A deluge of quality scandals puts pressure on corporate Japan to stay afloat

Source:Global Times Published: 2017/12/26 20:48:39

Investors will keep up the pressure on corporate Japan to change. On top of governance trouble like the strategic and accounting errors that nearly killed off Toshiba, come revelations of dodgy quality-control at firms such as Mitsubishi Materials and Toray. This steady flow of revelations is likely to persist into 2018.

Recent episodes have turned out less serious than the lethal airbags which drove Takata into bankruptcy in June. Kobe Steel, for example, sold metal that was not up to specifications, although as of December 1 the company had verified with over 90 percent of customers that they were safe. Meanwhile Nissan and Subaru used unqualified staff inspect cars. On the surface, these reports are bad news, but the exhaustive media coverage of these gaffes also reflects Japan's national obsession with quality.

Still, it is hard not to worry about corner cutting when products go into trains, planes and nuclear plants, as Kobe Steel's do. The lapses undermine a hard-won reputation for manufacturing excellence and cause national anxiety, rekindled by the crisis at Toshiba, about poor corporate governance. This is despite years of pressure from reformers and activist shareholders to make firms better run and be more investor-friendly.

Likely factors include overworked staff, unrealistic promises to customers and, when it comes to whistleblowers, declining loyalty to employers as Japan's "job for life" culture fades. In the coming year, a flood of publicity could encourage more leaks, while some companies might find fresh flaws in themselves.

The silver lining is that this ought to precipitate better behavior. Many boards now have at least two independent directors. They should be asking tough questions about culture and processes, whether compliance teams have enough clout, and whether executives oversee things effectively.

Given the potential for value destruction, shareholders should also keep pushing. Even after recovering somewhat, Toshiba's shares closed 36 percent lower on December 7 than a year earlier. Takata's nightmare wiped out well over $2 billion of shareholder value.

Companies could bring in foreign experts to help with quality control, too. More testing could be outsourced to specialists like Bureau Veritas. Firms will also need truly independent lawyers, accountants, investigators and the like to review systems and controls, says Tadashi Kageyama of Kroll. They should, wherever possible, eliminate easily manipulated manual data collection, he added. Japan Inc has work to do to earn back trust.

The author is Quentin Webb, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews. bizopinion@globaltimes.com.cn

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