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Kobe Steel Chief Quits as Report Finds New Misconduct Cases

Updated on
  • Company says problems over quality control date to the 1970’s
  • External probe reveals 163 new instances of malfeasence

Kobe Steel Ltd. President Hiroya Kawasaki will resign after Japan’s third-biggest steelmaker said its faked data scandal dates back decades and an independent investigation found further instances of misconduct. The stock dropped to its lowest this year.

Kawasaki, 63, will step down April 1 and his successor will be selected in coming days, the company said in a statement Tuesday. Kobe’s executive vice president and chief of its aluminum and copper unit, Akira Kaneko, will also quit, while the post of executive chairman, which Kawasaki holds, is to be abolished. The firm said it will overhaul its board so that at least a third are outside directors, one of whom will be elected chairman.

Hiroya Kawasaki on March 6.

Photographer: Kiyoshi Ota/Bloomberg

“Without a change in selection here, Kobe Steel is unlikely to regain the trust of stock market participants,” Yuji Matsumoto, an analyst at Nomura Securities Co., said in a note. Its shares fell 5.2 percent in Tokyo, the lowest since Dec. 29, and were the worst performer on the Nikkei 225.

The 112 year-old company admitted in October it had misrepresented the strength and durability of parts sent to hundreds of customers from Toyota Motor Corp. to Boeing Co., sparking similar revelations from materials suppliers including Mitsubishi Materials Corp. and Toray Industries Inc. that have tarnished Japan’s manufacturing prestige.

“Going forward, we expect the market’s focus to shift to confirmation of new management’s ability to execute specific means of improving corporate value,” Harunobu Goroh, analyst at Morgan Stanley MUFG Securities Co. in Tokyo., said in a note.

Of the new cases of malfeasance, which involve six Kobe facilities, the company said 163 customers have been affected, with shipments to 129 of those verified as safe so far. Kobe’s earlier misconduct hit 525 customers, with 99 percent of those sales declared safe. Including overlaps, the total number of clients affected is 605, Kobe said.

Click here to read about how Japan Inc. turned to faking data

Kawasaki joined the steelmaker in 1980 and became its president in 2013. While its shares tumbled more than 40 percent in October, they have since reclaimed much of that ground, and after a positive earnings report in February the company’s troubles had seemed to be behind it.

“Losing the trust of many of our customers is a matter of the deepest regret,” Kawasaki told a briefing in Tokyo on Tuesday, taking responsibility for misconduct around quality controls that the company says began as far back as the 1970’s.

An investigation into the scandal by the U.S. Department of Justice is ongoing. Kobe said last month that lost sales, compensation payments and legal costs would total about 10 billion yen ($94 million), even as it reported a return to profitability in the third quarter. At the same time, the company reinstated its expectation of a full-year profit -- its first in three years -- after a rally in steel prices.

The external report, which was commissioned by Kobe, found that the aluminum and copper division was the only one of its eight units where executive officers were involved in the misconduct, which it blamed on an overemphasis on profitability, poor governance, and insufficient quality controls.

(Updates with analysts’ comments from third paragraph.)
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