What happens when a series of scandals so engulfs a country that its entire national brand is put in jeopardy? At one time that appeared to be close to what might happen to the German auto manufacturing industry around the deisel car engine scandal. But that fear appears appears to have lessened. The same cannot be said of Japan Inc., however, where a series of what are basically fraud scandals, around product testing and certification have through the entire country into turmoil. Some of the country’s most memorable companies, including Nissan Motor, Subaru, Toray Industries, Kobe Steel and Mitsubishi Materials have all be accused or admitted they cheated on quality tests or falsified documents to sell their products.
Leaving aside the legal liability, both corporate and individual, for such actions; what does such actions mean for a country which assumed to be dedicated to quality in manufacturing. This is what allegedly separated Japanese goods in the global marketplace from its rival China. Yet, there seem to be two very large questions looming (1) How did the scandals occur in such a wide range of companies? and (2) Why they are all being made public at relatively the same time?
As to the first question, the answer is probably a combination of intense pressure to perform at a high level (that is not limited to Japan-witness the indictments against KPMG this week) coupled with the lack of an institutional compliance function fully empowered to prevent, detect, and remediate issues. They bespeak of an entire culture where corner cutting, leading to illegal actions become the norm. If you consider the VW emissions testing scandal in this light, the original deception may have been from a small group of engineers who simply wanted to buy time to conform to regulations but were caught in the spiral of deception; much like a junkie who cannot give up drugs.
As to why these scandals all seem to be appearing at the same time, the answer may be more akin to what the United States saw after the passage of Sarbanes-Oxley, companies now are required to report failures. When you couple this with the pervasiveness of social media, you can see how front line Japanese employees, who have been taught all their lives to play by the rules, would rebel from such corporate mandates by publicizing the conduct. Now overlay the ‘inscrutable’ Japanese management instinct for opaqueness and you can see how it all may have some down.
The answer is simple: o compliance.