Kobe, in Japan, is most well-known internationally for its luxury beef industry. But now the name of the port city may be marred in scandal. The Economist reports that Kobe Steel has admitted to falsifying data regarding its aluminum, copper and steel products. Kobe Steel is one of the oldest industrial firms in all of Japan and 3 days after the bombshell admission its stock had fallen by $1.6 billion.
The False Data
According to the Economist article, Kobe Steel admits its data over the past year has been worthless in regards to four types of material: nearly 40,000 tons of aluminum sheets, poles, and components, 2,200 tons of copper products, and iron powder. The situation is particularly troubling because the data that was falsified related to tensile strength or material stiffness.
So far, no deaths related to the bad data have been reported, but the products are used all over the globe in various ways. Companies like Boeing, Ford, and GM all use Kobe Steel products. As well as Hitachi, Nissan, Toyota and Mitsubishi Heavy Industries of Japan. The Economist says that all of these companies are now working to ensure product safety. Mitsubishi has already said that some of the steel was used in an H-2A rocket that was used to launch a global-positioning satellite into orbit. That launch was completed safely and successfully.
However, this could just be the tip of the iceberg, Kobe Steel admits that falsified data issues may stretch back at least ten years.
Bad News at a Bad Time
The news of the falsified data will probably just pile on more problems for Kobe Steel.
According to the article, the company has been hit hard by mountains of cheap aluminum and steel imports that have flooded the market. Just last year Kobe Steel lost ¥23 billion. It’s not a problem localized to Japan. The steel markets across the world are not turning profits the way they used too. Wolfgang Eder of Voestalpine tells the Economist that steel mills must produce high-tech steel for cars, planes, and trains that are worth premium price tags, to stay afloat. That may have been behind Kobe Steel’s bad data. The firms had switched focus to higher-tech metals, but now can no longer guarantee the quality.
Kobe Steel’s admission is one of a list of growing scandals for corporate Japan. The article highlights several other companies that have faced issues just this year. Nissan had to recall 1.2M cars after unqualified inspectors conducted safety checks. Also, Takata, a maker of airbags that ended up being faulty, was linked to 18 deaths. The company declared bankruptcy after being hit with multiple lawsuits.
Lessons to be Learned
According to the Economist, these types of scandals aren’t a uniquely Japanese problem.
Volkswagen, in Germany, falsified emissions data. Reckitt Benckiser, of Britain, sold cleaning products that have now been linked to the deaths of over 90 people.
However, Japan is facing a troubling theme according to Toshiaki Oguchi of Governance for Owners Japan. He tells the Economist that lack of transparency is the real issue. He maintains that Japanese workers are ethical, but will hide mistakes or wrongdoing rather than speak with management. His assertions are echoed in the Kobe Steel scandal, the article says the industrial firm ignored at least one whistleblower who alerted them to the substandard metal.
Kobe Steel has promised a full investigation, and many are hopeful that this incident may lead to improved corporate governance in Japan. Shinzo Abe, the prime minister, who actually worked at the Kobe Steel at one time, introduced a new code, but critics warn it’s not enough. Many in Japan are hoping for tougher regulations so that the best and brightest of corporate Japan stay in Japan – instead of being bought out by overseas companies.
Jeffrey A. Newman represents whistleblowers: 1-800-682-7157