Is scandal-hit Japan finally bowing to the inevitable?
Rocked by a series of corporate disasters, the country’s top business leaders will have to do more than say sorry in public, reports Alan Tovey
There are three main types of Japanese bow. Eshaku is little more that a nod of the head: keirei is a 30-degree tilt to signify respect. Then there is saikeirei, a full 45 to 90-degree bow that shows deep veneration, humility or abject contrition. The world has had ample opportunity to watch Japanese executives demonstrating the last of these in recent years.
While corporate scandals are by no means exclusive to Japan, the country’s companies do appear to be stringing together an impressive list of misdeeds. Last month, Kobe Steel, one of the country’s largest companies, admitted that it falsified data about the quality of some of its products over a period of three years, though many believe it could be far longer.
More than 21,500 tons of copper, aluminium and steel components were subject to “improper conduct”, Kobe said, meaning they were not up to strength and their certification data was worthless.
“Causing this serious matter has brought overwhelming shame to the company,” Kobe said in a statement.
Leading the first of what would be a series of press conferences as the scandal grew, Hiroya Kawasaki, chief executive of Kobe, said: “Trust in our company has fallen to zero.”
Some of the affected products are believed to have been sold for use in safety-critical applications such as cars, airliners and Japan’s famed bullet trains. Kobe customers include Toyota and Nissan, and its international client list features Boeing, General Motors and Daimler.
Some products were supplied for use in the nuclear industry, a terrifying prospect for Japan, with the Fukushima disaster such a recent and painful memory.
Shares in Kobe plunged 40pc on the revelations, and last week the company scrapped its financial forecasts. Naoto Umehara, executive vice-president, warned the scandal could kill the company.
“It’s very difficult to estimate what may happen as far as contracts possibly being cancelled or replaced by other firms,” he said during another apology and bow-filled press call. “We may incur extraordinary losses.”
The Kobe scandal is by no means an isolated incident. A few weeks before the steel company’s problems emerged, Nissan revealed it was facing similar troubles with uncertified staff inspecting cars. Incredibly, a few weeks after first announcing the problem, Nissan said staff without the correct certification were still checking cars. The problems will almost certainly mean costly recalls for more than a million affected cars.
Then there’s Takata, the company which collapsed into bankruptcy in the summer, finally succumbing to long-running quality problems affecting millions of its airbags, amid allegations it knew of the issues a decade before.
And Mitsubishi, which last year admitted faking data to show its cars were more fuel efficient than they really were, a scandal which Suzuki was drawn into.
And then there’s the 2015 cases of Toyo Tire & Rubber, whose shock absorbers are designed to protect buildings from earthquakes, and Asahi Kasei, whose pilings form foundations. Both were found not to have met standards, again falsifying performance data.
In 2014, Toyota agreed a $1.3bn (£995m) deal in the US to settle claims over safety issues with its cars. At least five deaths were linked to the problem, with cars accelerating even as their drivers tried to brake.
Then there’s the financial impropriety. Two years ago Toshiba chief executive Hisao Tanaka resigned over an accounting scandal in which the company overstated profits by £780m over a seven-year period that took in two of his predecessors. An investigation into the affair concluded that while bosses did not tell staff to falsify numbers, they were put under immense pressure in the expectation that corporate culture would result in this happening.
Perhaps the case of Japanese corporate malfeasance best known in the UK is that of Olympus. In 2012 its British chief executive Michael Woodford, responding to a whistleblower’s tip, exposed a £1.1bn fraud at the company just two weeks after being promoted to the top job. He was blocked by the board as he tried to discover why the company had paid hundreds of millions for worthless companies. He was fired for his efforts. On his return to Britain, Woodford was advised by police not to go out on his London flat’s balcony for fear of assassination by the Japanese mafia.
A 30-year veteran with Olympus and the company’s first foreign boss, Woodford has an unrivalled perspective on how such scandals can occur in Japanese businesses.
“Japanese senior executives are prepared to compromise their own integrity – and often commit illegal acts – in a perverted view the priority is to ‘protect’ the company at any cost, although many times such logic cloaks
the real motivation of self-interest,” says Woodford, who now advises on corporate governance and business in Japan and campaigns to protect whistle-blowers.
Japan is famed in the West for its “salaryman” concept. These longserving staff within the country’s corporations slowly move up the ladder, often on seniority rather than ability, giving them little incentive to rock the boat. Long service is rewarded, and this is a factor in the troubles within Japanese companies, according to Marcel Thieliant, senior Japan economist at Capital Economics.
“The upshot is workers may feel reluctant to blow the whistle for fear of losing their job or being demoted,” says Thieliant.
Woodford says he has great respect for “the salaryman engineer working in a factory”. It’s when these loyal employees start reaching upper management that problems can occur.
“The Japanese saying – the nail which stands up gets knocked down – is true,” he adds.
The salaryman concept is somewhat exaggerated by foreigners, according to Sir David Warren, British ambassador to Japan from 2008 to 2012. “But if you join one of the big industrial groups or trading houses, then there is a much stronger idea of having a lifelong career there,” says Sir David, who now chairs the Japan Society, an independent body dedicated to enhancing relations between the UK and Japan. “These companies pride themselves on social cohesiveness and making a contribution to society much more than being a profitmaking machine.
“It helps create a sense of loyalty but also a consensual reluctance to turn over every stone,” adds Sir David, noting that a “culture of quiet intimidation” can exist.
Unlike in the West, a new executive coming in and “kitchen sinking” a situation – throwing the blame for every problem at their predecessor’s feet – is rare. A new boss admitting a problem would mean a loss of face.
“At Olympus it was one generation covering up for another,” says Sir David, a practice which allows smaller issues to spiral out of control.
“I don’t believe it was cynical profiteering behind Kobe’s problems but more likely human error that was covered up because someone was embarrassed at making a mistake or having overseen negligence.” According to Sir David: “It’s often easier to cover up than own up – people don’t want to talk about it until it eventually becomes overwhelming.”
Woodford is far more damning in his assessment: “I love Japan but it’s an Alice in Wonderland world for business.” He says the country which once led the world in production engineering has since been caught up by other nations, creating a breeding ground for scandal. “Made in Japan used to be something special,” says Woodford. “But as times got tough they have cut corners. I’m convinced what we have seen so far is just the tip of the iceberg.”
Shinzo Abe’s election campaign pledging to restore Japan to economic health might have earned him the Prime Minister’s job, but lifting corporate governance isn’t a high priority. Abe – a former Kobe employee – sees his legacy as a “sorting out the economy,
deregulation and Japan reasserting itself militarily”, says Sir David.
Woodford says there’s a reluctance to deal with what could be a massive hidden issue. “It’s a societal problem: 80pc of people in Japanese corporates saw what I did as biting the hand that feeds you. They are just happy to bow deeply if they get caught.”
What’s needed is a “peaceful French revolution”, he says. “It’s not healthy that people automatically defer to those in offices.”
‘It’s often easier to cover up than own up – people don’t want to talk about it until it becomes overwhelming’
‘Japanese senior executives are happy to compromise their own integrity – and often commit illegal acts – to protect the company’
Nissan workers inspect trucks, left. The firm admitted that uncertified staff have been inspecting cars. Hiroto Saikawa, Nissan boss, opposite, bows at the end of a news conference. Naoto Umehara, Kobe vice president, right, and Hiroya Kawasaki, chief executive, bottom right, also bow
Kobe steelworks, above, admitted data had been falsified about the quality of its products over a three-year period