For 20+ years, Japan's largest companies have been riddled with corruption and fraud

For months, Japan's much-vaunted manufacturing sector has been wracked by scandal after scandal, as the country's biggest corporations admit to decades of systematic fraud that started in the boardroom and went to the factory floor, with scandals hitting "Nissan Motor, Subaru, Toray Industries, Kobe Steel and Mitsubishi Materials" among others.

The scandals have real financial costs — Nissan had to recall 2 million cars, a Hakata to Tokyo Shinkansen train had to be evacuated because it had been made of inferior steel that began to crack and smoke as the train raced toward Nagoya.

But they also have a deeper meaning, one that goes right to the heart of the Japanese identity as a craft-oriented, detail-driven, high-quality manufacturer whose national culture and manufacturing culture are both defined by the highest standards of honor and pride.

In a nation where any worker from the shop floor to the board-room is supposedly empowered to stop production and report defects and flaws, or even suggest improvements, it's become apparent that the reality is more dominated by a conspiracy of silence. That conspiracy is breaking down, as social media enables people to voice their concerns anonymously, or at least without the social difficulty of in-person confrontation.

Compliance consultancies have started designing surveys to catch deep, longstanding corruption — a long list of innocuous questions with zingers like "Is there something going on around you at work that you would not want to come to light?" buried deep in them. Says Nobuo Gohara, top exec at the country's top compliance consultancy, "That question has the most amazing effect. You would not believe what they tell us."

The Financial Times's long and fascinating piece on this has an interesting and curious blind-spot. Although several of the top execs interviewed for the piece say, basically, "Our CFO and CEO are focused on profitability above all other considerations, including producing good products and complying with the law." Then the writer quotes a financial analyst who says, essentially, "These companies aren't under any real pressure to produce, and they should be a lot more profitable, and the investor class's patience is wearing thin." But the writer continues to say, repeatedly, "It's hard to understand where this might be coming from," as though there's a huge mystery here.

Given that this is the Financial Times, it's hard not to suspect that we're in Upton Sinclair territory: "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

But not everyone agrees. "These companies have cut some corners and the business associations often say it is because they have excess pressures on them. Really?" says Nicholas Smith, a Tokyo strategist for brokerage CLSA. "There aren't enough pressures on them: most haven't ever made a return on equity. I would say people have been unbelievably patient with low returns from Japanese companies."

Others see the falsification as a response to onerous quality regulations imposed by what one steelmaking company executive describes as "an unrealistic, out-of-touch and overly conservative trade ministry". A third possibility is that it is a symptom of the skewed power relationships within the customer-supplier hierarchies that underpin Japan's industrial base.

These problems can be found anywhere in the world, says Takahiro Fujimoto, head of Tokyo University's Graduate School for Management. "If the product specifications being asked for were excessive, Kobe should have negotiated with the customer companies to change, as long as they could give assurances that the quality was high enough even after the downgrade," he says. "But that didn't happen because of the way power works here. What is uniquely Japanese in this? The B2B customer is God."

Japan Inc: a corporate culture on trial after scandals [Peter Wells and Leo Lewis/Financial Times]

(via Naked Capitalism)

(Image: Dllu, CC-BY-SA)