Business - Analysis What went wrong Toyota fiasco a wake-up call for Japan's companies

By Mari Yamaguchi

Associated Press Writer

TOKYO (AP) -- Toyota's poor handling of its massive global recalls has highlighted a glaring weakness in Japan's otherwise sophisticated corporate culture: crisis management know-how.

Major companies have detailed plans for dealing with killer earthquakes or terrorist attacks but are largely unprepared to deal with disasters of their own making like product flaws that could lead to injuries or even death.

Toyota, a brand-name once synonymous with quality, has come under fire for being slow and indecisive in responding to the safety problems that ultimately led to recalls of 8.5 million vehicles worldwide.

The puzzle is why Japanese companies that confidently stride the global corporate stage could set themselves up to fail on this crucial score.

Many pinned the blame on Japan's consensus culture, where the lengthy decision-making processes hinder quick responses.

The reality, however, is not so simple.

Japanese corporations were nurtured in a remarkably business-friendly society where consumer activism is undeveloped and lawsuits uncommon. Japan's first product liability law was passed only in 1994. The nation's consumer protection agency has recorded only 112 product liability lawsuits in Japan since 1995, compared to more than 53,000 cases started in the U.S. in 2008 alone.

As they expanded abroad, Japanese companies largely ignored the need for crack crisis-management teams because there had been little need for them in the past. In Japan's harmony-loving society, conflicts -- when unavoidable -- are generally settled behind the scenes.

But ultimately, it was Japan Inc.'s expansion overseas that exposed its vulnerability in this vital area as far-flung supply chains made it harder to control quality and companies encountered more demanding consumers.

"Toyota sent a serious wake-up call to all Japanese companies," said Koichi Oizumi, a crisis management professor at Aomori Chuo Gakuin University. "Many of them still don't understand that crisis management is necessary for their survival."

Training staff to handle crises and public relations is relatively new in Japan, begun in earnest only after the 1995 Kobe earthquake that killed 6,400 people.

Today, only one in eight Japanese companies has a section dedicated to crisis management, with most such sections functioning less than five years, according to a 2008 survey of 200 of 1,159 publicly listed companies by Tokio Marine & Nichido Fire Insurance Co.

Japanese companies also need to develop more legal expertise, experts say. Last year, Japan had only 350 in-house corporate lawyers -- most of them at foreign brokerages and banks here -- compared to about 80,000 in the U.S., according to Japan Federation of Bar Associations. Still, that's up from just 64 a decade ago.

"Many companies don't seem to be living up to their expectations for their global responsibility," said Kyosuke Mori, a former public relations official for Mitsubishi Corp. who was based in the U.S. for nearly a decade in the mid-70s.

Companies are satisfied with producing just manuals but lack workable action plans, said Hitoshi Motegi, a risk management manager at Tokio Marine & Nichido Risk Consulting Co.

The recent economic slump has prompted them to spend even less outsourcing this area, he said.

The past decade is dotted with examples of Japanese companies bungling crises.

In 2000, Bridgestone/Firestone Inc. CEO Masatoshi Ono could not explain to a U.S. congressional hearing why the company's tires used in Ford's Explorer SUVs caused blowouts that led to more than 250 traffic deaths. Bridgestone blamed the accidents on Ford defects, while Ford said the tires were at fault. The reputations of both companies were tarnished.

Sony Corp. in 2006 recalled nearly 10 million laptop batteries after some caught fire but only after facing massive criticism over a weekslong investigation into the cause and initial refusal to recall the batteries from laptops made by competitors.

Numerous cover-ups have also bred consumer suspicion. Mitsubishi Motors Corp. recalled millions of vehicles in the early 2000s -- but only after admitting that for a decade it had hidden defects, which caused two fatal accidents.

A rare exception that won praise was Panasonic's handling of the 2005 recall of millions of fan heaters over carbon monoxide poisoning that left two dead and eight others injured.

The company rushed to replace all ads with recall notices and apologies, sent out a flurry of flyers and launched a nationwide effort to recall all the heaters. The apologetic notice still remains on the company's Web site.

Public broadcaster NHK recently said Panasonic's effort "touched our heart," and urged Toyota to follow the electronics company's example.

Cultural factors do seem to play a role, starting with the emphasis on building consensus before acting.

Virtues such as modesty, diligence and humbleness, are often misinterpreted as indecisive, inflexible and unmotivated in the West, said Mori, formerly of Mitsubishi, the trading giant.

By staying in the background for weeks on end, Toyota's president Akio Toyoda may have been operating in a way that was understood in Japan, but the rest of the world harshly criticized him for being largely invisible as the recalls mounted.

Japanese business leaders need to work harder to show leadership and deliver clear messages to the public quickly, said Mori.

"That's what a company president is for," he said.

If they hope to succeed overseas, Japanese corporations need to develop the habit of looking at issues from the consumer perspective and to become more attuned to political and social changes in countries they operate, said Oizumi at Aomori Chuo Gakuin University.

The alternative?

"Don't even think of becoming No. 1 in a foreign country," he said.

Published: Mon, Mar 8, 2010