In Japan there is a proverb, 'If it stinks, put a lid on it.' Alas, this seems to have been Toyota's approach to its burgeoning safety crisis, initially denying, minimizing and mitigating the problems involving brakes that don't brake and accelerators that have a mind of their own. President Akio Toyoda, grandson of the founder, was MIA for two weeks and the company has appeared less than forthcoming about critical safety issues, risking the trust of its customers world-wide.
This has been a public-relations nightmare for Toyota, as its brand name has been synonymous with quality and reliability. Crisis management does not get any more woeful than this and the cost of this bungling so far-the initial $2 billion recall and the loss of 17% of share value since Jan. 21, when the gas-pedal recall was announced-is only a down payment on the final tally. The recall will surely expand, including cars produced in Japan. Lawsuits are being filed and an expensive settlement looms. And then there are the idle factories and empty showrooms to account for.
It is not surprising that Toyota's response has been dilatory and inept, because crisis management in Japan is grossly undeveloped. Over the past two decades, I cannot think of one instance where a Japanese company has done a good job managing a crisis. The pattern is all too familiar, typically involving slow initial response, minimizing the problem, foot dragging on the product recall, poor communication with the public about the problem and too little compassion and concern for consumers adversely affected by the product. Whether it's exploding televisions, fire-prone appliances, tainted milk or false labeling, in case after case companies have shortchanged their customers by shirking responsibility until the accumulated evidence forces belated disclosure and recognition of culpability. The costs of such negligence are low in Japan where compensation for product liability claims is mostly derisory or non-existent.
One glowing exception to this parsimonious record is the saga involving pharmaceutical companies that kept selling tainted blood products to hemophiliacs that left many of them infected with HIV in the 1980s. The government was aware of the issue and failed to stop this avoidable public health crisis. After years of denial, the current finance minister, Naoto Kan, who was health minister in 1994, revealed documents showing that the government allowed the companies to continue selling the bad blood so that they would not lose market share to foreign companies selling safe blood products. In doing so he paved the way for a relatively generous settlement and an abject apology by drug company executives, collectively on hands and knees touching their noses to the floor in demonstrating their contrition to victims.
This crisis offers an opportunity to reform Toyota's corporate culture and improve quality assurance. This can be done by becoming more focused on the customer, using two-way flow of information and feedback; improving corporate governance by appointing independent outside directors; and making risk management more than an afterthought. It is not too late to turn the situation around, but this means shedding the constraints of a fusty corporate culture and wowing customers with a recall and above-and-beyond after-sales service and care. Yet early signs are that Toyota is no longer the nimble company that took the world by storm over the past half-century.