Crisis reputation management: quick steps for Kobeiko and brand Japan

by Radu Magdin* 

 

The attempt to bring together performance, responsibility, and transparency often fails and a debate about consequences is quick to follow. The recent Kobe Steel scandal and the other corporate debacles that affected major Japanese manufacturers are a good case study in terms of what can be done in the short and medium term, at the company and industry levels.

However, a broader debate about corporate responsibility and appropriate business practices have to take place and to address the uncomfortable truths if Japan's brand reputation is to be saved. Japan is a great country and deserves a continued great reputation, since it has a strong inner culture for work, community and excellence. So, action should be swift, with this purpose in mind.        

 

The recent revelations about the commercial practices at four Kobe Steel plants, making know the way in which quality control tests were manipulated, sent shock signals and sharpened the strategic senses of those who are used to privilege the communication crisis approach. What is to be done, both for the company and for the Japanese industrial brand in general, so that the negative effects will be contained and the trust relationship (between suppliers and manufacturers, between consumers and businesses) restored? I sketch some preliminary answers before discussing a broader point about the more formal checks and balances that have to be in place to improve corporate culture to avoid such episodes in the future.

 

In the Kobe Steel case, the right attitude to mitigate the reputation damage should be centred around two main concepts: full transparency and the adoption of/support for pro-active, externally-driven actions. We observe that, on the one hand, the image and commercial interests of the concerned company are affected. The stock markets have spoken and the lawyers will follow suit - recalls will be probably issued, compensations will be demanded, and some people will lose their corporate jobs as a consequence of reputation damage and falling profits.

On the other hand, the brand of the Japanese industrial products could be increasingly questioned, as more and more scandals accumulate and show not only sub-standard products, but also a problem in corporate culture. As can be easily observed, this type of crisis has become all too common: it is not only Kobe Steel, but also Toshiba Corp, Nissan Motor, Mitsubishi Motors, and Takata Corp. However, generalisations are, like in Germany's case with some car scandals, totally unfair. 

 

From a strategic perspective, three main issues have to be addressed in a potential communication crisis strategy. The first one refers to the public safety component. Can the company and the manufacturers guarantee that the products based on the suboptimal steel do not create safety concerns for the consumers? If this is the case, what measures are put in place to immediately alleviate and address the public concerns? What are the best tools to reassure the public, to create the sentiment that "we are all in this together" and to demonstrate that someone is well in charge of the whole situation?

The second one is about the corporate culture dimension. What kind of mechanisms and processes should be adopted for such crises to be avoided in the future? What should be the balance between internal and external audit, between protecting industrial secrets and letting the concerned publics get a sense on how the crisis is dealt with internally? Finally, the country's industrial brand reputation is at stake. How can the tarnished Japanese industrial brand can be strengthened? How can resilience become the dominant concept and how can the come-back narrative impose itself? A comeback campaign is needed. 

 

We can think about specific actions to answer these questions. A first idea, partly embraced by Kobe Steel according to media reports, would focus on an externally-directed audit to address the public safety concerns, with the results published as soon as possible and with the company assuming responsibility and presenting a comprehensive plan to respond to the audit's conclusions. Empathy should be as important as responsibility in this case. Many companies that use the Kobe steel are conducting their own investigations, but what would be more appropriate is a coordinated investigation effort bringing together the supplier and the manufacturers. The capacity to unite in face of crisis is more than a good story, it is simply efficient and the right way to act. 

 

in the same vein, the company should launch an externally-directed process to overhaul its corporate procedures, with the goal of eliminating disfunctionalities and of setting in place checks that would avoid similar debacles. From the onset, Kobe Steel should commit to implementing the experts' recommendations, irrespective of their scope. Most importantly in my opinion, and directly related to the Japan Inc. conversation, the company should use the crisis as an opportunity to launch a broader debate about how the Japanese brands have suffered from these crises and about how a comprehensive answer should look like.

The extensive reflection process could bring together public institutions, regulatory bodies, civil society actors, and the corporations; business watchdogs or associations can play a key role in structuring the conversation, analysing the appropriateness of recommendations and the implementation pace. Much could be learned from similar negative evolutions and it is no wonder that many parallels with the recent German corporate evolution will be drawn. Both industrial sectors are known for privileging quality over price and for being damaged by a plethora of scandals in recent years.

 

The global competition has become more and more fierce. Increasing profit margins or simply staying alive has made many established businesses to cut corners. The corporate imperatives centred around short-term-ism and lavish bonuses have led to a culture of systemic irresponsibility and to debacles that, in many parts of the world, question the utility of capitalism, as the population is fed up with "business as usual" and is ready to try "exotic" solutions. A few CEOs resigning will not suffice. Stronger mechanism of encouraging a righteous corporate behaviour are needed. This would be the perfect antibody and the answer to the reputation loss we witness today.  

 

*Radu G. Magdin is International Analyst and Consultant; CEO of Smartlink