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2017-10-10 11:26:03
Kobe Steel’s Falsified Data Is Another Blow to Japan’s Reputation

TOKYO — For decades, Japanese manufacturers of cars, aircraft and bullet trains have relied on Kobe Steel to provide raw materials for their products, making the steel maker a crucial, if largely invisible, pillar of the economy.

Now, Kobe Steel has acknowledged falsifying data about the quality of aluminum and copper it sold, setting off a scandal that is reverberating through Japan and beyond, and casting a new shadow over the country’s reputation for precision manufacturing, a mainstay of its economy.

Companies ranging from the automakers Toyota Motor and Honda Motor to aircraft companies like Boeing and Mitsubishi Heavy Industry said they were investigating the use of rolled aluminum and other materials from Kobe in their products. They also said they were trying to determine if substandard materials had been used in their products, and if so, whether they presented safety hazards.

Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by customers — including for vital qualities like tensile strength — when they did not.

Kobe Steel added that it was examining other possible episodes of data falsification going back 10 years. It did not provide details about the size of the discrepancies it had discovered, making it difficult to immediately determine if they posed a safety threat.

The company’s share price plunged more than 20 percent on Tuesday, the first day of trading after a holiday.

No deaths or safety incidents have been attributed to Kobe Steel, but the scandal hits a tender spot for Japan, which relies on its reputation for quality manufacturing while places like China offer cheaper alternatives.

“The falsification problem has become an issue that could destroy international faith in Japanese manufacturing,” the Japanese financial newspaper Nikkei said in an article on Tuesday.

Last week, Nissan Motor said unqualified staff members had carried out inspections at its factories, prompting it to recall 1.2 million vehicles, though it was not clear if the quality of the vehicles had been affected. Mitsubishi Motors and Suzuki Motor both admitted last year that they had been exaggerating the fuel economy of their vehicles by cheating on tests.

Perhaps the biggest blow to Japan’s reputation for quality has come from Takata, the automotive airbag maker that declared bankruptcy in June after causing the largest auto safety recall in history, involving tens of millions of vehicles. Its faulty airbags have been blamed for more than a dozen deaths.

Toshiaki Oguchi, director of Governance for Owners Japan, a corporate watchdog, said that Japanese companies were generally diligent about quality, but that when cheating occurs — because of competitive pressure or other factors — it can too easily go unchecked. That, he said, is because companies discourage thorough examination or criticism, either from employees or independent outsiders.

“When something goes wrong, companies always hire a committee of outsiders to examine what happened,” he said. “But why not be proactive? Why not have people reviewing procedures all the time?”

Even as Japan has given up its technological lead in technologies like televisions, cellphones and computers, it still excels in highly valued products used behind the scenes, including precision machinery, specialty chemicals, sensors and cameras.

Quality helps Japan preserve its markets overseas despite intense competition. For example, although China is the world’s largest steel maker, iron and steel remain one of Japan’s biggest exports there, where it is used in industries like auto manufacturing.

Kobe Steel said it had confirmed data falsification affecting roughly 19,300 tons of flat-rolled and extruded aluminum products, 19,400 units of aluminum casting and forgings, and 2,200 tons of copper products. The amount represents about 4 percent of the company’s output of those products from September 2016 to August 2017.

It said “tens” of employees and managers had been directly involved in the falsification, although no penalties against the employees were immediately announced. The company’s investigation is still underway.

Japan’s industry minister, Hiroshige Seko, criticized Kobe Steel for what he called “inappropriate behavior that distorts the fundamentals for fair trade.”

Kobe Steel said that it had received no reports from customers of problems with the affected products, and that the falsification was discovered during an internal review. Kobe Steel said the improperly certified metals had been shipped to about 200 companies, but it declined to reveal their names.

The roster of companies that subsequently said they were looking into their use of Kobe Steel materials includes all of Japan’s major carmakers: Honda, Mazda, Mitsubishi, Nissan, Subaru, Suzuki and Toyota. Toyota called the data falsification a “grave issue” and said it was looking into the problem and considering how best to respond, a statement echoed by other carmakers.

Rolled aluminum, in particular, is widely used in the transportation industry because it is light, and the lighter a car, train or airplane, the less fuel is required to propel it. Kawasaki Heavy Industries, which makes rolling stock for Shinkansen high-speed trains in Japan, was among the companies saying it was investigating the matter.

JR Tokai, a railway company that operates the busiest Shinkansen route in Japan, between Tokyo and Osaka, said that the data discrepancies “do not present a problem in terms of design standards,” but that it was nonetheless considering whether to replace certain train components.

Another affected customer is Mitsubishi Heavy Industries, which uses aluminum from Kobe Steel in a midsize aircraft it is developing, the Mitsubishi Regional Jet, as well as aircraft components it supplies to Boeing of the United States.

Mitsubishi Heavy said it was investigating. Boeing said in a statement, “Nothing in our review to date leads us to conclude that this issue presents a safety concern, and we will continue to work diligently with our suppliers to complete our investigation.”

Kobe Steel’s problem points to “a common organization issue,” said Shin Ushijima, a lawyer who serves as president of the Japan Corporate Governance Network. He drew parallels between Kobe Steel and Takata and Mitsubishi, as well as with financial-reporting improprieties at Toshiba, which admitted to overstating profit in 2015.

“Boards aren’t doing their jobs,” he said. “This isn’t an issue that can be solved by the president resigning. There needs to be wholesale change.”

He continued, “The Kobe Steel case is a test of whether we’ve learned anything from Toshiba and these other issues.”