Accelerating into Trouble: The Company’s Problems Sharply Illustrate the Failings of Japanese Corporate Governance

From The Economist

It is hard to overstate the importance of Toyota in Japan’s business psyche. The company has long been regarded as the pinnacle of Japanese innovation, manufacturing quality and industrial strength—particularly since it overtook General Motors in 2008 to become the world’s biggest carmaker. Its “lean” manufacturing techniques and culture of continuous improvement were the envy of the business world. Companies sent delegations to tour Toyota’s factories in the hope that some of its magic would rub off on them. Within Japan the firm was considered the nation’s industrial champion, as the sun seemed to set on other giants such as Sony and Hitachi.

But within a few weeks all this has changed. Problems with “unintended acceleration” of its cars, which the firm has only belatedly taken seriously, have triggered an escalating crisis and the recall of a whopping 8m vehicles. Toyota’s woes were compounded on February 9th when it said it would also recall 440,000 hybrid vehicles, including the celebrated Prius, to fix a problem with their brakes. The firm’s reputation for quality, on which the business was built, is shattered. Its market capitalisation has dropped by an amount roughly equal to the entire value of Ford. But the greatest damage has been done by its misreading and mishandling of the crisis.

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