whither corporate governance - Toyota recall Crisis

1. CASE: ”WHITHER CORPORATE
GOVERNANCE”
GROUP MEMBERS
 AMAL AUGUSTINE
 CHIPPYMOL JOY
 CHRISTEENA SUSAN VARGHESE
 DEVIKA M
 ELSY JOHNSON
MAR ATHANASIOS COLLEGE FOR ADVANCED STUDIES

2. SUMMARY OF THE CASE
The Japanese automobile manufacturer “TOYOTA” was the leading company in the
world. Many qualities of the company like its production system ,respect for people and
continuous improvements etc became management mantras for the rest of the world.
But all the above achivements have gone into history since the company suffered
the problem of “ unintended sudden acceleration of its cars . They happened to recall its
44,000 hybrid cars , including the company’s most accepted ‘Prius’ to fix problems with its
breaks. In total company recalled 8 million cars.
The company known for quality shattered after these incidents. Market capitalism
dropped ,overall the company collapsed within 2 weeks including in the share market.
This study deals with
1. the reasons behind the crisis of Toyota
2.How the company managed this particular crisis situation

3. ANALYSIS
• Q1. Why do huge corporations as Toyota , Enron, World.com and Satyam
computer services commit such errors ?
• Toyota frequently ignored customer feedback and complaints about
malfunction. For 10 years company did nothing to solve various reported
issues
• Company only acknowledged and accepted the existence of problems only
in 2009 after America’s National Highway Traffic safety Administration
interfered.
• Toyota’s problems were deeply associated with Japanese corporate
governance. Rigid system of seniority & hierarchy existed ,people were
reluctant to discuss bad news

4. • Flow of information was improper , information about faulty cars
were not been reported to the concerned section
• Any violation of company hierarchial arrangement ,in the matter of
information exchange were considered as disloyality.
• The company consisted only 29 board members , all were Japanese
• Company lacked diversity as executives from other countries were
never been a part of the company.
• Poor corporate governance also lead the firm into more trouble. In
genaral Japanese companies had track record of poor corporate
governance.

5. • Lack of cross cultural involvement resulted in very less new idea
generation & new innovations .
Companies like Enron, World.com and Satyam computer services
faced improper monitoring and lack of discussions among board
members level , which resulted in not taking important decisions at
proper time . The barrier existed in monitoring and communicating
with executives initiated the whole issue for these companies .

6. Q2. What lessons does one learn from Toyota's misjudging and mishandling a
crisis?
• Preventive systems and testing should be in place to reduce the issues to an absolute minimum.
• As Toyota and GM have belatedly done, the CEO should appoint a head of safety and rapid
response teams to receive reports of serious harms to persons or property that may be linked to
product issues.
• Just as the general company ombudsman system reports concerns to the top of the company about
serious commercial, legal or ethical issues, the rapid response team should take any issue of
potential consequence to the CEO or other high business leaders.
• Most importantly, the CEO or top business leaders should then form appropriate multi-functional
teams relating to: design problems and solutions; internal personnel and processes; duties to
regulators; management of litigation; a communications strategy with various constituencies; and
any other relevant functions.

7. • The CEO or top business leaders must have prompt, periodic, direct reports until there is a good
understanding of the interrelated issues. Then they must make decisions on an appropriate
response. On these important safety issues, the CEO should also keep the board informed.
• Both during formulation of the strategy and after, the CEO or top business leadership must ensure
that all communications to all constituencies must be strictly accurate. It is better to say nothing—
and develop accurate facts—than to issue deceptive or incomplete statements.
• Once decisions are made about strategy, the CEO must oversee implementation to make sure, as
appropriate, that it is meticulously carried out, changing systems both with respect to specific
issues and more broadly as necessary, dealing humanely with people injured, and communicating
fully and transparently with regulators, media, and other constituents.
• To take these fundamental steps is to pass the stress test. And the striking examples of Toyota and
GM are an occasion for companies to review whether processes are in place to ensure that they are
taken in the event of such a crisis.
• Many commentators are speculating about whether the Toyota settlement with the Justice
Department will be the template for a future

8.  Timing and preparation :
• Conflict or crisis management often occurs when a business or industry contends
with government regulators or activist groups that seem determined to curtail
operations through what the industry considers excessive safety or environmental
standards.
• In Toyota's case, an issue may become a major crisis if it is not addressed
appropriately from the beginning.
• Anticipating and avoiding business disasters requires a number of steps, from
recognizing the threat, to making it a priority in the organization, to actually
mobilizing the resources required to stop it.

9.  Communication :
As Toyota recalled more than 8 million vehicles due to gas pedal and brake problems, it enlisted its
internal communications team and firms to help stem the crisis that threatened its reputation. Brian
Lyons, Toyotas environmental, safety and quality communications manager, was deployed to answer
media questions.
As organizations face increasingly complex crisis situations, we must learn how to understand and
manage them. The field of public relations is central to effective crisis management but it is often
limited by a rationalistic and situationally bound perspective. Effective crisis management from a PR
perspective includes:
• Managing and distributing information,
• Maintaining the organizational image,
• Keeping control of media images and messages, and
• Strategically handling relations with internal and external stakeholders

10.  Leadership :
• Both company President Akio Toyoda and his father, honorary Chairman Shoichiro Toyoda, were
curiously silent in January and February 2010 during the recall of about 8 million cars.
• Instead, an American-Toyota sales executive Jim Lentz-became the company's public face during the
recall, Toyota's largest and potentially most damaging.
• Traditionally, the Toyoda family has played a strong role in upholding the company's image of quality
and reliability, which makes their silence all the more puzzling.
• Some people have even taken to calling Akio Toyoda "no-show Akio." It remains to be seen how badly
this recall will hurt Toyota's standing. But the Toyodas' apparent unwillingness to take the heat sets a poor
example.

11. Culture:
The culture of Toyota is what made them one of the best global
companies in the world and will likely be what returns them to good
standing with consumers in the future
Getting in touch with every customer
Brings back customer loyalty
Improves technology

12. CONCLUSION
• A review of Toyota Recall Crises shows that crises can happen even to the
very best and respectable quality conscious and famous company.
• In fact, it can be concluded that successful company may be particularly
vulnerable to sudden and unforeseen crises, as people are already
accustomed to success and profitability, with little awareness on the
importance of contingency planning.
• Besides, it is also found that many of the key problems of Toyota happens
due to the desires and overemphasis to growth the company fast, to the
extend the quality management and control of the firm is neglected.
• When crises started to occur, whereby weak signals can be detected that
the safety of certain Toyota car models are questionable, management did
not take corrective action, but instead focus on how to minimize the
financial losses by planning for a very limited vehicle recall.

13. • Both these events shows that the short term needs to increase profit
by revenue growth or aggressive costs reduction can hurt any firm in
the long run.
• In the long run, reputation as well as the quality delivered by a firm is
more important.
• It is also fair to comment that car manufacturing is a very complex
process, and this make the automotive industry particularly
susceptible to vehicle recall.
• However, the consumers may not be provoked if vehicle recall is
performed fast, and done at the shortest possible time.
• In Toyota case, the recall is done after three years the issues had been
found.

14. • That is too long a time frame, and thus, such situation provoke people
anger and questioning the integrity and crises management ability of
Toyota.
• From the real life case study, it is very obvious that crises should be
solved and faced at the shortest possible time frame.
• The longer the crisis is ignored, the bigger the issue may become in
the later day.
• That is only possible when contingency planning is well-defined, and
the management has the awareness and courage to face with any
problem at the fastest possible time

15. GROUP3
CASE ”WHITHER CORPORATE GOVERNANCE” – Page 858
International Business by K. Ashwathappa, 6th Edition
Mc Graw Hill – New Delhi.