The Takata Scandal and the Value of Diversity
Earlier this month, U.S. prosecutors announced charges against three former executives of the Japanese auto-parts maker Takata for allegedly falsifying data to cover up a deadly air-bag defect. The company has admitted to a 15-year cover-up, agreed to plead guilty to wire fraud, and will pay a $1 billion fine. Meanwhile, the faulty air bags have been linked to at least 17 deaths worldwide, and tens of millions have been recalled.
Industry-watchers trying to understand how this happened have their work cut out for them. A 2016 review found problems with the company’s organizational culture, and there’s evidence managers pressured workers to manipulate data. Too-rapid production growth and executive overconfidence may have played a role; at the same time, American lawmakers have blasted U.S. regulators for missing the problem for years.
Clearly, there’s plenty of blame to go around. But one potential -- and potentially controversial -- factor shouldn’t be overlooked: Every member of Takata’s board is a Japanese man.
Lack of diversity can pose a problem, because people of similar backgrounds tend to have similar blind spots. The preeminent cultural researcher Geert Hofstede has referred to culture as the “software of the mind.” He says we are “programmed” from our earliest days by the societies in which we grow up to think and act in certain ways.
These “programs” don’t take root universally or uniformly, of course. To state the obvious, cultural differences are learned, not biological. And while researchers have established that such differences exist in groups -- for example, among the French or Koreans -- they can’t account for the many individuals who don’t think and act like the average members of their culture. So cultural-differences research can’t tell us what individual Takata board members were thinking.
Still, it can be useful to understand those aggregate differences where they exist. For example, one tradition in Japan that may have influenced Tataka’s insular board is a tendency to avoid what scholars call “risky communication.” According to researchers Tzu-hsiang Yu and Wei-Chun Wen, Confucian tradition teaches that “unnecessary communication can only lead to unnecessary risk.” In other words, talking about a problem can lead to more problems. So, the best thing to do in a crisis can be to remain silent.
Unfortunately, this can hinder honest disclosure of problems. In 2014 and 2015, I interviewed senior communication executives from 31 countries for a book on cross-cultural communication. They repeatedly told me that it can be difficult to convince clients in China, Japan, and Korea to be transparent.
Let’s take a step back. Does that mean there’s a problem with cultures influenced by Confucianism? Not at all. For one thing, emphasizing harmony and cooperation is frequently good for business. Richard Lewis, an expert in cross-cultural communication, has written that while fractious Americans and Europeans “often are pulling in different directions within a company,” effective Japanese businesses succeed in part because “once unanimity of agreement has been reached … everyone pulls the same way.”
The problem isn’t with any specific culture, all of which have their advantages and disadvantages. The problem is lack of diversity. After all, it’s easier to fall prey to groupthink when you’re part of a uniform group. Maybe the all-Japanese, all-male Takata board might have benefited from some outside thinking. For example, perhaps someone from Denmark -- a nation that is, on the whole, more tolerant of ambiguity -- might have been more willing to accept the uncertain outcomes that could result from “risky communication.” 1 There’s no guarantee, of course. But some cross-cultural exchange might have done Takata some good.
And similarly, companies in other nations would benefit from Japanese board members. For example, according to Hofstede’s research, Japanese people score higher on measures of “long-term orientation” -- concern for the future -- than Americans do. Might some American companies struggling with corporate short-termism benefit from Japanese board members? It’s certainly possible.
Perhaps even likely. Studies confirm that diversity on corporate boards is valuable. The global management consulting firm McKinsey examined the number of women and foreign nationals on the boards of 180 publicly traded companies in the U.S., the U.K., France and Germany between 2008 and 2010, and found that the most-diverse quartile of companies achieved returns on equity that were 53 percent higher than the least-diverse quartile. For example, a global food company that ranked in the top quartile harnessed its diversity to set up joint ventures internationally, which achieved the country’s goal of diversifying its risk. As part of the joint ventures, it identified more efficient manufacturing processes, which it went on to implement globally.
A study by the corporate research organization Catalyst found an identical result for gender diversity alone. Fortune 500 companies with the highest percentages of female board directors outperformed companies with the least women on their boards by 53 percent between 2001 and 2004. And, if you’ll recall, Takata’s board is exclusively male.
But wait, you might say: Takata did have a board member from a different background who was embroiled in the scandal: Stefan Stocker, a Swiss national, served on the board from 2013 until mid-2015, and was president and chief operating officer for part of his tenure. That’s true. But according to Harvard University’s Institute for Politics, a little diversity isn’t enough to change organizational outcomes. Studies of gender diversity, for example, find that results don’t change if women make up less than 20 percent of an organization. But once women comprise 20 to 30 percent of a group, a “critical mass” is reached and organizational outcomes improve.
Of course, diversity isn’t a panacea for preventing scandals. Some researchers argue the differences within cultures are greater than the differences between cultures, and it’s entirely possible Takata’s board had its share of swashbuckling aficionados of “risky communication.” What’s more, companies from plenty of other countries have been guilty of massive cover-ups, including the German automaker Volkswagen.
Still, science and practical experience point to one conclusion: Diversity counts. I’ll put my money in companies that benefit from a broader range of perspectives.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
In an international ranking of “uncertainty avoidance,” Danes scored 23 on a scale of one to 100, with zero being the most risk-tolerant and 100 being the most risk-averse. The Japanese had a score of 92.
To contact the author of this story:
Kara Alaimo at email@example.com