A Takata airbag in a Honda car killed a pregnant Malaysian woman.

Photographer: Tomohiro Ohsumi/Bloomberg

Japan Inc. Still Has Its Head in the Sand

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When things go wrong, what is it with Japanese corporate chieftains? Shigehisa Takada, the chairman of Tokyo-based Takata Corp., is facing a spiraling scandal after news that another victim -- a pregnant woman in Malaysia -- was killed by one his company's airbags. The U.S. Senate is holding hearings on the issue next week, and a U.S. grand jury has subpoenaed company officials. And yet Takada remains AWOL, leaving company flacks to assure reporters that he "deeply apologizes" for the five deaths and 139 injuries now attributed to Takata products. 

Takada's disappearing act is reminder of the uphill slog Shinzo Abe faces in his efforts to strengthen corporate governance in Japan. Five years after the start of Toyota's massive recall and three years after Olympus shocked the world with a $1.7 billion fraud, the country's top executives remain far too insulated from the kind of shareholder and media scrutiny now common in the West. 

I'm not trying to indict all of Japan Inc. here. But the fact that executives at Takata, a company that employs 35,000 people worldwide, think they can handle a public-safety issue with such a blatant lack of transparency should be deeply concerning to the government and people of Japan. 

Companies make faulty products sometimes. Innovation, after all, is about taking risks and seeing what works. When mistakes happen, the key is to identify flaws quickly, admit them openly and fix them methodically . It's all about the response, as MBA students learn about, say, Johnson & Johnson pulling millions of Extra Strength Tylenol bottles from store shelves in the early 1980s after seven Chicago-area deaths.

Prime Minister Shinzo Abe has pledged to drag Japanese management into the modern world, kicking and screaming if need be. He's pushing firms to bring independent directors onto boards (China, India and South Korea already do), hire more female executives and make more company data available. He wants to introduce a stewardship code that would enlist investors to press management for higher returns. But the endeavor is a work in progress, at best. Thanks to Abe's sliding support rate -- and intense lobbying by business groups -- these much-needed reforms are being watered down.

Japanese companies, if they care about their global reputations, should instead be embracing Abe's efforts and indeed, going beyond them. Perhaps Takata's next chairman shouldn't be the grandson of the company's founder, but a leader ready for prime time. In a decidedly top-down economy like Japan's, it's not surprising executives would wait around for the government to codify rules of conduct and accountability. But that's not anywhere near good enough if they want to compete globally.

Toyota's 2010 playbook may offer a roadmap for others. Back then, Akio Toyoda had a pretty terrible showing early into the carmaker's crisis over cars that accelerated unexpectedly. Toyoda, the grandson of company's founder, held just one press conference as the crisis spread. But then Toyoda was ambushed by TV network NHK at Davos and apologized in a brief interview. He came clean.

"We pursued growth over the speed at which we were able to develop our people and our organization,'' Toyoda told U.S. lawmakers during a Capitol Hill grilling soon after. "My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers."

There's no perfect way to respond to a scandal. But if Abe is going to get traction with policies to make corporate Japan more vibrant and productive, executives have to drop the ignore-deny-obfuscate mindset of old. Neither they nor their customers can afford it.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net