Culture and Corporate Governance

Toyota’s top executives took the hot seat on Capitol Hill recently, where they faced harsh questioning from politicians over the unintended acceleration problems that have tarnished the company’s reputation. But Toyota’s problems are about more than safety issues – they go to the heart of decision-making within the company. As such, Toyota’s tale is a cautionary one on the dangerous effects of weaknesses in corporate culture and governance.

A recent Economist article explains that,

“Toyota’s problems are its alone, but they highlight broader failings in Japanese corporate governance that make large companies particularly vulnerable to mishandling a crisis in this way. Such firms typically have a rigid system of seniority and hierarchy in which people are reluctant to pass bad news up the chain, thus keeping information from those who need to hear it in a misguided effort to protect them from losing face. In many firms, including Toyota, family ties make challenging the boss all but impossible. Any attempt to short-circuit the hierarchy is deemed an act of disloyalty and a violation of the traditional consensual corporate culture. Group thinking becomes entrenched because there is so little mobility between companies: hiring from outside is thought to disrupt a firms internal harmony, an executive willing to move will be stained as disloyal ‘job-hopper.’ The preference for harmony crowds out alternative viewpoints.”

The crisis may be a wake-up call for corporate Japan that it needs a more open, inclusive environment in order to have sound governance. Regardless of the cultural context, transparency and accountability are essential values that must be expressed in every company’s corporate culture and its governance mechanisms. Without them, the repercussions can be fatal.