Northeast Asia | Kobe Steel shows Japan Inc. answers to no one
Is Japan's Prime Minister Shinzo Abe about to be thumped by the Kobe Steel scandal ahead of the Oct. 22 general election?
Reuters/Toru Hanai

Kobe Steel to clobber Abe?

The Kobe Steel scandal may be a waterloo of sorts for Prime Minister Shinzo Abe and a boon for Yuriko Koike’s pro-change insurgency in the Oct. 22 general election

October 12, 2017 9:26 AM (UTC+8)

The Japanese love a museum. Traveling around the nation, you’ll find galleries for trains, ramen noodles, curry, robots, sex, manga, and toilets. It’s about time for a Corporate Hall of Shame for Japan Inc. icons.

Upon entering what would have to be a cavernous, airport-sized structure, you’ll find the Tepco exhibit. It honors Tokyo Electric Power Co., whose arrogance and incompetence brought audiences the 2011 Fukushima nuclear crisis, one that’s never really ended. Just this week, a district court held Tepco and the national government liable for damages caused by the disaster.

Next, visitors can peruse the Takata Corp wing featuring an assortment of its deadliest exploding airbags.

After that, there’s the Toshiba book-cooking exhibit, the Olympus how-to-silence-foreign-executives room, the Sharp hiding-liabilities-during-merger-talks section, the Dentsu hall on working employees to death, the Nissan area showcasing unqualified factory inspectors and the Tsukiji fish market toxic-soil annexe.

The newest attraction: Kobe Steel’s falsified data extravaganza.

Things are getting deathly serious, though, for the quality-control reckoning Japan Inc. long tried to sweep under the tatami mat.

Read: Another Japanese giant falls from grace

The Kobe Steel scandal may be a financial waterloo of sorts for Prime Minister Shinzo Abe’s spin about modernizing corporate governance practices – and a boon for Yuriko Koike’s pro-change insurgency that is challenging Abe’s party in the October 22 general election.

Kobe Steel President and CEO Hiroya Kawasaki bows as he speaks to the media after meeting with Ministry of Economy, Trade and Industry's Director-General of Manufacturing Industries Bureau, Akihiro Tada at the ministry in Tokyo, Japan, October 12, 2017. REUTERS/Toru Hanai
Kobe Steel President and CEO Hiroya Kawasaki bows after a meeting at the Ministry of Economy, Trade and Industry in Tokyo, Japan, October 12, 2017. Reuters/Toru Hanai

Sure, Abe has tried since 2012 to internationalize boardroom practices.

He’s implemented a UK-like stewardship code to prod CEOs to raise their game, encouraged companies to add more outside board members and put the emphasis on higher return on equity.

Trouble is, it’s a largely voluntary campaign and one around which politically-connected chieftains can navigate.

Read: Corporate Japan answers noisy investors with silence

One reason Kobe Steel is getting so much attention – other than the fact Abe worked there from 1979 to 1982 – is that manufacturers and buyers of cars, aircraft and bullet trains and anyone involved in the global supply chain now wonder about the strength and dependability of aluminum, copper and other metals used in such products.

Executives from Toyota to General Motors to Boeing can forget enjoying the coming holiday season. This tale also registers because it connects many of the dots linking Japan Inc.’s quality woes.

Just as with Tepco, Toshiba and other tales of corporate shame, the Kobe Steel tick-tock involves complacent, incestuous and non-intrusive boards afraid to tackle festering problems or speak inconvenient truths to power.

It also comes on top of a 2016 Japanese steel scandal that Greenpeace argues contributed to nuclear-safety problems in France.

Japan’s schtick has long been quality. It’s a sales pitch Tokyo uses to hawk its infrastructure know-how in Asia as China’s influence widens.

But Abe’s claims that “Japan is back” and corporations can be trusted in 2017 are belied by the steady parade of executives still living in 1987.

But Abe’s claims that “Japan is back” and corporations can be trusted in 2017 are belied by the steady parade of executives still living in 1987.

This, mind you, is a prime minister who in 2014 rammed a chilling and ambiguously-written secrets bill through parliament. It could put journalists and whistleblowers in jail.

That means a reporter who learns that, say, Tepco is fudging safety reports (again) could be intimidated into not writing the story if it came from a whistleblower.

The same could be true if a journalist seeks to report on government cronyism between ministry officials and misbehaving executives.

When Abe entered the prime minister’s office, Japan’s Reporters Without Borders press-freedom ranking was 22. Now, it’s 72, putting Tokyo in the neighborhood of Malawi, Croatia and Hong Kong – the latter currently the target of Beijing’s censorship machine.

These failures open a gaping hole for Koike’s Party of Hope to run through ahead of the election in 10 days.

Tokyo Governor Yuriko Koike announce the name of her new political party at the Tokyo Metropolitan Government Building, Japan, Sept. 25, 2017. Reuters/Kim Kyung-Hoon
Tokyo Governor Yuriko Koike announce the name of her new political party at the Metropolitan Government Building, Japan, Sept. 25, 2017. Reuters/Kim Kyung-Hoon

The Party of Hope’s manifesto includes addressing corporate coverups, curbing the political contributions of executives, taxing excess cash on balance sheets, taking on the powerful nuclear and tobacco lobbies, and even questioning US President Donald Trump’s stability.

This last gamble could pay off for Koike’s party.

Many Japanese worry Abe outsourced Tokyo’s foreign policy to an erratic U.S. president with little understanding or respect for Japan’s security and economic priorities.

But Japan Inc.’s scandal du jour is its own opportunity. Abe’s Liberal Democratic Party, which has ruled almost uninterrupted for 62 years, built, enabled and still protects a corporate matrix that’s running afoul of global norms.

All this plays into Koike’s call for change. Abe’s argument is that Tokyo needs to stay the Abenomics course. Five years on, Abe’s efforts to raise Japan’s game are looking a bit too little too late.

It’s an issue Koike would be wise to raise early and often before Japan’s Corporate Hall of Shame needs to add another wing.

continue reading