The-Downfal- of-corporate-Japan-Titans

The Downfall of Corporate Japan’s Titans

Takata’s Product Failures and Bankruptcy

The once mighty bastion of global and business success – Japan – is in the spotlight again as another one of its prominent pillars and business dynasties is embroiled in a corporate scandal.

The rise and fall of a dynasty

Takata has filed for bankruptcy in the US and Japan. This follows a string of problems at other venerable companies, such as Olympus with its cover-up in 2011 and Toyota, with not only with faulty brakes but the sorry saga of the loss of its first female executive. Then, there is Toshiba with their accounting scandal and Mitsubishi’s faking fuel economy figures. Like the VW ‘diesel-gate’ emissions scandal, Takata is another global company destroyed by a product failure and attempted cover-up – with roots in Japanese corporate culture.

Takata, Japan’s leading auto safety manufacturer, employs 43,000 globally but may be less well known publically in the West compared to other corporations. However, it is typical of other long established family founded and run firms. Established in 1933, Takata diversified from textiles into seat belts in 1960 and was then asked by Honda to produce airbags, going on to become a global leader, supplying clients from Ford and Fiat to BMW.

This scandal relates to Takata’s exploding airbags that have been implicated in deaths and injuries for over a decade resulting in fines, lawsuits and 100 million car recalls. It is reported that there is evidence that it knew of the problems and initiated a cover-up as it conducted secret airbag tests in 2004 after one ruptured and sprayed metal debris at a driver in the US and management allegedly ordered all findings and evidence to be destroyed after the bags cracked.

Lies, lies, lies

It was reported that the company subsequently lied saying that it had not tested its airbags until years later, and according to employees, it did not reveal or correct a pattern of careless airbag handling. Emails listed concerns that airbags that were wet or damaged in transportation were still being delivered to car makers while CCTV footage showed forklifts dropping units and inspections were lax. The company also ignored employee product safety recommendations and workers were pressured to manipulate data, according to insiders.

It is further said that quality problems resulted from too rapid growth, executive over-confidence and the pressure to meet tight delivery schedules as failure to do so would result in large fines if car makers lost production due to late airbag deliveries. Since these revelations, Takata has lost key carmaker clients and share price and now, further collapse into bankruptcy.

The cultural context

How has this happened?

There are both macro and micro reasons that dovetail. At the macro level, there is the context of the social and business culture forged in the aftermath of the devastation of the war as the country rebuilt itself into ‘Japan No.1’ and the second largest economy in the world on the back of gleaming corporate successes. This was underpinned by an interlocking mix of factors, including Keiretsu organisation of close ties between companies and cross-shareholdings.

There was a culturally created corporate pride, but also shame, shared by all, from CEO downwards bearing a personal responsibility for company behaviour. Part of this was a cultural aversion to criticise one’s peers and to open disagreement, especially between those in the same company and the desire for ‘in-group’ harmony.

Along with this was the traditional employment system for major corporations with recruitment straight from university with lifetime employment for the whole of the career and seniority pay. These resulted in misplaced unwavering company loyalty and employees’ reluctant to question authority.

In addition, Japan’s post-90s ‘bubble’ corporate restructuring led to the thinning out of swathes of middle managers who sometimes could act as conduits to senior managers. Indeed, collusion in the senior executive ranks and poor external controls were culprits in previous scandals. The report on Toshiba laid bare this sort of culture. There was an aggressive pursuit of unrealistic profit and earnings targets. Staff were not willing to go against the wishes of their superiors and this was worsened by poor corporate governance and the refusal of previous generations of leaders to fully retire and retaining influence on management. There was also a lack of independence of directors with many often appointed with no relevant skills to such sinecures. This poor situation took place despite Prime Minister Abe’s championing of corporate governance reform.

At the micro level, this dangerous mix is replicated in Takata’s corporate culture and organisational structure. The Takada founding family and its scions own 60 percent of the firm. The CEO’s mother is still one of the largest individual shareholders and a former executive who remains a special advisor. Her continuing influence is indicated by reports of her being known as ‘O-okusan’ or ‘big wife’ while her son, the CEO is referred to as ‘Shinge-chan or ‘the son’ in a form normally reserved for children.

Indeed, there are reports of her yelling at him and him going missing from the head office for hours. Shigeshisa Takada is the third generation head, who went straight into the family business after graduation in 1988, taking over, from his father, as CEO in 2007. His father was known as ‘emperor’ – a moniker that clearly indicates the corporate culture, management style and expectations. He was known for being ‘hands on’ and during site visits even checked machinery, in contrast to his son who is reported to be shy and interested in other matters.

Furthermore, although Shigeshisa Takada stood down as CEO in 2013, he became Chairman and then returned just 18 months later after his successor (a Swiss national from Bosch) left. This put management back in the family’s hands, further indicating poor corporate governance, as did its homogeneous boards with a lack of diversity. Along with the dominance of Tokyo headquarters, all of these factors restrained staff and directors coming forward when problems arose.

 

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Headline image, Vehicles parked inside elevated parking lot courtesy pixabay.com





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