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Toyota, Takata, Tepco: The Problem Is Ethos, Not Ethics

Anyone who has studied past instances of Japanese corporate crises is likely familiar with the saying kusai mono ni wa futa o shiro. Loosely translated: “If it stinks, put a lid on it.”

Perhaps no other phrase defines traditional Japanese crisis management so eloquently. Pride and shame play an outsized role in Japanese corporate decision-making. It is a noble tradition in which everyone from the CEO on down bears a personal responsibility for the behavior of their organizations

At the same time, it’s a corporate culture that presents unique challenges. Japanese companies that have found themselves in public crises—Takata,Toyota, Honda, GS Yuasa, Tepco (in the wake of Fukushima)—are hindered by a culture particularly ill-suited for the fast pace, transparency, and high-accountability of today’s westward-facing crisis management.

Despite rapid and widespread globalization, most Japanese companies, with only a handful of exceptions, have been slow to understand how crises unfold and are effectively handled in other parts of the world. As a result, they defer to norms that have endured for thousands of years—often to their extreme detriment.

In this context, such companies are not cold corporate entities indifferent to customer safety; they are, rather, victims of their own historic culture. That culture made Japanese companies the envy of the industrial world for more than half a century—but now serves to inhibit these great companies in their efforts to manage crises not only outside Japan, but sometimes in their own home market as well.

A cultural aversion to open disagreement, especially between people in the same company, further dis-incentivizes employees to come forward when problems arise. When an issue does finally grow large enough to warrant an internal discussion, there is great reluctance to criticize one’s peers. Again, it is a venerable tradition, but one that stands in the way of transparent conversations about the future.

As a result, constructive but critical insights are reserved for post-meeting e-mail exchanges that deal with key issues one at a time, and that dramatically slow the decision-making process. Here is likely one reason why, in recent instances, product liabilities weren’t adequately addressed for sometimes as long as a decade after first being detected. The problem isn’t ethics; it’s ethos.

Having grown used to the insular Japanese media, regulatory, and B2B environments, Japanese companies assume that time is on their side. As a result, they bring an eastern approach to crises impacting millions of western individuals and numerous western business interests. They pay huge prices in lost market share, slumping share prices, expected regulatory penalties, added government scrutiny, increased competition, and significant blows to the sense of corporate pride that such companies work so hard to inculcate in their own people.

The fear of shame means that settlements with regulators—even offers that represent a fraction of the original burdens that agencies could have imposed—are usually avoided at, well, all costs. Regulators know this. They know that, in dealing with Japan, the charge is almost as good as the verdict.

Moving forward, Japanese companies with Western interests need to react faster and with greater accountability when crisis strikes. Fundamentally, that means relying more on those in the company who understand their foreign markets and the expectations that govern those markets.

At a very basic level, it demands that crisis teams must be led and empowered where the problem exists, and not in the Tokyo headquarters. When Tokyo directs a crisis, time zones work against the company and, at best, ensure delays, which, in turn, lead to missed opportunities.

More cross-silo cooperation is also needed, particularly between the communications and legal teams, so that threats to the brand and reputation can be accurately assessed in real time. When I am in Japan, I’m still surprised by how few corporate lawyers and corporate communicators work together as a matter of course. Because they have no history, there is no trust between teams that bear equal responsibility for the company’s well-being.

Opportunity is lost while one silo vets solutions proposed by other silos. Those who must commandeer the crisis response are stuck mediating between conflicting factions. All the crucial benefits that accrue when a single team works on preparing and implementing solutions are lost. Often, the reputational damage is done before the defense even takes the field.

Japanese companies are further well-advised to use peacetime—those blessed months of business as usual—to hone their resources; for example, to practice crisis response in lifelike role-playing scenarios. There is nothing like a dose of reality to shock a corporate culture into action and build the strong relationships capable of making quick decisions when necessary. Now is the time to break down barriers and build internal trust. Once the crisis strikes, it is too late.

Finally, there is a strong case to be made for having executives spend more time abroad as they rise through the ranks. They deserve opportunities to become comfortable with different markets, particularly the U.S. and Europe. China sends a million students to be educated in the West every year. Japan needs to be just as aggressive with its rising executive class.

As an American and a businessman, I so admire the ethical instincts that define Japanese business. But as crises happen faster and more frequently, as they play out more on global stages, the game is increasingly governed by western rules. It is far better to learn those rules now rather than to allow great companies to crumble for the sake of pride or deference, however genuinely felt.

Old habits, rooted in centuries of rich tradition, are hard to break. But if Takata, Toyota, Tepco, and other recent examples have taught us anything, the lesson is that time is not a luxury—and that the acceptance of a little shame now, by both the employee and the company, is often the best way to save face over the long run.

There’s another Japanese proverb that should offer the Japanese better guidance at this juncture. Ryooyaku Kuchi ni Nigashi. Translation: Bitter pills may have welcome effects.

Richard Levick, Esq. is Chairman and CEO of LEVICK and a contributing author to Tomorrow.

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