Cheating scandals mar Japan’s reputation

Kobe Steel CEO Hiroya Kawasaki. Photo: Getty Images

This week, the international media has been filled with articles condemning Japanese business culture after another high profile scandal.

Kobe Steel has admitted it falsified safety records for products supplied to more than five hundred companies, including Japan’s biggest automotive firms and train manufacturers.

Decades of cheating

The Nikkei newspaper reported that the cheating went on for decades, with the knowledge of some of Kobe Steel’s senior managers.

Several journalists noted alarming similarities between the scandal at Kobe Steel and one at Nissan, which has had to recall every new car it sold in Japan in the last three years after it falsified safety checks.

Suzuki and Mitsubishi Motors have faced scandals over fuel economy tests on their vehicles. In addition, there was recently a major scandal at Toshiba, which tried to hide the extent of the financial problems within its nuclear power division.

Crisis in Japan Inc

The Financial Times says that “after a concentrated two year outbreak of corporate scandals… (there is) a crisis in Japan Inc.”

The FT quoted Shin Ushijima, a lawyer and corporate governance expert. “Did we not learn anything from Toshiba? What was Kobe Steel’s board doing?” he asked.

It was a theme picked up in an analysis of Japan by the BBC’s Ashleigh Nghiem in Singapore.

He suggests that Japan’s reputation as “a shining example of integrity, assured quality and reliable products” has been severely undermined by the scandals.

The BBC quoted the opinion of Takuji Okubo of Japan Macro Advisors, in Tokyo.

“Large corporations used to live in a stable, predictable and growing market, but things have changed and some companies may have resorted to cutting corners,” said Mr Okubo.

Lower Standards

Reuters also takes the view that a shrinking domestic market and increased global competition is tempting some Japanese manufacturers to lower their standards. The agency quotes Professor Thomas Clarke who warned that Japan runs the risk it will “lose out as other Asian economies, including China, progressively raise their standards of quality and reliability.”

However, Reuters also suggests that some of the scandals have come to light because of greater scrutiny of companies’ behaviour. “It may be a sign that the government’s push to improve corporate governance is seeing greater disclosure of wrongdoing,” says Reuters.

Yet the stock market booms

Despite the headlines of shame and scandal, investors appear optimistic about the Japanese corporate sector. The stock market in Tokyo has been booming, along with other major world bourses.

The Wall Street Journal says that if you look at the numbers corporate Japan seems “alive and well”. The WSJ says “business confidence is booming, exports are recovering and industrial production picked up last month. Japanese corporate profits hit their highest ever level in the second quarter. All that is fueling this year’s stock-market rally.”

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