If the key to your marketing effort is the quality of your products, one of the highest, if not your highest, risk would be something untoward to knock that quality. If this knock on your quality is self-imposed, as in you engaged in fraud to obtain and keep that high reputation for quality, the crisis can quickly move to existential for your organization. This would seem to be the situation that Japanese steel manufacturer Kobe Steel now finds itself in around its fraudulent certification scandal.

After initially announcing that it had found evidence company employees had fraudulently certified certain steel and aluminum products over the past 18 months as meeting manufacturing or customer standards, the company then announced the practice may well have extended back some 10 years. Further, the fraudulent certifications were initially announced to have impacted approximately 200 customers. Over the weekend this number spread to 500. Now it appears that the fraudulent acts have extended from the company itself to its subsidiaries and sub-contractors. Finally, the U.S. government is now investigating the extent of the fraud in the United States.

At this point, Kobe Steel is still trying to determine the extent of the fraud and misrepresentation. It has said it will release a report in two weeks on the full extent of the scandal, but it is not clear if a proper root cause analysis can be completed in that time frame. Regardless of this report, the length of time to repair the damage will be much longer.

It is that basic Japanese business values of no internal conflicts and no raising of hands to ask questions (go along to get along) did not serve the company in the global marketplace. This case should serve as a warning to every company that the front-line employees must feel like they can speak up if they see something wrong, fraudulent, or illegal.

The Made in Japan brand is supposed to stand for quality, and it is marketed to be a differentiator from Made in China. If, however, a major steel manufacturer had to lie and cheat to maintain that brand for over 10 years, it may bode quite poorly for the rest of Japanese Inc. manufacturing.

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