The Toyota Way…For Now

February 25, 2010 at 7:57 pm

In 1983 Toyota introduced the Camry. My family almost immediately purchased one and drove it with complete security and great pride. We also marveled at its technical sophistication and very advanced gadgets!

It’s hard to believe in the 27 years that have since passed that Toyota has grown to the world’s largest car maker and more recently suffered a mismanaged crisis that has contributed to its losing $35 billion in market value since mid-January.

As with all of these business implosions we shake our heads in disbelief and seek to gain answers and understanding as to why and how this company, with a stellar reputation for quality and innovation and a much imitated corporate culture could have faltered so badly?

Certainly, Toyota experienced real operations and manufacturing problems. However it is more what the company did about these issues that deserves attention because all companies experience complications and obstacles. More specifically, what role did the board of directors play in the series of events that has been unfolding over the past few months?

One way to understand the board of directors at Toyota is to view it in the context of other corporate boards in Japan. In a 2009 presentation to The Japan Society of North America, it was acknowledged by Japan’s Financial Services Agency (FSA), which is the government organization overseeing banking, securities and exchange and insurance, that more independence is necessary on Japanese boards. Presently the word “independence” is not even defined anywhere in Japanese law in the context of directors or statutory auditors. In fact, Japanese directors may be referred to as “outside” but this does not denote independence in the sense that we understand it in the U.S.

Toyota’s board of directors currently consists of 29 executives. The Chairman Fujio Cho has worked at the company since 1960 and all of the other directors have worked at Toyota since the 1960’s and 1970’s. They are all Japanese men and all are in their 50’s and 60’s. I do not think boards get more homogeneous and interlocked than this which in and of itself certainly makes for cohesion and harmony. But this very unity at Toyota may have fostered a type of “groupthink” in which no Director would question the status-quo or perhaps disagree with the course of action (or lack thereof) that the company was adopting as the problems began revealing themselves.

Additionally, the fact that all of these directors “grew up” in the same corporation implies a limited outside perspective. Toyota has also been unable to benefit from diverse and unique frames of reference that a variety of experiences compel. Their directors have also not been involved with crisis and crisis management in other organizations in order to transfer knowledge and the benefits of experience back to Toyota.

Further confounding Toyota’s predicament is its very number of directors. Any twenty-nine individuals attempting to react to and judge a situation is complicated and laborious. Decision making is naturally slowed down. Compounding this is an overall business culture of humility and deference.

So, what is Toyota to do? In the immediate term they must fix their automobile problems. Safety must, of course, be uncompromised. Eventually, they will need to rebuild their brand and their reputation. Finally, if they can manage to accomplish all of this, they should then take a long and analytical look at their board of directors. Gradually and carefully introducing new and diverse talent into this group will be a challenge well worth undertaking!

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Entry filed under: Business, Corporate Governance.

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