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Tuesday, March 16, 2010
CORPORATE CRISIS MANAGEMENT
Crisis-handling goes far beyond apology bow
Toyota Motor Corp. recent massive global recalls and subsequent safety worries should serve as a wakeup call for many Japanese companies seemingly ill-prepared to survive corporate crises.
In the past, how did Japanese firms weather big woe?
Following are questions and answers on corporate crisis management in Japan:
What does the term mean?
By simple definition, it is how a firm handles a crisis — in other words, an emergency.
Defects, workplace accidents, scandals, pollution, crime, terrorism, political impropriety. A crisis can come in infinite forms and is defined by how it affects a company, its image, its future survival and the public.
How swiftly a firm responds to a crisis may be vital to its image, if not its survival. A key component is often the dissemination of information, making sure the public does not feel shut out of vital details.
"Even if a company tries to cope with a crisis, it often happens that the company faces a secondary crisis, which could be more threatening than the original one when it fails to communicate with society and causes misunderstanding," the Tokyo Chamber of Commerce and Industry says in its book "Crisis Communication Manual," published in 2005.
TCCI writes that many Japanese firms may have lawyers to tap for advice in an emergency, few have crisis communications specialists, including public relations specialists who can teach executives even how to comport themselves in news conferences.
Are there specific characteristics Japanese firms display toward crisis management?
One of the first Japanese gestures in a crisis is the apology, even before cause, blame or other factors are determined — in other words men in dark suits bowing deeply to reporters.
Unlike in Western society, where apologizing often is likened to an admission of guilt, and an invitation to lawsuits, the Japanese public regard an apology by corporate leaders as their acknowledgment of their social and moral responsibility and also sympathy.
TCCI also says the first thing a company should show at a crisis meeting is its intention to apologize, followed by a demonstration of a firm willingness to resolve a problem.
"Firms need to show clearly their stance of apology first and foremost," TCCI says.
Foreign corporate leaders doing business in Japan often follow this practice.
For example, when Citibank was forced to shut down its private banking business in Japan in 2004 after its Tokyo branch was accused of wrongdoing, Citigroup CEO Charles Prince and Citigroup Japan Holdings CEO Douglas Peterson bowed deeply at the start of their news conference.
What corporate crises have occurred in Japan and how did firms handle them?
One of the most shocking cases in the past decade involved the mass food-poisonings in 2000 linked to Snow Brand Milk Products Co. dairy products.
The company started recalling contaminated milk products two days after the first person to fall victim was reported to the city of Osaka.
By the time Snow halted output at all 21 factories nationwide some two weeks after the first report, more than 10,000 people had been sickened.
Snow's president at the time being chased by reporters yelled at them: "I haven't slept at all!" This outburst did little to redeem Snow's image.
The leading dairy products maker, established in 1925, ended up selling off its wide-ranging food business as its brand image, and sales, plunged.
Then there's defect coverups, which routinely backfire.
Mitsubishi Motor Corp. long concealed numerous customer complaints about vehicle faults, some of which proved deadly.
The organized coverup, first revealed in 2000, damaged MMC's sales, causing a nearly ¥500 billion group loss for the business year to March 2005.
Are there any corporate crisis management successes?
Experts say one of the few success stories was Panasonic Corp.'s recall of its oil heaters.
The old heaters, manufactured between 1985 and 1992, were blamed for causing carbon monoxide poisoning and resulted in the deaths of two users in 2005. But the electronics maker's prompt efforts to recall the defective product resulted in the company gaining a good reputation.
"The company's thoroughness in taking all possible steps earned it a good reputation," said Toshiro Era, chief PR consultant at Arex Corp.
For five months from December 2005, Panasonic aired 28,000 TV commercials and distributed 440 million leaflets to households to notify consumers about the recall of the defective models.
Even today, Panasonic continues to notify households about the problem and as of the end of February had retrieved 74.7 percent of the 152,135 units sold.
The Panasonic case is often compared with the debacle at Paloma Industries Ltd., a major gas appliance maker.
Paloma's gas water heaters had a history of ignition problems due to defective safety devices. This led to several fatalities, including the deaths of two teenagers from carbon monoxide poisoning in 1989.
Paloma first disclosed its products had been involved in fatal carbon monoxide poisonings in July 2006, and by that December the firm admitted the incidents occurred due to defective parts.
Later, Paloma and its distributor, Toho Gas Ltd., settled a lawsuit by paying ¥86 million settlement to relatives of the two teenagers.
How has Toyota handled its latest crisis?
The carmaker has been criticized as being slow to respond to the recent claims on unintended acceleration that have allegedly led to scores of deaths in the United States. Also, President Akio Toyoda, who failed to make an appearance until a week after the firm instituted massive recalls of vehicles with problematic gas pedals and other components were announced in the U.S., also drew flak.
He later appeared before Congress in a bid to mitigate the negative image his company was suffering.
Era of Arex Corp. said Toyota put too much faith in its technology and thus felt the problem would go away.
"At least for the moment, it is not easy for Toyota to erase the negative image of its products," he said.