Episode #231: Who's Really In Charge?

Japan is going through one round of revelations after another in different industries, where the proper compliance procedures were not followed. In some cases they have not been followed for decades. Which begs the question of who is actually in charge? The senior executives are given reports and rely on those below to feed them the correct information. To make it more interesting the company decides to reduce expenses and raise targets. This is when the creative accounting can really start to ramp up. The shareholders are happy, the Board is happy and so we continue with the winning formula. The only problem is that corners are being cut and procedures are being subverted, in order to meet the “reduce costs, increase revenue” mantra.

Then the whole mess is sprayed across the front page of the newspapers, evening newscasters lead with your firm’s lies and the magazines live off the debris for months. The fake news phenomenon has pointed up the fact that the media is a business. They are more concerned with making money than telling the truth. This whole apparatus is assembled against you and they are relentless, because the hew and cry keeps the cash registers ringing. They want to milk this baby for all it is worth. The shareholders and the Board are no longer happy as the share price plummets and the value of the company shrinks. What was the point then of “reduce costs, increase revenue” targets?

In Australia, after you have done something exceedingly stupid, usually fuelled with alcohol, we amusingly reflect, “it seemed like a good idea at the time”. It is a bit like this in Japan at the moment. There will be pain all around and things will get sorted out, until the next incident. The bigger issue is as leaders how can we trust that the system is working? We assume a lot and we hope a lot. Is that enough?

The complex modern organization structure ensures no one person can keep up with all that is happening all of the time. Therefore we have to delegate tasks and responsibilities down the line. Usually there are checks and balances built into the system to make sure that what should be happening actually is happening.

Japan presents a bit of a bigger challenge because the consequences of failure are so strong here, people are fully prepared to lie to avoid the pain of their failure being exposed. What should be happening isn't and everyone is in on it. Hiding things, withholding information and keeping the boss in the dark are the black arts of corporate life in Japan. Everyone seems to be a ninja at this stuff, so what do you do? As we see daily in the media, even the big guys can’t get it right.

When Nissan’s vehicle inspection compliance sins were revealed, President Hiroto Saikawa pondered why the bad practices hadn’t come to light earlier? He answered his own question, when he also noted that no internal whistleblowers spoke up, because they believed that “the issue would not be resolved even if they reported it”.

You have been appointed the boss or it is your own business, but it runs independently of you in many key areas. It has to. Once you reach a certain scale you personally must lose control or it cannot continue to scale. How do you know what your salespeople are telling your clients? You can’t know. What about the back office people, when they really screw it up? You will always be the last to know, if you in fact find out about it at all.

What can we do? Talk to lots of your customers. Talk to your suppliers. Check that the systems you think are in place, actually are being carried out. Check that the team haven’t dropped some of the systems without ever telling you. You can bet they did that because those systems were “mendokusai” or troublesome. It is always exciting to discover, usually by accident, that the system has been re-routed and what you wanted to happen or thought was happening no longer does! Do regular system and quality audits. Don’t just focus on the accounting numbers in the P&L and the Balance Sheet. Look at your work flows, customer handling flows, follow up systems, etc.

Yes, it is more work and you are already time pressed. I am sure the senior executives at some of these big companies caught up in these compliance violations are being kept pretty busy fighting fires and trying to minimize the damage to the brand. Where would you rather spend your time – in prevention or in rescue? Check early, check often.