies. To achieve long-term and sustainable growth given such a scenario, the Company maintains cross-shareholdings of partner companies deemed necessary in order to sustain and strengthen the Company's transactional and business relationships. Meanwhile, the Board of Directors assesses whether or not the Company should maintain individual holdings and took steps to reduce the Company's Cross-Shareholdings, to which ends it is to meet no less than once per year and take an objective standpoint with respect to specifically scrutinizing the purposes of maintaining the individual holdings and the medium- to long-term economic rationale of maintaining such holdings. As of March 31, 2023, the number of stock listings in the Company's portfolio of cross-shareholdings was three. Upon assessing the economic rationale of such holdings, the Company considers the notion of selling shares in cases where returns gained through the holdings during the fiscal year fall below our cost of capital.

The Guidelines stipulate that, when exercising the voting rights as to the Cross-Shareholdings, the Board of Directors shall fully examine whether or not the relevant propositions would contribute to the enhancement of the Company's corporate value and the shareholders' common interests, hold dialogues with issuing entities as needed, and shall determine whether it would vote for or against the said propositions.

18) [Principle 1.7 Related Party Transactions]

The Company has established the following procedures with respect to related party transactions, and finds that management is capable of supervising such transactions based on such procedures.

1. The Regulations on Decision-Making Standards stipulate that the Company is to refer matters to be addressed by and seek prior approval from the Board of Directors with respect to certain matters irrespective of monetary amount, such that include: transactions with major shareholders whose holdings account for more than 10% of the Company's voting rights or transactions between the Company and its Directors; transactions conducted by a Director with the Company for a third party; transactions involving conflict of interest; and, debt guarantees of Directors made by the Company. The Regulations on Decision-Making Standards also stipulate that key developments must be reported to the Board of Directors subsequent to having carried out a transaction. As such, the Board of Directors supervises appropriateness of transactions.
2. The Company shall treat all of its shareholders impartially, and accordingly must not make special considerations for specific shareholders.
3. The Company shall determine the presence or absence of related party transactions upon submission of confirmation documents for all of the Company's officers each fiscal term, and shall furthermore verify transaction details in the event that related party transactions have taken place.

1. [Supplementary Principle 2.3.1) Measures to Address Sustainability Issues],
2. [Supplementary Principle 4.2.2) The Formulation of a Basic Policy for Sustainability Initiatives]
   and
3. [Supplementary Principle 3.1.3) Disclosure Concerning Sustainability]

Amid globally accelerating changes in value and behavior, as well as increasing awareness of the need to reduce the environmental burden caused by global warming, "K" LINE considers sustainability management as a priority issue for enhancing corporate value over the medium to long term and discusses the issue continuously at the Board of Directors' meetings.

To reinforce management where these issues are key objectives, the Company established the "Corporate Sustainability Management Committee" and the "GHG Reduction Strategy Committee." The President & CEO acts as the Chairman of each committee, which is enhancing corporate value by reviewing and formulating a promotion system for "K" LINE Group's sustainability management and a GHG reduction strategy. As organizations responsible for practical implementation, the Corporate Sustainability, Environment Management Promotion, IR, and Communication Group,

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