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Noah Smith

Japan Inc. Scandals Build a Case for Corporate Reform

Bureaucrats, of all people, are leading the way in shaking up the country's hidebound companies.
Photographer: Buddhika Weerashinghe/Bloomberg

Another big scandal is rocking corporate Japan. This time it's Kobe Steel Ltd., a major producer, which has confessed to faking data on the quality of its materials. Everything from bullet trains to cars to U.S.-made airliners could be affected. It’s doubtful that the scandal will wreak lasting damage on Japan’s reputation for top-notch manufacturing quality -- after all, every country’s industrial giants suffer this sort of debacle from time to time. But Kobe Steel does show that Japanese companies need better corporate governance. Along with recent accounting scandals and another cover-up at Toyota Motor Corp., as well as falsified data at airbag maker Takata Corp., the incident shows that Japanese companies need to work harder to catch these problems earlier, instead of just apologizing after it’s too late.

But preventing scandals and disasters isn’t the only reason Japan needs to improve corporate governance -- it also needs to boost productivity. With an aging, shrinking population, and with women already having joined the workforce en masse, Japan’s best bet to keep its economy growing is to push its companies to update their management practices. And the best people to force Japanese managers to shape up are investors and independent directors.