Kobe Steel presents a classic case in which a scandal led a company to ini- tiate efforts to change its corporate culture. In the course of a corporate restructuring in 1999, Kobe Steel discovered a violation of Japan’s Commercial Code. Three Kobe executives were suspected of having paid sokaiya racketeers in return for their help in ensuring that the 1997 share- holders’ meeting went smoothly. In November 1999 the executives con- cerned were subpoenaed for investigation by the police, and the company was subjected to police inspection. According to newspaper reports, the executives had made illicit payments for at least 11 years, for a total of about 210 million yen. It was also reported in the same month that a total of 160 million yen of “political contributions” had been transferred through a Venezuelan ambassador to Japan to a candidate running in Venezuela’s 1998 presidential election.
The company reacted quickly. It established a Corporate Ethics Committee, transferred control over shareholders’ meetings and stock affairs from the General Affairs Department to the Legal Department,
and created the position of legal affairs management officer within the Legal Department. In 2000 a New Year ’s address by President Mizukoshi stressed the commitment of top management to corporate ethics. The president declared, “To restore lost trust from society as soon as possible, and to prevent another occurrence, we will devote our full efforts to improve the corporate culture of the company,” which would become a “highly transparent corporation with a law-abiding spirit.” In fiscal 2001 the company undertook to strengthen the role of external auditors and to improve the disclosure of matters relevant to shareholder meetings.
The makeup of Kobe Steel’s Corporate Ethics Committee was unusual for a Japanese company. President Mizukoshi assumed the task of com- mittee chair, joined by three board members and three experts from out- side the company. In this structure the president exercises leadership while respecting views from outside the company and limiting participa- tion from within the company. The Legal Department has administrative responsibility for the work of the committee.
The committee proposed a plan to establish a corporate ethics, or com- pliance, system by the end of fiscal 2002. Specific measures were to include the drafting of a code of ethics, the establishment of an ethics con- sultation office, the enhancement of internal controls, the implementation of compliance training, and the compilation and distribution of manuals.
A compliance-related reporting and consultation system for early preven- tion or minimization of risks was also to be put in place.
Corporate Code of Ethics
The Corporate Code of Ethics was drafted by middle management, reporting to the Corporate Ethics Committee, and was released in June 2000. In its preparation, some recourse was made to the codes of other companies. Despite its history of more than 90 years, Kobe Steel had nothing resembling a specific company code or statement of corporate philosophy.
The code now forms the center of Kobe Steel’s approach to corporate ethics. Its introduction states that for a company to be ethical, individual employees must be mindful of the ethics of the company. The code is divided into Principles of Corporate Ethics, the Code of Conduct, and Guidelines for Implementation (box CS.1).
Part 2 of the Code of Conduct includes elements concerning gifts or graft:
• Relationships with clients. Entertaining and gift giving shall be within socially acceptable parameters. Employees are prohibited from giving
Box CS.1. Kobe Steel’s Corporate Code of Ethics A. Principles of Corporate Ethics
• Observe the laws and regulations, as well as the standards of soci- ety, and conduct business in a fair and sound manner.
• Contribute to society by providing excellent products and services.
• Respect each employee’s personality and individuality and create an open work environment.
• Respect stakeholders.
• Be a good corporate citizen and contribute to the community.
• Contribute to protecting the environment and building a more afflu- ent and comfortable society.
B. Code of Conduct Part 1. Business activities
• Provide excellent and safe products and services.
• Foster healthy and good relationships with customers and other parties.
• Promote fair and free competition.
• Protect intellectual property rights.
Part 2. Kobe Steel and its employees
• Respect each employee’s personality and individuality.
• Protect privacy.
• Protect human rights and prohibit discrimination.
• Maintain a safe and healthy work environment.
Part 3. Kobe Steel and society
• Observe laws and regulations.
• Sever ties with antisocial elements.
• Disclose information.
• Protect the environment.
• Contribute to the community.
C. Guidelines for Implementation
The guidelines lay out the measures needed to implement the Princi- ples of Corporate Ethics and the Code of Conduct and to monitor the state of compliance:
• Familiarization/establishment inside and outside the company.
• Implementation system for the Corporate Code of Ethics.
clients rebates, commissions, and other forms of compensation that would enable the clients to benefit personally or that are made discre- tionally. When employees must officially give gifts to customers, they must follow the rules approved by their departments.
• Relationships with suppliers. Suppliers should be selected on the basis of rational criteria such as price, quality, and terms of delivery. Employ- ees may be entertained by or receive gifts from suppliers as long as these are within the parameters of what is socially acceptable. Employ- ees must report such activities to their managers. If suppliers provide entertainment or gifts that go beyond the norm, employees must refuse such entertainment or return the gifts.
• Relationships with affiliated companies and partner companies. Transactions with Kobe’s affiliated companies and partner companies should be as fair and transparent as third-party transactions. Entertainment and gifts must be within socially acceptable limits.
• Relationships with ministries and local governments. With regard to civil service personnel, employees must respect the National Civil Service Personnel Ethics Law (Law No. 129 of 1999) and the National Civil Service Personnel Ethics Regulation (Cabinet Order No. 101 of 2000).
The introduction to Part 3 of the code states that “Kobe Steel shall con- duct business following the laws and regulations, as well as the norms and rules, of society. Employees shall be aware that violations of the law may jeopardize the existence of the Company.”
Severance of ties with antisocial elements is of concern for the company because of its involvement in past scandals. The relevant part of the code reads as follows:
Kobe Steel shall not become involved with any individual or group that has an adverse influence on the social order or on the sound business activities of the Company. In particular, Kobe Steel’s management should not fear such people and should become a role model in correct behavior. . . . If rack- eteers or other criminal elements attempt to extort money from the Company by making a claim against its products or any other reason, such act will be regarded as a civil violence case. On the principles of not being
• Treatment of individuals violating the Code and the Principles.
• Means for consultation on laws and regulations described in the Code of Conduct, company regulations, manuals, and so on.
afraid, not giving any payoffs and not taking advantage of others, Kobe Steel shall systematically fight against such intimidation. The Company shall not isolate any employee.