Saying Corporate Fraud is Japanese Problem Dangerously Ignores the Cause

Japan has been in the news cycle lately for a scandalous reason. The recent headlines about Kobe Steel, Mitsubishi Materials, and Toray have not been favorable ones, as the companies have been involved in fairly large scale corporate fraud plots. Some are questioning whether the problem is a cultural one brought on by the apparent rigid confines of Japanese society. But as The Straits Times highlights, corporate fraud is a failure of leadership, not cultural norms.

Look no further than our on corporate fraud issues to illustrate the article’s point. The Straits Times points to Wells Fargo whose managers used high-pressure tactics to get sales staff to fabricate millions of checking and savings accounts. The clients had no idea their names were being used to pad business results.

Or Uber which apparently paid hackers to conceal a major data breach.

Or look to Volkswagen, a German company, that created software for its diesel cars to fool emissions tests.

The Straits Times points out that Mitsubishi Materials and Kobe Steel had problems long before the scandals broke but made no changes in leadership to correct glaring problems. Mitsubishi Motors falsified fuel performance data years ago and kept right on with business as usual. Kobe Steel had a history of corporate fraud before the recent data falsification came to light and similarly did little to nothing to address the root cause.

Company Problem NOT a Culture Problem

As the article points out Japanese corporate culture, or Japanese culture at large, cannot be to blame. Most companies in Japan are well-run and stick to the letter of the law. The piece points to Fast Retailing success of its Uniqlo brand, Cyberdyne in cybernetics, Softbank Muji brand to name a few.

The Straits Times says that using Japanese culture as a scapegoat is a dangerous idea because it ignores the root cause of corporate fraud. While the culture may seem rigid in its tendency to conform and rarely question superiors, that doesn’t mean that a good person will simply look the other way while management attempts to defraud investors and possibly hurt consumers.

Thousands of Wells Fargo employees here in the US went along with corporate fraud. The very few who spoke up saw their careers ruined. Management stayed quiet and the fraud continued for years.

On the Japanese side of things, Kobe Steel came clean because of a whistleblower. Mitsubishi Materials has not truly revealed why they went public and the leaders there seem determined to weather the crisis without stepping down. As the article points out, keeping leaders complicit in corporate fraud in place will not change the company as a whole, when a change is desperately needed.

What to Do

The article proposes a few ways to deal with corporate fraud. The leaders and managers must go. Even if the mid-level managers were “just following orders” they knew those orders were unlawful or unethical. How can an entire team of people continue to follow a man or woman who lead them to knowingly committee malfeasance? The author also proposes more governance, with better laws that allow for transparency and quicker legal action.

Perhaps the biggest change that could help tackle corporate fraud, across the globe, is future leadership. By choosing and cultivating better leaders right now, corporations will have better people in the future. Setting the example that managers should not compromise the values and principles of the business for instant profits is the strongest tool to combat corporate fraud.

Jeffrey A. Newman represents whistleblowers