Japan needs to cultivate a culture of transparency

WHEN things go wrong, what is it with Japanese corporate chieftains? Shigehisa Takada, the chairman of Tokyo-based Takata, is facing a spiralling scandal after news that another victim – a pregnant woman in Malaysia – was killed by one of his company’s airbags. The US Senate is holding hearings on the issue next week, and a US grand jury has subpoenaed company officials. And yet Takada remains AWOL, leaving company hacks to assure reporters that he “deeply apologises” for the five deaths and 139 injuries now attributed to Takata products.

Takada’s disappearing act is reminder of the uphill slog Prime Minister Shinzo Abe faces in his efforts to strengthen corporate governance in Japan. Five years after the start of Toyota’s massive recall and three years after Olympus shocked the world with a $1.7 billion (R18.8bn) fraud, the country’s top executives remain far too insulated from the kind of shareholder and media scrutiny now common in the West.

I’m not trying to indict all of Japan Inc here. But the fact that executives at Takata, a company that employs 35 000 people worldwide, think they can handle a publicsafety issue with such a blatant lack of transparency should be deeply concerning to the government and people of Japan.

Companies make faulty products sometimes. Innovation, after all, is about taking risks and seeing what works. When mistakes happen, the key is to identify flaws quickly, admit them openly and fix them methodically.

It’s all about the response, as MBA students learn about, say, Johnson & Johnson pulling millions of Extra Strength Tylenol bottles from store shelves in the early 1980s after seven Chicago-area deaths.

Abe has pledged to drag Japanese management into the modern world, kicking and screaming if need be. He’s pushing firms to bring independent directors on to boards, hire more female executives and make more company data available. He wants to introduce a stewardship code that would enlist investors to press management for higher returns. But the endeavour is a work in progress, at best. Thanks to Abe’s sliding support rate these muchneeded reforms are being watered down.

Japanese companies, if they care about their global reputations, should instead be embracing Abe’s efforts and, indeed, going beyond them. Perhaps Takata’s next chairman shouldn’t be the grandson of the company’s founder, but a leader ready for prime time. In a decidedly top-down economy like Japan’s, it’s not surprising executives would wait around for the government to codify rules of conduct and accountability. But that’s not nearly good enough if they want to compete globally.

Toyota’s 2010 playbook may offer a road map for others. Back then, Akio Toyoda had a pretty terrible showing early into the car maker’s crisis over cars that accelerated unexpectedly. Toyoda, the grandson of company’s founder, held just one press conference as the crisis spread. But then Toyoda was ambushed by TV network NHK at Davos and he came clean.

“We pursued growth over the speed at which we were able to develop our people and our organisation,’’ Toyoda told U.S. lawmakers during a Capitol Hill grilling soon after. “You have my personal commitment Toyota will work unceasingly to restore the trust of our customers.”

If Abe is going to get traction with policies to make corporate Japan more vibrant and productive, executives have to drop the ignore-deny-obfuscate mindset of old. Neither they nor their customers can afford it. – Bloomberg